Issues As NITDA Proposes Act Amendment

Yemisi Izuora in this report looks at various concerns being raised as the Nigerian Information and Technology Development Agency (NITDA), considers amendment of its regulatory Act.

There are growing concerns in the information technology industry following a proposal by the Nigerian Information and Technology Development Agency (NITDA), to amend its regulatory Act, in order  to gain more control over the budding technology ecosystem.

The Act, which was first enacted in 2007, lists out the functions of NITDA; a framework for the agency, as well as guidelines for the performance of the listed functions.

The proposed amendments, however, will seek to regulate the activities of tech companies in Nigeria; listing out provisions for registration, fees, and even sanctions, according to NITDA Director-General, Mallam Kashifu Inuwa Abdullahi.

Abdullahi confirmed that the amendments are crucial for the agency to keep up with the accelerating changes in the global IT ecosystem.

Quartz Africa in a report on the proposed amendment said that Nigeria’s sudden bans on cryptocurrency trading and Twitter have already put some startups on alert this year, but a bill to reform the country’s technology regulator is sparking fears of a community concussion.

The 26 page draft document seeks to amend a 2007 law, in order to address opportunities and threats posed by recent digital technologies. “The kind of information we store on our phones and other technological gadgets make the human brain susceptible to the possibility of being hacked,” Abdullahi, said as he briefed members of the National Assembly in March.

The DG also affirmed that the amendments are imperative; if Nigeria is to secure a place in the emerging global digital economy. While the announcement was made earlier this year in March; a recent leak of the proposed amendments has many ecosystem players questioning the true motives of the agency and its policymakers.

The proposed bill includes standard provisions which list out the duties and obligations of the agency, the crux of which is to create an impartial and independent regulatory framework for the development of the Nigerian information and technology sector.

Debatable parts of the bill, however, are contained in Sections 6, 13, and 22.

Specifically, Section 6 authorizes NITDA to issue new licenses for the companies seeking to provide information technology and digital services in Nigeria.

Sub-section 5 also provides that the agency may fix license charges and “collect fees and penalties” that are necessary for the agency to carry out its duties.

In line with fees and charges; Section 13 of the proposed Act also provides for the establishment of the National Information Technology Development Fund; which will be funded by grants-in-aid, fees, gifts, and levies.

An important part of the section, listed in sub-section 2a; provides that all companies with an annual turnover of ₦100,000,000 ($243,831); would be required to pay 1% of their profit before tax as levies. This will be in addition to the hefty 30% company income tax; which all profit-earning companies which include tech startups, have to pay.

While the 2007 Act does contain a similar provision, most tech companies were excluded from the levy; as they were not part of the categories listed under the act. The Third Schedule, under the proposed Act, includes categorizations for e-commerce companies; foreign digital platforms targeting the Nigerian market, and fintechs.

Another thing the proposed amendments have in common with the present 2007 Act, is the imposition of both fining and imprisonment for offences under the Act.

Under Section 22, offences under the Act include non-payment of levies. This is punishable with a 0.5% increase in the assessed sum per lapsed day.

Failure to adhere to directives issued by the agency also attracts a fine of ₦3,000,000 ($7,315). The foregoing fee is for individuals and ₦30,000,000 ($73,149) for corporate bodies. This is a far cry from the 2007 Act which listed out lesser fines for the same offence: ₦200,000 ($487) for individuals, and ₦500,000 ($1,219) for corporate bodies.

Quartz, observed that seemingly innocuous at the time, Abdullahi’s statement now feels ominous after details of the bill became public this week. Startup founders, venture capitalists, and policy analysts fear the bill will stifle innovation, if it is enacted.

The NITDA created in 2001, the year mobile telephone communications arrived in Nigeria.

It got legal backing six years later for two broad roles: nudging government departments to transition to digital technology systems, and guiding the private sector on standards for digitizing the economy. Today’s smartphone-first world has clearly moved on from the GSM protocols of NITDA’s founding, and the evolution of tech calls for old laws to be updated everywhere.

In high-poverty societies, vulnerable consumers may confuse legitimate fintechs offering savings and investment products with Ponzi schemes run by 21 year olds and styled as investment platforms. Some Nigerian digital lending platforms, which typically claim to use artificial intelligence in their products, employ questionable tactics to recover loans, like their counterparts in Kenya and India.

One of NITDA’s 24 updated functions in the new bill is to support standards for robotics, blockchain, cloud computing, and artificial intelligence. The agency wants to be an advisor to businesses, and “promote incentives to encourage private sector investments in the digital economy.”

The bill will also empower NITDA to “completely control technology activities in the country beyond the scope of its original mandate of tech promotion,” says Adewunmi Emoruwa, a public affairs analyst in Abuja. “It’s a power grab.” Quartz reported.

Outrage Over New licenses And 1% Tax

Section 6: NITDA will “test, and approve” any technology before it is used in Nigeria, and demand whatever license fees and penalties it deems important for achieving its mandate. It is effectively a gatekeeping role, which seems contrary to the experimental spirit that spurs innovation in developed, democratic ecosystems. Cryptocurrency, which hit record trade volumes in Nigeria last year, could be the unnamed enemy here.

Section 13: Businesses that make over 100 million naira ($243,000) a year will pay 1% of their profit before tax to a fund for Nigeria’s digital economy. The fund replaces an existing one with the same terms; the update is that tech companies and “foreign digital platforms targeting the Nigerian market” join telcos, banks, pension funds, and insurance companies in paying. Nigeria’s tax body explains that the fund, as it exists, invests in promoting technology in the country but Eghosa Omoigui, CEO of EchoVC, a venture capital firm, wonders how the fund has fared in the last 14 years.

Sections 20 and 21: Businesses can identify as being in Nigeria’s information technology and digital economy sector only if the agency’s new register says so. Even while the Corporate Affairs Commission registers businesses, and the Central Bank of Nigeria supervises most fintechs, NITDA will now issue its own product, service, and platform licenses. Emoruwa sees “a back door channel to legitimize future sinister acts such as the Twitter ban” in the agency’s power to revoke tech companies’ licenses.

Quartz further writes that, Taken together, the bill raises questions of regulatory overreach, whether taxpayer resources are wasted by duplicating government functions, and whether foreign investors could continue to leave Nigeria (paywall). Modupe Odele, founding partner at Vazi Legal, which advises startups and investors, thinks NITDA’s intentions are unclear and unfit for an innovation economy, “but if there’s going to be regulation, then it should be ecosystem-led.”

The controversial draft seems to contradict the spirit of startup-specific legislation in Nigeria that’s being modeled on innovative laws in Senegal and Tunisia, Quartz observed.

Plans for a Nigeria Startup Bill started in March and are being led by some founders and investors in collaboration with government representatives.

Town halls are scheduled to be held this month, after which a draft will be sent to Nigeria’s president in October.

Emoruwa believes NITDA should be putting its weight behind the industry-led startup bill, instead of being a gatekeeper.

To be sure, even the multi-stakeholder startup bill has skeptics who are not convinced of the government’s motives. But it has at least included affected players, while NITDA like the typical Nigerian regulator who bans motorcycle-hailing taxes or Twitter has banged the gavel unilaterally.

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