The federal government has said its failure to endorse the Organisation for Economic Cooperation and Development (OECD) tax solution to digital economy was because it seeks to prioritise the importance of securing a fair deal that provides for equitable global re-allocation of profits to all market jurisdictions, and it is its view that the agreement has not met this objective.
Minister of finance, budget and national Planning, Zainab Ahmed, gave the explanation yesterday at the 17th general assembly of the West African Administrations Forum (WATAF) in Abuja. The conference was tagged: “Taxation of the Digital Economy: Exploring Untapped Revenue Sources in Africa.”
The statement is a two-pillar solution to the challenges of taxing the digital economy drawn up by the OECD/G20 countries to solve the challenges encountered in taxation of the digital economy globally.
However, president Muhammadu Buhari has ordered deployment of technology to tax all digital transactions carried out across the country.
Secretary to the Government of the Federation (SGF), Mr Boss Mustapha, said this at the WATAF event.
The assembly is a high-level policy dialogue on taxation of the digital economy, organised by the Federal Inland Revenue Service (FIRS).
Mustapha said the President gave the order to tax authority to ensure digital transactions were taxed digitally and the goal of their efforts was to achieve seamless digital collection and remittance of tax revenue accrued from the digital economy.
He said the President had directed the deployment of technology to good effect in revenue collection and remittance as a matter of government policy.
The SGF said FIRS had been strengthened to carry out this mandate by the president and the Federal Executive Council (FRC), to digitise “tax collection channels in particular and tax administration processes in general.
According to him, this is supported by the amendment to the tax laws and empowering the tax authority to deploy technology in tax.
“Nigeria is putting in place measures to ensure that we keep up to date with these developments and answer the question of what to collect and how to collect it, as far as the digital economy is concerned.
“Therefore, our definition of what to collect- whether we call it income tax, Digital Service Tax or Value Added Tax, must address the issue of redefining who a taxable person or entity is, to accommodate the fact that digital transactions side-track the ordinary and traditional understanding of jurisdiction,” he said.
Meanwhile, some observers have said in drawing up a globally applicable plan, the approach must be truly inclusive in such a way that no section of the global economy is left out or disadvantaged.
The objective of the two-pillar initiative, according to the OECD, is to ensure that multinational entities (MNEs) pay a fair share of taxes in the jurisdictions they operate and earn profit from, whether they have a physical presence there or not. An implementation plan is being drawn up and will be available from October 2021 though, effective implementation of the initiative is slated for 2023.
Of the 139 member countries of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS), a total of 132 countries have signed on to the statement while seven countries including Nigeria are in disagreement with the provisions of the statement.
Speaking during the regional forum yesterday, the finance minister said “our concerns are centred around the strong possibility that the terms of the proposed agreement may result in undesirable outcomes for the revenue accruable to taxing jurisdictions.
oping jurisdictions may experience negative or reduced revenue collection from the implementation of the outcome of the digital economy project,” Mrs Ahmed said.
The finance minister said the scope threshold of Pillar 1 covers only Multi National Enterprises (MNEs) with €20 billion global revenue and above 10 per cent profitability, which means just about 100 companies across the world, are within the scope of the rules.
She said that threshold has left many of the well-known MNEs exploiting the digital space out of the scope of Pillar 1, and will significantly reduce any benefit that may accrue to market jurisdictions from Amount A taxing right.
Even where the non-resident company meets the revenue and profitability threshold, Ahmed said there is still the requirement of operating in and meeting a local sales threshold of 1m euros in the market jurisdiction, except for jurisdictions with a GDP of 40 million USD and below that have the in-scope revenue threshold fixed at 250,000 euros.
On the proposed scope reduction after seven years of implementation provides for some conditions which include effective implementation of mandatory binding dispute resolution mechanism, she said there is no certainty of the reduction in the scope threshold, and the rule may continue to apply only to the few companies that fall under the scope revenue and profitability threshold.
One other critical issue is that the project introduces a mandatory binding dispute resolution mechanism for amount A and issues connected to it including all transfer pricing and business profits disputes, which implies that most tax disputes involving multinational enterprises cannot be determined under the domestic legal framework, but under international arbitration. In her view, “This will most likely lead to conflict with the requirements of domestic law for many jurisdictions.” Under the constitution of Nigeria, for instance, tax revenue disputes are within the exclusive jurisdiction of the relevant Court.
On his part, chairman of the Federal Inland Revenue Service (FIRS) Muhammad Nami challenged all tax authorities to be up and doing in delivering their mandate to their respective countries. “Tax regulators and other industry stakeholders must therefore rise up to the challenge of being in a position to tap into the stream of opportunity that advancements in science and technology afford us,” Nami said at the event.