Not so Neat
Not so Neat
The leaked NITDA Bill, a Petroleum Industry Act update & a rued party for Invest-tech
Hello guys.
Some updates from last week.
So, there are a few corrections from the Tax Law section.
My Tax Guru friend updated me on some of the laws I referenced in the publication. According to him, the Value Added Tax Act has been declared null and void by a decision of the Federal High Court in Emmanuel Chukwuka Ukala v. FIRS (2021) 56 TLRN 1. Secondly, he also observed that the Tax and Levies (Approved List for Collection) Act of 2015 has also been declared null and void in Uyo Local Government v. Akwa Ibom State Government & Anor (2020) LPELR-49691(CA). So, please note the corrections. Also, like I predicted, the Federal Government/FIRS have now appealed the decision of the Federal High Court in the Rivers State case. We will keep our eyes peeled for any updates in the coming months.
To the matter of the day.
Not so neat: A Leaked NITDA Bill
For non-lawyers seeing this for the first time, what is NITDA? This body is the National Information Technology Development Agency, mostly responsible for regulating the use of information technology in Nigeria. It is under the supervision of the Ministry of Communications and Digital Economy.
It appears the NITDA Bill was leaked as I had to access a copy of the Bill not via official channels like the National Assembly website and other Bill-tracking devices I use, but on a Google Drive folder. You can download a copy of the Bill here.
I have done a comparative reading of the proposed law and the current NITDA Act, 2007. Download a copy of the current law here.
One thing I can say. The new Bill doesn’t look good.
Old Wine in New Skin?
While some of the commentary on the new Bill may have misconstrued some provisions of the Bill as new, this is not entirely true. A significant part of the Bill is lifted off the current Act. Let’s take a quick look at the significant provisions of the proposed law.
Generally, the Bill will widen the powers of NITDA in Nigeria’s IT sector.
Here are some of the introductions in the proposed bill which I find troubling.
The ones that readily stand out include the introduction of a licensing regime for all operators in the information technology and digital space. The proposed law defines licenses under 3 categories namely; the product license, the service provider license, and the platform provider license. This is a new provision.
Of course. Such an introduction creates an unnecessary licensing regime for businesses in Nigeria. It casts a rather wide regulatory net, such that, a restaurant using a QR code for customers may become a regulated institution. This is because the proposed law requires that all operators using IT and digital solutions in their business models must be registered with NITDA. I am highly doubtful of NITDA’s competence to register all IT businesses (as if the hell we face at CAC is not enough) without creating a hiccup in the smooth operation of many SMEs.
While this is not a new provision (see the current NITDA Act), the proposed law requires that regulated businesses with a turnover of 100, 000, 000 naira and above, will have to contribute 1% of their profit before tax annually to a NITDA Development Fund created by the proposed law.
Another extravagant aspect of the proposed law is the offences and penalties. For example, any person or company who operates a service contrary to the provision of NITDA may be looking at an option of fine which ranges between 3 million naira to 30 million naira, or the imprisonment for individuals or principal officers of an offending company. Not exactly a new provision but higher fines.
Furthermore, NITDA is now permitted by the proposed law to enter premises, detain, arrest persons or entities it considers as non-compliant with provisions of the proposed law. Haba.
Who is affected?
Another introduction of the proposed law is under the Third Schedule. This section describes the kinds of companies that will have to pay the 1% tax I mentioned above. They include mobile and fixed telcos, IT and E-commerce companies, digital platform operators and providers, foreign digital platforms targeting the Nigerian market, pension companies, banks and fintechs, insurance companies and other bodies as may be determined by NITDA.
Little comment, apart from this being a catch-all provision, it looks to me like the FG is finally making its play for foreign companies like Google, Facebook, & Twitter having to pay taxes to Nigerian authorities. You may recall that this has been a running issue.
Also, I wonder if the coverage of banks and fintechs under the law would bring NITDA at loggerheads with the CBN, seeing as the CBN already licenses the operations of these bodies. Anyways, the Nigerian club of regulators do not have the reputation for being in sync as far as I’m concerned. See the NIN v BVN debate and the CBN v SEC on Crypto as examples.
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Perhaps, there are some good highlights in the proposed Bill?
