Impact Of Nigeria’s Tax Reform On The Taxation Of The Digital Economy: Key Considerations For Players And Authorities

1. Introduction

The digital economy broadly encompasses economic activities that rely on Internet-protocol (IP) enabled networks and information technologies for creation, distribution or consumption of goods and services¹. It includes a wide range of digital business models, from platforms, marketplaces, cloud services and Software-as-a-Service (SaaS) to gig-work intermediaries, e-commerce, and digital/virtual assets such as cryptocurrencies, tokens and NFTs. 

Nigeria is among Africa’s largest digital markets². Its digital economy spans across fintech platforms (mobile wallets, payment gateways), e-commerce marketplaces, ride-hailing and delivery platforms, cloud/SaaS providers, and crypto or digital-asset exchanges offering services to retail and institutional clients. The growth trends in the digital space does not only reflect an increasing digital acceptance and a shift from cash-based to digital/online transactions across large segments of the economy but it also calls for an expansion in scope and urgency of tax regulation of digital business.

The Nigerian Tax Reform Acts (NTRAs) 2025 consolidates Nigerian tax laws and aims to simply them and align with global best practices. Notably, the reform provides clarity on the tax administration of the digital economy. These changes reinforce the shift in the government’s approach from a largely conventional tax base to one that recognises and seeks to regulate digital economic activities, signalling that digital business is now an integral and taxable part of Nigeria’s formal economy.

This article examines how the 2025 tax reforms apply to Nigeria’s digital economy, analysing key provisions and their implications for digital business operators and authorities.

2. Key Provisions of NTRAs on Digital Businesses in Nigeria

2.1 Deeming Rules and Taxability of Digital Business under the Nigeria Tax Act (NTA), 2025

Given the significant footprints of foreign digital service providers in Nigeria, the NTA builds substantially on the foundational concepts introduced under the Significant Economic Presence (SEP) Order (2020) and the Companies Income Tax Act (CITA). Specifically, section 17(9b) of the NTA provides that “a non-resident person shall… have a significant economic presence in Nigeria where the person transmits, emits or sends… signals, sounds, messages, images or data … to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, online adverts and payments, participative network platforms, online gaming, search engines, digital content services, cloud computing, , and online teaching services, and profit can be attributable to such activity.”

This implies that digital suppliers, whether or not they maintain physical infrastructure in Nigeria, are treated as deriving income from Nigeria where value is created through any of the activities mentioned above. This approach aligns with global trends in market-jurisdiction taxation, particularly the OECD’s Pillar One which focuses on user-market nexus³, and the UN Committee of Experts’ Revised Article 12B on Automated Digital Services⁴, both of which emphasise taxing rights in the jurisdiction where digital value is consumed.

In practice, platform activity may constitute Nigerian-source income where:

• A foreign streaming platform earns subscription revenue from Nigerian users;
• A global e-commerce marketplace facilitates sales to Nigerian buyers, even where the seller and logistics provider are offshore;
• An online advertising intermediary receives payment for ads targeted at Nigerian residents; or
• A cloud-computing provider hosts data of Nigerian businesses.

While the NTA does not expressly adopt a “digital permanent establishment (PE)” test, the SEP-based rule functions similarly by attributing a taxable nexus to significant, continuous commercial interaction with the Nigerian market.

2.2 Deployment of Technology for the Digital Economy

Section 71 of the NTAA reinforces tax authorities’ use of technology to automate assessment, collection, accounting and information gathering. This provision enables revenue authorities to embed themselves into payment flows, especially for cross-border digital services, through payment processors, app stores, digital wallets and online marketplaces. Additionally, it allows attribution of economic activity to technology deployment, meaning that servers, automated applications, content delivery networks (CDNs), or digital agents that facilitate transactions may be used as evidence of economic presence for tax purposes.

However, this raises enforcement challenges as identifying IP addresses may not prove user location due to the use of virtual private networks (VPNs) or dynamic routing and server locations may be outside Nigeria, making reliance on physical assets insufficient. CDNs, which cache content closest to users, complicate determining where “activity” occurs. Consequently, Nigeria’s reliance on user-location and payment-chain data becomes critical. International studies also highlight similar hurdles: fragmented data access, inability to compel offshore intermediaries, and reliance on self-reporting⁵.

