FG needs to review regulation of small and medium businesses – Osinbajo

William Ukpe

4 years ago

FG foreign reserves Nigeria Yemi-Osinbajo, FG negotiates with Governors on bail-out fund, as NEC approves 100 billion for NLTP, bail-out fund States Governors, FG earns N28.6 trillion from VAT, others , Ease of doing Business: States must partner with Federal Government – Osinbajo , AfCFTA: Nigeria’s financial footprints to be extended across Africa – Osinbajo , FG seeks partnership with National Council of Registered Insurance Brokers, here’s why , Osinbajo says FG’s investment to take advantage of Africa’s $200bn tourism potential is massive, Pres. Buhari’s plan to tax US tech companies might provoke US trade war https://www.yemiosinbajo.ng/vps-lecture-at-the-national-defence-college-course-28-lecture-event/ https://punchng.com/digital-firms-to-pay-tax-under-new-finance-act-osinbajo-2/ https://www.nytimes.com/2020/01/31/business/economy/digital-tax-oecd.html Nigeria at risk of trade war with United States as the Nigerian Government says it will impose taxes on technology companies like Facebook, Google, and other digital companies that have been escaping tax payment in Nigeria due to their lack of presence within the country. 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 want to tax them to grow Nigeria’s revenue; which has led to the development of the Finance Act. The Finance Act is the solution of 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 will 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 more digital businesses have a sizeable market in Nigeria, but don’t have a physical structure for their operations; this has cost Nigeria tax revenue. 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. Osinbajo, while speaking at The National Defence College, Course 28 Lecture Event, said that, “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.” Osinbajo explained. Nigeria is not alone in this crusade: Nigeria is not the only country trying to tax these technology companies. The European Union have also been coming after them for taxes. The EU is also stating that if the technology companies are making economic gains through their operation despite the lack of physical presence in several European countries, then the tech conglomerates should be taxed. This has led to review of tax laws by the EU. According to a report by New York Times, new rules to tax these 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 the technology companies - which are mostly American – with tariffs on import. This put 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. Franch had moved to tax the online businesses but have now delayed the plan this year after a meeting with the US; the US has also paused its tariff threat against France. Britain is also one of the digital tax drivers. With such threat hanging over the digital tax, it’s unlikely Nigeria will go ahead taxing these technology companies, as US feels such tax is discriminatory against US firms, and have suggested these companies be allowed to decide if they want to operate with the new tax standards., FG will provide succor for daily wage earners as lockdown continues – Osinbajo

Vice President Yemi Osinbajo has announced that Nigeria needs to take a second look at how Small and Medium Enterprises (SMEs) are regulated, so as to improve the business environment for SMEs in Nigeria.

The Vice President disclosed this at the commissioning of the Abuja Chamber of Commerce Trade and Convention Centre on Monday.

READ: FG suspends issuance of Free Trade Zone licenses

He added that the FG has stepped in by reducing taxes for SMEs from 2021, and added that smaller levies paid by SME’s should be reviewed to make the businesses environment better.

“But I think that one of the drawbacks that we have had in improving the business environment is really with respect to how we regulate small businesses.

READ: FG proposes additional tax exemption for small businesses

“For example, in Abuja, I hear very frequently, small businesses which talk about the kinds of problems they experience -either with fumigation licences or one licence or the other— all manner of constraints which ideally should not occur.

“I know that the Minister of FCT is actively working with the Presidential Enabling Business Environment Council (PEBEC) and that the Minister of Industry, Trade and Investment have been concerned about making this work.

READ: Nigeria’s foreign trade with US slumps as trade with China grows stronger

“But Abuja is just one example of how generally speaking, all over the country, we need to take a second look at how we regulate small businesses; we just need to take a second look,” Osinbajo said.

He cited the recent Finance Bill which has reduced most of the Federal tax rates to be paid by businesses, as all revenue below N25 million would be zero taxes.

READ: COVID-19: Over 70% of jobs lost in aviation, tourism industries in 2020 – AfDB

“If you look at all the proposed Finance Bill, there are several incentives for small businesses and I think this is where the private sector must work very actively with us in ensuring that we are self-regulators and policemen and women of the regulations.

“I think the time has come for us to have a chamber of commerce paying very active attention to all that is going on in the MSMEs space especially with respect to regulation,” he said.

READ: More than 40 SMEs in Lagos shut down due to economic crisis

What you should know about Osinbajo’s policy ideas

Nairametrics reported last month that Osinbajo stated that the country must create an enabling environment, post Covid-19, to attract local investments across the country.
Osinbajo also stated that the Federal Government has been willing to implement new ideas suggested in the Economic Sustainability Plan (ESP) after the fallout of the pandemic on the nation’s economy.
Osinbajo said, “It is important to recognise that the pandemic, which really is the cause of the downturn, not just in the Nigerian economy but practically all of our economies, all over the world, except perhaps China, also provides incredible opportunities for doing all manner of very innovative and creative things”