On Nigeria's National Information Technology Development Agency (NITDA) Bill and its impact on investors

15 Sep 2021

Written by Bukola Bankole (Partner) and Genevieve Henshaw (Senior Associate), The New Practice (TNP)

A group of professionals discussing business

A few weeks ago, news of the leaked National Information Technology Development Agency Bill (the “Bill”) was all over the internet with its key provisions being the subject of discussions across different circles. This is coming on the heel of earlier news this year that a “Start-up Bill” geared towards creating an enabling environment for tech start-ups was in the works. It appears that the key objective of the Bill is to monitor and licence information technology (IT) and digital economy services in Nigeria. According to the Director-General of the National Information Technology Development Agency (“NITDA”), it had become necessary to review the NITDA 2007 Act (the “Act”) to incorporate changes in global IT as well as develop a framework for the development of the IT sector and the digital economy.

Notwithstanding the Director General’s comments, the expanded scope of the Bill has created some uncertainty and concern among stakeholders.

One fundamental issue is the NITDA’s power to grant licences and approvals. The Bill provides that the NITDA must approve the use of IT infrastructure and digital services in Nigeria, and issue and renew licences for the provision of IT and digital services. The criteria for this licensing is to be detailed in the Regulation issued by the NITDA. This translates to subjecting all IT and digital service providers to the licensing requirements of the NITDA and exposing them to multiple licencing. FinTech companies for instance will be caught in this bracket and forced to obtain the additional NITDA licence in addition to those currently issued to them by their various existing regulators. This is seen as a concern given that this sort of over-regulation tends to stifle innovation and development.

The Bill also seeks to grant the NITDA the power to enter premises, inspect, seize, seal, detain and impose administrative sanctions on erring persons subject to a court order. The sanctions vary, depending on the violation recorded; however, the sanctions for non-compliance with the provisions of the statute upon conviction include a fine of not less than NG₦3,000,000 (approximately US$7,326.54) or imprisonment for a minimum term of one (1) year, or both for individuals; and not less than NG₦30,000,000 (approximately US$73,275.44) for companies. In addition to the penalty imposed on companies for non-compliance, each director and principal officer will also be liable to similar fines and or imprisonment.

From an investment perspective, if this Bill is passed, investors must carefully ensure that their potential target or portfolio companies who provide services regulated by the NITDA are in full compliance with the licensing requirements. Failing which investor firms risk having penalties imposed on their representative directors who serve on the boards of these companies.

This director liability features quite often in the Bill. Apart from the penalties for non-compliance with the licencing requirement, the Bill also includes similar penalties (and a term of imprisonment) for the directors of companies who attempt to prevent or prevent any authorised personnel of the NITDA from gaining access to its data, records, or premises. Given that private equity and venture capital investors will typically have representative directors on the board of their portfolio companies, this can only mean increased supervision of the portfolio companies to monitor and adequately cover this personal liability their representative directors may be exposed to.

Another significant proposal under the Bill is the requirement to expand the category of the companies with an annual turnover of NG₦100,000,000 and above (approximately US$244,218.14) who are mandated to pay one per cent (1%) of their profit before tax to the NITDA Fund.

The Federal Inland Revenue Service (“FIRS”) is responsible for assessing and collecting the levy, which is due within sixty (60) days after the FIRS has served the company with a notice of assessment*. The Bill attempts a “catch-all” by expanding this category of companies to include information technology, eCommerce companies, digital platform operators and providers, and foreign digital operators and providers. The expanded scope of companies required to pay the NITDA levy increases the cost of doing business for a vast category of companies, in contrast to the Federal Government of Nigeria’s ease of doing business disposition. Thankfully, the constitutionality of the specific levy has been recently challenged in the case of Attorney General of Rivers State v FIRS and Anor; and Federal High Court invalidated the NITDA levy as being a breach of the Constitution of the Federal Republic of Nigeria. This decision remains the law until it is set aside on appeal.

The Bill does not introduce any protective measures for the benefit of the technology and digital service providers driving innovation, nor does it incentivise them to contribute to the development of the IT and digital services sector, or the economy at large. It is therefore hoped that the pushback the Bill has generated will be taken on board and addressed before it is passed into law.

Where there is no success with this, a final opportunity remains for stakeholders to get actively involved with the process for the drafting of the Start-up Bill to capture, voice and address any concerns that may have been created with the Bill.

*The FIRS shall serve a demand note on a company for the unpaid levy plus 2% of the levy where not paid within the prescribed timeline. If this remains unsettled for a period of two (2) months after the issuance of the demand notice, the company shall be liable on conviction to pay a fine of 0.5% of the assessed levy for each day of default

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