Tech News
Nigeria Joins Canada, Thailand and others in taxing digital companies
Nigeriain government has begun to amend its laws to accommodate this new digitalized era bringing many big techs under serious scrutiny.
Nigeria is one of many countries that have begun to amend its laws to accommodate this new digitalized era bringing many big techs under serious scrutiny. It is all part of a move by governments around the globe to introduce digital taxes.
Recent reports showed that there has been an uproar on social media with some concerned citizens speaking against the new tax laws included in the amendment of the Finance Act 2019 in Nigeria. Tech companies’ especially big techs, in the past few years, have faced a myriad of backlash about their involvement in tax evasion; and even more intensely, with the pandemic, came a microscopic look into the affairs of these digital service providers.
In Nigeria, one of the 129 countries under the Organization for Economic Cooperation and Development (OECD) which has yet to conclude an international agreement on digital taxation had the Finance Act 2019 amended with the aim of imposing tax on a foreign entity with respect to certain services or digital transactions if it had a ‘Significant Economic Presence’ in Nigeria, although what that entails is yet to be determined.
The new regulation would apply to companies with income of N25m 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.
READ MORE: Nigerians react as FIRS Chairman asks companies to pay tax before due date
Also, a foreign entity providing technical services such as training, advertising supply of personnel, professional, management or consultancy services shall have a SEP in Nigeria in any accounting year if it earns or receives any payment from a person resident in Nigeria, a foxed base or agent of a foreign entity with the exemption being payments made to employees of a foreign entity or for teaching in an educational institution.
Why this is Important?
As it stands, Nigeria, unlike some other countries, has no serious digital tax plans making the updates to the Finance Bill redundant pending a definition on the criteria for SEP. However, the existence of this law is still significant as it reduces the legal, political and civic resistance to any future digital tax plan, and giving the Minister of Finance full power regarding this makes it easy for Nigeria to implement the OECD plan when it is ready.
The economic instability is the country is remarkably disturbing and the taxation system has always been used to help distribute aggregate income more equally which by all indications ultimately protect the stability of any society. There is no better time than now seeing as with this COVID-19 era the gap of income inequality will continue to grow so this as an option to mitigate the effects is more than welcome.
Yes! There are Challenges
There are concerns as to how the Federal Inland Revenue Service (FIRS) would enforce compliance without international consensus, as a number of the companies affected might be outside the territorial reach of the agency and this problem will be worsened where the companies sell their products and services directly to individual consumers in Nigeria.
READ MORE: FG to facilitate tax incentives for SMEs
A few Considerations Moving Forward
- All developing countries, not just Nigeria will need to maintain pressure on the inclusive framework committee so that their interests can be accommodated in future digital practices.
- Regardless of the loopholes, many tech firms have used to evade paying taxes, in introducing new tax measures, it is important to avoid segregation between digital and non-digital activities.
- Tax measures should only balance the tax burden without overtaxing digital companies with the goal being to preserve neutrality and competition between companies operating in the digital and traditional spheres with fostering the economic development and the growth of startups.
No doubt it can be tempting to try and make up for the lost time without tax payments by these digital firms but it is important that policymakers be deliberate about the neutrality of their demands as ultimately, society is rapidly becoming core digital.
Africa’s leading e-commerce firm Jumia released its second-quarter earnings on Wednesday showing it incurred a loss of Eur 37.6 million (N17.1 billion) in the second quarter of 2020 despite the rampaging effect of COVID-19.
According to Jumia, it did not experience any “meaningful change in consumer behavior” following the COVID-19 induced shutdown.
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Contemporary views suggest e-commerce firms were one of the winners in the ensuing COVID-19 pandemic induced lockdown. However, the company reported significant challenges to its operations. Here is how Jumia responded;
- In Nigeria and South Africa, we faced significant disruption as a result of movement restriction.
- This disruption persisted during the early part of the second quarter of 2020, before gradually easing towards the later part of the quarter.
- Our food delivery business, Jumia Food, which was negatively impacted by restaurant shutdowns starting mid-March, resumed normal operations in late May/early June in most cities where we operate the service.
- Across the majority of our addressable market, we experienced no meaningful change in consumer behavior, aside from increased demand for essential and every-day products and reduced appetite for higher ticket size, discretionary purchases.
- The nature of lockdown measures put in place consisted mostly of localized restrictions of movement and partial curfews rather than nationwide lockdowns, with the former leading to less drastic changes in consumer lifestyles and behavior than all-encompassing, nationwide lockdowns.
READ ALSO: Jumia CEOs to take salary cut, create support fund for workers
What this means
Jumia’s revelations confirm fears that the COVID-19 lockdowns may not have positively impacted on the e-commerce sector whose business model requires that their gross merchandise volumes increase for them to improve margins.
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However, by confirming that Nigerians focussed more on essentials, the negative impact of the COVID-19 appears to be more severe than even expected.
Nigerians are perhaps also cautious about their spending, avoiding expenditures that do not speak to their immediate need such as food supplies, medicare, and utilities.
FEATURED
Jumia reports N17.1 billion loss in Q2 as COVID-19 fail to boost revenue
Jumia reported a loss after tax of Eur 37.6 million (N17 billion) in the second quarter of 2020.