Yes. For example, the proposed Bill seeks to encourage the adoption of online dispute resolution mechanisms, and the creation of initiatives which would drive the adoption of IT and digital solutions for government MDAs. The proposed law also creates a dedicated company (Galaxy Backbone ???) which would serve this purpose. I think these highlights may serve to improve some of the lagging efforts of MDAs to deploy technology in helping citizens. Well, let’s be optimistic.
Finally… the Petroleum Industry Act.
On Monday, August 16, President Buhari finally signed the Petroleum Industry Bill.
Been a long time coming, that one. I hear the first Bill has been around since 2000.
Recall that we assessed the provisions of the PIB in a previous post. You can click here to read some of the concerns I shared. Well, regardless, that copy of the Bill has now been signed and we will now know it as the Petroleum Industry Act. I do not have the gazetted copy of the Act here but I’m told this is the copy the President signed. Download it here.
I plan to do some further breakdown of the Act in coming weeks. In the meantime, sending love and light to the Law Firm Associates stuck with reviewing the 200+ pages.
Parte after Parte. Or Not.
Well, it’s no party mood within the rank and file of Nigeria’s stock trading platforms. Thanks to some Ex-Parte order granted in favour of the CBN.
Just as I was wrapping my thoughts up last night, some of our readers tagged me to a breaking news piece referencing a ruling of the Federal High Court which effectively freezes the bank account of some stock trading platforms.
As reported by Tech Cabal, the affected ones are Risevest, Bamboo, Chaka, and Trove.
So what happened?
I have not been able to access the court documents to have a full picture of the claim being pursued by the CBN. But as reported by The Whistler:
The CBN alleged that Rise Vest Technologies Limited, Bamboo Systems Technology Limited, Chaka Technologies Limited and Trove Technologies Limited were complicit in operating without license as asset management companies “and utilizing FX sourced from the Nigerian FX market for purchasing foreign bonds/shares in contravention of the CBN circular referenced TED/FEM/FPC/GEN/01/012, dated July 01, 2015.”
The grouse between the regulator and these stock trading platforms, some of which are licensed by the SEC, appears to be the usage of foreign exchange currencies in trading foreign securities (bonds/shares). Now I have looked at the referenced 2015 circular and it looks like the CBN may have the wrong guy on the hook. First, the Circular is directed at Authorised Dealers (read Banks) and restricts them from giving out FX for the items listed. But it does not prevent businesses from dealing in the items so long they do not trade using Nigeria’s foreign exchange market.
Now I know that Risevest, for example, allows you purchase dollar-based investments by depositing Naira through your bank card. It collects these Naira deposit from retail investors, moves the money out of the country to invest in US Securities (Real Estate, Stocks, Bonds, etc.)
What I am not sure of with Risevest is how the back-end process of moving money out is consummated (does Rise buy the dollar from Nigerian banks?) and whether it is against the provision of the CBN Circular. I think what they do is move the money through DeFi options as shown in the claim of the CBN before the Court:
“Outflows from the account were to a PSSP – Paystack (500.00 milllon) and cryptocurrency traders Ike BuyCoins (N110.00 millon) and Beltlum Venture (N350.00 million). Inquiries on the transactions confirmed that the transfers to Buycoins were for the purchase of cryptocurrency.”
While we still wonder how the affected entities will respond, it is also important to note the length of the exparte order granted by the Court which lasts 180 days.
Yes, I only spent 6 months of my early law life in Nigerian courts but even then, I was shocked at the unconscionable length granted. My limited understanding of exparte orders was that they are usually granted in a case of emergency, within 7 to 14 days, after which the affected party may then respond to another Motion, which would be on notice.
A colleague noted that the justification for the length may be found in the BOFIA, 2020. And yes, readers may want to check out that law. I reviewed it sometime in June, regarding another specific matter and I quite agree that, with BOFIA, what Meffy cannot do, does not exist.
Even though the CBN is right?
As many commentators have predicted, the stance we are getting from the CBN appears to be anti-startup/innovation. Frankly, I am not privy to the dealings between the CBN and the affected entities but could it not have been an option to give warning sanctions, as against trapping millions of investor funds for 6 months by a Court order?
The precedence the CBN and indeed, most Nigerian regulators, are setting will likely create an investor rout in the Nigerian Tech space. The moment regulatory risk assessment in startup decks move from moderate risk category to a high risk category, then our serious interest in innovation as an emerging economy is being called into question.
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