Constructing a tax regime for the regulation of trade in digital content

• Pages: 121-138
• Published date: 11 November 2020
• Date: 11 November 2020
• DOI: https://doi.org/10.1108/JITLP-03-2020-0021
• Author: Tobore Obrozie Okah-Avae,Benjamin Mukoro
• Subject Matter: Strategy,International business,International business law,Economics,International economics,International trade

Constructing a tax regime for the

regulation of trade in

digital content

Tobore Obrozie Okah-Avae

Department of Law School, University of Bristol, Bristol, UK, and

Benjamin Mukoro

Department of Commercial and Corporate Law, University of Nigeria,

Nsukka, Nigeria

Abstract

Purpose –The paper aims to considerhow a country like Nigeria, with an underdeveloped tax system,can

adapt its tax generationmechanisms to meet the challenges of digital commerce in the 21st century.

Design/methodology/approach –The paper adoptsa doctrinalapproach.

Findings –The paper recommendsmeasures that could be adopted to enhance the efficiency of the current

tax systems,to allow it to take advantage of opportunities presentedby digital transactions.

Originality/value –To the best the authors’knowledge, this paper is the first of its kindto consider the

taxationof digital transactions in the Nigerian context.

Keywords Tax, International trade, Regulation, Digital content, Nigerian taxation

Paper type Research paper

1. Introduction

As societies and markets have become more technologically sophisticated, it has become more

difficult to administer taxes most of which were conceptualized in a world of tangible and easily

traceable products. Trade in digital content gives rise to a number of issues in the area of

taxation. Most of these issues, though not unique to dealings in digital content, are however

exacerbated in their manifestations in a digital environment. These include commonly used

mechanisms intended to limit tax liability, such as base erosion and profit shifting (BEPS). These

are exacerbated within the jurisdictions with inadequate or underdeveloped tax regimes, such as

Nigeria, amongst other developing nations . This paper, therefore, intends to explore the ways in

which the current Nigerian tax regime could be updated allowing it to take advantage of revenue

from non-traditional sources. However, in attempting to proffer a tax regime suitable for the

regulation of trade in digital content in Nigeria, the paper refers to similar efforts made outside

Nigeria, aimed at tackling the same challenges identified in this work. Reference is made mainly

to work done at multilateral platforms such as the United Nations (UN), the European Union

(EU) and, especially, the Organisation for Economic Co-operation and Development (OECD).

In discussing the statedsubject matter, this paper intends to do the following:

clearly expose and explain the general principles governing the taxation of income

derived from trade, by both corporate entities or individuals;

explain the general principles governing the administration of other taxes such as

value added tax (VAT), customs duties and excise, that are also impacted by the

emergence of the digital economy and trade in digital content;

Trade in

digital content

121

Received20 March 2020

Revised1 August 2020

9August2020

Accepted12 August 2020

Journalof International Trade

Lawand Policy

Vol.19 No. 3, 2020

pp. 121-138

© Emerald Publishing Limited

1477-0024

DOI 10.1108/JITLP-03-2020-0021

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1477-0024.htm

identify the particular types of taxes that are impacted by trade in digital content;

explain how these taxes are impacted by trade in digital content, thereby revealing

the particular problems encountered in the administration of each type of tax; and

identify those problems associated with tax administration in Nigeria which are not

directly linked to the advent of the digital economy.

The issues addressed within the paper, are analysed within the framework of the generally

accepted cannons of taxation which include neutrality, efficiency, simplicity and certainty,

effectiveness and fairness, flexibility and equity. Current taxation practices are examined

against the background of these concepts and the overall purpose of tax, which is to provide

revenue. It is within this framework that this work makes its unique contribution to knowledge,

proposing an approach to taxation that conforms to the cannons of taxation while discarding

those elements that are not practicable in the digital economy, in the Nigerian context. The

Nigerian National Digital Economy Policy and Strategy (NDEPS) is considered in the light of

the established canons of taxation. NDEPS was launched in 2019. NDEPS generally aims to

foster growth in the digital economy. Among its objectives is “to ensure that the policy and

regulatory instruments are fit-for-purpose and actually support the digital business

environment”(Federal Ministry of Communications and Digital Economy [FMoCDE], 2019).

First among its eight (8) pillars is “developmental regulation”, which means effective regulation

of Information and Communications Technology (ICT) and the digital sector in a way that

enables development (FMoCDE, 2019). Developmental reg ulation means that preference will be

given to converged regulation, where relevant regulatory bodies co-author regulatory

instruments. The fourth objective of the developmental regulation policy speaks directly to tax

administration. It says developmental regulation aims:

[...] to support the issuance of converged regulations, as well as address the issue of multiple

taxation in order to create a healthy business environment for the development of the Nigerian

Digital Economy (FMoCDE, 2019).

The implementation strategy mostdirectly linked to the policy of developmental regulation

is to “review multiple taxation by creating a framework for bundling payment of taxes,

especially thoseaspects that can affect the digital economy”(FMoCDE,2019).

2. Taxation: the basic norms

Generally, taxes are expected to be neutral, efficient, simple and certain, effective and fair,

flexible and equitable. This principle implies that tax should be levied on citizens on the basis

of equality. There should be equality in the sacrifice of citizens. In the words of Adam Smith:

The subjects of every state ought to contribute towards the support of the Government, as nearly as

possible, in proportion to their respective abilities, that is, in proportion to their revenue which they

respectively enjoy under the protection of the State (KNOWELEDGIATE, para. 2; OECD, 2014).

Historically, it has been agreed that a legitimate tax claim ought to be based on a

relationship to a personor to a territory.

As the name implies, income taxes are usually charged on income made. This could be

the personal income of individuals or the corporate income of corporate entities. Personal

income tax is that kind of tax which is usually deducted from the earnings of private

individuals with salaries and wages forming a huge chunk of this kind of tax. Corporate

income tax is the tax charged against the profits of corporate entities.This is quite different

from sales tax which is a pass-through consumption tax collected by sellers of goods or

services whether they be corporate bodies or individuals (Faggiano, 2015). An example of

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