How do you tax a viral video? This is the question content creators in Nigeria have been asking since the Corporate Affairs Commission (CAC) and the Federal Inland Revenue Service (FIRS) declared their intention to register and regulate their activities under the Company and Allied Matters Act (CAMA) 2020. According to the CAC, its mandate is to enforce the CAMA 2020, which requires that any business, whether carried on by an individual or a company, must be registered with the commission. The CAC also contends that registering and taxing content creators will broaden the tax base, promote entrepreneurship, and generate more employment opportunities for Nigerians. However, the idea of taxing creativity does not sit well with many. Is this move legal, fair, and beneficial for the digital economy?
Earlier in January, FIRS set a target to increase tax revenue by 15% in 2024, with a target of N19.4 trillion. The taxing agency plans to carry out internal reallocation from oil to non-oil sectors, with the digital economy being a main source. Nigeria is a hub of creativity on the internet, producing diverse content ranging from skits to songs. With over 154 million internet users as of January 2024, Nigeria has the largest online population in Africa. It also has the second-highest number of social media users in the continent, with 33 million active users on platforms like Facebook, Instagram, Twitter, and TikTok. Nigeria’s social media market is estimated at $3.4 billion, with the digital economy contributing 3.8% to its GDP. The FIRS expects its non-oil revenue target to contribute significantly to the President Bola Tinubu administration’s vision of achieving an 18 percent tax-to-GDP ratio in the next three years.
It is not uncommon to tax content creators as the World Bank has urged governments to adopt tax systems that are inclusive and adaptable to the digital age. In the United States, content creators are subject to income and self-employment taxes, regardless of whether their online activities are a hobby or a full-time job. According to the IRS, content creators are considered self-employed and must report their income and expenses on Schedule C. They must also pay self-employment taxes, which are 15.3% of their net earnings, and cover Social Security and Medicare. To avoid penalties, content creators must make quarterly estimated tax payments to the IRS. Some content creators may opt to form their business entity, such as an LLC or corporation, depending on their specific circumstances and business goals. Content creators may also have to pay taxes on gifts they receive from brands in exchange for promotional services if the value of the gifts exceeds $100.
Taxing content creators also creates a level playing field for all workers in the digital economy, regardless of their employment status. According to PwC, out of the 1.2 million (as of 2019) people employed in Nigeria’s entertainment and media industry, only 0.4 million were in formal employment. This implies that about 67% of the industry’s workforce is outside the tax net, leading to revenue loss for the government and unfair advantage for some workers over others. For example, a radio station generating millions in advertising revenue already contributes to the tax system, while a popular Youtuber earning similar amounts might not. This lack of parity creates a sense of unfairness and undermines the principle of shared responsibility for funding public services.
Yet, effectively tracking and taxing content creators presents unique challenges compared to traditional sectors, Unlike salaried employees with consistent paychecks, creators have diverse income sources. They may earn through advertising, sponsorships, merchandise sales, direct payments, platform rewards, and even cryptocurrency. Also, each platform might have different reporting and payment structures, making tracking income complex. In said cases, navigating creator income data with tax authorities due to privacy regulations and competitive concerns might be a challenge. This lack of transparency can hinder accurate tax assessment in a system akin to Nigeria’s informal sector. According to a report by SBM Intelligence, 98% of businesses in Nigeria’s informal sector pay taxes, but to non-state regulated actors, such as market associations, unions, vigilante groups, and area boys.
This leads to the issue of multiple taxation. By classifying creators as businesses, the CAC implies they should register and potentially pay company income tax (CIT) of 30%. However, the Federal Inland Revenue Service (FIRS) is the only agency authorized to collect taxes in Nigeria. The FIRS clarifies it primarily collects corporate income tax, not directly taxing individuals. This suggests individual creators might fall under state-level personal income tax, currently at 24% for individuals earning above N30 million annually.
Kenya had similar concerns last year when the Finance Bill 2023 proposed taxing digital content creators. The proposed 15% withholding tax, significantly higher than the 5% rate for professional services, sparked significant debate. With a potential effective tax rate exceeding 30% due to income tax credits based on a 50% profit margin assumption, critics argued creators, especially those with lower earnings, could face unfair burdens.
Legally, the picture is also murky. CAMA 2020 predominantly governs the registration and regulation of businesses, primarily focusing on companies and partnerships. While the CAC argues any business activity, even by individuals, requires registration, the legal definition of “business” in this context remains unclear. Does creating online content for income constitute a “business” under CAMA? The line between hobby and entrepreneurial activity, especially for casual creators, is ambiguous, potentially leading to unfair targeting and compliance burdens. Moreover, the CAC’s history of less-than-efficient regulation raised concerns about the effectiveness and potential negative impact of its proposed approach.
Globally, taxation of content creators is still a complex and evolving topic, as the digital economy grows and changes. According to the International Finance Corporation, Nigeria’s internet economy is projected to reach $50 billion by 2025, accounting for 14% of the country’s GDP. Yet, with millions of Nigerians relying on online content for entertainment, information, and even income, the question of taxation becomes more than just numbers. Can the Nigerian system adapt to capture this new economic reality?
