Across the world, countries are adopting electronic invoicing (e-invoicing) systems with a view to enhancing efficiency, transparency and tax compliance. With the phased implementation of the Federal Inland Revenue Service (FIRS) Merchant Buyers’ Service Solution (FIRSMBS), Nigeria is not being left behind, aligning with the Digital Economy Policy and Strategy (2020 – 2030). An e-invoice is a structured digital record of a transaction between a supplier and a buyer which contains essential transactional details. An e-invoice replaces traditional paper-based and multi-format electronic documents, including invoices, credit notes, and debit notes.
What is the FIRSMBS?
The FIRSMBS is designed to integrate local invoicing systems with FIRS infrastructure. This system seeks to modernize tax administration, combat tax evasion, and align with global digital commercial standards by granting the FIRS real-time access to the business transactions of VAT-registered entities, with the overarching objective of ensuring accurate and transparent tax reporting. The FIRSMBS aims to replace traditional paper-based invoices with a structured digital format, enabling businesses to generate, store, and exchange invoices in real time. It ensures seamless transaction validation, minimises errors, and facilitates efficient VAT reporting.
How does the FIRSMBS work?
To utilise the FIRSMBS platform, taxpayers simply need to log into the portal using their Taxpayer Identification Number (TIN) and provide necessary information by completing the required fields to create a taxpayer digital profile. Afterwards, invoices can be generated for use in business transactions. The invoices capture key transactional data, including supplier and buyer information, item descriptions, quantities, unit prices, applicable taxes, and total invoice amounts. There are no registration cost implications for taxpayers without an existing Application Programming Interface (API) connection. However, businesses seeking integration via API must make initial investments in compatible technology and reconfigure their internal systems accordingly.
Taxpayers are mandated to transmit invoices to the FIRS in real time or near real time prior to issuing the invoice to the buyer. The e-invoice must be signed and must adhere to the mandatory data requirements, which include document type, names and VAT registration numbers of the transacting parties, VAT amount and other transactional details. All invoices must be filed with the FIRS within a maximum period of 21 days from the date of creation.
Nigeria’s Business to Business (B2B)/Business to Government (B2G) e-invoicing model follows a Clearance Model with continuous transaction controls approach, similar to models obtainable in various Latin American jurisdiction, including Mexico, Brazil & Chile where tax authorities validate and approve invoices before they are shared with the buyer. It is also similar to the PEPPOL (adopted in the EU) where invoices pass through an access point network but require government validation.
With respect to the e-invoicing model applicable to Business to customer (B2C) invoices, the model follows a Post-Audit Model with reporting obligations. The impact of this is that the supplier issues the invoice first and then reports it to the FIRS within 24hours. In this case, invoices are validated after issuance not before. This is similar to Italy’s SDI, India’s e-invoicing system, as well as Ghana’s e-VAT system.
Regulatory and Stakeholder Roles
Nigeria’s e-invoicing framework is administered by FIRS and the National Information Technology Development Agency (NITDA). The FIRS mandates compliance pursuant to the FIRS Establishment Act leveraging data to audit transactions and reconcile VAT filings. While NITDA on the other end, enforces technical standards through its Regulatory Guidelines for Electronic Invoicing (2024), which mandate an accreditation of Access Point Providers (APPs) and system integrators, data security protocols aligned with the Nigeria Data Protection regulations.
Phased Implementation Timeline
The initial rollout would span between July to December 2025 before the full scale roll out in 2026 for smaller companies. The initial phase prioritizes large taxpayers with high-volume transactions, including multinational subsidiaries. The Integration window begins in April–June 2025; with businesses required to connect their Enterprise Resource Planning (ERP) systems to the MBS via accredited Access Point Providers (APPs). Issuance of pre-cleared B2B/B2G invoices and reporting B2C transactions are expected to commence in July 2025.
Is the FIRSMBS Really New?
The implementation of FIRSMBS is not entirely novel. In March 2021, pursuant to Section 25(4) of the Federal Inland Revenue Service (Establishment) Act, 2007, the FIRS issued a public notice indicating its intention to connect its Automated Tax Administration System to relevant electronic records – including data stored, maintained, operated, or controlled by taxpayers or their agents.
