Nigeria captures foreign tech firms in its tax net

Nigeria has joined the growing list of African countries that are effectively capturing their previously untapped digital economies within their tax base. This is in a bid to grow revenue from a sector that has experienced phenomenal growth.

For example, according to a 2022 report by the social media management platform Hootsuite, ad-serving giants Google, Meta, and Youtube ranked the first, third, and thirteenth most visited sites in Nigeria in November 2021 with 80 million, 26 million, and 7 million site visits that month alone.

Despite these impressive numbers, the government could not draw earnings made by these companies serving online ads and other services to tens of millions within its jurisdiction. But that has changed now.

On Tuesday Mar. 1, Google notified its business account users in Nigeria that it will begin collecting 7.5% value added tax. The email, seen by Quartz reads “Due to new legislation in Nigeria, starting April 1, 2022, Google will be required to charge 7.5% VAT on all taxable goods and services.”

Nigeria’s Finance Act and implications for tech companies

The new legislation, The Finance Act (2021), was signed into law on Dec. 31, 2021 by president Muhammadu Buhari, two years after the former Federal Inland Revenue Service (FIRS) boss Babatunde Fowler first announced the country’s decision to tax digital transactions.

Part of the Finance Act focuses on capturing value from non-resident technology companies and requires that they act as VAT collectors for digital goods and services rendered within Nigeria. During the presentation of the 2022 budget earlier in the year, the minister of finance, budget and national planning, Zainab Ahmed, explained that the taxable digital offerings include “apps, high-frequency trading, electronic data storage, online advertising, and several others.”

Interestingly, Meta already issued a notice on Dec. 9, 2021, before the signing of new finance regulation, that it would begin charging businesses and individuals in Nigeria locally applicable VAT on ad placements.

Zoom too has pushed out a similar message to Nigerian users. “Zoom has been appointed a non-resident VAT collector for B2B and B2C supplies of electronically supplied services in Nigeria. As such, Zoom is required to charge VAT on all taxable supplies made to customers in Nigeria,” a statement on its site reads.

Non-resident companies such as Netflix and Meta, who offer digital services are also required to remit 6% of the annual turnover of their business with Nigeria to the FIRS under the new regulation. When India introduced a 2% equalization tax in April 2020 targeted at non-Indian technology companies, the US pushed back against the tax given that 72% of the targeted foreign companies were primarily headquartered in the US.

Zainab Ahmed has several times described the 6% tax pricing to be “fair” and since the decision to tax non-resident companies was made public, it hasn’t been met with any opposition to date.

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