NITDA bill regulating taxation of Nigerian tech companies under review by FEC

NITDA bill regulating taxation of Nigerian tech companies under review by FEC

The National Information Technology Development Agency (NITDA), is seeking to regulate the tech world yet again.

This is stemming from the birth of a bill that puts its regulatory Act in abeyance and enacts an entirely new bill.

This week, the Federal Executive Council (FEC) considered the bill to repeal the National Information Technology Development Agency Act No. 28 of 2007, and enact a new National Information Technology Development Agency Act. 

The proposed amendment has been said to face several oppositions from the major stakeholders and this incudes the Nigerian Bar Association Section on Business Law.

Since August 2021, no steps have been taken as this regard and almost a year later, we have seen zero to no regulatory strides been made yet.

However, now the bill inches closer to becoming law as the Federal Executive Council (FEC) reviews the bill.

What the Bill is about.

In 2007, the initial bill focused on telecoms and banks, however, its expected reenactment under the section of Interpretation is meant to focus on tech companies including the e commerce sections, fintechs, companies providing financial or digital services using information technology tools with the Nigerian audience as their market.

Undoubtedly, the bill contains some important amendments which are critical to the advancement of Nigeria’s tech ecosystem. 

For example, subsection (v) of Section 9, which lists the functions of NITDA, provides for the protection and rights of consumers of the tech space. In subsection (g) of Section 9, the bill also states that NITDA will be saddled with creating incentives that promote the tech ecosystem like technology parks and startup initiatives, a sure boost to Nigeria’s billion-dollar tech ecosystem. 

Unfortunately, the bill also contains several questionable provisions which will do more harm to the tech world than the good provisions can offer. 

The problem is not with the purpose of the fund, but with the constitution of the fund. In subsection (a), the bill states that all companies with annual turnovers over ₦100 million ($240,000) will be required to pay an annual levy worth 1% of their profit before tax. 

Under the Companies Income Tax Act (CITA), Nigerian startups with over ₦25 million in turnover are subject to a 20% tax paid to the Federal Inland Revenue Service (FIRS). Companies with over ₦100 million have to pay 30%. All registered companies also have to pay an education tax worth 2.5% of their assessable profit per year. 

Another section that calls for concern and is a subject of discussion  lies in Part V, Section 15, where the bill authorises NITDA to provide permits and licenses for operators in Nigeria’s information and technology sector. 

The section is ambiguous as it doesn’t state the requirements for companies seeking to get this permit, the duration of the permit, or the permit fee. It’s also a repetitive provision because most of the companies the bill seeks to regulate are already registered with other agencies.

To operate in the country, tech companies have to be licensed by the Corporate Affairs Commission (CAC), while fintechs have to obtain CAC licenses as well as licenses from the Central Bank of Nigeria (CBN).

“Granting licenses for the specific use of technology in society is restrictive, and controlling and may engender censorship,” says Victoria Manya, the executive director at Advocacy for Policy and Innovation (API), who spoke to TechCabal over a WhatsApp chat. 

For companies and startups who fail to adhere to the bill’s provisions, the bill prescribes hefty sanctions of fining and imprisonment. 

Part VII which lists out offences and penalties states that companies that operate without the aforementioned licenses are subject to a ₦30 million fine with every director or principal of the company liable for ₦3 million in fines each, and/or 2 years in prison. Where an individual performs the same act, the individual will have to pay ₦3 million, and/or spend at least 1 year in prison. 

The bill also repeats the same sanctions for companies/persons that deny NITDA access to its records or data, companies/persons that don’t adhere to guidelines set by the Agency, companies/persons that perform acts requiring prior approval from the Agency, and companies/persons that perform acts where no “specific penalty is provided”.

The bill’s largest red flag, in relation to penalties, lies in Section 25(1) where the bill penalises non-payment of levies for the NITDA Fund. Where companies fail to pay the 1% levy, the Agency will be empowered to serve them a notice with a fine constituting 2% of the unpaid levy. Where the company refuses to pay the levy within 2 months after the notice, the company will be liable to pay 0.5% of the payable amount per day. 

“The provision in section 25 has also made NITDA a judge in its own course,” said Manya. “Where do we begin to understand the motivation behind criminalizing an already unjust situation.”

While there lies a lot of uncertainty surrounding the validity of this bill considering that it is incompatible with the Nigerian Startup Bill, we would keep our fingers crossed.