Nigeria is set to utilize its legal provisions that empower the
Federal Government to collect taxes on profits made in the country by
global technology and digital firms not based in the country, but with
significant economic presence here.
While
the Federal Government will not be raising tax rates at this time,
based on the Finance Act 2019, it is already empowered to widen the tax
net, including by collecting taxes on the Nigerian income of global tech
giants with significant economic presence here, even if they have not
established an office or permanent establishment and are currently not
paying taxes in Nigeria.
In this
regard, 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.”
Vice President Yemi
Osinbajo, SAN, hinted at these issues and others while interacting with a
delegation of the Chartered Institute of Taxation of Nigeria, CITN, led
by its President, Mr Adesina Adedayo who visited him at the
Presidential Villa on Friday.
According
to Prof. Osinbajo, “we have had severe economic downturns which of
course implies that we may not be able to collect taxes with the
aggressiveness that would ordinarily be expected.
“I
think the most important thing is that we must widen our tax net so
that more people who are eligible to pay tax are paying. Several efforts
have been made, and I am sure you are aware of the initiatives
including the Voluntary Assets and Income Declaration Scheme (VAIDS)
which was also an attempt to bring more people into the tax net,
including those who have foreign assets.”
Continuing,
the VP said “we have also recently taken a step with respect to a lot
of the technology companies that are not represented here but who do
huge volumes of business here.
“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 in 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.”
Indeed,
besides the FG, a recent Bloomberg news article reported that
“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 varied as monopoly
power, taxation and workers’ rights.”
Also,
international talks are currently ongoing in Paris on global standard
rules for governments to receive taxes from such digital and technology
firms with 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
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 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% per cent reduction in minimum tax; from 0.5 per cent to
0.25 per cent for gross turnover for financial years ending between
January 1st, 2020 and December 31st, 2021
INTERACTION ON OTHER ISSUESWelcoming
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 government
cannot be a one-off thing.”
Prof.
Osinbajo added that the Federal Government has over the past few years,
initiated programmes 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 programmes
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.
