Google, Netflix, Facebook, and other foreign tech giants have significantly bolstered Nigeria’s revenue coffers, contributing N1.98tn in taxes over the course of 15 months.
This figure encompasses both Company Income Tax (CIT) and Value Added Tax (VAT) as per data sourced from the National Bureau of Statistics.
CIT, a 30 percent tax imposed on companies’ profits, and VAT, a 7.5 percent consumption tax levied on goods and services purchased and consumed by the end-user, have been instrumental in swelling the government’s revenue.
In 2020, there were reports of the Federal Government’s intentions to tax foreign digital service providers that offer services to Nigerian citizens and generate revenue in Naira.
These digital service providers, which include video streaming platforms, social media networks, and companies offering digital content downloads, are now required to pay digital taxes to the Federal Inland Revenue Service.
The former Minister of Finance, Zainab Ahmed, had issued the Companies Income Tax (Significant Economic Presence) Order, 2020, as an amendment to the Finance Act 2019.
This order was devised to impose taxes on foreign entities that have a Significant Economic Presence in Nigeria, particularly those offering digital video and advertising services to Nigerians.
Companies such as Alibaba and Amazon, which generate revenue from Nigeria through data processing, the provision of goods and services via digital platforms, or offering intermediary services that link suppliers and customers within Nigeria, are also subject to these regulations.
The new regulations apply to companies with annual incomes of N25 million or the equivalent in other currencies from Nigeria, as well as those with a Nigerian domain name (.ng) or a website address within the country.
Under the SEP order, foreign companies that interact extensively with individuals in Nigeria, customize their digital platforms to target Nigerians by pricing their products or services in Naira, are obligated to pay taxes.
However, certain exemptions apply, including payments made to employees of foreign entities and payments for educational services.
In January 2022, the Federal Government revealed plans to impose a six percent tax on the turnover of offshore companies providing digital services to local customers in Nigeria, in accordance with the 2021 Finance Act.
Regarding the taxation of digital services, former Finance Minister Ahmed clarified that this includes apps, high-frequency trading, electronic data storage, and online advertising, emphasizing that the policy introduces turnover tax on a fair and reasonable basis.
Section 30 of the Finance Act, which amended Sections 10, 31, and 14 concerning VAT obligations for non-resident digital companies, incorporates this policy.
Ahmed elaborated that the government aims to modernize taxation for the digital economy and enhance compliance. Non-resident digital companies are now required to pay a six percent tax on their turnover.
These companies do not need local registration but must cooperate with the Federal Inland Revenue Service (FIRS) to collect and remit taxes, reducing the compliance burden.
However, experts at PricewaterhouseCoopers raised concerns about enforcement, especially for companies located beyond the FIRS’s territorial jurisdiction. They highlighted that Nigerian resident businesses dealing with these foreign companies might be required to account for withholding tax on payments made to them.
