It is what it is – most global jurisdictions wrote their tax laws before the internet, and accordingly tax jurisdictions were not based on IP addresses but physical address. As a result of that, some technology companies which run their playbooks via IP addresses could sell globally, and yet not pay taxes globally. Nigeria thinks that is not fair – and to a large extent, I agree with the nation.
So, the nation wants to do something about it: according to the Office of the Vice President, Nigeria will adopt a new playbook which will impose ” taxes on the Nigerian income of global tech giants with significant economic presence in the country, even if they have not established a physical office or permanent establishment and are currently not paying taxes in Nigeria.”
He added that while the Federal Government has no plans to raise taxes now, saying “there are those who argue that our tax rates are too low, comparing us to other places in the region where the rates are much higher.
“So we have had to balance all of these issues because clearly, higher tax rates can be a disincentive to businesses and investments.
The plan is the easiest part, the most difficult component is actually making that happen. How do you tax Netflix if it fails to cooperate? Sure, you can ask Nigerian banks to keep 7.5% VAT on any credit or debit card domiciled in Nigeria which is used to pay for Netflix subscriptions. To a large extent, Netflix will not have issues with that as that money was never coming to it.
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But where things will be challenging is here: asking Netflix to pay corporate tax on businesses done in Nigeria. If you try that, it will become interesting. Yes, magically, due to IP licensing, these companies can claim they make no money in Nigeria!
Left and right, Nigeria’s best playbook is to build local capabilities because the future of commerce will be wired digitally, and no group of people in Abuja can police people in Paris, New York, and London without their governments coming to support them when things get out of hand. And deciding to suspend or ban them would become huge own-goals unless you have alternatives.
Let’s follow the Chinese model: the best defense is offense; create and support alternative companies and disintermediate the global techs (see below) in your jurisdictions so that on tax day, you will be in charge!
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