Since the emergence of Donald J. Trump, the Department of Government Efficiency (DOGE) led by Elon Musk has brought to public attention details of American government spending, especially financial details and transactions that seem to be shrouded in misery and covered with dirt. DOGE has highlighted many government funding issues and found some to be wanting. Notable among these is the United States Agency for International Development (USAID).
USAID has been accused of corruption, abuse of power, misuse, and wastage of American taxpayers’ money. While this article is by no means interested in or focused on USAID, the case in point is the concept of “American taxpayers’ money,” which has gained renewed prominence and has become a buzzword in recent events connected to corruption charges against USAID.
In today’s interconnected economy, the discussion around taxation is a slippery slope too steep to climb. Facilitated by advancements in digital information technology, communication, and data economy, discussions around many concepts have changed, including taxation. The question is, in this era where American dollars through digital inventions zip across borders at the speed of light, is American tax solely a thing of native inhabitants or a contribution from many countries interconnected by American digital communication networks?
In the literature of taxation, Nexus is a prominent word. Nexus implies a physical connection of an entity to a given jurisdiction. Traditionally, whether a corporation had nexus in a specific country depended on whether it had a physical presence there, in the form of offices, research centers, shops, and so forth.
Traditionally, people and corporations paid taxes only in countries where they had physical coverage. But things are much trickier when physical space is augmented or replaced by online space and when more transactions involve only the transfer of information rather than physical goods or traditional currencies.
For example, a citizen of Nigeria may daily interact online with numerous companies that might have no physical presence in Nigeria but provide her with various services. Google provides her with free search, and ByteDance—the parent company of the TikTok application—provides her with free social media. In exchange for free social media, these companies keep the individual’s information. However, other companies with interest to increase their sales, buy both personal information and ad space from Google and ByteDance.
In addition, Google and ByteDance use the information they harvest from millions of other users to develop powerful new AI tools that they can then sell to various governments and corporations throughout the world. Thanks to such transactions, Google and ByteDance are among the richest corporations in the world. So, should Google and other Digital Media companies’ transactions with Nigerians be taxed in Nigeria?
Some people think they should, not just because information from Nigeria helped make these corporations rich, but also because their activities undermine taxpaying Nigerian businesses. Local newspapers, TV stations, and movie theaters lose customers and ad revenue to the tech giants. However, the tech giants reply that none of the relevant transactions involved any physical presence in Nigeria or any monetary payments.
While some economists have argued that the definition of Nexus should be extended to cover digital presence, this implies that even if Google and ByteDance have no physical presence in Nigeria, the fact that Nigerians use their online services should subject the companies to taxation there. Just as Shell and BP pay taxes to countries from which they extract oil, the tech giants should pay taxes to countries from which they extract data.
Yet, this still leaves open the question of what, exactly, the Nigerian government should tax. For example, suppose Nigerian citizens shared a million dog videos through TikTok. ByteDance didn’t charge them or pay them anything for this. But ByteDance later used the videos to train an image-recognition AI, which it sold to an organization or government for ten million U.S. dollars. How would the Nigerian authorities even know that the money was partly the fruit of Nigerian dog videos, and how could they calculate their share? Should the Nigerian government impose a dog video tax?
The foregoing back-and-forth argument illustrates the slippery slope of taxation in the AI era. However, since these companies are of American origin and have a global landscape, they pay huge taxes to the American government with relatively no tax to other nations such as Nigeria until 2023. Moreover, the tax that companies such as Netflix, Facebook, and others decided to pay to the Nigerian government is based on their Company Income Tax (CIT) and Value Added Tax (VAT) of their operations in Nigeria, whereas in America, these companies pay tax based on their global operations.
Google, Netflix, Facebook, and other foreign companies paid ₦3.85 trillion in taxes to Nigeria’s Federal Government in the first nine months of 2024, a 68.12% increase from ₦2.29 trillion during the same period in 2023. Even though platforms like TikTok and X (formerly Twitter) are yet to meet regulatory obligations. Yet, the American government’s Internal Revenue Service didn’t disclose the amount of tax paid to the American government based on the global activities of their global digital companies.
The foregoing implies that while Americans often pride themselves on the idea of American taxpayers’ money, the real truth is that in this global economy, it is global taxpayers’ money that flows into Uncle Sam’s big wallet. When America spends money on any country, it is not always a gift; majority of the nations earned it. The only question should be: is the money falling into the wrong pockets?
Human traditional sense is very much alive; however, possibly due to the breathtaking change that is occurring, especially in this era of AI data economy, many seem not to grasp how and where the world is heading. It presents a kind of challenge to our rational mind that questions whether it is the San tribe in the Kalahari Forest, who with their technology have survived in an unforgiving desert for more than a hundred thousand years without exterminating the animals they depend on, or us, who have built a technology that even nations don’t understand, that is more rational?
If nations have learned to tax only money derived in the physical realm, they may eventually die out in a world that’s largely outpacing physical money. Uncle Sam’s wallet is filled with global cash, and we may come to a conclusion that American taxpayer’s logic is obsolete, no matter how uncomfortable Americans feel.
