Prominent foreign companies including Google, Netflix, and Facebook have contributed a staggering sum of over N1.98 trillion in taxes to the Federal Government of Nigeria over a span of 15 months, as reported by The Punch. This substantial figure, which encompasses both Company Income Tax (CIT) and Value Added Tax (VAT), is based on data derived from the National Bureau of Statistics.
CIT, a tax levied at 30% on the profit of companies, is combined with the 7.5% VAT, which is a consumption tax paid upon purchase of goods and services. These companies’ contributions to the government’s tax revenue highlight their substantial financial engagement with the Nigerian economy.
In line with the Finance Act of 2019, which was later amended in 2020, the Federal Government announced its intent to tax foreign digital service providers offering services to Nigerian citizens and generating revenue in the national currency. Companies engaged in activities like video streaming, social media services, and digital content downloads are required to pay digital tax to the Federal Inland Revenue Service (FIRS).
The amendment, known as the Companies Income Tax (Significant Economic Presence) Order, 2020, empowers the government to impose taxes on foreign entities that possess a Significant Economic Presence in Nigeria. This presence is defined by various criteria, including revenue generation from Nigerian sources and customizing digital platforms to target Nigerian consumers.
Companies subject to these regulations include not only video streaming platforms and social media networks but also those like Alibaba and Amazon, which generate revenue by processing and transmitting data from Nigerian users and offering goods and services via digital platforms.
The law stipulates that foreign companies generating a minimum of N25 million or equivalent in other currencies from Nigeria annually, or those with a Nigerian domain name (.ng) or website address, are liable to digital taxes.
While the legislation seeks to ensure fair and reasonable taxation of foreign companies providing various digital services, it also aims to streamline tax compliance and generate revenue from digital transactions within Nigeria’s growing digital economy. By requiring prominent digital companies to be tax agents for the Federal Inland Revenue Service, the government endeavors to optimize revenue collection.
The Finance Act of 2021 further extended the reach of taxation, implementing a six percent tax on turnover for offshore companies delivering digital services to Nigerian customers.
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