The Nigerian government has reignited its bid to tax global tech companies in the country.
According to a recent statement titled ‘How FG will tax profits made by global tech, digital giants in Nigeria‘, by Vice President Yemi Osinbajo, the government is set to utilize legal powers to collect taxes on profits made by global technology and digital firms in the country.
This new development comes almost a year after Nigeria’s Finance Minister, Zainab Ahmed, mandated foreign companies to pay an income tax in an amendment to the Finance Act bill.
As before, the new move by the vice president is based on the financial Act Law.
The law states that companies that provide video streaming services and downloading of digital content will have to pay digital tax to the Federal Inland Revenue Service.
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 any income or receives any payment from a person resident in Nigeria or a fixed base or agent of a foreign entity in Nigeria.
However, there is a Significant Economic Presence (SEP) clause attached that makes it only applicable to companies with an annual income of at least N25 million or its equivalent in other currencies.
The vice president explained that under the act, most big techs need to pay their fair share of taxation as they carry out an incredible volume of business in the country.
This means that the government is looking at big techs like Netflix, Facebook, Twitter and Google as a new strategy to increase tax inflow into the country.
Reacting to the bill, PricewaterhouseCoopers Analysts says that foreign digital companies would have to register for and file income taxes whether or not they have a physical presence in Nigeria.
Is taxing global tech companies justified?
The government’s move to tax big techs has been met with varying reactions. However, new developments show that the move to tax big techs could be justified. Here are some facts.
For a country with one of the largest populations in the world as well as the largest in Africa, big techs often snub it for countries like South Africa when it comes to the creation of local offices.
Before now, the only way most countries could tax most big techs was through their subsidiary in the country. Nigeria has been denied this as only a handful of the big techs, from Apple to Twitter, have offices in the country.
Looking at the huge number of users that the big techs get from the country because of its huge population, which definitely translate to millions of dollars in revenue, it seems fair that Nigeria benefits from big tech success.
Secondly, the last year has been a difficult one for Nigeria. After experiencing an economic depression and the resulting naira devaluation, even the vice president agrees that an increase in tax wouldn’t work. So they are widening the tax net by roping in big techs.
Big techs on the other hand have had a fairly good year despite the pandemic. Google, Facebook and Amazon all reported profits in the last financial year.
With Nigeria being part of the countries that contributed to this success, it only makes sense that Nigeria benefits from the rewards of that success by the way of taxes which it rightly deserves. This could be of immense benefit as the country looks to revive its ailing economy.
Nigeria is also not alone as several countries across the world (Austria, India, Italy, Spain, Turkey and the U.K.) have either started or are planning to tax big techs. India for example charges a 2% tax on revenue generated in e-commerce services offered by foreign companies.
It is estimated that US companies pay $55 million annually in digital service taxes to the country’s government.
Finally, The Organization for Economic Cooperation and Development (OECD) is already working to change the international tax law in line with the FG’s current plans.
According to reports, OECD is leading negotiations involving about 140 governments to chart new standards on digital service taxes that will overhaul the Base Erosion and Profit Shifting (BEPS) standard for international taxation put in place in 2013.
The scheme would see the world’s top 100 corporations pay taxes based on sales in each country regardless of physical presence.
Can government enforce the new tax law?
It remains to be seen whether the government can enforce the new tax law as several moves to enforce such tax laws have failed in the past.
Similarly, the 2020 Financial Act doesn’t effectively address how the government expects to ensure compliance. It only states that Nigerian-based companies that transact with the foreign companies can be held to account for withholding tax on payments made to the companies.
While attacking organisations that transact with the tech companies appears effective on observation, what happens to the millions of individuals who deal directly with these companies?
Notwithstanding, recent developments in the Nigerian digital space show that the Nigerian government isn’t powerless to enforce the tax. The recent Twitter ban, nasty as it looks, shows that the government is capable (and willing) of using high-handed methods like internet censorship to bring the big techs to the table.
Another method could be to direct banks to stop any form of payment from the country to big tech accounts. An example of how that would look like is the recent ban of crypto transactions in the country.
This means that Nigerian companies won’t be able to pay for ads and other services Big tech offers. All these methods are, however, circumventable especially since tech is involved. A good example is the widespread adoption of VPN’s following the Twitter ban.
Another disadvantage of the ban in this specific matter, is that the use of VPN practically apportions Nigerian users of big tech services to other countries like the US which they chose as their preferred locations. This, could digitally reduce the amount of revenue made in Nigeria and as such the amount of taxable revenue.
The move by Nigeria to tax big tech companies could lead to retaliatory measures by the home countries of big techs like the US.
An example is the recent move by the U.S. to impose as much as 25% tariffs on about $2 billion in goods from six countries in retaliation for their taxation of American digital services.
However, with the global community already looking to impose similar taxes. The government may not need to resort to heavy measure to get big tech to pay tax in the country.
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