One of Africa’s leading e-commerce companies, Jumia reported a loss after tax of Eur 37.6 million (N17 billion) in the second quarter of 2020 despite the rampaging effect of COVID-19.
E-commerce firms were expected to be one of the major beneficiaries of COVID-19 pandemic as consumers gravitated to online orders to meet essential needs.
The losses were a much improvement from the Eur 66.7 million loss reported in the same period in 2019 as Jumia strives to dig itself out of massive loss hole. However, the losses wiped out Jumia’s revenue of Eur 34.9 million reported in the quarter under review.
READ ALSO: Despite shutdown, Caverton rakes in N8billion in Helicopter and Aircraft revenues
On Customer Acquisition, Jumia reports it now has 6.8 million active customers as in the second quarter of 2020 up 40% when compared to the same quarter in 2019. Orders also reached 6.8 million up 8%, while GMV was €228.3 million, down 13% on a year-over-year basis.
Jumia explained the results as follows;
“We have made significant progress on our path to profitability in the second quarter of 2020, with Operating loss decreasing 44% year-over-year to €37.6 million. This was achieved thanks to an all-time high Gross Profit after Fulfillment expense of €6.0 million and record levels of marketing efficiency with Sales & Advertising expense decreasing by 51% year-over-year,” Jeremy Hodara and Sacha Poignonnec, Co-Chief Executive Officers of Jumia.
He continued, “We are navigating these uncertain times of COVID-19 pandemic with strong financial discipline and operational agility which positions us to emerge from this crisis stronger and even more relevant to our consumers, sellers, and communities.”
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Results Review
A cursory look at the results reveals Jumia reported revenue of Eur 34.9 million compared to Eur 38.8 million same period in 2019. Whilst Jumia reported significant revenue growth in key Platform revenue segments such as Commissions, Fulfillment, Marketing & Advertising it lost big in its First Party revenue. The First Party revenue are closed sales leads generated when customers directly visit an e-commerce website or call or contact them directly to make purchases.
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Jumia reported that First Party revenue fell a whopping 49.1% YoY to Eur 11 million compared to Eur 21.6 million the same period in 2019. Despite the drop in revenues, Jumia experienced a growth in gross profit as a change in its business model helped reduce the direct cost of sales. In the quarter under review, gross profit rose 38.2% to Eur 23.3 million.
The company claims cost-cutting was driven by cost efficiency initiatives. For example, it explains that it “changed the volume pricing model from a price per successfully delivered package to a price per successful stop which led to a c. 8% reduction in cost per order for a given route. Our third party logistics partners are now paid per successful stop at customer address, regardless of the number of packages included in the delivery”.
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It also claimed it adopted a mother-daughter warehouse system which brings warehouses stocked with “essential products” closer to customers helping reduce last-mile delivery cost.
Jumia’s Ebitda closed at Eur 32.9 million compared to Eur 44.4 million the same period last year representing a 25.9% drop in Ebitda losses. Jumia’s accumulated losses are now a staggering Eur 1.17 billion while its net assets are just Eur 108.4 million. Jumia’s loans total about Eur 10 billion.
Tech News
Facebook unveils F2 for payment and commerce plans, appoints David Marcus to head group
The F2 group will also pursue commerce opportunities across all the apps in the company.
Facebook Inc has unveiled a new group, the Facebook Financial (F2), to run its payment projects including Facebook Pay, the universal payments plan which will run across all its apps. The F2 group will also pursue commerce opportunities across all the apps in the company.
According to a report by Bloomberg, the group will be headed by David Marcus, co-creator of Facebook’s Libra cryptocurrency project and head of Novi, the division building a digital wallet for the new crypto.
Marcus will also be involved in WhatsApp’s payments efforts in India and Brazil, while he will be assisted by former Upwork Chief Executive Officer, Stephane Kasriel who will serve as a payments vice president.
READ ALSO: President Trump finally bans TikTok, WeChat
“We have a lot of commerce stuff going on across Facebook, It felt like it was the right thing to do to rationalize the strategy at a company level around all things payments,” Marcus said.
According to the statement, this is only the latest effort to bring all of Facebook’s apps and products closer together. CEO, Mark Zuckerberg, had on many occasions announced plans to integrate all the company’s messaging services.
The president of the group, Marcus, explained that with users making more purchases across Instagram, Messenger, and WhatsApp, the company’s advertising revenue is expected to grow. This is bearing in mind that users would be spending more time in the apps.
The top priority to be handled by the group is activating the payment solutions in India and Brazil, where regulations have stalled the company’s efforts to make WhatsApp a foremost destination for commerce.
READ MORE: Facebook brings digital payment to WhatsApp, begins test-run in Brazil
The Backstory: While presenting the company’s Q2 2020 results in July, Zuckerberg had expressed his excitement about the commercial aspect of the company’s messaging apps, saying that the trend will likely grow as payment options are rolled out in the company’s apps.
Note that the head of the new group, Marcus, is a payments expert who joined Facebook in 2014 from PayPal Holdings Inc. where he was president. He ran Facebook Messenger for four years before he was appointed to take charge of Libra and get the cryptocurrency running for cross border payments.
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