Nigeria is one of many countries that have begun to amend its laws to accommodate this new digitalized era bringing many big techs under serious scrutiny. It is all part of a move by governments around the globe to introduce digital taxes.
Recent reports showed that there has been an uproar on social media with some concerned citizens speaking against the new tax laws included in the amendment of the Finance Act 2019 in Nigeria. Tech companies’ especially big techs, in the past few years, have faced a myriad of backlash about their involvement in tax evasion; and even more intensely, with the pandemic, came a microscopic look into the affairs of these digital service providers.
In Nigeria, one of the 129 countries under the Organization for Economic Cooperation and Development (OECD) which has yet to conclude an international agreement on digital taxation had the Finance Act 2019 amended with the aim of imposing tax on a foreign entity with respect to certain services or digital transactions if it had a ‘Significant Economic Presence’ in Nigeria, although what that entails is yet to be determined.
The new regulation would apply to companies with income of N25m or equivalent in other currencies from Nigeria in a year, and those with a Nigerian domain name (.ng) or a website address in the country.
Also, a foreign entity providing technical services such as training, advertising supply of personnel, professional, management or consultancy services shall have a SEP in Nigeria in any accounting year if it earns or receives any payment from a person resident in Nigeria, a foxed base or agent of a foreign entity with the exemption being payments made to employees of a foreign entity or for teaching in an educational institution.
Why this is Important?
As it stands, Nigeria, unlike some other countries, has no serious digital tax plans making the updates to the Finance Bill redundant pending a definition on the criteria for SEP. However, the existence of this law is still significant as it reduces the legal, political and civic resistance to any future digital tax plan, and giving the Minister of Finance full power regarding this makes it easy for Nigeria to implement the OECD plan when it is ready.
The economic instability is the country is remarkably disturbing and the taxation system has always been used to help distribute aggregate income more equally which by all indications ultimately protect the stability of any society. There is no better time than now seeing as with this COVID-19 era the gap of income inequality will continue to grow so this as an option to mitigate the effects is more than welcome.
There are Challenges
There are concerns as to how the Federal Inland Revenue Service (FIRS) would enforce compliance without international consensus, as a number of the companies affected might be outside the territorial reach of the agency and this problem will be worsened where the companies sell their products and services directly to individual consumers in Nigeria.
A few Considerations Moving Forward
All developing countries, not just Nigeria will need to maintain pressure on the inclusive framework committee so that their interests can be accommodated in future digital practices.
Regardless of the loopholes, many tech firms have used to evade paying taxes, in introducing new tax measures, it is important to avoid segregation between digital and non-digital activities.
Tax measures should only balance the tax burden without overtaxing digital companies with the goal being to preserve neutrality and competition between companies operating in the digital and traditional spheres with fostering the economic development and the growth of startups.
No doubt it can be tempting to try and make up for the lost time without tax payments by these digital firms but it is important that policymakers be deliberate about the neutrality of their demands as ultimately, society is rapidly becoming core digital
-Nairametrics