2.3 Taxation of Digital/Virtual Assets under the NTRAs

Virtual/Digital assets have increasingly become more popular in Nigeria following the Central Bank of Nigeria (CBN) lifting its ban on the use of cryptocurrencies in December 2023⁶. Section 201 of the NTA defines digital assets broadly as digital representations of value that may be exchanged electronically, including crypto assets, utility tokens, security tokens, NFTs, and any other derivative instruments designated by regulators.

Section 4 of the NTA subjects “profits or gains from transactions in digital or virtual assets” to income tax at 30%, marking a significant shift from the previous 10% Capital Gains Tax (GCT) treatment applied under the CGT Act.

Furthermore, Section 25 of the NTAA imposes extensive reporting obligations on Virtual Asset Service Providers (VASPs), requiring monthly disclosure of transaction details, customer information, counterparties, and valuation data. The Fifth Schedule to the NTAA further requires VASPs to register with tax authorities and obtain licensing from the Securities and Exchange Commission’s (SEC), while also specifying valuation rules tied to recognised Nigerian-approved exchanges.

This framework demonstrates deliberate alignment with global regulatory trends urging transparency, anti-money laundering controls and comprehensive tax reporting. It also signals Nigeria’s intent to limit anonymity-driven tax leakages and to integrate digital-asset activities into mainstream tax and reporting compliance.

2.4 Value Added Tax (VAT) & Withholding (WHT) Implications for Digital Business

Nigeria’s VAT framework under the NTA affirms that digital services and products are taxable where the supply is consumed in Nigeria. Services delivered digitally such as streaming, cloud hosting, online advertising are deemed supplied in Nigeria when consumed by users locally, irrespective of the supplier’s location. For non-resident suppliers (NRS), Section 150 of the NTA requires registration for VAT and permits the tax authority to appoint them as VAT-collection agents. Subsection 150(5) further mandates that where an appointed NRS does not process payments but earns commissions, it must deploy the same mechanism used to collect its commission to also collect VAT.

This position was also reflected in the Tax Appeal Tribunal’s (TAT) decision in the case of Bolt Operations v. FIRS (TAT/LZ/VAT/074/2022) which was also upheld by the Federal High Court (FHC) in Lagos in July of 2025.

For withholding tax (WHT), all payments made to NRS must be subjected to tax at source at the applicable rates specified in the WHT Regulations (2024). Thus, Nigerian payers are ordinarily required to withhold tax on facilitation payments or commission fees paid to non-resident platforms to the extent such income is deemed derived from Nigeria.

3. Key Issues for Considerations

3.1 Capturing complex digital business models

Taxing complex digital business models presents significant challenges for tax administrations due to their reliance on intangible assets, multi‑sided platforms, and value creation that occurs across multiple jurisdictions. Digital businesses often operate without physical presence, making traditional nexus rules inadequate for determining taxing rights. Moreover, these platforms generate revenue through diverse sources such as advertising, data monetisation, subscription fees, and commissions, complicating the determination of taxable income and profit attribution.

A key issue is the allocation of value between platform owners and users who contribute data and engagement that drive platform profitability. To effectively tax these models, the tax authority will need to develop mechanisms that capture the economic contributions of both the user and the platform. This includes assessing user‑generated value, data usage, and platform‑facilitated transactions. Additionally, tax authorities must address challenges related to transparency, cross‑border transactions, and access to reliable data to prevent erosion of the tax base.

3.2 Fiscalisation and administrative capacity of the tax authority

Section 23 of the NTAA empowers the NRS to implement the use of an Electronic Fiscal System (EFS) for tracking taxable supplies.

Digital platforms often operate across jurisdictions and may use proprietary Application Programming Interfaces (APIs), blockchain, or offshore payment gateways, which may complicate the tracking system. As observed in analyses of African digital taxation, tax authorities often lack the technical infrastructure, skilled staff, and institutional capacity to audit complex digital business models and transaction layers⁷.

Without robust data-sharing arrangements (with telcos, payment service providers, VASPs) or deployment of advanced auditing tools (e.g. blockchain analytics, API-level reporting), many digital transactions may remain invisible to tax authorities — undermining enforcement and compliance.

