TECHDIGEST – From Nigeria Startup Bill to Nigeria Startup-Act. It is quite fascinating how the yearning for business and technology development in Nigeria engulfed stakeholders in the innovation startup ecosystem to actively engage in driving the bill which eventually became law on the 19th of October 2022.

The Nigeria Startup Act was an executive bill, initiated by both Office of the Chief of Staff and the Ministry of Communications and Digital Economy as a legal framework to help create an enabling environment and make provision for startups to have access to public and private funding amongst others.

Interestingly, one of my recent articles highlighted the significance of tax relief in the startup ecosystem to ease business development but with the bill now a law, access to numerous incentives has been enabled by the Act which is now deemed effective for all startups across the nation.

A startup simply refers to a business that is just starting, which in the past suffered from dealing with multiple layers of regulations to secure the necessary licenses needed to operate as a business.

The process of startup founders seeking registration or license is often hindered by factors like aggressive government policies, ambiguous regulatory policies, oversaturation of startups in certain locations, talent shortages, high business costs, funding difficulties, etc.

It is for this reason that the federal executive council decided to engage with key stakeholders in the ecosystem to co-create clearly-defined legislation and incentives that will benefit and allow startups and innovators to thrive in an environment where their interest is well protected.

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By providing a legal and institutional framework for the development of Nigerian startups, the Act is also creating an enabling environment for the establishment, development, and operation of startups in the country.

For instance, the Act applies to all companies incorporated under the Companies and Allied Matters Act and grants the startup label and organizations and establishments, whose activities affect the creation, support, and incubation of labelled startups in Nigeria.

In order to determine the startups with the right metrics to be considered tech-enabled, the Act provides for “labelling” which is a merit granted to qualified startups and grants them access to incentives.

According to the provisions of the Act, for a startup to be eligible for labeling, it must meet the criteria to be a limited liability company under the Companies and Allied Matters Act and has been in existence for a period not more than 10 years from the date of incorporation.

This means that the startup objectives are innovation, development, production, improvement, and commercialization of a digital technology innovative product or process amongst others as entrenched in the NSB Act.

To ensure startups’ access to funding, the Act contains the provision for the creation of the Startup Investment Seed Fund (Fund), to be administered by the Nigerian Sovereign Investment Authority.

The sum of not less than N10,000,000,000 (ten billion Naira) is expected to be paid into the fund annually for the purpose of providing finance to early-stage startups and also providing relief to technology laboratories, accelerators, incubators, and hubs. There are provisions for a Credit Guarantee Scheme with ensures access to grants and loans administered by the Central Bank of Nigeria (CBN), the Bank of Industry, and other bodies statutorily empowered to help entrepreneurs and SMEs.

Under the Pioneer Status Incentives (PSI) Scheme from the Nigerian Investment Promotion Commission (NIPC), startups that qualify for pioneer status may receive expedited approval for tax reliefs and incentives. This is to encourage both local and foreign investors to invest in startups in Nigeria. Through this arrangement, an investor may receive a tax credit of up to 30 percent of the investment and also partake in the free repatriation of funds.

Despite this innovative legislation, many startups are still lost on how to register their businesses. Although the Act fosters the enabling environment and creation of a portal to serve as a platform for registration and other purposes, the need for awareness creation to enlighten people on the benefit of NSA is important and must be prioritized.

Firstly, the startup is to create an account with Corporate Affairs Commission before registering the company. The Companies Registration Portal (CRP) can be accessed through these links: https://pre.cac.gov.ng/home and https://post.cac.gov.ng/llogin.

By creating an account, the applicant would be able to electronically submit documents and statutory returns to the commission.

Secondly, the applicant would follow further instructions on the CAC official website and log on to the e-registration portal for further details.

Meanwhile, at the just concluded Digital Nigeria Conference2022, a group of startup founders commended the effort of the federal government for making the Startup Act to become a reality.

