In Nigeria, to establish certain businesses such as insurance, banks, or investment companies, one needs a sector-specific license obtained from the relevant industry regulator, apart from a general certificate of incorporation from the country’s Corporate Affairs Commission — in charge of registering companies. To put it more clearly, a proposed digital bank desiring to do business in Nigeria, for instance, must first both go through the Central Bank of Nigeria and the Corporate Affairs Commission to obtain an operating license and a certificate of incorporation respectively. This is the same for an insurance or a telecommunications company in the country, which must first go through their respective sector regulators in order to be able to do business in Nigeria.
Now, the West African country— if the leaked proposed bill is not eventually discarded — is about to introduce a shocker: a sector regulator for all technology businesses in Nigeria, one of the major firsts in Africa.
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The new regulator, which is simply an expansion of the powers of the National Information Technology Development Agency (NITDA) — a regulator hitherto in charge of regulating, among other things, transfer of technology and data protection — will now be in charge of “issuing and renewing licenses and authorisations for the provision of information technology and digital services.” It will also be in charge of “fixing licensing and authorisation charges, collect fees and penalties,” from the license holders.
“The purpose of this Act is to create an effective, impartial, and independent regulatory framework for the development of the Nigerian information technology sector and digital economy, which shall include:… encourage local and foreign investments in information technology and digital economy through regulatory interventions…promote the deployment and use of indigenously produced goods, services and platforms for the development of the digital economy;…promote the use of innovative digital services, systems, practices and emerging technology in Nigeria,” the bill reads in parts.
But the proposed bill, coupled with Nigeria’s regulatory antecedents towards its tech ecosystem in recent times, appears to be out to destroy instead of promoting the country’s nascent tech landscape.
If The Bill Becomes Law, All Technology Businesses In Nigeria Must Now Be Licensed And Fined By NITDA
This is the first time this has ever happened in the West African country. Section 20 of the Bill authorises NITDA to issue licenses to technology businesses, as well as provide for licensing and authorisation criteria including renewal, suspension, and revocation, to promote free market operation and competition, among others.
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The direct implication of this is that any such licenses granted by NITDA may now be suspended at will, or simply revoked. The Bill did not state in specific details, the procedure for seeking redress from any aggrieved persons whose licenses have suffered such suspension or revocation.
According to the section, the classes of licenses that may be procured under the bill, if it becomes law, are a) product license b) service provider license c) platform provider license. It however did not define the above classifications in specifics, neither did it state the respective licensing fees. In any case, this means that virtually no type of technology business now escapes the regulatory eyes of NITDA, including small-scale technology businesses located in the remotest parts of the country.
The consequence of non-compliance with the rules is that the defaulting business commits an offence, whichdirectly means criminal conviction of the offending parties. Below is the table of these offences and their accompanying punishments.
| S/N | OFFENCE | DESCRIPTION | PUNISHMENTS |
|---|---|---|---|
| 1 | Non-payment of assessed levy | Failure to pay within two months after receiving an official notice from NITDA | The company pays a fine of 0.5 per cent of the assessed sum every day of the default. |
| 2 | Failure to comply with the law | That is, failure to obtain a license, or comply with the provisions of the law establishing NITDA, or any regulations made by NITDA, etc. | Individual: fine of NGN3, 000, 000 or jail for not less than 1 year. Company: corporate fine of NGN30, 000, 000 or jail for company officers for not less than 2 years. |
| 3 | Denial of entry into the property of the licensee. | Entries include entry into premises or access to records or data. | Individual: fine of NGN3, 000, 000 or jail for not less than 1 year. Company: corporate fine of NGN30, 000,000, plus every director and officer to pay a fine of NGN3, 000, 000 or jail for not less than 2 years or both. |
| 3 | No specific offence and penalty stated in the law. | That is, a person commits an offence under the law where no specific penalty is provided. | Individual: fine of NGN30, 000, 000, plus administrative sanctions, or jail for not less than 2 years or both. Company: corporate fine of NGN30, 000, 000. |
| 4 | First Offender | Where no specific offence and penalty are stated in the law, and the person is a first offender. | A fine of N3, 000,000.00 or jail for not more than 1 year or both. |
| 5 | Subsequent Offender | Where no specific offence and penalty are stated in the law, and the person is a subsequent offender. | A fine of N5, 000,000.00 or jail for not more than 3 year or both. |
If The Bill Becomes Law, All Technology Businesses In Nigeria Must Now Remit One Percent Of Their Profit Before Tax Into The National Information Technology Development Fund
This is not the first time this is happening. Under the previous legislation establishing NITDA, a technology company in Nigeria is obligated to pay 1% levy on profit before tax if it has an annual turnover of ₦100,000,000 (One Hundred Million Naira) and above. These provisions have been carried forward into the proposed rules, with the following amendment:
- The defaulting person will now have to pay two percent of the levy (that is NGN2,000,000), instead of the previous flat fine of NGN1 million.
The Implications Of The Proposed Bill
The bill implies a lot of things, including that:
- All technology companies in Nigeria must now first obtain a license to operate before they can even be allowed to register with Nigeria’s Corporate Affairs Commission. This is counter-productive given the country’s population and land sizes.
- By stating that NITDA has the power to “develop regulations, guidelines and directives on the use of information technology and digital services in every sector of the economy to attain the purpose of the Agency” and at the same time have the power to “issue notices of contravention and non-compliance with this Act, regulations, standards and guidelines,” it implies that NITDA may introduce policies through the back door to checkmate the activities of technology companies in Nigeria. This is exactly re-creating the scenarios recently played out by Nigeria’s National Broadcasting Commission, when it introduced a set of sweeping rules that forced startups such as the entertainment startup, iROKOtv, to shutter its Nigerian operations.
- The new powers of NITDA are sweeping in their effects, including the power to, on its own, state the licensing fees for the licenses, among other deductions.
- The proposed bill continues the trends of hostile policies against Nigeria’s tech startup ecosystem. The west African country had recently disrupted the operations of bike hailing startups, cryptocurrency trading, foreign stock-trading, Twitter, among other regulatory blocks.
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Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer