Nigeria has over 200 million people, and combined unemployment and inflation rates reached 26.5 percent in the third quarter of 2023. The country has one of the world’s highest misery indexes, with many Nigerians living in deteriorating conditions. Inflation reduces purchasing power, pushing many people into poverty.
These alarming numbers have seen several reactions from the government, which is looking to curb inflation by shutting down several crypto and forex platforms suspected of indulging in speculation and fixing forex rates. While crypto and forex may be suspected of causing some harm to the economy, many millionaires have emerged from this industry as well. This fight-and-shutdown approach is synonymous with most regulatory bodies globally, but the approach should differ for emerging economies struggling with unemployment.
Navigating the creator economy in Nigeria will help the government improve revenue generation like other countries.
Source: UGC
Arcon released a regulatory standard for online content creators, which has received a fair share of criticism. Stringent rules implemented by the regulatory body may neither protect them nor any player in the industry.
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Dataleum, a global talent accelerator, reports that the creator economy is the third-largest entertainment industry in Nigeria, worth over ₦50 billion ($31.2 million). This industry provides entertainment and generates a significant amount of employment. According to the Africa Polling Institute (API), 90% of Nigerians polled view comedy skits as a viable employment opportunity, highlighting the industry’s socio-economic impact.
The global Creator Economy market size is projected to exceed USD 600 billion by the end of 2036, growing at a CAGR of 23%. While Nigeria is still playing catch-up with its counterparts abroad, Nigeria’s approach to regulating the sector even beats Europe, which is famous for over-regulating. From our research, no democratically led nation requires pre-approval for content and identity documents from participants before ads are approved.
According to Jobberman’s 2021 research, the creative sector currently employs approximately 4.2 million Nigerians, making it the country’s second-largest employer, and has the potential to create an additional 2.7 million jobs by 2025. If we speculate a 1% adoption rate monthly for creators. This means that Arcon will have to authenticate 45,000 creators even at an unrealistic 0.1% we envisage 4500 ads for approval monthly, this begs questions like is Arcon able to capture all required approvals with their current manpower and infrastructure? What investment has gone into ensuring this is achieved and ad approvals do not take weeks and run into months?
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This approach can be compared to the approach taken by institutions like COSON in times past looking to systemize revenue collections for Nigerian artists by selling licenses to public dvd vendors, commercial premises, etc. I still see how Nigerian music can become more profitable by closing certain loopholes, which involve but are not limited to commercial licensing and sync, which can be achieved by setting up strong institutions like South Africa’s Capasso.
While there is no answer to whether Arcon and other relevant bodies can effectively regulate the creative economy, I think there is no need to overregulate.
Instead, I perceive the need to invest in this sector, create revenue models that empower the youth, create creative incentives for tax, and create a tax system that empowers the sector itself.
More organized sectors within the advertising industry, like OOH, TV, and digital, already participate in the tax system in Nigeria. While the creator economy has not fully captured, the inevitable is close. The problem is the feds have not been able to capture the market accurately as a lot of deals happen off the regulated market and small businesses in this regard are non-compliant. I suggest a layered approach to tackling taxation amongst creatives in Nigeria. I dare say we need to meet them where they are and a forceful approach will backfire.
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While the creator economy has grown to be a significant industry worldwide, navigating tax obligations can be difficult, especially when comparing regulations in the UK, Nigeria, and the United States. Here’s a quick rundown of the major differences and similarities in tax implications for influencers in these countries.
Influencers in the United Kingdom pay a progressive income tax rate of 20% on earnings between £12,571 and £50,270, 40% on earnings between £50,271 and £125,140, and 45% above £125,140. Self-employed influencers pay Class 2 NICs on profits over £6,725 and Class 4 NICs at 9% on profits between £12,570 and £50,270, with 2% above £50,270. VAT registration is required for annual turnover over £85,000, with a standard VAT rate of 20% (Nordens) (Ridgefield Consulting).
In the United States, federal income tax rates range from 10% on earnings up to $10,275 to 37% on earnings over $539,900. Influencers must also pay a self-employment tax of 15.3% (12.4% for Social Security and 2.9% for Medicare). Sales tax rates vary by state, from 0% to 10.5% (Money Lad) (Mercian Accountants).
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Nigeria requires influencers to register with the Corporate Affairs Commission (CAC) and pay income tax at 0% for small businesses earning up to ₦25 million, 20% for medium companies earning between ₦25 million and ₦100 million, and 30% for larger companies. VAT of 7.5% applies to applicable goods and services (GovernMend, Mondaq).
Gifts and promotional products are considered taxable income in all three countries and must be reported accordingly (Nordens, Mondaq). The UK uses HMRC’s CEST tool to determine employment status, which affects tax obligations under the IR35 rules. In the United States, the IRS determines employment status based on control, financial, and relationship factors. The legal classification of content creators in Nigeria is unclear, but they are subject to the same tax obligations as businesses and individuals (Accountancy Age, Mondaq).
While Nigerian creators enjoy a more favorable tax regime than other countries, there is no efficient tax system in Nigeria, especially for this sector. How do the HMRI AND IRS execute tax regimes and what can their Nigerian counterparts learn from this? The obvious stares at us, but we also observe contexts and nuances that may frustrate the feds from executing like their Western counterparts. Flagging large transactions, and a banking system built on accountability may be the obvious, but we must take into consideration how this can easily be abused.
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Some of the questions that I think we can thoroughly have answers to will go a long way to help regulate the sector fairly include: are we able to monitor Influencers’ activities independently, and engage brands running ads on these platforms, then hold them responsible for untaxed ads? How is this possible? Do we offer more value to these creators and brands aside witch hunting them to remit tax without showing any benefits for taxpayer money or a clear roadmap as to how the funds will be used? Is it time for a well-developed and funded government agency to cater to the creator economy?
Perhaps more conversations need to be had on this subject matter. I will suggest consistent debates with all parties to resolve issues that plague the industry to provide creative solutions to these problems
Osahon Kelvin Edogun is a Digital Finance and Media expert
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Source: Henzodaily.ng