The Federal Government of Nigeria has reportedly collected approximately N2 trillion in taxes from various foreign companies including Google, Netflix, and Facebook, over a span of 15 months, according to a report by The PUNCH. This substantial amount includes both Company Income Tax (CIT) and Value Added Tax (VAT), as per data sourced from the National Bureau of Statistics.
The CIT, which amounts to 30% of a company’s profit, and the 7.5% VAT, applied to goods and services consumption, have contributed significantly to this tax revenue. The Federal Inland Revenue Service defines the CIT as a tax on company profits, while VAT is a consumption tax paid by the end consumer upon purchasing goods or services.
The Nigerian government had initiated plans to levy taxes on foreign digital service providers operating in the country and earning revenue in the local currency, the naira. These providers, encompassing video streaming platforms, social media networks, and entities offering digital content downloads, were set to be subject to digital tax enforced by the Federal Inland Revenue Service.
A regulation was introduced by the former Minister of Finance, Zainab Ahmed, known as the Companies Income Tax (Significant Economic Presence) Order, 2020, amending the Finance Act 2019. This directive aimed to impose tax on foreign entities that possessed a Significant Economic Presence (SEP) in Nigeria, especially those offering specific services or digital transactions.
Companies such as Netflix, Facebook, and Twitter, which provide digital video and advertising services, fall within this category. Additionally, entities like Alibaba and Amazon, which generate revenue by processing and transmitting data from users in Nigeria, offering goods or services via digital platforms, or providing intermediary services connecting suppliers and customers, are also affected.
The new regulation targets companies with an annual income of N25 million or equivalent in other currencies from Nigeria, as well as those with a Nigerian domain name (.ng) or website address. The SEP order necessitates foreign businesses with consistent interactions with Nigerian individuals, customizing their digital platforms to cater to the Nigerian market, and pricing their products or services in naira to pay taxes.
The Finance Act of 2021 introduced a six per cent tax on turnover for offshore companies delivering digital services to local customers in Nigeria. This policy adjustment, encompassing services like apps, electronic data storage, high-frequency trading, and online advertising, aims to ensure fair and reasonable taxation.
Former Finance Minister Ahmed explained that this tax scheme aligns with global best practices and is designed to modernize taxes in the digital economy while promoting compliance. Non-resident digital companies are now required to pay a six per cent tax on their turnover, as stipulated in Section 30 of the Finance Act. These companies do not need to be locally registered but must cooperate with the Federal Inland Revenue Service to collect and remit taxes, reducing the compliance burden.
The amendment to VAT obligations for non-resident digital companies, outlined in Section 30 of the Finance Act, also impacts Nigerian resident businesses and fixed bases of non-resident companies. These entities are now responsible for withholding tax on payments to affected non-resident companies, even if the latter lack a physical presence in Nigeria.
While concerns about international consensus and enforcement remain, data from The PUNCH demonstrates that foreign firms have paid more than N1.98 trillion in taxes between Q1 2022 and Q1 2023. The Federal Government’s earnings include N1.32 trillion from CIT and N661.93 billion from VAT during this period.
Breaking down the CIT figures, Nigeria earned N342.4 billion in Q1 2022, N80.39 billion in Q2 2022, N327.02 billion in Q3 2022, N399.98 billion in Q4 2022, and N168.23 billion in Q1 2023. Year-on-year, there was a 50.87% decrease (-N174.17 billion) in CIT from foreign firms, and a quarterly decline of 57.94% (-N231.75 billion).
Analyzing the VAT data, Nigeria earned N117.99 billion in Q1 2022, N11.13 billion in Q2 2022, N121.85 billion in Q3 2022, N159.83 billion in Q4 2022, and N151.13 billion in Q1 2023. The year-on-year increase stood at 28.09% (N33.14 billion), whereas a quarterly decline of 5.44% (-N8.7 billion) was observed.