Taxation of the Digital Economy: Updates in the Nigeria Finance Act 2021


The rapid growth of the digital economy has presented both opportunities and challenges for governments worldwide. In response to the evolving landscape of digital transactions and e-commerce, the Nigeria Finance Act of 2021 introduced significant updates to the taxation of the digital economy. As a leading accounting firm in Nigeria, we recognize the importance of understanding these changes and their implications for businesses engaged in the digital realm. In this article, we will explore the key updates in the Nigeria Finance Act 2021 regarding the taxation of the digital economy.

1. Digital Services Tax (DST)

One of the notable updates in the Nigeria Finance Act 2021 is the introduction of the Digital Services Tax (DST). The DST is a tax imposed on certain digital transactions, including online advertising services and sales of digital goods or services. Foreign companies providing these digital services to Nigerian customers are now subject to DST at a rate of 2% of the gross transaction value.

The DST aims to capture revenue from digital transactions that previously fell outside the scope of traditional taxation methods. By imposing this tax on foreign digital service providers, the Nigerian government seeks to enhance revenue collection and ensure that businesses operating in the digital economy contribute their fair share of taxes.

2. Obligation of Foreign Digital Service Providers

The Finance Act 2021 mandates foreign digital service providers with a significant economic presence in Nigeria to register for tax purposes with the Federal Inland Revenue Service (FIRS). The Act defines significant economic presence as having a gross turnover of at least N25 million or providing services to at least 200 individuals or entities within a specified year.

This obligation ensures that foreign digital service providers with substantial operations in Nigeria comply with the country’s tax laws and aligns with international efforts to address tax challenges in the digital economy.

3. Withholding Tax on Digital Transactions

The Finance Act 2021 expanded the scope of withholding tax to include certain digital transactions. Companies and individuals making payments for services such as cloud computing, software subscriptions, and digital content downloads are now required to withhold tax at a rate of 5% on the gross payment. This measure seeks to enhance tax compliance and ensure that taxes are collected at the source of payment.

4. Strengthening Tax Compliance and Enforcement

The Act also introduced measures to strengthen the enforcement of tax compliance in the digital economy. The introduction of Transfer Pricing Documentation Regulations requires multinational companies with related-party transactions to provide detailed documentation on their transactions, including digital transactions. This initiative enhances transparency and prevents tax evasion through related-party transactions.


The updates in the Nigeria Finance Act 2021 regarding the taxation of the digital economy reflect the government’s commitment to adapt tax policies to the changing business landscape. By introducing the Digital Services Tax, obligating foreign digital service providers to register for tax, and expanding withholding tax to cover digital transactions, the Act enhances revenue collection and ensures a level playing field for businesses operating in the digital realm.

As a leading accounting firm in Nigeria, we are dedicated to assisting businesses in understanding and complying with these updates. Our expertise in tax advisory and compliance empowers businesses engaged in the digital economy to navigate the complexities of the Nigeria Finance Act 2021 and optimize their tax planning strategies.

By embracing these changes, businesses can contribute to Nigeria’s economic growth and development while ensuring tax compliance in an increasingly digital world. Let us work together to build a vibrant and digitally progressive economy for Nigeria’s future.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at You can also reach us via WhatsApp at +2348038460036.