Nigeria’s Tax On Big Tech Titans Is Scoring Early Wins

Nigeria has taken steps to tap into its burgeoning digital economy and boost its revenue by taxing Big Tech companies, including Google and Facebook.

Over a span of 15 months, the Nigerian government has collected over NGN 2 T (~USD 2.5 B) in taxes from these tech giants, new data suggests, through measures such as value-added tax (VAT) and company income tax (CIT). This move aligns with the government’s goal of diversifying the economy and increasing revenue streams beyond oil.

The country’s decision to impose taxes on non-resident digital firms came in 2021 as part of fiscal reforms. This decision was fueled by the rapid growth of the digital sector, with platforms like Google, Meta (formerly Facebook), and YouTube ranking among the most visited sites in Nigeria. Despite their popularity, these companies had previously operated without contributing substantial tax revenue to the country.

The Finance Act (2021), signed into law in December 2021 by former President, Muhammadu Buhari, played a pivotal role in capturing revenue from non-resident tech companies. It requires these companies to act as VAT collectors for digital goods and services offered within Nigeria. This includes services like apps, online advertising, high-frequency trading, and electronic data storage.

Tech giants like Google and Meta (Facebook) have adjusted their practices to comply with the new tax regulations. Google informed its Nigerian business users that it would start collecting a 7.5 percent value-added tax on taxable goods and services. Similarly, Meta began charging local VAT on ad placements in Nigeria. Zoom also followed suit, becoming a non-resident VAT collector and charging VAT on applicable supplies.

Moreover, non-resident digital service providers, such as Netflix and Meta, are required to remit 6 percent of their annual turnover from Nigerian businesses to the Federal Inland Revenue Service (FIRS) under the new regulation. This tax rate was deemed “fair” by the erstwhile finance minister, Zainab Ahmed.

While the move to tax Big Tech companies has been largely accepted, concerns have been raised about its potential impact on small and medium-sized enterprises (SMEs). Critics argue that the complex taxation system may lead to multiple taxation and negatively affect businesses, potentially pushing some SMEs into bankruptcy.

The Nigerian government remains committed to fiscal policy and tax reforms, as evidenced by the recent inauguration of the Presidential Committee on Fiscal Policy and Tax Reforms. This committee aims to transform the tax system to support sustainable development and achieve a minimum tax-to-GDP ratio of 18 percent (from the current meagre ~4.5 percent) over the next three years, without hampering investment or economic growth.

Featured Image Credits: FT