Leaked NITDA review bill contains provisions that would choke Nigerian startups

For a while, there have been talks about revamping the outdated 2007 Act of Nigeria’s information and technology body, the National Information Technology Development Agency (NITDA).

The bill which established NITDA as the agency to oversee Nigeria’s technological transformation is quite outdated. This past decade, Nigeria has arguably become Africa’s most attractive destination for venture capital. It is also home to two unicorns (Flutterwave and Jumia) and billion-dollar fintech company Interswitch.

To keep up with the pace of innovation that has swept the country, NITDA tasked itself to review these laws and make them more beneficial for startups. Earlier this year, in March, the director-general Kashifu Inuwa Abdullahi proposed the realignment of the Act with “tenets and ideals of the fourth Industrial Revolution” and Nigeria’s Digital Economy Policy.

Monday, we might have caught a glimpse of what that amended bill looks like, and its details are rather concerning than friendly towards startups.

In summary, the bill states that NITDA wants tech companies operating in Nigeria to get a license, pay pre-tax profit levies, and sanction whoever (person or company) that operates contrary to the new Act’s provisions.

In 2019, the World Bank ranked Nigeria 131 out of 190 countries on its Doing Business Index, which measures the ease of doing business through a comparative assessment of regulatory environments.

Per the report, Nigeria was one of the top 10 countries with the most notable improvements during the review period of May 2018 to April 2019. Granted, the country made some improvements during this period but since last year, any talk of progression from the country has been on paper. In reality, businesses, especially those focusing on technology, have faced harsh regulations and policies detrimental to their growth.

After VCs spend millions Nigeria restricts ride-hail motorbike taxis

We witnessed how the operations of motorcycle-haling companies in Lagos were halted indefinitely in early 2020, forcing them to switch business models to survive. In March this year, the country’s apex bank barred people from trading cryptocurrency through banks; crypto startups haven’t looked the same despite using peer-to-peer methods. And more recently, the Twitter ban has affected small businesses in general and how tech startups communicate with customers.

What’s in the bill?

Section 6 of the amended bill details the powers accrued to NITDA. Some of them include the powers to fix licensing and authorization charges, collect fees and penalties and issue contravention notices and non-compliance with the Act.

The agency says it also reserves the right to “enter premises, inspect, seize, seal, detain and impose administrative sanctions on erring persons and companies who contravene any provision of the Act” subject to a court order.

In section 13, NITDA proposes establishing a fund (The National Information Technology Development Fund) to carry out the country’s digital economy objectives. How will this Fund be financed? Grants-in-aid, fees, accrued money under administrative payments, and levies charged from tech companies.

The bill declares that tech companies making an annual turnover of N100 million (~$200,000) will have to pay a levy of 1% of their profit before tax.

In section 20 of the leaked bill, NITDA says it will issue licenses and authorizations for tech companies regardless of their size. The licenses are classified into three — product, service provider, and platform provider. The bill provided no additional information about what these licenses entail and how startups qualify to get them.

However, the agency is more concerned about stating what will happen to individuals or companies that do not get these licenses or pay the 1% levy fee.

“Any person or body corporate who operates an information technology or digital economy service, product, or platform contrary to the provisions of this Act, commits an offense,” the agency said in the statement.

Individuals found guilty by the agency will be fined not less than N3 million (~$6,000) or placed into custody for a year or more. The bill states NITDA can also decide to charge such a person both the fine and imprisonment.

On the other hand, a fine of not less than N30 million (~$60,000) will be charged against corporate bodies. The ‘principal officers’ of the companies may also serve a prison sentence for two years or more.

And individuals or corporates that deny personnel from the agency to carry out duties under the Act will be fined not less than N3 million (~$6,000) and N30 million (~$60,000), respectively. Prison terms range from a year to two in this section for individuals and members within a corporate body.

Further offenses and penalties are mentioned later in the bill. For instance, any company which falls into the category of paying levies and does not pay after two months will be liable to a fine of 0.5% of the total amount to be paid every day after the default.

TechCrunch reached out to the agency for comment regarding the validity of the leaked bill but did not receive any response as of press time.

Startup bill v. NITDA Act

NITDA’s leaked amended bill is coming when the Nigerian tech ecosystem has rallied around to engage policymakers in the country to enact a Startup Bill.

The Startup Bill is geared toward creating an enabling environment for tech startups through co-created regulations with the Nigerian government. This month, the first draft will be made public towards a first reading in the country’s National Assembly in October.

Momentarily, uncertainty hovers around the stakeholders’ next steps following the content revealed in NITDA’s revised bill because the agency is supposed to play a major role in bringing the Startup Bill to fruition.

The leaked NITDA Amendment Bill also presents a whole new level of threat. It is heads and shoulders above what tech companies might have faced in recent memory. If passed, it will alter how they operate and drastically affect the ease of doing business.

Many have called for startup leaders and tech companies to lobby the legislators behind passing bills to law. However, the general sentiment is that lobbying is a dead-end for now.

Sources say motorcycle-hailing companies tried to lobby with important stakeholders before the Lagos state government banned them from operating on its roads. However, it still ended in a ban.

Despite being one of the pioneers of the Startup Bill, Iyinoluwa Aboyeji, co-founder of Andela and Flutterwave, also thinks lobbying might make for a futile effort.

In a tweet, he says Nigerian legislators are not “lobbyable,” and startups should prepare for the worst while hoping for the best. He also offered advice to Nigerian startups to start building for a global audience and incorporate their companies outside the country if necessary.

Yahoo.com