Nigeria imposes 7.5% VAT on digital goods, services advertisements

• Google (80 million visits), Meta (26 million visits) and YouTube (7 million visits) ranked the first, third and thirteenth most visited sites in Nigeria in November 2021
• On March 1, 2022, Google informed its business account users in Nigeria that it would kickstart collecting 7.5 per cent value-added tax
• A section on the Act focuses on capturing value from non-resident technology companies and calls them to act as VAT collectors for digital goods and services traded within Nigeria

Nigeria has joined the fast-growing list of African nations that effectively capture their previously untapped digital economies within their tax base. The West African country is looking to grow revenues from a sector that has experienced exponential growth, the ad industry.

According to the 2022 report by Hootsuite, a social media management platform, ad-serving behemoths Google (80 million visits), Meta (26 million visits), and YouTube (7 million visits) ranked the first, third and thirteenth most visited sites in Nigeria in November 2021. DATAREPORTAL reveals that there were 32.90 social media users in Nigeria in January 2022.

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Despite the impressive ad visits, the government of Nigeria could not draw earnings made by these internet ad companies making tens of millions. But the cat is finally in the bag through Nigeria’s Finance Act!

On March 1, 2022, Google informed its business account users in Nigeria that it would kickstart collecting 7.5 per cent value-added tax. The email sent by google read:

“Due to new legislation in Nigeria, starting April 1, 2022, Google will be required to charge 7.5% VAT on all taxable goods and services.”

Nigeria’s finance Act 

The former Federal Inland Revenue Service (FIRS) chairman, Babatunde Fowler, announced Nigeria’s decision to tax digital transactions in 2019. The new legislation dubbed The Finance Act (2021) was signed on December 31, 2021.

A section on Nigeria’s Finance Act focuses on capturing value from non-resident technology companies and calls them to act as VAT collectors for digital goods and services traded within Nigeria. The minister for finance, budget and national planning, Zainab Ahmed, said during the presentation of the 2022 budget that the taxable digital platforms include apps, high-frequency trading, electronic data storage, online advertising, and several others.

In addition, Meta had already issued a notice on December 9, 2021, before releasing the new financial regulation, saying that Meta ads in Nigeria would be subject to a value-added tax (VAT) at the applicable local tax rate. The VAT applies to advertisers whose “Sold to” country on their business or personal address is set to Nigeria. Meta has 26.10 million users in Nigeria in early 2022, equivalent to 12.2 per cent of the population in Nigeria.

Zoom has also issued a notice on their site to their users in Nigeria saying:

“Zoom has been appointed a non-resident VAT collector for B2B and B2C supplies of electronically supplied services in Nigeria. As such, Zoom is required to charge VAT on all taxable supplies made to customers in Nigeria.”

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Non-resident companies offering digital services such as Meta and Netflix will also be required to remit 6 per cent of the annual turnover of their business with Nigeria to the Federal Inland Revenue Service (FIRS) under the Finance Act 2021.

Zainab Ahmed has described the 6 per cent tax pricing as fair several times. Since the decision to tax non-resident companies was made public, it hasn’t been met with any opposition to date.

Taxation on the ad industry will make advertising for businesses in Nigeria costlier, making it difficult for middle revenue businesses to advertise their products. At the same time, it will reduce the one too many adverts that appear on social media pages.

Investors from outside Africa will have a higher preference for investing in other African countries with better markets and or little taxation compared to the engagement with the new legislation in Nigeria.

The ad industry has the following advantages to the digital economies business:

• Introduction of a new product to the market
• It helps businesses to expand to new markets.
• Advertisements help to increase sales, fight competition and eliminate intermediaries.
• Increases business sales.
• Advertisements serve to educate the consumers on the usage of goods.

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