Digital economy no longer needs introduction. We will therefore not be spending time trying to define neither the term, scope nor coverage. But its pervasiveness and disruption of established business norm is no more demonstrated by the recent valuation of Paystack, a fintech company in Nigeria, with less than ten-year track record.
Stripes, a US-based major investor in the payment technology industry recently paid a whooping US$200m (approximately N76 billion at current official exchange rate) to acquire the company. The value of a relatively unknown company set up by young graduates was more than the combined net asset value of at least three non-first tier banks in Nigeria, each of which has been in existence for more than three decades.
Digital economy is literally displacing the brick and mortal forms of business all over the world. Uber is shutting down yellow cab taxi drivers in Lagos. The traditional media houses are competing for space within the social media channel.
The telecommunication companies (telcos) have been granted a form of banking licence by the Central Bank of Nigeria. The major reason why the telcos have not displaced the banks is due to the limitation in the scope of what the telcos are permitted to do. Nevertheless, the fact that the telcos outlets in cash dispensing far exceeds the ATM machines and available in remotest part of Nigeria is a wake up call that banking in Nigeria will no longer be the same.
The Nigeria tax system however lacks a coherent system of taxation for the players in the digital economy. It is still rooted in the past seeking for the traditional ways of tracking income derived, earned, received or brought into Nigeria.
The common factor about each of the basis for identifying a taxable income for companies in Nigeria is ability to identify a particular place or trajectory of where an income is earned within the geographical space of Nigeria. This is where digital economy escapes from tax net of the country.
The situation in Nigeria is extremely critical. The tax laws, sadly, do not guarantee certainty in tax payable by the companies. The problem ranges from identification of the particular legal entity that should account for the tax, to the determination of the taxable income, tax-deductible expense, documents and information required to be filed for tax purpose, among others.