A new Bill By NITDA gets FEC approval to tax and fine Tech Companies in Nigeria

The governing agency for information and technology in Nigeria, the National Information Technology Development Agency (NITDA), is once again seeking to regulate the country’s tech ecosystem, this time with a bill that repeals its regulatory Act and enacts a completely new bill.

On Wednesday July 27, the Federal Executive Council (FEC) approved 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.

This comes almost a year after NITDA Director General Kashifu Inuwa Abdullahi first proposed amendments to its regulatory Act. The amendments in that proposal included provisions for new license categorisations, licensing fees, 1% profit-before-tax levies for companies with revenues higher than ₦100 million ($243,831), and prison sentences for defaulting parties.

From August 2021 till date, no regulatory strides have been made by the proposed amendment which has reportedly faced opposition from stakeholders including the Nigeria Bar Association Section on Business Law (NBA-SBL).

Now, the bill inches closer to becoming law as it passes the Federal Executive Council (FEC) and moves onto the Ministries of Justice, and Information.

A summary of the bill

Unlike its 2007 predecessor which focused on telecoms and banks, the proposed reenactment, under its Interpretation Section, seeks to cover tech companies including e-commerce platforms, “foreign digital services targeting the Nigerian market” like Amazon and Netflix, and fintechs or “companies providing financial services using information technology tools”.

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

NITDA bill
A snapshot of the bill. Download the full bill here.

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 ecosystem than the good provisions can offer.

“The most problematic section deals with the creation of the NITDA Fund,” said Davidson Oturu, a partner at Aelex Legal with expertise in tech and ICT law. Oturu, who spoke to TechCabal over a phone call, also noted that “The provisions that are problematic, do more to damage the ecosystem than those ones that are similarly fine.”

Part VI, Section 16, of the bill provides for the creation of the NITDA Fund which will be used for the “advancement of digital economy and related purposes”. 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.

“The problem with this,” Oturu noted, “is that companies with ₦100 million in turnovers haven’t necessarily broken even. Most of them are bootstrapping or fund-raising in their first few years, and whatever profit they make is crucial to their survival. The levy also places an onerous burden on these startups, especially when you consider that startups already pay tax to other agencies.”

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.

The next troublesome provision 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.

NITDA bill
A snapshot of Part VII. Download the full bill here

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.”

Incompatible with the Nigeria Startup Bill

The FEC’s approval of the bill comes on the same day the House of Representatives approved the Nigeria Startup Bill (NSB) a lauded regulatory bill created by Nigerian presidency in collaboration with NITDA and stakeholders of Nigeria’s tech ecosystem.

“The NSB was created to avoid bills like NITDA’s. It’s also quite incompatible with the NITDA bill,” Oturu noted.

The NSB has provisions for tax breaks for new startups but the NITDA bill is focused on taxing startups. The NSB also provides tax incentives for foreign service providers while NITDA’s does not. Where the NSB clearly delineates requirements for registration and licensing or labelling of startups, the NITDA bill only states a requirement for licensing but fails to give any details about licensing.

Speaking further on the bill, Oturu said, “This bill also shines a negative light on NITDA and the work they’ve done with the Nigeria Startup Bill. NITDA is supposed to be an entity that interacts with and fosters startup, but this bill portrays it as an MDA seeking to criminalise everything.”

To Manya, the new bill shows that NITDA has moved swiftly from its original much-needed mandate to enable digitalisation through strategic provisions in Nigeria to becoming a tax and levying agency. “The bill concentrates too much on regulating to punish, rather than regulating to enable. It wants to legitimise draconian practices with legal provisions to back them up, “ she said.

What Nigerian techpreneurs can do

The bill still has a long way to go before it becomes law.

From the FEC, it moves onto the Ministries of Justice, Communication and Digital Economy, where it will seek approval for its outlined processes. From there on, it will move to the Nigerian presidency who will then recommend it to the National Assembly for consideration.

“There’s enough time for techpreneurs to raise their voices,” Oturu recommended. “Techpreneurs can prepare a position paper and share it with the Ministry of Justice. And if that doesn’t work, the National Assembly, at the Committee Stage, will call for stakeholders to send in their memorandum and voice their concerns at a public hearing. The most important thing to do right now is to speak up and voice concerns.”

Source: techcabal.com

Leave a Reply

Your email address will not be published.