Nigeria Startup Bill Leaked: Licenses, Fees, and Penalties Revealed
Nigeria's NITDA Act: Proposed Changes and Startup Concerns
Discussions surrounding a modernization of Nigeria’s 2007 National Information Technology Development Agency (NITDA) Act have been ongoing for some time.
The existing legislation, which established NITDA as the governing body for Nigeria’s technological advancement, is now considered significantly outdated. Over the last ten years, Nigeria has emerged as a leading destination for venture capital investment within Africa.
Growth of the Nigerian Tech Sector
- The nation is now home to two unicorn companies: Flutterwave and Jumia.
- Interswitch, a billion-dollar fintech firm, also operates within Nigeria.
To align with the rapid pace of innovation occurring nationwide, NITDA initiated a review of existing laws with the aim of creating a more supportive environment for startups. Earlier this year, in March, Director-General Kashifu Inuwa Abdullahi proposed aligning the Act with the principles of the Fourth Industrial Revolution and Nigeria’s Digital Economy Policy.
Yesterday, a potential outline of the revised bill became available, and its details have raised concerns, particularly regarding its impact on startups.
Key Provisions of the Proposed Bill
The bill, in essence, proposes that technology companies operating within Nigeria obtain a license. It also outlines levies based on pre-tax profits and provisions for penalties against individuals or entities that do not comply with the new Act.
In 2019, the World Bank’s Doing Business Index ranked Nigeria 131st out of 190 countries based on the ease of conducting business, assessing regulatory environments comparatively.
The report acknowledged Nigeria as one of the ten nations demonstrating the most significant improvements between May 2018 and April 2019. However, despite these reported gains, tangible progress has been limited in recent times.
Businesses, especially those in the technology sector, have encountered increasingly stringent regulations and policies that hinder their expansion.
Recent Regulatory Challenges
The operations of motorcycle-hailing companies in Lagos were suspended indefinitely in early 2020, compelling them to adapt their business models for survival.
Furthermore, the country’s central bank prohibited cryptocurrency transactions through banks earlier this year, significantly impacting crypto startups, even those utilizing peer-to-peer methods.
Most recently, the ban on Twitter has negatively affected small businesses and disrupted communication channels for tech startups.
Details of the Proposed Legislation
Amendments detailed in Section 6 of the bill outline the expanded authorities granted to the National Information Technology Development Agency (NITDA). These encompass the ability to establish fees for licenses and authorizations, impose financial penalties, and issue notices regarding non-compliance with the stipulations of the Act.
The agency asserts its prerogative to “access premises, conduct inspections, confiscate materials, secure locations, detain individuals, and apply administrative sanctions” to entities and persons violating the Act’s provisions, contingent upon obtaining a judicial order.
Section 13 of the proposed legislation introduces the establishment of a dedicated fund – the National Information Technology Development Fund – intended to support the nation’s objectives within the digital economy. Funding for this initiative will be sourced from grants, collected fees, revenue generated through administrative payments, and levies imposed on technology companies.
According to the bill, technology companies with an annual revenue exceeding N100 million (approximately $200,000) will be required to contribute a levy equivalent to 1% of their pre-tax profits.
As stipulated in Section 20 of the circulated draft, NITDA will be empowered to issue licenses and authorizations to technology companies irrespective of their scale. These licenses are categorized into three distinct types: product licenses, service provider licenses, and platform provider licenses. The bill currently lacks detailed information regarding the specifics of these licenses and the criteria for startup qualification.
However, the agency places greater emphasis on outlining the repercussions for entities failing to secure the necessary licenses or remit the mandated 1% levy.
The agency stated that “Any individual or corporate entity operating an information technology or digital economy service, product, or platform in contravention of this Act’s provisions will be deemed to have committed an offense.”
Individuals found in violation by the agency will face a financial penalty of no less than N3 million (~$6,000) or a period of imprisonment lasting one year or longer. The bill also grants NITDA the discretion to impose both a fine and imprisonment concurrently.
Conversely, corporate bodies found guilty will be subject to a fine of not less than N30 million (~$60,000). Furthermore, the “principal officers” of these companies may be sentenced to a term of imprisonment exceeding two years.
Moreover, individuals or corporations obstructing agency personnel from fulfilling their duties as outlined in the Act will incur penalties of not less than N3 million (~$6,000) and N30 million (~$60,000), respectively. Imprisonment terms for individuals and corporate representatives in such cases range from one to two years.
Additional offenses and associated penalties are detailed further within the bill. For example, any company obligated to pay levies but failing to do so within two months will be subject to a daily penalty of 0.5% of the total outstanding amount.
TechCrunch sought clarification from the agency regarding the authenticity of the circulated bill, but no response was received at the time of publication.
Startup Bill and the NITDA Act: A Comparative Overview
A revised bill originating from the National Information Technology Development Agency (NITDA) has surfaced, coinciding with ongoing efforts within the Nigerian tech sector to collaborate with policymakers on the enactment of a comprehensive Startup Bill.
The Startup Bill aims to foster a supportive ecosystem for technology startups through regulations developed in partnership with the Nigerian government. Its initial draft is scheduled for public release and a first reading within the National Assembly this October.
Currently, stakeholders are evaluating their strategies in light of the provisions detailed in NITDA’s amended bill. This is particularly significant given NITDA’s anticipated key role in the successful implementation of the Startup Bill.
The leaked NITDA Amendment Bill introduces a potentially substantial challenge. Its scope of regulation surpasses previous concerns faced by tech companies, and its passage could fundamentally reshape operational procedures and significantly impede business operations.
Calls have been made for startup founders and tech firms to engage with legislators to influence the legislative process. However, a prevailing view suggests that direct lobbying may not be an effective approach at this juncture.
Instances, such as the attempts by motorcycle-hailing services to influence the Lagos State government prior to their operational ban, demonstrate the limitations of lobbying efforts. Despite engagement with key stakeholders, a prohibition was ultimately imposed.
Iyinoluwa Aboyeji, a prominent figure in the Nigerian startup landscape and co-founder of both Andela and Flutterwave, shares this skepticism regarding the efficacy of lobbying. He believes it may prove unproductive.
Through a recent social media post, Aboyeji expressed his belief that Nigerian legislators are largely unresponsive to lobbying. He advises startups to anticipate unfavorable outcomes while simultaneously striving for positive results. He further recommends that Nigerian startups prioritize developing products for a global market and consider establishing their legal entities internationally if needed.