3.3 Determining allowable deductions for digital income earners

For individuals and small businesses earning via digital platforms, e.g. content creators, freelancers, gig workers, etc., the question arises: which of their costs qualify as “wholly and exclusively” incurred in the production of taxable income, under the NTA? The Act allows eligible deductions in computing chargeable income.

Digital income earners may incur costs such as data/internet subscriptions, devices (phones, laptops), software subscriptions, home office expenses, mobility for on-site gigs, marketing, etc. But without clarity or guidance, many may struggle to document and claim these expenses properly. Small digital entrepreneurs often lack formal bookkeeping, making evidential support (invoices, receipts) difficult. If deductions are not accepted or documentation fails, many may end up taxed on gross digital earnings, discouraging participation in the formal digital economy, or pushing income into informal/unreported channels.

3.4 Valuation of virtual assets and volatility problems

Under the NTAA (Fifth Schedule) the value of virtual assets for tax purposes is to be determined “using the prevailing market price at the time of the transaction, as determined by a recognised virtual asset exchange platform approved by the Service.”

While this rule provides clarity, it raises practical concerns. Virtual assets (cryptocurrencies, tokens, NFTs) are notoriously volatile; a market-price snapshot may misrepresent true economic value if the exchange has thin liquidity or is not widely used. In jurisdictions where local exchanges are few or non-existent, qualifying ‟recognised” exchanges may be foreign, which complicates enforcement. 

3.5 Cross-border enforcement and mutual assistance

Many digital platforms and virtual-asset entities operate across borders such as non-resident companies supplying digital services to Nigerian users, or foreign exchanges facilitating crypto trades for Nigerians. Enforcing tax compliance on non-residents necessitates cross-border cooperation exchange-of-information (EOI), mutual legal assistance, and treaty or agreement-based reporting.

While the NTA/NTAA brings non-resident persons into taxable scope and requires registration for non-resident suppliers, practical enforcement remains a challenge. As noted by analysts, fragmented and inconsistent international tax frameworks coupled with weak global coordination can hamper effective allocation of taxing rights, and lead to revenue leakage for jurisdictions like Nigeria⁸.

Moreover, foreign entities may resist local registration or provide minimal data, making tracing beneficial ownership, transaction flow, or value creation difficult. Without robust mutual assistance agreements and transparent global compliance mechanisms, cross-border tax evasion risks remain high thereby undermining the intended reach of the reforms.

4. Conclusion

Nigeria’s 2025 tax reforms signal a deliberate shift toward capturing revenue from the digital economy, reflecting global trends in taxing intangible, cross-border, and technology-driven business models. However, valuing highly volatile digital assets, ensuring accurate reporting by non-resident suppliers, and enforcing compliance in multi-jurisdictional settings may strain administrative capacity. Effective implementation of the tax reforms will require balancing robust enforcement with policies that support innovation, clarity in valuation, and user adoption. This would ensure that Nigeria can fully leverage its growing digital market without stifling economic dynamism.

Footnotes

1. Agboola, O. (2022). Nigeria’s Budding Digital Economy: Coping with Disruptive Technology. Central Bank of Nigeria Economic and Financial Review. Central Bank of Nigeria

2. E-commerce in Nigeria - statistics & facts | Statista

3. UN Model Tax Convention: Article 12B on Automated Digital Services, United Nations (2021) United Nations Documents+1

4. An active UN adopts new UN model treaty provision regarding income from automated digital services” — WTS Global article, May 2021 com+1

5. OECD — “Tax Challenges Arising from Digitalisation — Report on Pillar One Blueprint” (2020) https://www.oecd.org/content/dam/oecd/en/publications/reports/2020/10/tax-challenges-arising-from-digitalisation-report-on-pillar-one-blueprint_6034ca99/beba0634-en.pdf?utm_

6. African Tax Administration Forum (ATAF) — “An Approach to Taxing the Digital Economy” (2020) https://www.ataftax.org/ataf-publishes-an-approach-to-taxing-the-digital-economy?utm_

7. Nigeria lifts ban on cryptocurrency transactions. CBN lifts ban on cryptocurrency

8. Rosewood Legal+2MDPI+2

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