Lagos State is taking steps to ensure that its digital economy significantly contributes to its ₦5 trillion Internally Generated Revenue (IGR) target, aiming to generate ₦200 billion from this sector. The government plans to implement a Resident Global Digital Citizen Tax management system targeting remote workers, digital influencers, gig workers, freelancers, and digital platform owners, using advanced digital solutions for revenue collection.
This new tax regime raises important questions about its scope, implementation, and effectiveness. The tax will affect both individuals and businesses involved in the digital economy. Individuals impacted include remote workers employed by international companies, freelancers offering services on platforms like Fiverr and Upwork, gig workers on platforms such as Uber and Airbnb, and influencers earning through social media.
Businesses affected will range from e-commerce operators and shared economy platforms to online education providers and food delivery services.
Identifying and taxing these individuals and businesses presents challenges, particularly for remote workers employed by foreign companies. The government may face difficulties if they do not secure cooperation from tech companies and financial institutions. Potential methods for identifying these taxpayers include tracking foreign currency inflows into personal accounts, leveraging social media, and collaborating with tech payment platforms.
The ambitious ₦200 billion target hinges on effective implementation, identification, and compliance. While the digital economy in Lagos is reportedly growing at 20-25% annually, bringing the largely informal sector into the tax net could yield substantial revenue. Tax deductions are expected to be automated through financial institutions, potentially withholding a percentage of foreign currency inflows as tax.
While some African countries, like South Africa and Kenya, have introduced Digital Services Taxes (DST) targeting global tech companies, challenges remain in defining the tax base and ensuring compliance.
Lagos State plans to use the revenue to digitize government services, establish fintech and software development hubs, create a state advertisement network, explore blockchain and tokenization, and collaborate with the federal government on DST. The development of the necessary infrastructure for this system is projected to cost ₦250 million, as outlined in the upcoming EKO Revenue Plus Summit document.