For the Federal Government of Nigeria, the emphasis is on expanding the tax net rather than the physical presence of taxpayers. This is why the administration has once again brought to the fore its imminent plans to ensuring that global tech giants especially in the social media space, pay taxes to the Nigerian government. This time, this call has been furthered with a bid to implement all necessary legal frameworks mandating compliance.
By the Federal Government’s analysis, a key criterion for any of these tech giants like Facebook, Google, Twitter, etc to remitting tax to the Nigerian government even without a physical presence in the country is their heavy presence and significant space they occupy in the nation’s economy.
This move has been reiterated in the public domain recently by the nation’s vice president, Prof. Yemi Osinbajo who explained its necessity based on the Finance Act 2019 which prohibited increase in tax rate but rather proffer innovative solutions to expanding the tax net such as collecting taxes on the Nigerian income of global tech giants with significant economic presence in the country, even if they have not established an office or permanent establishment and are not paying taxes in Nigeria.
Reeling out the administration’s effort in a recent chat at the Presidential Villa with top officials from the Chartered Institute of Taxation of Nigeria, CITN, Osinbajo hinted that the tax net expansion mantra is fueled via the Voluntary Assets and Income Declaration Scheme (VAIDS), which doubled as an attempt to bring more people into the tax net, including those who have foreign assets.
Finance Act 2019 Provision
Section 4 of the Finance Act 2019, provides that “the Minister (Finance) may by order (of the President) determine what constitutes the significant economic presence of a company other than a Nigerian company”.
According to the presidency, It is based on the Finance Act 2019 that the Federal Government will not be raising tax rates at this time but focus on expanding the tax net.
It is in light of this provision that the Vice President was quoted saying,
“The Finance Act has shown that we are very prepared to ensure that these big technology companies do not escape without paying their fair share of taxation in Nigeria. Many of them do incredible volumes here in Nigeria and several other parts of the region.
“We have drawn up the regulations and we are prepared to go, and I think that we are at least in a good place to tap into some of the tax resources we can get from some of these companies.”
It is important to broach a recent Bloomberg news article stating that “Governments around the world are grappling with how to modernise their legal frameworks to account for the global reach of the digital economy, reshaping how policymakers think about issues as varied as monopoly power, taxation and workers’ rights.”
Also, recall that international talks are ongoing in Paris on global standard rules for governments to receive taxes from such digital and technology firms with a significant economic presence in foreign countries.
In Nigeria, according to the Finance Act 2019, a company will pay taxes if it
“transmits, emits or receives signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems, or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high-frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that the company has a significant economic presence in Nigeria and profit can be attributable to such activity.
“If the trade or business comprises the furnishing of technical, management, consultancy or professional services outside of Nigeria to a person resident in Nigeria to the extent that the company has a significant economic presence in Nigeria”
Other reforms so far by the Finance Acts
- The Finance Act 2019 reduced taxes for small companies – companies with less than ₦25 million in annual turnover are charged Zero Company Income Tax, CIT. Also, CIT for Companies with revenues between ₦25 and ₦100 million (described in the Act as “medium-sized” companies) has been reduced from 30 percent to 20 percent. Besides, Nigerians making minimum wage income are not to pay tax at all.
- Also, the 2020 Finance Act exempted small companies from the payment of education tax under the Tertiary Education Trust fund (TETFUND)-meaning companies with less than ₦25 million turnovers are eligible.
- Similarly, there is a 50 percent reduction in minimum tax; from 0.5 percent to 0.25 percent for gross turnover for financial years ending between January 1, 2020, and December 31, 2021