Business News
Finance act: VP outlines how FG plans to capture multinational firms in tax net
Nigeria is at risk of trade war with the United States as FG says it will impose taxes on technology companies like Facebook, Google.
The Federal Government is set to make more revenue in 2020, especially through tax. The government through Vice President Yemi Osinbajo, disclosed that all multinational digital companies operating abroad with significant economic presence in Nigeria will now be subjected to taxation under the new Finance Act.
Osinbajo explained that only companies that have a physical presence in the country were being taxed previously, adding that the new law had changed this.
He said, “So, most digital and multinational technology companies do not have a physical presence in Nigeria, yet make significant income in Nigeria from online activities.
“They pay no tax to Nigeria because they do not have a physical presence in Nigeria, now we are no longer relying on physical presence.”
“Under the new Act, once you have a significant economic presence in Nigeria, you are liable to tax whether you are resident here or not,” he noted, adding that non-residents, who previously had no fixed address would now be taxed under the new Act.
Can this lead to a trade war against the US?
While some critics believe that Nigeria could be at risk of trade war with the United States because the government says it will impose taxes on the firms, others alleged that the plan was to get technology companies like Facebook, Google, and others in the tax net.
Meanwhile, the US has threatened tariffs on imports from countries that impose such digital taxes.
The tech companies with heavy revenue footprint in Nigeria now have their backs against the wall because President Muhammadu Buhari-led administration wants to tax them to grow Nigeria’s revenue.
The Finance Act is the solution preferred by President Buhari to the revenue problem, which the Finance Minister, Ahmad Zainab, said Nigeria has. The Nigerian government is looking to grow its revenue through taxes, and one of such is the digital tax, which Vice President, Yemi Osinbajo, said would commence despite the threat of the US which is aimed at protecting the silicon companies.
No more back door operation: Facebook, Google, Amazon, YouTube and many other digital businesses have a sizeable market in Nigeria but don’t have a physical structure for their operations. This has bled the nation’s revenue over time.
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These companies are known to prefer situating their companies in tax havens where taxes are low compared to other African and European countries. Ireland and Bermuda are some of the tax havens for these multinational companies. But according to Osinbajo, the period of making gains from their operation in Nigeria without paying tax is over.
He said, “Let me also briefly mention the new provisions on Taxation of Digital Economy and Non-Resident Companies. This is a very important aspect of our taxation policy. Before the Finance Act, only companies that had a physical presence or a fixed base in Nigeria could be taxed.
“So, most digital companies, I mean any of the big technology companies, or multi-national digital companies, that did not have physical offices in Nigeria, made significant income from Nigeria from online activities, such as advertising, movie streaming, online gaming and e-commerce from subscribers in Nigeria, but paid no taxes whatsoever because they did not have a physical base in Nigeria. So now we are no longer relying on the fixed base or physical address criterion.”
He added that, “Under the Finance Act, once you have a Significant Economic Presence (SEP) in Nigeria, you are liable to tax. Whether you are a resident here or you are not resident as a company, as long as your economic presence is significant, you are liable to tax. If you are streaming online, advertising using Google adverts, whether you are resident here or not, you are now subject to tax.
“So, non-residents who previously had no fixed base and no Nigerian tax liability will now be liable to tax based on the SEP criterion. The Minister of Finance is empowered to issue a regulation defining what Significant Economic Presence means. So, she just defines the scope of what we will be looking out for in terms of Significant Economic Presence.”
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Nigeria is not alone in this crusade: Nigeria is not the only country trying to tax the technology companies. The European Union (EU) has also been coming after them for taxes. The EU stated that if the technology companies were making economic gains through their operation despite the lack of physical presence in several European countries, then they should be taxed.
This has led to the review of tax laws by the EU. According to a report by the New York Times, new rules to tax the multinational companies are being discussed by about 130 countries through the Organization for Economic Cooperation and Development. The review has become necessary as digital economy begins to open new revenue sources.
Should Nigeria tread carefully? The United States has threated to hit any country imposing taxes on American technology companies with tariffs on import. This puts Nigeria at a rather impossible position, as the country is not economically strong enough to enter a trade war or go on a tit for tat battle with the US.
According to Q3 report, the US is the fifth-biggest export destination for Nigeria, having imported N322.2 billion (6.28%) goods from Nigeria, with crude oil constituting N329.8 billion. Although the US is behind Ghana, India, Netherlands and Spain, it doesn’t change the significance of the US market to the Nigerian economy. Meanwhile, Nigeria’s top import sources include the U.S, accounting for N747 billion in H1 2019.
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ABCON asks CBN to check impact of cryptocurrencies on diaspora remittances
The association also noted that the apex bank needs to address other issues driving the patronage of cryptocurrency exchanges for remittance transfers.
The Association of Bureau De Change Operators of Nigeria (ABCON) has asked the Central Bank of Nigeria (CBN) to introduce measures that will neutralize the positive effects of cryptocurrencies as a channel for diaspora remittances.
This is to redirect diaspora remittances away from cryptocurrency exchanges to official channels and also protect such against potential disruptions.
This call was made by ABCON during its Quarterly Economic Review for the first quarter of 2021 where it commended the CBN for the N5/$ rebate scheme introduced to encourage diaspora Nigerians to use official channels to remit their funds.
However, the association noted that the apex bank needs to address other issues driving the patronage of cryptocurrency exchanges for remittance transfers.
READ: Nigeria among worst countries to start a career, and they all don’t accept crypto
What ABCON is saying in their statement
The association in its statement said, “It is noteworthy that public acceptability for cryptocurrency exchanges are rising which could be quite accountable for the wide drop in diaspora inflows to Nigeria. Insecurity in the country is giving it greater prominence as investors and citizens are finding Cryptocurrency a safe haven for their wealth in case of any eventuality.
In most Emerging Markets Bitcoin transfers surged last year, as the pandemic exposed the cheaper and more efficient digital remittance services. Migrants sending money across borders to their families prefer the minimal transaction costs of cryptocurrency exchanges against the exorbitant costs of traditional money transfer companies like Western Union.”
READ: Atsu Davoh is building ways for Africans to easily acquire and spend cryptocurrency
According to ABCON, “Cryptocurrency transactions are faster than the conventional transfers, which require passing through banks reliant SWIFT, the sluggish, half-century-old interbank messaging system that handles cross-border payments.
These exchanges override the political complications of official channels. The global reach of cryptocurrencies avoids the inflation risk inherent to official currencies, especially in politically unstable countries reliant on fickle foreign investors.
Thus, while we commend the efforts of CBN in introducing the package of Five Naira for One Dollar transfer, it can be seen from the analysis above that the challenges exceed just non-payment of foreign currency by the IMTCs and the exchange rate. Strategies that satisfy the most sensitive of these advantages of Cryptocurrency exchanges must be introduced to redirect flows to the official channel.”
ABCON also expressed concerns over the country’s huge unemployment rate, urging the government to apply radical approaches with the use of both conventional and unconventional economic and political tools to redress the trend.
READ: Afreximbank President reveals ways Nigeria can boost diaspora participation in economy
What you should know
- It can be recalled that the apex bank had about 2 months ago, warned the Deposit Money Banks, Non-Financial Institutions and other Financial Institutions against doing business in crypto and other digital assets.
- The CBN directed financial institutions to immediately close the accounts of persons or entities transacting in or operating cryptocurrency exchanges, warning of severe regulatory sanctions in the event of any breach of the directive.
- The Securities and Exchange Commission (SEC) had a few days ago, revealed that it is working with the CBN for a better understanding and regulation of cryptocurrencies in the country.
