VP Osinbajo -How the FG Will Tax Global Tech/Digital Giants’ Profits in Nigeria
NewsReport June 28, 2021
Nigeria is preparing to use legislative provisions that allow the Federal Government to collect taxes on profits earned in the nation by global technology and digital businesses that are not headquartered in the country but have a major economic presence here.
NewsReport gathered that the Federal Government will not be raising tax rates at this time, the Finance Act 2019 empowers it to broaden the tax net, including by collecting taxes on the Nigerian income of global tech giants with a significant economic presence here, even if they have not established an office or permanent establishment and are not currently paying taxes in Nigeria.
In this regard, Section 4 of the Finance Act 2019 states that “the Minister (Finance) may, by order (of the President), determine what constitutes a company other than a Nigerian company’s significant economic presence.”
This online information learned that the Vice President Yemi Osinbajo, SAN, alluded to these and other problems while speaking with a team from the Chartered Institute of Taxation of Nigeria, CITN, led by its President, Mr. Adesina Adedayo, who paid him a visit at the Presidential Villa on Friday.
Prof. Osinbajo stated that “we have experienced significant economic downturns, which of course means that we may not be able to collect taxes with the zeal that would usually be expected.”
“I believe the most essential thing is to broaden our tax net so that more individuals who are entitled to pay tax do so. Several attempts have been made, and I am sure you are aware of some of them, such as the Voluntary Assets and Income Declaration Scheme (VAIDS), which was also an attempt to bring more individuals into the tax net, including those with overseas assets.”
Continuing, the VP stated, “we have also just made a move with regard to a number of the technology firms that are not represented here but conduct large amounts of business here.”
“The Finance Act demonstrates that we are fully prepared to guarantee that these large technological corporations do not evade paying their due share of taxation in Nigeria. Many of them work in astounding numbers in Nigeria and other areas of the region.
“We have written the laws and are ready to go, and I believe we are in a good position to tap into some of the tax resources that some of these corporations may provide.”
Indeed, in addition to the FG, a recent Bloomberg news article stated, “Governments around the world are grappling with how to modernize their legal frameworks to account for the global reach of the digital economy, reshaping how policymakers think about issues as diverse as monopoly power, taxation, and workers’ rights.”
Furthermore, international negotiations are presently taking place in Paris on global standard norms for governments to obtain taxes from such digital and technology businesses with a major economic presence in other 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”
Speaking further, Prof. Osinbajo noted that while the Federal Government has no plans to raise taxes now, 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. In terms of domestic resource mobilization, we are trying to do the best we can given the present circumstances and I believe that there is room for improvement.”
Actually, under the Finance Act 2019, the Buhari administration has reduced taxes for small companies – companies with less than N25 million in annual turnover are charged Zero Company Income Tax, CIT. Also, CIT for Companies with revenues between N25 and N100m (described in the Act as “medium-sized” companies) has been reduced from 30% to 20%. Besides, Nigerians making minimum wage income are not to pay tax at all.
Under the 2020 Finance Act, there is also an exemption of small companies from payment of education tax under the Tertiary Education Trust fund (TETFUND)-meaning companies with less than N25m turnover 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 1st, 2020 and December 31st, 2021
INTERACTION ON OTHER ISSUES
Welcoming the delegation, the Vice President emphasized the need for regular interaction between the council and government to address issues bothering on tax legislation, noting that “there is need for continuous engagement with the National Assembly because engagement with the government cannot be a one-off thing.”
Prof. Osinbajo added that the Federal Government has over the past few years, initiated programs aimed at improving the growth of small businesses including the formalization of many of them. Under the Economic Sustainability Plan (ESP), there is a formalization of 250,000 businesses.
He said the ongoing MSME Week has encouraged many businesses to register with regulatory authorities in order for them to benefit from the numerous programs earmarked by the government for their growth.
Earlier in his remarks, the President of CITN, Mr. Adesina Adedayo, commended the leadership of the Vice President in the implementation of key government interventions in the economy, stating that “we acknowledge your great zeal and commitment to Nigeria project.”
He said the visit became necessary given the enormous work the Buhari administration has done towards addressing the huge fiscal challenges in the polity, public financing reforms, and sustained efforts towards addressing infrastructural deficit across the country.
His words: “the Nigerian Economic Sustainability Plan (NESP) and other measures implemented was a right response to the challenges posed by COVID-19 pandemic and were largely instrumental to creating buffers for the government at all levels in withstanding the pressures and waves created during the peak period and the aftermath of COVID-19.
“It is important that we sustain measures already being implemented to improve tax collection at all levels.”
Other members of the delegation included the Vice President of the Institute, Barrister Samuel Olushola Agbeluyi, past Presidents of the institute, Dame Gladys Simplice, and Dr. James Naiyeju, and Council members Prof. Muhammad Mainoma and Hon. Babangida Ibrahim. Mr. Adefisayo Awogbade, CITN Registrar/Chief Executive was also in attendance.
Senior Special Assistant to the President on Media & Publicity
Office of the Vice President
27th June 2021