Nigeria undertakes digital tax crackdown

Nigerian digital tax crackdown

14th February 2020

Nigeria, ‘the giant of Africa’, is turning into a hotspot for contractors. Home to 202 million people, and extensive oil reserves – things are looking bright for the 27th largest global economy. However, one area where the country has faced major challenges is tax evasion, with an annual $15 billion lost to non-compliance. In fact, in 2018, just 19 million Nigerians paid tax – less than 30% of the population.

This is not just a problem for the West African nation, but the entire continent. In fact, just a few months ago, African tax experts conducted a four-day meeting in Uganda aimed at addressing evasion. This month, a similar conference has taken place in Abuja, the capital. Here’s what contractors need to know about the Nigerian digital tax crackdown.

Nigerian digital tax crackdown: A continental movement

Nigeria and other African countries have commenced the process of developing a framework to carry out a digital tax crackdown. Tax chief Mr. Mohammad Nami disclosed this at a three-day conference of the African Tax Administration Forum (ATAF) in Abuja, where experts assembled to develop tax plans.

Speaking on the importance of the conference, Nami said that the size of the global digital economy and its huge profit base has made it imperative for African countries to seek innovative ways of bringing the sector into the tax net. He said, ‘If Africa is to reduce its budget deficits, it must widen its tax base and the informal sector provides an opportunity to do so.’

According to him, ‘the informal economy in Africa constitutes between 21% to 70% of the GDP of African countries and 30% to 90% of employment in the region. Yet despite its size, the sector remains one of the most difficult sectors to tax, with most of the businesses concealing their activities from authorities.’

Executive Secretary of the ATAF, Mr. Logan Wort, noted that e-Commerce and social media had become such a large part of the Nigerian economy that they should be taxed appropriately. ‘The ATAF is trying to negotiate the best tax deal with the global digital businesses,’ he said.

One of many steps

The Nigerian digital tax crackdown isn’t the only step by authorities that could affect contractor compliance, with the country aggressively pursuing a number of compliance strategies. For instance, in order to cut down on massive revenue losses to fraud and evasion, Executive Chairman of the Federal Inland Revenue Service, Tunde Fowler, has stated that from 2020 Nigeria would implement the first Automatic Exchange of Information.

Furthermore, in 2019 we covered a tax amnesty scheme in the country, whereby for the next 12 months, companies holding offshore assets that haven’t paid tax can declare assets and income with a one-time payment of 35% asset value, with full immunity from prosecution. As a result of this amnesty, Nigeria’s government recovered around $98 million.

Nigerian contractor compliance – what do you need to know?

So, if any contingent workers are thinking of moving to this West African superpower, they will have to be aware of a few general nuances around Nigerian contractor compliance.

Work permits & visas in Nigeria

Temporary employment visas can be applied for in Nigeria directly to the Comptroller-General of the Immigration Service by companies and organisations responsible for bringing in expatriates. A work permit costs approximately $5,000. Contractors will also need to obtain a Taxpayer Identification Number (TIN), a unique 14-digit sequential code which is mandatory for all taxpayers, obtainable from a local tax office in Nigeria.

Contractors should be aware

Ultimately, it’s clear that preventing tax evasion is a priority of authorities globally. While Nigerian contractor compliance is getting more complex, the same can be said across the world – with Africa especially determined to boost compliance and chase down lost revenues.

Contractors must be diligent when complying with the intricate global tax system, as just one mistake could have serious ramifications. To prevent this from happening, it is wise to employ an expert in international contractor tax and compliance to help your team achieve its goals.

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