Implications of the Digital Service Tax Regime for Nigeria

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Hammed Yakub Abiola






Yakub Abia Hammed

  1. Introduction

On 17th August 2017, Nigeria became the 71st country that subscribed to the Organisation for Economic Co-operation and Development (OECD)’s Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. The subscription to this convention would allow Nigeria to implement the agreement that will be reached from the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) negotiation process currently going on among 139 member countries to renegotiate the global tax rights on digital services known as “Pillar 1” and the proposed 15% global minimum corporate income tax known as “Pillar 2”.

However, the delay occasioned by the inability of all member countries to agree and reach a common ground on this renegotiation, especially on the areas where developing countries feel shortchanged owing to the fact that the inherent variables largely favour the developed countries. Nigeria, like some other member countries, has had to act unilaterally by introducing tax on digital companies and their online services.

This paper discusses the implications of this for Nigeria going forward, especially in view of her worrying debt service to revenue ratio which currently stands at 73.5% according to the Nigerian Debt Management Office.

  1. Implications of the Digital Service Tax Regime for Nigeria

By Section 4 Part II of the Finance Act 2021 which streamlined and combined Section 4 Part 1 of Finance Act 2019 and Section 7 Part II of Finance Act 2020 (amending Section 13 of the Company Income Tax Act), digital companies such as Google, Meta, X (formerly Twitter), Amazon, Apple, Zoom, Netflix, Spotify etc., rendering different types of paid borderless digital online services to resident Nigerians and have significant economic presence in Nigeria are bound to comply with Nigerian tax laws. Local tax laws mandate them to remit 6% of their annual turnover (generated from business activities transacted online within Nigeria’s digital space) as income tax to the Federal Inland Revenue Service (FIRS).

Also, by virtue of Section 30 Part VIII of the Finance Act 2021 which substitutes for Section 10 of the Value Added Tax Act, they are to charge and collect Value Added Tax (VAT) on all their offered paid online services enjoyed by their Nigerian customers and subsequently remit same accordingly to the FIRS,8 consequently beginning the era of taxation of digital online services and digital companies, otherwise known as “Non Resident Companies (NRC)” in Nigeria.

Enquiries dated 1st and 6th August 2023 respectively sent to the Tax & Policy Department of the FIRS invoking the Freedom of Information Act seeking the compliance status of NRCs with the above Nigerian tax laws returned positive responses. In other words, NRCs are already remitting relevant Nigerian digital service taxes to FIRS in line with the laws cited above.

In view of the foregoing, enumerated and discussed below are the implications of this digital service tax regime in Nigeria.

2.1. Increased Revenue for Federal and State Governments of Nigeria  

In the face of scarce revenue to sufficiently service Federal and State governments annual fiscal budgets which often compel them to resort to foreign and domestic borrowings to meet their capital and recurrent expenditures within a fiscal year, the accruable taxes collected from the digital companies (NRCs) would certainly mean more revenue for both the Federal and State governments of Nigeria to service their annual fiscal budget without heavily relying on foreign or domestic loans. These recurring loans already stood at N46.25 trillion ($103.11 billion) as of December 2022.

2.2. Expansion of Nigeria’s Tax Net into the Digital Economy

European, Asian, American, and African countries (like United Kingdom, France, Italy, Turkey, Poland, India, Vietnam, Nepal, Argentina, Paraguay, Uruguay, Kenya, Tunisia and Zimbabwe) expanded their tax net to tap into the digital economy to generate more revenue. The apparent objective of this strategic move is to foster socio-economic development of their respective countries. It is envisaged that this, certainly will be the case for Nigeria as a result of the digital service tax regime.

It is expedient and critical for Nigeria as a country to explore creative and alternative ways of raising revenue and step away from her overdependence on crude oil as a major revenue source. And expansion of its tax net into previously untapped economic industries is one of the creative options available. In fact, this was one of the reasons the current administration of Nigeria is proposing to find ways and models of taxing the informal sector of the economy. President Bola Ahmed Tinubu also recently inaugurated the Presidential Committee on Fiscal Policy and Tax Reforms and its charge according to the President is …to improve Nigeria’s revenue profile while making the business environment more conducive and internationally competitive. Our aim is to transform the tax system to support sustainable development, while, at the same time, achieving a minimum of 18% Tax to GDP ratio within the next three years”.

2.3. Widening of Nigeria’s Fiscal Space

With Nigeria’s fiscal space constricting as a result of heavy debt profile burden on the Federal and State governments which negatively impacts the economy, the effective maximization of the digital service tax regime by the FIRS to fully tap into the estimated $100 billion worth of Nigeria’s digital economy provides a viable and veritable opportunity to raise the revenue stock of Nigeria and consequently widen her fiscal space. This would undoubtedly complement the fiscal space already freed up by the recent removal of subsidy on Premium Motor Spirit (also known as petrol) that has over the years been a cankerworm in the fiscal policy of the federal government, having repeatedly eaten deep into its revenues year in year out.

2.4. Increased Level of Data Capturing of Digital Companies and their Online Services in Nigeria

Before the digital service tax regime in Nigeria, it was difficult to capture non-resident digital companies (and their online services) among the digital companies operating in Nigeria as a company (digital or not) needs to register with the Corporate Affairs Commission (CAC) and have a physical office in Nigeria to carry on business in the country. This will also allow it to pay tax accordingly to the FIRS, which in turn entails supplying its financial/business data to the FIRS for the purpose of appropriate tax assessment.

