Of Peeping Toms and Taxpayer's Servers

And does Nigeria really need a law for Startups?

Hi guys, long time, no reads… Welcome to this week’s edition of Regulations NG. 👀

Before we proceed, to old readers I’m sorry I have been on a hiatus. To first-time readers, thank you for subscribing and I hope you really enjoy reading this. (Let me know if you have recommendations too)

Just an aside, since you all last heard from me, I got a new job as a Writer at one of the top commercial law firms in Nigeria 🥳, so if you see me shamelessly plugging links from our website, yes, I don’t have shame… 😁

To the business, in the past week, and month(s), there have been some significant regulatory activities I’ve been looking to update you on.

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A quick take.

• The Federal High Court (FIRS) Practice Directions, 2021

• The Nigerian Startup Bill

• SEC grants Chaka digital sub-broker license

• CBN and SEC flag off Sandbox Initiatives

Yes, quite a lot to unpack there. Let’s dig in.

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The Federal High Court (FIRS) Practice Directions, 2021

On 31st May, 2021, the Chief Judge of the Federal High Court signed the Federal High Court (Federal Inland Revenue Service) Practice Directions, 2021. Having come into effect on 1st June, 2021, the Practice Directions are aimed at improving the administration of tax matters that are under the jurisdiction of the Federal High Court. You can access a copy of the new Practice Directions here.

The release of the Practice Directions is significant to tax practitioners and taxpayers in Nigeria as it indicates, among other things, the use of tech-enabled integrations into Nigeria’s tax administration which would make for more efficiency.

One of the key provisions of the Practice Directions provides that the FIRS can obtain an ex-parte order from the Court which allows it to access servers, computers, and electronic devices of a taxpayer.

So here is a brief background, earlier in the year, the FIRS introduced its Automated Tax Administration System, a tech solution which enables the assessment, collection and remittance of taxes from taxpayers. You can read more about that policy here.

The significance of the Practice Directions to this FIRS policy is it gives force to a power of the FIRS - access to data and electronic information stored in electronic devices of all taxable persons. As a business owner or a C-Suite executive, the prospect of a government agency sitting in your company’s network, looking at all the comings and goings of cash is not always a pretty prospect. There are already issues on this with Multichoice, a cable TV provider, reportedly refusing to grant the FIRS access to its servers and the FIRS slapping a $4.4 billion tax claim in response 😬. More on that story here.

Personally, I am skeptical about the operations of government agencies and their efficiency when it comes to technology, hence my apprehension about having market operators give the government access to their servers, etc. It is not rare to see ransomware attacks affect the network of companies because someone’s system is plugged to such computer network.

However, there are guidelines that regulate the conduct of public institutions and agencies when it comes to processing data. These include the Guidelines for the Management of Personal Data by Public Institutions in Nigeria, 2020 and of course, the Nigeria Data Protection Regulation, 2020. (Email me, if you need copies). Hopefully, the automated tax administration system of the FIRS complies with these guidelines as they seek to make efficient tax administration scale in Nigeria.

In addition to the above, the Practice Direction also introduces a controversial provision for taxpayers looking to challenge the tax assessment of the FIRS before the Federal High Court. The nifty provision essentially says a taxpayer wishing to challenge an assessment will have to first pay 50% of such assessment into an interest-yielding account of the FHC before it can proceed with its action before the Court. Is there any justification for this? I doubt that, because most tax commentators I’ve read observe that the direction runs against the procedures of challenging tax assessments under extant tax laws. An interesting piece about the issue describes this particular provision as a “Comply before Complain” rule.

I’d argue it disenfranchises innocent taxpayers who are given hefty tax assessments (take Multichoice as an instance) and their right to a contest tax assessments under the law. I’m also guessing some of the provisions which clash with other primary tax laws will be overridden if it comes up at the courts.

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A Nigerian Startup Bill?

Yes, I came across this earlier last week. Apparently, it has been in the works for a while. So I asked a few of my startup friends, “do we really need a Startup Bill/Act in Nigeria?” Generally, most said No. I almost totally agree with them, for ideological reasons, (I belong to the Alfred Kahn School of thought on regulations) BUT, the case can also be made that a Startup law is good for the tech ecosystem, IF, regulators will listen to startups

What will a good startup bill look like, I’m curious. Off the top of my head, I’d argue that it should, among several other things, make exemptions from heavy taxation, and stringent compliance laws. Complying with most industry regulations can be capital intensive for startups, while the same is pretty much affordable for big incumbents. The Finance industry easily comes to mind, with many startups doing a hit-and-miss with their compliance and regulatory strategy.

Do you have ideas on what a Startup Law should contain? Email me with your ideas or leave them in the comments section.

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SEC grants Chaka digital sub-broker license

Speaking of startups, Chaka is a digital trading startup, which ran into some trouble with the Securities and Exchange Commission, Nigeria’s apex capital markets regulator, sometime last year. However, it appears Chaka and the SEC have put that ugly episode behind them as Chaka recently announced that it became one of the frontline Fintech companies to receive the SEC’s Digital Sub-Broker/Sub-Broker Serving Multiple Brokers through a digital platform license. This is a big deal as it confirms the readiness of Nigeria’s regulators to work with innovative tech startups, and solutions. So, yeah, maybe we should take the Nigeria Startup Bill seriously this time?

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CBN & SEC flag off Sandbox Initiatives

And, still on startups, lol. The Central Bank of Nigeria and the Securities and Exchange Commission have both introduced sandbox initiatives to improve the outlook of innovations thriving under regulation. The problem, like I earlier mentioned, is that some startups find it difficult dealing in industries which are occupied by strong incumbents. While the startups bring the innovative ideas that may advance their respective industries (or disrupt, if you want to sound cool), they find that they have to meet certain standards (and sometimes no standard at all) set by regulators, for them to operate. As such, keeping themselves in business while still being compliant in a heavily competitive market is rough.

In comes the regulatory sandboxes. Regulatory sandboxes are initiatives flagged off by regulators to allow startups, and innovative ideas get tested in a controlled environment. Usually, it will be under the supervision of the regulator and for a certain period.

The framework for the CBN Regulatory sandbox was published much earlier in the year and a copy of the framework can be accessed here. The SEC just last month released its own version of a regulatory sandbox program, and will start implementing the initiative from the third quarter of this year. You can access a copy of the SEC guidelines here.

I hope that these initiatives really do see the light of day and are implemented by the regulators. I would be excited to update this community if I hear of startups benefitting from such initiatives in the near future.

Editor’s Note: Look forward to our next issue on Friday titled “Bureau De Can’t - $$$ and Other Issues”

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