Google, Netflix, Facebook and other foreign companies operating in Nigeria have paid over N1.98tn in taxes to the account of the Federal Government in 15 months, according to findings by The PUNCH.
The figure includes both Company Income Tax and Value Added Tax, and is based on data from the National Bureau of Statistics.
According to the Federal Inland Revenue Service, CIT is a 30 per cent tax imposed on the profit of companies, and VAT is a 7.5 per cent consumption tax paid when goods are purchased, and services rendered and borne by the final consumer.
Earlier in 2020, it was reported that the Federal Government planned to tax foreign digital service providers offering services to Nigerians and earning revenue in naira.
Some of these service providers, which are video streaming sites, social media platforms, and companies that offer downloads of digital content are expected to pay digital tax to the Federal Inland Revenue Service.
The former Minister of Finance, Zainab Ahmed, had issued the Companies Income Tax (Significant Economic Presence) Order, 2020 as an amendment of the Finance Act 2019.
The order aimed to impose a tax on a foreign entity with respect to certain services or digital transactions if it had a Significant Economic Presence in Nigeria.
It further stated that the finance minister might, by order, determine what constitutes SEP in Nigeria.
Netflix, Facebook, Twitter, among others, are some of these foreign companies that offer digital video and advertising services to Nigerians.
Others, like Alibaba and Amazon, generate revenue from Nigeria by processing and transmitting data collected about users in Nigeria, provision of goods or services directly or through a digital platform, or offering intermediate services that link suppliers and customers in Nigeria.
The new regulation would apply to companies with income of N25m or equivalent in other currencies from Nigeria in a year and those with a Nigerian domain name (.ng) or a website address in the country.
The SEP order mandated foreign companies with sustained interactions with persons in Nigeria and customising their digital platforms to target persons in Nigeria by stating the prices of their products or services in naira to pay taxes.
According to the Act, 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, payments made to employees of a foreign entity or for teaching in an educational institution are exempt.
Also, in January 2022, the Federal Government disclosed that it would charge offshore companies providing digital services to local customers in Nigeria a six per cent tax on turnover as provided in the 2021 Finance Act.
Speaking further on the tax on digital services, the former finance minister, Ahmed, explained that it includes apps, high-frequency trading, electronic data storage, and online advertising, adding that “this is introducing turnover tax on a fair and reasonable basis.”
The policy was contained in Section 30 of the Finance Act, which amended the provisions of Sections 10, 31, and 14 on VAT obligations for non-resident digital companies.
Ahmed said, “Section 30 of the Finance Act designed to amend sections 10, 31 and 14 of VAT is in relations to VAT obligations for non-resident digital companies and the mechanism that will be used is to restrict VAT obligations mainly to digital non-resident companies who supply individuals in Nigeria who can’t themselves self-account for VAT.
So if you visit Amazon, we are expecting Amazon to add VAT charge to whatever transaction you are paying for. I am using Amazon as an example. We are going to be working with Amazon to be registered as a tax agent for FIRS.
So Amazon will now collect this payment and remit to FIRS and this is in line with global best practices, we have been missing out on this stream of revenue.”
According to her, the new law applies to foreign companies that provide digital services such as apps, high-frequency trading, electronic data storage, online and advertising, among others.
She noted that in line with Section 4 of the Finance Act, non-resident companies are now expected to pay tax at six per cent on their turnover.
The minister, who stated that the government was desirous of modernising taxes for its digital economy and to improve compliance, noted that digital non-resident companies do not need to be registered locally but would have an arrangement with the FIRS to collect and remit taxes in a bid to reduce the compliance burden.
Analysts at PricewaterhouseCoopers had said earlier that some of the affected foreign digital companies would be required to register for income taxes in Nigeria and file annual tax returns even if they did not have a physical presence in Nigeria.
They added that Nigerian resident businesses (as well as the fixed bases of non-resident companies) that have transactions with the affected non-resident companies would also be required to account for withholding tax on some of the payments made to these foreign companies.
PwC raised concerns as to how the FIRS would enforce compliance without international consensus, as a number of the companies affected might be outside the territorial reach of the agency.
According to the consulting firm, the problem will also be exacerbated where the companies sell their products and services directly to individual consumers in Nigeria.
However, findings by the PUNCH showed that these firms have paid over N1.98tn in taxes between the first quarter of 2022 and Q1 2023.
Within the period under review, the Federal Government earned N1.32tn through CIT and N661.93bn through VAT from foreign companies.
A breakdown on CIT showed that Nigeria earned N342.4bn in Q1 2022, N80.39bn in Q2 2022, N327.02bn in Q3 2022, N399.98bn in Q4 2022, and N168.23bn in Q1 2023.
On a year-on-year analysis, there was a decline of 50.87 per cent (-N174.17bn) in CIT from foreign firms.
On a quarterly basis, the decline was a bit higher at 57.94 per cent (-N231.75bn).
A breakdown on VAT showed that Nigeria earned N117.99bn in Q1 2022, N11.13bn in Q2 2022, N121.85bn in Q3 2022, N159.83bn in Q4 2022, and N151.13bn in Q1 2023.
On a year-on-year analysis, there was an increase of 28.09 per cent (N33.14bn) in CIT from foreign firms.
However, on a quarterly basis, there was a decline of 5.44 per cent (-N8.7bn).
