Digital foreign firms pump nearly N2tr in mainly CIT, VAT
By Jeph Ajobaju, Chief Copy Editor
Foreign firms operating in Nigeria – among them Google, Netflix, Facebook – paid more than N1.98 trillion tax to the federal treasury in the 15 months between the first quarter of 2022 (Q1 2022) and Q1 2023.
The subheads include Company Income Tax (CIT) and Value Added Tax (VAT), according to National Bureau of Statistics (NBS) data.
The Federal Inland Revenue Service (FIRS) classifies CIT as a 30 per cent tax imposed on the profit of companies, and VAT a 7.5 per cent consumption tax paid when goods are purchased and services rendered and borne by the final consumer.
Breakdown of quarterly CIT revenue
- Q1 2022 – N342.4 billion
- Q2 2022 – N80.39 billion
- Q3 2022 – N327.02 billion
- Q4 2022 – N399.98 billion
- Q1 2023 – N168.23 billion
There was a 50.87 per cent (-N174.17 billion) decline year-on-year (YoY).
The decline was a bit higher at 57.94 per cent (-N231.75 billion) quarter on quarter (QoQ).
Breakdown of quarterly VAT revenue
- Q1 2022 – N117.99 billion
- Q2 2022 – N11.13 billion
- Q3 2022 – N121.85 billion
- Q3 2022 – N159.83 billion
- Q1 2023 – N151.13 billion
There was a 28.09 per cent (N33.14 billion) increase YoY.
But there was a 5.44 per cent (-N8.7 billion) decline QoQ.
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Backstory
Abuja announced in 2020 plans to tax foreign digital service providers offering services to Nigerians and earning revenue in naira, per The PUNCH.
The service providers include video streaming sites, social media platforms, and companies that offer downloads of digital content.
Netflix, Facebook, Twitter, among others, 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, providing goods or services directly or through a digital platform, or offering intermediate services that link suppliers and customers in Nigeria.
The tax applies to companies with income of N25 million 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.
Abuja also disclosed in January 2022 it would charge offshore companies providing digital services to local customers in Nigeria a 6 per cent tax on turnover as provided in the 2021 Finance Act.
Former Finance Minister Zainab Ahmed listed the digital services to include apps, high-frequency trading, electronic data storage, and online advertising, and “this is introducing turnover tax on a fair and reasonable basis.”
Finance Act 2022
The policy is in Section 30 of the Finance Act, which amended Sections 10, 31, and 14 on VAT obligations.
“Section 30 of the Finance Act designed to amend sections 10, 31 and 14 of VAT is in relation 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,” Ahmed said.
“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.”
Analysts at PricewaterhouseCoopers explained 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 do not have a physical presence in Nigeria.
They said Nigerian resident businesses (as well as the fixed bases of non-resident companies) that have transactions with non-resident companies would also be required to account for withholding tax on some of the payments made to these foreign companies.
But PwC raised concerns as to how the FIRS will enforce compliance without international consensus, as a number of the companies may be outside the territorial reach of the agency.
The analysts also warned the problem will be exacerbated where the companies sell their products and services directly to individual consumers in Nigeria.