The notice further stated that FIRS would interface with point-of-sale systems and electronic invoicing platforms maintained by all taxable persons. In line with that mandate, taxpayers were directed to provide the FIRS with access to all electronic storage or computing systems containing relevant tax data. The FIRSMBS appears to be the practical realisation of that policy directive.
Significance of an E-invoicing Systems
The significance of E-invoicing extends beyond mere technological adoption; it fundamentally transforms the way cross-border trade is conducted. E-invoicing offers a myriad of benefits for both Nigerian and foreign companies involved in import and export activities. These advantages contribute to operational efficiency, financial management, and overall business growth:
1. Enhanced Efficiency in Tax Returns Filings: E-invoicing significantly expedites the invoicing process, reducing the time taken to create, transmit, and process invoices. This swifter turnaround time ensures accurate tax reporting.
2. Cost Savings and Reduced Errors: The automation and digitization inherent in E-invoicing decrease the costs associated with manual invoicing processes, such as printing, postage, and handling. Additionally, the reduction in manual data entry and invoicing minimizes errors, leading to more accurate invoices and fewer discrepancies, enhancing accuracy in financial transactions, reliability and precision in business dealings for the benefit of both Nigerian and foreign entities.
3. Streamlined Invoicing Process: A unified invoicing system reduces manual efforts and errors through electronic data submission. This leads to a reduction in trade barriers, promoting a more efficient and transparent trading and tax environment.
4. Enhanced Compliance: The implementation of the e-invoicing system standardizes invoice formats and submission process, ensuring adherence to regulatory requirements and the maintenance of consistent records for audits and tax purposes.
5. Environmentally Friendly Practices: Embracing E-invoicing aligns with global sustainability goals by significantly reducing paper usage. Both Nigerian and foreign companies contribute to eco-friendly practices through reduced paper waste and a smaller carbon footprint.
6. Interoperability Among Businesses: The FIRSMBS will facilitate direct transmission of invoices in a structured digital format between financial ERP systems, enhancing the ability of businesses to interact and transact seamlessly across different platforms and systems.
Key Innovations in Authenticating E-invoices
The FIRSMBS incorporates the following key innovations to ensure security, traceability, and tax compliance:
» Invoice Reference Number (IRN) – Every invoice generated within the e-Invoicing system is assigned a unique IRN. This identifier helps track, validate, and ensure that transactions are legitimate and tamper-proof, reinforcing compliance with FIRS regulations.
» Cryptographic Stamp Identifier (CSID) – To prevent fraud and invoice manipulation, e-invoices are digitally signed with a CSID, ensuring authenticity. This cryptographic stamp guarantees that invoices remain unaltered and can be easily verified.
» QR Code for Invoice Verification – The system automatically generates a QR code for each invoice, allowing buyers to scan and validate invoice details using a purpose designed mobile app. This adds an extra layer of transparency and security to the invoicing process.
Challenges and Concerns
1. Mismatch Between VAT Recognition and Payment Realities: For third party transactions, VAT is payable is upon receipt of payment and not at the point of invoicing. In the absence of requisite technology to track paid and unpaid invoices, there is a risk that tax may become due on transactions that are never consummated. The FIRS should consider introducing a mechanism to account for unpaid invoices to avoid penalising businesses for revenue not actually earned.
2. Compliance burden on SMEs well as risk of downtime or technical disruptions also pose a potential threat to seamless implementation.
Recommendations
To ensure effective compliance with the FIRSMBS, businesses should engage tax consultants for expert guidance, register early on the portal to create their digital profiles, assess and upgrade their ERP systems for compatibility, train internal teams on e-invoicing procedures, and establish controls to reconcile invoices with actual payments. These steps will help minimise compliance risks and ensure smooth integration with the FIRS system. On the other hand, there is a need for the FIRS to engage in active sensitization of taxpayers to ensure that taxpayers are aware of the impact of this process, while also training its officers to properly service taxpayers.
Authors
Adeola Adefuye, an Associate at WTS Blackwoodstone
Omolola Ambrose, an Associate at WTS Blackwoodstone
WTS Blackwoodstone, is an international business law firm, that delivers innovative solutions across diverse client needs, specializing in core practice areas such as International Tax, Tax Advisory & Compliance, Corporate and Commercial law, and Transactional Services for companies operating in Nigeria. As the Nigerian partners of WTS Global, operating in over 100 countries, WTS Blackwoodstone aligns with a global tax practice that offers a comprehensive range of tax services.
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