Google, Facebook, and other foreign corporations pay N2 trillion in taxes to the FG

Over the course of 15 months, the federal government of Nigeria has amassed taxes from foreign businesses operating in Nigeria, including Google, Netflix, and Facebook, totaling N2 trillion ($2.5 billion). Value Added Tax (VAT) and Company Income Tax (CIT) are both included in this.

The Federal Inland Revenue Service states that Value Added Tax (VAT) is a 7.5% consumption tax paid by the final consumer when making purchases of goods or using services, whereas Company Income Tax (CIT) is a 30% tax imposed on the profits of corporations.

The Federal Government of Nigeria reportedly planned to tax foreign digital service providers in 2020, according to reports. These service providers are businesses that provide different digital services to Nigerian users and generate income in Naira (NGN). Given the income these foreign businesses derive from Nigerian clients, the goal of these taxes was to ensure that they contributed to the nation’s revenue.

The Federal Inland Revenue Service (FIRS) demanded payment of digital tax from a select group of service providers, including social networking networks, enterprises that offer digital material downloads, and video streaming services.

In order to solve this, Zainab Ahmed, the previous minister of finance, amended the Finance Act of 2019 by introducing the Companies Income Tax (Significant Economic Presence) Order in 2020.
Taxes on foreign companies engaging in particular services or online transactions were to be levied, depending on their Significant Economic Presence in Nigeria.

The Finance Minister is given the authority to specify what constitutes a Significant Economic Presence (SEP) in Nigeria under a provision of the Companies Income Tax (Significant Economic Presence) Order of 2020. This means that the finance minister can decide on the precise parameters that would signify a foreign entity’s significant economic involvement in the nation.

For instance, foreign organisations that offer digital video and advertising services to the Nigerian populace include businesses like Netflix, Facebook, and Twitter. On the other hand, organisations like Alibaba and Amazon make money in Nigeria through a variety of operations. This includes handling and disseminating user information gathered in Nigeria as well as directly offering products or services, either one-on-one or via a digital platform.

They might also provide intermediary services to link Nigerian suppliers and customers. Each of these activities helps them generate income from the Nigerian market.

With regards to the Companies Income Tax Order of 2020

The law will be applicable to businesses with annual revenues of #25 million, or $31.250 (at $800 per dollar), according to the Federal Government of Nigeria. Additionally, it will be pertinent to individuals who have a web address or Nigerian domain name (.ng).

Foreign businesses with a significant economic presence (SEP) in Nigeria and whose digital platforms are designed to draw Nigerian clients by showing prices in naira would be required to pay taxes under the SEP order.

The order states that a foreign entity that provides technical services like training, advertising, personnel supply, professional, managerial, or consulting services will be deemed to have a Significant Economic Presence in Nigeria during any financial year if it makes money or receives payments from Nigerian residents, operates through a fixed base in Nigeria, or acts as a representative of a foreign business abroad.

Exemptions are granted, nonetheless, for salaries paid to staff members of foreign corporations or for academic teaching provided by educational institutions. The Federal Government said in January 2022 that it intended to charge overseas businesses who provide digital services to local Nigerian clients a 6% turnover tax. The 2021 Finance Act has details on this regulation.

Added information for the operation of the digital service taxation regulation

Former finance minister Zainab Ahmed emphasized the idea of digital service taxation by stating that its scope includes things like applications, high-frequency trading, electronic data storage, and online advertising. She made a point of highlighting how this strategy establishes a fair and acceptable turnover tax system.

Section 30 of the Finance Act, which amended Sections 10, 31, and 14 to handle the VAT obligations for non-resident digital enterprises, provided more information about the plan.

Ahmed explained, “Section 30 of the Finance Act relates to VAT responsibilities for non-resident digital enterprises and is intended to amend Sections 10, 31, and 14 of the VAT regulations. The mechanism’s main aim would be digital non-resident businesses that provide services to Nigerian citizens who are unable to independently account for VAT. The claim suggests that you should anticipate that platforms like Amazon would add a Value Added Tax (VAT) fee to the final price you pay when you make a purchase there.

In order to legally register Amazon as an agent of the Federal Inland Revenue Service (FIRS), the government intends to work with Amazon. According to this arrangement, Amazon would be in charge of both collecting the VAT from customers and sending the money earned to the FIRS. This procedure is in line with global norms and is seen to be a technique to access an untapped source of income.

The aforementioned regulation, which covers a variety of topics including applications, high-frequency trading, electronic data storage, and online advertising, is aimed at foreign businesses that provide digital services. In essence, these foreign providers of digital services would be governed by VAT laws, generating income for the nation.

She emphasised that Section 4 of the Finance Act now requires international businesses that are not domestically headquartered to pay a tax of 6% based on their turnover.

The minister emphasised the intention of the government to improve compliance while modernising taxation in the context of its digital economy. She explained that digital international corporations would set up an agreement with the FIRS to manage tax collection and remittance instead of needing to create local registrations. The goal of this action is to alleviate the compliance burden.

PricewaterhouseCoopers analysts have previously suggested that some impacted overseas digital enterprises may need to register for income taxes in Nigeria and submit annual tax returns, even if they don’t have a physical presence there. The fixed bases of non-resident enterprises doing business with these international corporations as well as Nigerian resident businesses were also mentioned as having to include withholding tax on some payments.

PwC highlighted doubts about the FIRS’s ability to enforce compliance in the absence of global agreement because some of the affected companies might be outside the agency’s purview. When these businesses sell goods and services directly to Nigerian consumers on an individual basis, the situation can get more complicated.

However, data conducted by The PUNCH newspaper showed that between the first quarters of 2022 and 2023, these firms paid approximately N1.98 trillion ($2.475 billion) in taxes. The Nigerian Federal Government collected a total of N1.32 trillion ($ 1.65 billion) from foreign corporations in value-added tax (VAT) and corporate income tax (CIT), respectively.

Nigeria received N342.4 billion ($428 million) in the first quarter of 2022, N80.39 billion ($100.49 million) in the second quarter of 2022, N327.02 billion ($408.77 million) in the third quarter of 2022, N399.98 billion ($499.97 million) in the fourth quarter of 2022, and N168.23 billion ($210.29 million) in the first quarter of 2023, according to a breakdown of the companies’ income tax earnings.

The Companies’ Income Tax from Foreign Firms decreased by 50.87%, or a negative amount of N174.17 billion ($217.71m), when comparing year-over-year numbers. The decline was slightly more pronounced on a quarterly basis, at 57.94%, or a loss of N231.75bn ($289.69m).

Nigeria made N117.99bn ($147.49m) in the first quarter of 2022, N11.13bn ($13.91m) in the second quarter, N121.85bn ($152.31m) in the third quarter, N159.83bn ($199.79m) in the fourth quarter, and N151.13bn ($188.91m) in the first quarter of 2023, according to the breakdown of Added Tax.

In terms of year-over-year comparison, there was a growth in added tax from foreign corporations of 28.09%, or N33.14 billion ($41.76). However, on a quarterly basis, there was a decline of 5.44 percent, or N8.7 billion ($10.88m), from the previous quarter.

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Joshua Samuel

A conscientious writer with a knack and passion for story telling which spans across different sectors and segments. I love telling stories in writing and bringing quality, authentic and timely information to everyone everywhere.

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