As part of its 2022 tax policy contained in the 2021 Finance Act, the federal government of Nigeria is moving to introduce digital tax. This means, non-resident companies (NRC) will be required to remit 6% of turnover from digital services provided to Nigerian customers.
An NRC is a company such as Twitter, Zoom and Amazon, not registered or incorporated in Nigeria but makes profits or income from Nigeria.
President Muhammadu Buhari’s administration has been working on a tax framework that will enable the government to tax multinational digital companies not registered in Nigeria.
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Zainab Ahmed, minister of finance, budget and national planning, said on Wednesday during the public presentation of the 2022 approved budget held in Abuja, that the time for the digital tax has come.
The Finance Act, which was signed into law on December 31, 2021, empowers the FIRS to assess and charge on the turnover of the digital companies transmitting or operating in the country.
Ahmed said that section 4 of the Act made provisions for the taxation of e-commerce businesses by non-resident companies on a fair and reasonable turnover basis, set at 6% of turnover. That includes digital services provided through apps, trading platforms, online ads etc.
“This provision empowers FIRS to access non-resident firms to tax on Fair and Reasonable Turnover Tax Basis on turnover earned from digital services provided to Nigerian customers.
“Let me just note that such digital services include apps, high-frequency trading, electronic data storage, online advertising and several others. The rationale for this is to modernise the taxation of ICT and digital economy in line with current realities, and this is in conformity with the provisions of the national development plan of 2021,” she said.
The minister explained that the digital tax framework factored in the Finance Act requires digital NRCs to collect VAT from their Nigerian customers and remit to the FIRS.
“At section 30 of the Finance Act, designed to amend section 10 of VAT as well as section 31 and 14 of VAT, is in relation to VAT obligations of digital non-resident companies.
“The mechanism that will be used is to restrict VAT obligations mainly to digital non-resident companies who supply individuals in Nigeria, who cannot themselves self-account for VAT.
“If you visit Amazon, we are expecting Amazon to add a VAT charge to whatever transaction you are paying. I am using Amazon as an example. We are going to be working with Amazon to agree to be registered as a tax agent for the FIRS. So Amazon will now collect this payment and remit to FIRS, and this is in line with global best practice. We have been missing out on these revenue streams,” she said.
The new tax policy also made some exemptions. Ahmed said the Finance Act also considers reducing tax compliance orders on non-resident taxpayers who are not required to register for VAT in Nigeria.
“So they don’t really have to come and be registered companies in Nigeria. All they need is that arrangement with FIRS where they collect VAT on behalf of FIRS and remit to FIRS.
“And also, to clarify, that FIRS may appoint persons including non-resident companies for the purpose of VAT collection and to clarify again that appointed persons may collect and remit taxes to FIRS, pursuant to the relevant tax laws.
“The core rationale for this is to modernise the taxation of ICT and digital economy in line with the National Development Plan 2021-2025, to enhance administrative modalities for the taxation of non-resident taxpayers and also to reduce incompliance by non-resident payers to reduce the compliance burden,” she said.
Twitter ban
However, the digital tax presents a challenge that Nigerians are waiting to see how the government will handle it. Twitter has been banned since last year by Buhari’s administration. As part of the criteria for the app to be unbanned, the government has demanded that Twitter register its business and open an office in Nigeria in order to pay taxes.
Months have passed since the Nigerian government made the demands and there is no sign that Twitter has accepted the demand despite the government’s claim that the social media platform has agreed to its ultimatum.
Therefore, it is unclear what the digital tax policy will mean to the standoff. For the Nigerian government to enforce the digital tax on Twitter, the ban has to be lifted. Government’s determination to stand its ground on the Twitter ban will now mean losing millions of naira in taxes.