Taxing the digital economy in Nigeria

The digital economy has been touted as the “new economy” by many analysts. This refers to a cultural shift from the industrial economy toward an economy dependent on information, intangibles, and services and a parallel change toward new work organisations and institutional forms.

A blog post authored by three tax executives Fatai Folarin, CEO, Seye Arowolo and Yomi Olugbenro, at global accounting firm, Deloitte (Nigeria), identifies elements of the digital economy. These includes digitalization and intensive use of information and communication technologies; codification of knowledge; transformation of information into commodities; and new ways of organising work and production.

The basis of the digital economy therefore is the widely distributed access to the networks, the intranet and internet, and skills to live and work in the information society.

“The rapid growth in information and communications technology in Nigeria, has brought with it boundless opportunities and changes in the way we do business. Today a significant number of transactions in Nigeria (sale and purchase of goods and services) are consummated using mobile devices and online payment platforms. This is broadly referred to as electronic commerce (e-commerce),” the authors stated.

The challenge of digital

According to them, since the beginning of the e-commerce segment in Nigeria in the 21^st century; it has been on an upward cruise. It is a sentiment shared by the Central Bank of Nigeria (CBN) and which it has re-emphasized with the implementation of cashless policy that aims to encourage more electronic-based transactions.

The authors note that while e-commerce comes with many benefits, it also presents its challenges. One of them being the ability to track transactions online especially for the purposes of taxation.

Plugging leakages

For them, the process of diversifying Nigeria’s revenue base must be robust enough to accommodate well orchestrated strategies to put an end to leakages from the digital economy. This, they say, will boost the drive to grow the non-oil tax revenue through fiscal optimization.

“The inability to adequately capture the quantum of attendant direct and indirect taxes payable on e-commerce transaction has left leakages in the tax system. Whilst this is by no means a problem created or condoned by Federal Inland Revenue Service (FIRS), there is little doubt that a strategic partnership with institutions which provide platforms to consummate such transactions would ensure that the objective of minimizing and reducing tax leagues especially from the digital economy is achieved at a faster pace,” the authors stated.

Models

They point out that Nigeria is not the only country that faces the challenge. The European Commission has the Expert Group on Taxation of the Digital to Economy. Part of their mandate was to examine key issues related to taxing the digital economy in the European Union and come up with ideas on the best approach to various challenges and opportunities in the new economy. The group’s findings were presented in 2014.

The Organisation for Economic Cooperation and Development (OECD) has a similar report which it released in 2016. The OECD attempted to address the challenges of digital economy and identify potential solutions to restore tax revenue of countries.

“There is thus an avalanche of approaches that Nigeria can leverage to capture its share of tax revenue from the digital economy,” they stated.

The FIRS has recently adopted the Integrated Tax Administration System (ITAS) to buttress its commitment to implement the aspirations that are clearly expressed in the National Tax Policy (NTP) regarding the automation of the tax system.

The NTP expects that all processes starting from registration of taxpayers, filing of returns, audits and investigations, payment of taxes including correspondence with taxpayers will become automated. Where there are gaps in current tax laws or where the laws do not support the use of such systems, necessary amendments shall be made to ensure that the use of the systems are in line with the law.