Financial crisis: FG targets N10trn from foreign digital service providers

…as tax on tech, social media firms to surpass 50% projected revenue

The Federal Government has found some reprieve in the massive windfall from foreign digital service providers offering services to Nigerian users amid a bitting revenue crisis caused by a sharp drop in the nation’s crude oil production, Business Hallmark can report.

A recently released report by the National Bureau of Statistics (NBS) shows that foreign tech and social media companies operating in Nigeria, including Amazon, Twitter, Netflix, Google, Alibaba, Facebook, and others paid N2.55 trillion in taxes to the government in the first six months (January – June) of 2024.

According to the NBS, while the foreign firms paid N1.72 trillion into government coffers as Company Income Tax (CIT), the sum of N831.47 billion was paid to the government as Value Added Tax (VAT) in the same period.

The amount represents a massive increase of 158.76 percent from the N985.27 billion collected from the firms in 2023.

Further checks by BH revealed that taxes collected from the firms alone represent about 27 percent of the aggregate revenue of N9.1 trillion realized by the government in the first half of 2024.

The massive revenue paid to the government, our correspondent learned, came as a huge relief to the nation’s economic managers, who had been assigned the difficult task of sourcing the much-needed funds to run the country.

It would be recalled that President Bola Tinubu, had on Monday, January 1, 2024, signed into law the 2024 Appropriation Bill of N28.7 trillion at the Presidential Villa, Abuja.

According to the president, while his administration expects to fund the budget through expected generated revenue of N19.52 trillion, the balance of N9.18 trillion deficit will be financed by borrowings totaling N7.83 trillion and N298.49 billion from privatisation proceeds and another N1.05 trillion drawdown on multilateral and bilateral loans secured for specific development projects.

Unfortunately, Nigeria’s major revenue earner, crude oil, has grappled with several challenges, including low production output and price fluctuations.

For instance, despite receiving a production quota of 1.5 million barrels per day from the Organisation of Petroleum Exporting Countries (OPEC) for 2024, the best the country has achieved this year is 1.35 million barrels per day (excluding condensates).

Oil production fell to its lowest level of below 1 million bpd in 2022 before rising to its highest peak of about 1.35 bpd in August 2024.

Apart from the nation battling low crude oil production and its negative effects of low revenue, the price of oil in the international market has also been fluctuating lately.

In early and mid September, the price of a barrel of Brent crude oil, which Nigerian crude blends are measured, fell below $75 which the 2024 budget was benchmarked.

According to BH checks, crude oil prices fell below $70.55 in September before it started its slow recovery. At the end of trading on Friday, October 4, 2024, Brent closed at $78.05, ($3 above the 2024 budget estimates), while WTI closed at $74.38, largely buoyed by the escalation of the war in the Middle East between Israel and Hamas on one hand, and Iranian backed forces like the Houthis in Yemen and Hezbollah in Lebanon on the other.

Owing to the sharp drop in revenue from crude oil, the Federal Government shifted focus to raising and introducing new taxes in order to get more revenues.

However, while non-oil revenues, especially taxes, have substantially raised government revenues, the latest remittances from foreign digital service providers have helped to stabilize government’s struggling finances.

According to sources in the nation’s Ministry of Finance, the government expects to earn additional N2.55 trilion or more in taxes in the second half of the year from foreign digital service providers.

If their projections work out as expected, revenue from digital service providers will rise to at least N5.1 trillion by the end of the year. This represents about 27 percent of the total projected revenue for 2024.

Apart from income expected from the foreign digital service providers, the Federal Government has also intensified efforts at recovering huge revenues in lost taxes from musicians, skit makers, social media content creators, influencers and other local users of the apps, platforms and technologies deployed by the firms.

A top official in FIRS, while speaking with our correspondent on the matter at the weekend, lamented that musicians, content creators, and influencers rarely pay tax from the fortunes they make in the digital space, unlike in other climes where proceeds above $500 are taxed.

The official blamed the development on lapses in Nigeria’s tax laws.

“Nigerian influencers, such as sportsmen and women, musicians, skit makers, YouTubers and TikTokers seldom pay tax despite earning fortune from the digital platforms.

“Yet, they access – at little or no costs – infrastructural facilities such as hospitals roads provided with funds raised from taxes paid by poor salary earners.

“They leave in opulence, constructing mansions in upscale areas like Lekki and Victoria Island, fly private jets, wear expensive clothes and jewelries and ride expensive cars.

“We are working with these foreign firms to help us deduct the revenue (taxes) directly from source the way banks and companies help government to collect stamp duty charges and VAT from customers.

“We expect to get additional N5 trillion from local users, pushing revenues earned from the sector to over N10 trillion”, the source stated.

According to a source in Facebook, who spoke to our correspondent on the condition of anonymity, incomes earned from brand promotions, endorsements and contents posted on social media platforms are monetized in U.S. dollars based on the number and duration of views.

“The views are usually in millions, literally translating to more money for the creators”, he said.

Reacting to the move to tax influencers and content creators, the Special Adviser on Media to the Chairman of the FIRS, Mr. Dare Adekambi, lamented that social media content creators and influencers constituted a major block of tax evaders.

“Skit makers, influencers and other content creators, who are making money using digital platforms need to be paying tax, but they are not paying.

“There is a law in Nigeria that requires everybody, who earns income to pay tax. They earn in dollars. Tax is a civic obligation; civil servants are paying, so they also have to pay.

“The CAC’s Registrar-General and the FIRS’ chairman recently discussed how they can work together in bringing them into the tax net. The challenge is how to track them, but we are looking into it.

“We (FIRS) are meeting with content creators and influencers to make them see why they should voluntarily pay tax. But if our friendly approach is taken for granted, then we will go for enforcement”, Adekambi stated.

Adekambi further disclosed that FIRS is considering the deployment of data and technology to scale up tax revenues.

“If Facebook, Instagram, Twitter and other social media platforms are paying taxes to the government, why would people using those platforms to create content and make money not pay?

“There is a way the government monitors everything in other climes. One of the cardinal goals of the current FIRS chairman is to leverage technology and data. When you have these, revenue will be predictable and it will be easy for the government to plan”, he said.

BH recalled that the Federal Government had stumbled on the huge potentials of the digital platforms to help raise revenue for the country after the administration of former President Muhammadu Buhari, tried to monitor the online activities its critics, both home and abroad on social media platforms like Twitter and Facebook.

For instance, the services of Twitter were restricted in the country during the acrimonious 2019 general election.

The ban was, however, lifted after the two parties reached a consensus, one of which is the setting up a presence in the country.

Other tech firms like Facebook, Google and others, apart from been mandated to set up offices in Nigeria, were also asked to start paying taxes to government.

To achieve that, the government enacted the 2021 Finance Act, which mandates FIRS to charge offshore companies providing digital services to local customers in Nigeria a six per- cent tax on turnover.