It is common knowledge, that the emergence of technology companies (tech companies) in Nigeria like Interswitch, MainOne and Andela, have led to the development and growth of Nigeria's software market, as well as a booming e-commerce industry. Companies such as Jumia, Konga, Dealdey, Paga and Payporte, by leveraging technology, have continuously caused huge disruptions to the conventional retail markets.

In terms of its contribution to the Nigerian economy, the ICT sector has proven to be a great enabler. The Nigerian technology industry has witnessed explosive growth at a geometric progression of 34% year-on-year in the last decade; becoming the fastest-growing, and one of the largest contributors to the economy. Its contribution to Gross Domestic Product (GDP), grew from less than 1% in 2001 to about 11.35% in 2017, and this can be traced to the increased interest and participation of millennials in that sector. According to the Nigerian Communications Commission (NCC), the telecommunications sector contributed N 1.54 trillion to the country's GDP in the second quarter of 2017. This figure represents a 6.68 % increase from the first quarter of 2016 contribution of N 1.45 trillion, when the country was just exiting recession.

Nigeria has also recorded recent strides in the technological infrastructure sector. The National Broadband Council (NBC) in a recent survey, noted that broadband penetration in the country is currently at 21%, with Nigeria rising towards 30% penetration in 2018; in line with the national broadband target. This target can of course be attained, if the government demonstrates its commitment in that regard. All the markers seem to be present. The country recorded an increase in internet users, hitting 92 million as at June 2017. And there is now contemplation that this sector may replace oil and gas, in terms of its contribution to the country's GDP.

These milestones and breakthrough successes notwithstanding, it is important to state that tech start-ups in Nigeria, mostly struggle to build a stable brand. This is due to several challenges they face at the initial stages. Some of these notable challenges, revolve mostly around lack of adequate fiscal incentives and infrastructure. To cushion this effect, the Federal Government, through the Nigerian Investment Promotion Commission (NIPC) has since released new guidelines for application for Pioneer Status Incentives in Nigeria, to encourage and attract investments into the ICT sector of the economy. Whilst this is largely considered a welcome development in many respects, it is important for tech companies to understand how they can take advantage of the benefits introduced under this regime; some which include:

1. Tax holiday: A three-year tax holiday in the first instance, with the possibility for extension by one or two additional years. This enables the company to re-invest its otherwise taxable profit into the business, during its critical early years;

2. Tax-free dividends: Qualifying companies are exempted from deducting the statutory 10% withholding tax from distributions paid to shareholders. This makes investments attractive to investors in companies that qualify, especially Private Equity and Venture Capital Firms.

3. Tax losses: Tax losses incurred during the tax holiday, can be set off against taxable profits earned after the tax holiday.

4. Capital allowances: Even though qualifying companies are not subject to tax during the relief period, capital expenditure incurred during the tax relief period shall be deemed to have been incurred on the day following the end of the pioneer periods, such that they remain deductible after the Tax relief period.

Though a commendable initiative, the requirements to obtain a pioneer status, are very cumbersome for tech start-ups. For instance, a company desirous of obtaining pioneer status under the Pioneer Status Incentive Regulation 2014, is expected to show evidence of incurring capital expenditure (money spent to acquire or maintain fixed assets, such as land, equipment, etc.) in the sum of N 10 million. Interestingly, this requirement applies to both foreign and local companies. This is a sharp contrast from the former capital expenditure threshold, of N 150 thousand for local companies, and N 5 million for foreign companies.

There have been a lot of agitations and concerns by tech start-ups, regarding their inability to provide the N 10 million capital expenditure, required to qualify for the pioneer status. The current rate is simply too high for start-ups, who may find it difficult to access working capital for their business enterprises. Consequently, a downward review of the threshold is recommended, if tech start-ups are to enjoy the reliefs/incentives.

It is worth mentioning, that tech companies are also mandated to pay other categories of taxes/levies under the National Information Technology Development Agency Act 2007 [NITDA Act]. Information technology taxes are imposed on companies engaging in information and communication technology. However, it is not all companies in Nigeria that are subject to this tax. Section 12(2) of the NITDA Act provides that only certain companies, are under obligation to pay information technology tax. Some of these companies include: (i) GSM Service Providers and all Telecommunications companies; (ii) Cyber Companies and Internet Providers; (iii) Pensions Managers and pension related companies; (iv) Banks and other Financial Institutions; (v) Insurance Companies.

The jury is still out, on whether this does not amount to double taxation of these tech companies, as they are also liable to tax under the Companies Income Tax Act.

In conclusion, it is recommended that the government enact a specialized tax incentives and reliefs legislation. Such an Act will, amongst others, identify specific tax incentives for tech start-ups and reduce their excessive tax obligations. On the other hand, tech start-ups must seek appropriate advice from legal and tax experts, to ensure they are able to take full advantage of all the tax reliefs and cushions, provided by the government.

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