Nigeria’s Proposed Tech Act To Levy Tech Companies

For some time now, there have been some behind the scene discussions around revamping the 2007 Act of Nigeria’s information and technology body. The Nigerian Information and Technology Development Agency (NITDA) is proposing amendments to its regulatory Act which will give the agency more control over Nigeria’s technology ecosystem. The Act lists out the functions of NITDA, a framework for the agency, as well as guidelines for the performance of the listed functions was first enacted in 2007. However, the proposed amendments seek to regulate the activities of tech companies in Nigeria, listing out provisions for registration, fees, and even sanctions.

Nigeria has arguably become one of Africa’s most attractive destinations for venture capitalists who continue to spot opportunities. It is also home to several multimillion-dollar Fintech companies that have flourished and reflected the county in a positive way, examples of these Fintech companies include Interswitch, Flutterwave, Jumia, etc. The bill which established NITDA as the agency to oversee Nigeria’s technological transformation is quite outdated and therefore reemphasizes the critical need for amendments in other to keep up with the pace of innovation. According to NITDA Director-General, Mallam Kashifu Inuwa Abdullahi, the amendments are crucial for the agency to keep up with the accelerating changes in the global IT ecosystem. The DG also affirmed that the amendments are imperative if Nigeria is to secure a place in the emerging global digital economy. 

NITDA tasked itself to review its laws and make them more beneficial for startups. Earlier this year, in March, Mallam Kashifu proposed the realignment of the Act with “tenets and ideals of the fourth Industrial Revolution” and Nigeria’s Digital Economy Policy. The proposed bill includes standard provisions which list out the duties and obligations of NITDA, the core of it remains to create an impartial and independent regulatory framework for the development of the Nigerian information and technology sector. Debatable parts of the bill, however, are contained in Sections 6, 13, and 22. Section 6 authorizes NITDA to issue new licenses for the companies seeking to provide information technology and digital services in Nigeria. It also accrued NITDA with powers to fix licensing and authorization charges, collect fees and penalties and issue contravention notices and non-compliance with the Act. While the bill is still been projected, the proposed amendments have many ecosystem players questioning the true motives of the agency and its policymakers.

In line with fees and charges, Section 13 of the proposed Act also provides for the establishment of the National Information Technology Development Fund which will be funded by grants-in-aid, fees, gifts, and levies charged from tech companies. The Fund is expected to carry out the country’s digital economy objectives. An important part of the section, listed in sub-section 2a, provides that all companies with an annual turnover of ₦100,000,000 ($243,831), would be required to pay 1% of their profit before tax as levies. This will be in addition to the hefty 30% company income tax all profit-earning companies which include tech startups, have to pay. While the 2007 Act does contain a similar provision, most tech companies were excluded from the levy as they were not part of the categories listed under the act. The Third Schedule, under the proposed Act, includes categorizations for e-commerce companies, foreign digital platforms targeting the Nigerian market, and Fintechs. 

Another thing the proposed amendments have in common with the present 2007 Act, is the imposition of both fining and imprisonment for offenses under the Act. Under Section 22, offenses under the Act include non-payment of levies, punishable with a 0.5% increase in the assessed sum per lapsed day. Failure to adhere to directives issued by the agency also attracts a fine of ₦3,000,000 ($7,315) for individuals and ₦30,000,000 ($73,149) for corporate bodies. Prison terms also range from a year to two in this section for individuals and members within a corporate body who default. This is a far cry from the 2007 Act which listed out lesser fines for the same offense: ₦200,000 ($487) for individuals, and ₦500,000 ($1,219) for corporate bodies. The severity of these fines has been highlighted in various ongoing conversations because they will apply to tech start-ups if the amendments pass.  Of the $1 billion raised by African start-ups in the first half of 2021, Nigerian startups account for at least $300 million of it, an amount that’s double the total amounts raised in H1 2018 and H1 2019 combined.  Many key players in the Nigerian tech ecosystem, who are rightfully concerned, have proposed that the amendments, particularly sections dealing with fines and fees, are the government’s way of getting a slice of the proverbial pie. Many have called for startup leaders and tech companies and enthusiasts to lobby the legislators behind passing these bills to law. However, the general sentiment is that lobbying could be a dead-end for now.