It is no longer news that the COVID-19 pandemic has altered business transactions across the globe, causing business communities to adopt technology to be able to mitigate the effect occasioned by the pandemic. The Organisation for Economic Co-operation and Development (OECD)’s report on the digital economy policy agrees with the fact that the transformational impact of digitization becomes more evident when considering the growing importance and the rise of digital companies in the global business landscape. However, a major challenge to economic development posed by digital platforms is their capacity to use tax optimization practices to avoid paying their fair share of taxes. While tax avoidance is not exclusive to digital platforms, some of the inherent characteristics may rely heavily on intangible assets because these intangibles are easy to move around the world, and they provide opportunities for aggressive tax evasion.
As digitization continues to be an important driver for global economic growth, it is equally necessary that taxation of the digitalized economy should promote and not hinder growth and cross-border trade and investment in Nigeria. From a disruptive perspective, the integrity of personnel and the international taxation system is of crucial importance, therefore, there must be a collaborative approach to fully grasp the challenges, implications, opportunities, and solutions that the digital economy will present.
A coherent and coordinated implementation of international guidelines is essential to establish a consistent global tax system that better facilitates cross-border trade and economic development.
2.0 ANALYSING THE 24TH ANNUAL TAX CONFERENCE SUB-THEMES
The 24th Annual Tax Conference of the Institute, being the largest gathering of Tax Professionals shall be focused on “Global Disruption, Taxation and Digitisation: Implications for Socio-Economic Development”. Some of the Subthemes for the Conference will now be examined below:
2.1 RE-ENGINEERING NIGERIA’S TAX SYSTEM: IMPLICATIONS FOR TAXPAYERS AND TAX ADMINISTRATION
For any tax system to thrive, there must be a robust and effective Tax Administration in place to set the required footprint, policy, and law for revenue generation. In recent times, the government has constantly ensured that Finance Bils are sent to the National Assembly yearly in order to address various challenges faced by tax administrators and taxpayers in Nigeria and this has led to the enactment of a tax law on the digital economy and significant economic presence (SEP).
The SEP sets out conditions under which non-resident companies (NRCs) that provide digital services; or technical, professional, management, or consultancy services (TPMC) to Nigerian customers, from outside Nigeria will be deemed to have a taxable nexus, and therefore be liable to tax, in Nigeria.
Technological changes are constantly shaping the business relationship between tax administrators and taxpayers, making them refine their business models and operations in order to keep up with digital innovations. The need to bring about ease in tax registration and voluntary tax compliance in taxpayers brought about the introduction of the TaxPro-Max solution.
TaxPro-Max enables seamless registration, filing, payment of taxes, and automatic credit of withholding tax as well as other credits to the taxpayer’s accounts among other features, and also TaxPro-Max provides a single-view to taxpayers for all transactions.
2.2 EMERGENCE OF DIGITAL CURRENCIES: CURRENT REALITY, FUTURE EXPECTATIONS AND TAX IMPLICATIONS FOR STAKEHOLDERS
The global acceptance and operation of digital currencies may still be questionable and not fully accepted considering the associated risks. However, the impact could include potential disruption to business models and systems, as well as facilitating new economic interactions and linkages. The potential implications of digital currencies and distributed ledgers on retail payment services are unique as these schemes have the potential to facilitate certain retail payment transactions such as e-commerce, cross-border transactions, and person-to-person payment.
Factors that determine digital currencies are based on the use of distributed ledger which represents a current development in the payment landscape which has brought about stimulated innovation in traditional payment methods; reduced cost and increased speed, including the areas of e-commerce and cross-border transactions, are some of the factors underpinning both digital currency development and broader payment system innovation. However, it is noteworthy to mention the role of technology in driving the development of digital currencies and other innovations. The current reality is that sooner or later digital currencies would gain global acceptance since the operational and transactional models are different from bitcoin and cryptocurrencies
Recently, the Central Bank of Nigeria (CBN) launched Central Bank Digital Currencies (CBDC) called eNaira, the CBN circulated a presentation to licensed Financial Institutions (FI) which provides guidelines on the issuance and operation of eNaira in Nigeria.
There may however be concerns over the security of the technology platform, eg, reverse of transactions, the disruption of global network of computers because of different physical locations, gatekeepers software, etc; but in the course of time, necessary resolutions will be innovated.
Following the current reality and future expectations, it is very clear that the finance world will never be the same again looking at the United States of America accelerating to deploy digital currencies, China with digital Yuan, while Britain, France, South Korea, and other countries are stepping up the process.
The incorporation of SEP as a basis for taxing non-resident companies in our laws is a welcome development for all the stakeholders by implication.
The endorsement of the global minimum tax by the G20 on big businesses particularly large multinational corporations will create new opportunities for taxing and eliminating tax evasion, therefore, Nigeria needs to properly analyze the benefits therein vis a vis our existing law and consider tax treaty agreements where applicable.
Stakeholders must update their skills first and foremost to understand the benefit/risk to businesses, and since it is assumed that digital currencies will increase Nigeria’s GDP, the stakeholders would expect to have strong regulatory and institutional frameworks for revenue generation that would improve our GDP.