Digital Tax: Significant Economic Presence in Nigeria and The 'Ahmed Order'

Abstract

Digitalization has rewritten the mechanics of everyday commerce, the world’s commercial space has witnessed the disruption of business models, premised on the need to trade efficiently, expand business frontiers beyond traditional matrixes and reduce costs. It is trite that before the taxman can lay claims to tax, the tax jurisdiction must be certain, the taxpayer must be properly identified and fall within the ambit of the tax laws, before enforcement of tax can be effectively carried out. Digitalization has now demystified the need for physical presence to transact businesses leading to the transition from taxing companies based on physical presence akin to permanent establishment prejudices in countries to a taxation model based on their digital presence as the case may be. Technology has greatly influenced the conduct of business transactions in the 21st Century and introduced swifter business models that have shifted business paradigms which can only be improved. Companies have leveraged on the digital business model and made profits by directly engaging customers and consumers in other climes hence making massive economic gain, with little or no taxes, and this contact has been viewed in the international commercial lenses as a breach of sovereignty of the countries affected. With digital tax gradually becoming the new face of tax, every country including Nigeria is on the front-end of ensuring that their tax laws are amended to prevent economic losses. The author assesses reasons that necessitated the Significant Economic Presence (SEP) order, how it will affect Nigeria’s economy, and identifies enforcement and the lack of a solid database as likely challenges. It is proposed that a dependable database and an efficient information gathering system is effected to aid the government and legal commentators in tracking digital businesses conducted in Nigeria.