Technology - December 28, 2021

The Biggest Challenge Nigeria will Face from Taxing Social Media in 2022

The effect of the value-added tax on social media invariably falls on the users that rely on it to promote their businesses.

December 28, 2021

6 min read

In the second quarter of the year, the federal government of Nigeria disclosed that it will start taxing social media platforms beginning January 2022. It’s no surprise that this new development received mixed reactions due to underlying challenges.

Let’s consider the first,

How does Nigeria Decide What Area of Revenue to Tax Social Media Platforms?

The ability to ascertain which area to tax social media platforms is one of the challenges facing Nigeria and some countries. This is because apart from Ads, there are other mediums, such as subscriptions, etc., that social media platforms use to generate revenue, which might be difficult for Nigeria’s government.

According to the National Coordinator, Alliance for Affordable Internet, Olusola Teniola, the Organisation for Economic Co-operation and Development (OECD), debated how to achieve digital companies’ taxation.

He says, “Each country is devising methods to determine the amount of taxation due to them from the transactions made on these platforms. Recently, there has been an agreement that any transaction on these platforms will attract a levy”.

However, for this to be effective in Nigeria, proper implementation and technical expertise need to be implemented. Olagunju Timi, tech lawyer and policy consultant, says a complete restructuring of the country’s tax sector is necessary. According to him, “Whatever taxation the government wants to impose will inevitably affect regular users”.

How Nigeria Taxing Social Media will Affect Business in 2022

The effect of the value-added tax on social media invariably falls on the users that rely on it to promote their businesses. According to Facebook, “Due to implementation of a value-added tax (VAT) in Nigeria, Facebook is required to charge VAT on the sale of ads to advertisers, regardless of whether you’re buying ads for business or personal purposes. All advertisers with a business country of Nigeria will be charged an additional 7.5% VAT on advertising services purchased beginning the 1st of January, 2022”.

The implication on businesses is that entrepreneurs will pay more to advertise on any social media platform. That is an increase in price for the same service. This puts business owners at a disadvantage as many of them depend on these platforms to reach their audiences.

In light of this, there is a tendency for the usage on these platforms to decline, thus negatively impacting businesses in Nigeria. With this in mind, taxing social media platforms should not fall on the users as they are not making the bulk of the revenue.

Considering the data in Nigeria, there are 33 million active users in Nigeria, with 29.64 million Facebook users in 2021 and a forecast of 69.4 million users in 2026. Also, on Instagram, there are 10.14 million users with a forecast of 27.84 million in 2025 and others such as Whatsapp, etc. The data indicates continuous growth on these platforms.

The Outcome of Nigeria Taxing Social Media Platforms in 2022

According to experts, taxing social media platforms in 2022 will serve as a medium of generating revenue for the government and checkmate the country’s tax system.

Given the current economic conditions, the finance bill will serve as an opportunity for the government to identify and correct the loopholes in the tax system to prevent overburdening its citizens while still generating revenue from taxes. If properly structured, issues such as corruption, lack of transparency and accountability can be tackled.