However, by the combined effects of Section 4 Part II, Section 30 Part VIII, and especially Section 31 Part VIII of the Finance Act 2021, non-resident digital companies need not have a registered physical office in Nigeria before they can be captured among digital companies operating in Nigeria.

Section 31 Part VIII of the Finance Act 2021 particularly provides that the FIRS can appoint “any person” including non-resident companies for the purpose of collecting tax on their sold goods and services to resident Nigerians, thereby directly placing the onus on the FIRS to onboard non-resident digital companies into Nigeria’s tax system in line with Nigerian tax laws. This is why the FIRS came up with a tech tool described as the Digital Economic Compliance (DEC) Tool to fully capture non-resident digital companies in its tax administration system, and failure of any digital company to key in to this attracts a penalty under Section 18 of the Finance Act 2021.

  1. Conclusion

Whereas the implications of the digital service tax regime may seem to address Nigeria’s illiquidity issues to an extent as discussed in the foregoing, there are still untapped economic spaces/industries that need focusing attention on to further resolve Nigeria’s revenue generating problems. A typical example of such is the informal sector of the economy where different forms of informal taxes are collected and paid to non-state actors (who are mostly street urchins) but who masquerade as members of trade unions, market organizations, local councils, etc.

For further information on this article and area of law,
please contact Yakub Abiola Hammed at:
P. A. Ajibade & Co., Lagos by
Telephone (+234 1 472 9890), Fax (+234 1 4605092)
Mobile (+234 705 828 2258, +234 816 403 4208)

  1. Yakub Abiola Hammed, Secretary, Practice Management Unit, S. P. A. Ajibade & Co., Lagos State, Nigeria.
  2. Pascal Saint-Amans (2017) ‘Nigeria signs both the Multilateral BEPS Convention and the CRS Multilateral Competent Authority Agreement to tackle international tax avoidance and evasion’ available at accessed on 17th August 2023.
  3. OECD/G20 Base Erosion and Profit Shifting Project (2021) ‘Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy’ – 8th October 2021 available at accessed on 17th August 2023.
  4. Mary Izuaka (2021) ‘Why Nigeria didn’t sign OECD minimum corporate tax deal — FIRS’ available at accessed on 17th August 2023.
  5. Richard Asquith (2022) ‘Nigeria’s 6% Digital Service Tax’ available at accessed on 7th August 2023.
  6. Debt Management Office – Nigeria 2022 Report of The Annual National Market Access Country (MAC) Debt Sustainability Analysis (DSA) available at accessed on 23rd August 2023.
  7. Section 4 Part II of the Finance Act 2021, Federal Republic of Nigeria Official Gazette No. 10 Vol. 109, Lagos – 18th January 2022.
  8. Section 4 Part 1 of Finance Act 2019, Federal Republic of Nigeria Official Gazette No. 6 Vol. 107, Lagos – 14th January 2020.
  9. Section 7 Part II of Finance Act 2020, Federal Republic of Nigeria Official Gazette No. 4 Vol. 108, Lagos – 4th January 2021.
  10. Paid borderless digital online services are services such as online ads, music and video streaming subscription services, paid premium feature services etc.
  11. Samuel Nwiti (2022) ‘Nigeria’s Digital Tax and the Twitter Ban’ available at accessed on 8th August 2023.
  12.   Section 30 Part VIII of the Finance Act 2021, Federal Republic of Nigeria Official Gazette No. 10 Vol. 109, Lagos – 18th January 2022.
  13. Edeh Chinazo and Shadrach Saddih, both of the Tax and Policy Department of the FIRS, confirmed the positive tax compliance status of NRCs in separate privileged and confidential email responses dated August 7th and August 15th, 2023, respectively.
  14. Taxes collected by the FIRS by virtue of Section 4 Part II and Section 30 Part VIII of Finance Act 2021.
  15. Donatus Anichukwueze (2023) ‘Nigeria’s Public Debt Rises to N46.25trn’ available at accessed on 11th August 2023.
  16. Richard Asquith (2023) ‘Digital Services Taxes DST – global tracker’ available at accessed on 7th August 2023.
  17. Cynthia Egboboh (2023) ‘Experts fault FG’s planned taxes on informal businesses’ available at accessed on 11th August 2023.
  18. Kayode Oyero ‘Tinubu Inaugurates Committee on Fiscal Policy, Tax Reforms’ available at accessed on 11th August 2023.
  19. Chris Agabi (2022) ‘Fiscal Activities That Shaped Nigeria’s Economy In 2022’ available at accessed on 10th August 2023.
  20. Eniola Olatunji (2022) ‘How Nigeria can tap into $3tn global digital economy’ available at accessed on 10th August 2023.
  21. Section 31 Part VIII of the Finance Act 2021, Federal Republic of Nigeria Official Gazette No. 10 Vol. 109, Lagos – 18th January 2022.
  22.   Johannes Wojuola (2022) ‘FIRS Deploys Technology for Tax Collection from Digital Economy’ available at accessed on 23rd August 2023.
  23. Section 18 Part IV of the Finance Act 2021 amends Section 25 of the FIRS (Establishment) Act 2007.
  24. Aderemi Ojekunle (2021) ‘Report: 98% of businesses in Nigeria’s informal sector pay taxes — but to non-state actors’ available at accessed on 21st August 2023.

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