• Friday, March 29, 2024
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BusinessDay

NITDA’s 1% levy, licence plan for startups put ecosystem on edge

Strike: ASUU yet to meet our demands on UTAS – FG

The Nigerian tech ecosystem is sitting on edge over a new NITDA Act proposing to include startups among companies and enterprises remitting a 1 percent levy of the profit before tax to the National Information Technology Development Fund (NITDEF).

The bill will also empower NITDA to fix licensing and authorisation charges, collect fees and penalties as may be necessary for the exercise of its functions.

According to the bill, the startups that are eligible to pay the levy are those with an annual turnover of N100 million and above. The levy is payable under a duration of 60 days “after the FIRS has served notice of assessment on a company in such form as the FIRS may determine and records of such assessments shall be provided to the agency annually.”

A startup that is unable to pay the levy within the period specified, the FIRS is expected to serve a demand note for the unpaid levy plus a sum, which is equal to 2 percent of the levy.

“If NITDA decides to stubbornly go forward with this proposal, the best companies will simply serve Nigeria from outside and this will have the opposite effect with With remote work and crypto,” said Iyinoluwa Aboyeji, co-founder of Future Africa, a venture capital fund empowering early-stage tech startups. “ The government would be very surprised at how effectively a company can serve Nigerians without a presence in Nigeria. Again, Nigeria will lose.”

Nana Nwachukwu, the knowledge management advisor for DFID’s Policy Development FacilityBridge Programme, described the NITDA bill as “dangerous” to the tech space, to digital MSMEs, and to content creators.

“It’s also dangerous to free speech as the pushback on government’s unfair regulatory practice on the media has been online radio/media,” she said.

Companies and enterprises to pay the levy include mobile and telecommunications companies; IT and ecommerce companies; digital platform operators and providers; foreign digital platforms targeting the Nigerian market; pensions managers and pension-related companies; banks, financial institutions, and companies providing financial services using information technology tools; insurance companies; and such other companies and enterprises as determined by regulations from time to time by NITDA.

Read also: NITDA DG commends infrastructural development at Rack Centre

Defaulting companies might see their compounds invaded by NITDA officials as the bill now empowers the agency to “enter premises, inspect, seize, seal, detain and impose administrative sanctions on erring persons and entities who contravene any provision of this Act subject to the order of a court of competent jurisdiction”

The NITDA bill is proposing to repeal the NITDA Act of 2007. Its proposed objective is to enact a new Act to provide for the administration, implementation, regulation of information technology systems, and practices as well as the digital economy in Nigeria and for related matters.

In March 2021, the director-general and CEO of NITDA presented a proposal for the realignment of the NITDA Act 2007 with the tenets and ideals of the digital economy policy of the President Muhammadu Buhari administration and the 4th Industrial Revolution to the National Assembly.

The proposed levy is part of a growing list of financial obligations the Buhari administration has canvassed for operators in the tech ecosystem. Lai Mohammed, the Minister of Information and Culture has in the past championed a licence for online platforms and Zainab Ahmed, Minister of Finance has also said the government is working on a tax on digital services with a significant economic presence in Nigeria.

The news of the bill coming at a point when the tech ecosystem seems to have come together to craft a Nigerian Startup Bill (NSB) they hope will drive development in the space. The NSB is being designed with the hope to harness the potentials of Nigeria’s digital economy through co-created regulations, whilst ensuring that Nigeria’s laws and regulations are friendly, clear, planned, and work for the tech ecosystem.

In recent times, however, some of the pioneers of the NSB are expressing worries about the commitment of officials in the Nigerian government in bringing the NSB to reality. Aboyeji recently said Nigerian lawmakers are not “lobbyable”.

“Isa Pantami and co are amending the NITDA Act and tech bros are busy engaging consultants to draft a “Startup Bill.” You can see the clear disconnect. Tech companies need to build a relationship with the National Assembly. That’s where the real damage is being cooked,” a tech expert by the name @CharlieofLagos tweeted. “As a matter of urgency, tech companies need to come together and start lobbying legislators. This is not the time to play competitors’ games. VP won’t help you when it bursts.”

Due to their small sizes, tech startups in Nigeria have often tended to neglect the government policy aspect of their businesses, and on different occasions have paid severely for this. Experts have always highlighted this deficiency in the aftermath of regulatory decisions such as the Central Bank of Nigeria (CBN) prohibition on financial services providers from supporting the cryptocurrency market and closing down accounts owned by crypto businesses and the decision by the Nigeria Interbank Settlement System (NIBSS) to ban non-bank financial services from the use of Biometric Verification Number (BVN) for validation.

Very few startups like Flutterwave have in recent times taken serious steps to engage the government by creating a government relations unit and appointing very experienced hands to manage it. In July the payment company announced the appointment of Oluwabankole Falade as Chief Regulatory and Government Relations Officer.

There is a challenge that many tech companies prefer to engage the government alone and as the bike-hailing companies discovered later, this hardly works.

“Engaging the policy process is expensive and the reality is a lot of folks who claim to be able to help promise and fail. The policy wonks have to be more open with sharing their knowledge in public and building trust with the ecosystem,” Aboyeji said.