Foreign companies including Google, Netflix, and Facebook, operating in Nigeria, have contributed more than N1.98tn in taxes to the Federal Government’s account over a 15-month period. This sum encompasses both Company Income Tax and Value Added Tax, and the data originates from the National Bureau of Statistics.
The tax collection comprises a 30% Company Income Tax imposed on company profits and a 7.5% Value Added Tax applied to goods and services purchased. This is in accordance with the Federal Inland Revenue Service.
Earlier, the Nigerian government had expressed intentions to tax foreign digital service providers catering to Nigerians and earning revenue in the local currency. These providers, like video streaming sites, social media platforms, and digital content download platforms, are expected to adhere to digital tax regulations set by the Federal Inland Revenue Service.
This approach was defined by the Companies Income Tax (Significant Economic Presence) Order, 2020, an amendment of the Finance Act 2019. This order aimed to levy taxes on foreign entities with a Significant Economic Presence in Nigeria.
Foreign companies like Netflix, Facebook, Twitter, Alibaba, and Amazon that offer digital services to Nigerians, generating revenue through data processing, online advertising, and e-commerce, are subject to these tax regulations.
The new regulations are applicable to companies with annual income of N25 million or its equivalent in other currencies from Nigeria. Also included are companies with a Nigerian domain name (.ng) or a website address in the country.
Under the SEP order, foreign companies engaged with Nigerians and tailoring their digital platforms for the Nigerian audience by displaying prices in local currency are obligated to pay taxes.
The Federal Government introduced a six per cent tax on the turnover of offshore companies providing digital services to Nigerian customers, as per the 2021 Finance Act. This tax applies to digital services like apps, electronic data storage, and online advertising, and is intended to create a fair and reasonable taxation framework.
The tax policy was incorporated into Section 30 of the Finance Act, which modified Sections 10, 31, and 14 relating to VAT obligations for non-resident digital companies.
To ensure compliance, foreign digital companies will collaborate with the Federal Inland Revenue Service, with these companies responsible for collecting and remitting VAT payments on behalf of the Nigerian government.
Despite concerns regarding enforcement without international consensus, it’s reported that these foreign digital companies have contributed over N1.98tn in taxes between Q1 2022 and Q1 2023. The Nigerian government collected N1.32tn through Company Income Tax and N661.93bn through Value Added Tax from these companies during this period.
Company Income Tax collections showed fluctuations across quarters, with a decline of 50.87% on a year-on-year basis and 57.94% on a quarterly basis. On the other hand, Value Added Tax collections experienced a year-on-year increase of 28.09% but a quarterly decline of 5.44%.