While discussing the topic “Unlocking Nigeria Innovation Potential for Economic Growth and Prosperity”, the startups acknowledged the significance of the new law to the ecosystem and described it as a new dawn for startups in the country. They agreed that the use of technology to solve problems is paramount in every nation and the Nigeria Startup Act will help startups and existing companies gain access to skills, finance, and other vital resources in the future.

Stakeholders and startups expressed gratitude to National Information Technology Development Agency (NITDA) for creating various platforms for ecosystem players to gather and collectively discuss the way forward in the unfolding startup revolution in the country.

The Office of the Nigeria Digital Innovation ONDI, a subsidiary of NITDA, also received commendations for their consistent effort in promoting the growth of indigenous innovators and innovation-driven enterprises by organizing strategic programmes and initiatives to empower young Nigerian entrepreneurs to refine their business models to deliver innovative products, services, and processes to the global market.

Most importantly, let me acknowledge the relentless effort of the Federal Executive Council, the Ministry of Communications and Digital Economy, its agencies, and stakeholders in accelerating the enactment of the Nigeria Startup Act to motivate more young indigenous talents to generate job opportunities, create wealth for a growing a successful and sustainable digital economy.

Zeenat O. Sambo, a staff writer of Techdigest writes from Wuye District, Abuja

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By Zeenat O. Sambo

TECHDIGEST – On 18th May 2022, the federal government announced the approval of tax reliefs for tech startups. The news gave a euphoric feeling to Eddy Emmanuel and many other young innovators and entrepreneurs craving the opportunity to develop their innovations.

The approval will enable the implementation of strategies to encourage and support the development and growth of more Innovation-Driven Enterprises (IDEs) in the country.

Emanuel who studied Animal Husbandry developed a platform for community engagement in pasturing, trading, and live breeding to eliminate open grazing which had led to conflicts between pastoralists and farmers. This has escalated into incessant attacks by so-called “unknown gunmen” causing mayhem in the communities.

Without a doubt, the introduction of these tax reliefs will allow him to conveniently introduce more Nigerians to adopt this improved and cost-effective digital system of pasturing without fear.

Bright Ubani and Uzor Chigozie Joshua, two pioneers who created a digital platform called Level Up, are pleased with the tax relief initiative. The goal of the platform is to promote a culture of free skills training among youths across the country. They started a community to community training but were stymied by taxes which frustrated their effort to contribute positively to their communities.

Similarly, Lade Omoremi, an aspiring waste recycling innovator, lamented that the taxes had discouraged her from nurturing her innovation into a profitable startup that will be of great benefit to her community.

Startups are organizations or projects at their early stage of operation which is created by an entrepreneur to find, develop, and validate a scalable business model. But startups in Nigeria are often overwhelmed by multiple taxes and levies when they venture to seek investors or begin operations.

As a key factor in the progress of developing countries, startups contribute to the standard of living of the local population by introducing new technologies and attracting foreign investment, as well as enabling local innovators to address local problems with their innovations.

To cut down the margin of unemployment, it is pertinent to recall that the federal government’s effort to engage many Nigerians in small and medium-scale enterprises has been a major concern over the years.

With the approval of tax reliefs for startups, more innovators will be able to take advantage of the incentive to build and grow profitable tech companies that will create jobs.

For instance startups like Carbon, Jumia, Konga, and others have helped to create over direct 3000 jobs in the country. According to Jobberman 2020 Digital Sector Report, Nigeria’s digital economy has the potential to create an average of 1.3 million tech-enabled jobs across all sectors by 2025, and the tax relief package will make it easier for this prediction to come into reality.

Yet many people are unaware of the extent of the tax reliefs and incentives that are available because of the absence of an awareness campaign.

As such, SMEs need to note that there are tax exemptions for small businesses with an annual turnover of less than N25 million. Startups in their early stages should be aware that a lower company income tax rate of 20 percent is granted to companies whose yearly turnover is between N25 million to N100 million.

There are various incentives for investors and startups involved in venture projects. Eligible startups enjoy up to 30 percent capital allowances on equity investments made by Venture Capital firms along with a capital gains tax exemption of up to 100 percent upon disposal of an equity interest.

Furthermore, in a bid to encourage the growth of the startup ecosystem, the federal government mandated companies to do business with startups on projects involving the central government or any of its agencies to enable them to thrive locally and internationally.

Most struggling startups believe that this tax relief package will enable them to revive and re-strategize into a viable enterprise that can thrive and grow at will.

National Information Technology Development Agency (NITDA) needs to fashion out a comprehensive awareness creation programme to enlighten startups on the available tax reliefs and how to access such incentives with ease.

Therefore, agencies like the National Office for Technology Acquisition and Promotion (NOTAP), Nigerian Investment Promotion Commission (NIPC), and others should partner with NITDA for the efficient implementation of the tax reliefs.

Such a collective approach would spur more indigenous innovators and boost the growth of the startup ecosystems to sustain Nigeria’s thriving digital economy.

Zeenat O. Sambo
Wuye District, Abuja

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TECHDIGEST – Over the last few years, concerns have been raised by stakeholders that the existing international tax system does not properly capture or take into consideration the digitalization of business transactions. Undoubtedly, the world economies are quickly moving from physical assets to digital ones. Online transactions, e-commerce, cryptocurrencies, and now digital taxation.

Some months ago, the federal government in Nigeria disclosed that it would charge offshore companies providing digital services to local customers in Nigeria, saying a six percent tax on turnover would be charged as provided in the 2021 Finance Act.

The Nigerian Investment Promotion Commission (NIPC) had stressed that the Nigerian digital economy was expected to generate $88 billion and create three million new jobs by the end of 2021.

Nigerians spend more money online and via mobile transactions than ever before. That has shifted business emphasis to digital sources of revenue and digital channels. The growth of the digital economy has drawn the attention of state authorities to digital products and services. In particular, numerous controversies have arisen regarding tax regulations.

For the Federal Inland Revenue Service (FIRS), its mandate is to increase tax revenue collection at the national level which is currently one of the lowest in the world in terms of tax to GDP ratio. Hence, the leadership is expected to introduce reforms that will make the tax system more efficient and more result-oriented.

The FIRS Executive Chairman, Muhammad Nami, a thorough-bred tax, Accounting & Management professional, has announced a target of 100 per cent automation of tax administration processes before the end of this year.

Speaking as the Special Guest at the Pedabo 2022 Annual Public Private Sector Engagement, Nami noted that by virtue of the amendment to Section 25 of the FIRS (Establishment) Act in the 2021 Finance Act, any person who fails to grant the Service access to its information technology systems to connect to its automated tax administration solution is liable to certain penalties under the law.

He went further to state that in 2022, the Service will give priority to the collection of taxes from the digital economy, and that it will deploy technological tools in assessing entities that fall within the Significant Economic Presence (SEP) threshold and relevant turnover will be generated for Nigeria.

Meanwhile, over the years, FIRS has found it extremely difficult to tax non-resident companies in Nigeria on profits derived from here, the question of whether a foreign company is liable to income tax in Nigeria is often controversial.

Thus, Section 13 of Companies Income Tax Act (CITA) implies that a non-resident company must have physically-situated activities in Nigeria, directly or indirectly, before such a company can be liable to income tax in Nigeria.

In his statement, the FIRS boss noted that
“With the amendment of Section 10 of the VAT Act by the Finance Act 2021, we will implement the published Guidelines on the Simplified Compliance Regime on VAT for Non-Resident Suppliers, to collect VAT on digital supply of services and intangibles to Nigeria.

“The Service has deployed a digital service interface, the Digital Economic Compliance (DEC) Tool, to facilitate the implementation of the regime.

“The implementation of the DEC Tools will also assist the Service in determining entities that fall within the SEP threshold and relevant turnover generated from Nigeria. This tool will go live shortly,” he said.

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