Episode Transcript
[00:00:00] Speaker A: Hello everyone. Welcome back to the Tech Points Africa podcast. Today we'll be questioning what is going on between CAC and content creators in Nigeria. Are you really taxing them? Then we'll talk about Carbon's acquisition of Vella Finance. Two stories, but they are deep. I am Oluwanifemi Kolawole and with me in the studio are the normal people.
No offense.
We have a very interesting guest in the studio today. I call him Omoruyi. Many people do that, maybe because for reasons you will get to know, he's a legal counsel and he's a startup lawyer.
Thanks for joining us in the studio today.
[00:00:54] Speaker B: Thank you for having me.
[00:00:55] Speaker A: You can introduce yourself.
[00:00:59] Speaker B: UyiLaw as people call me? I lead the team at E&C legal or fuller name edugarian company. And we're a full service law firm with a strong bias or support base for startups, technology and innovation. So I'm an unconventional attorney. Hardly find me in a suit and a tie.
[00:01:24] Speaker A: Yeah, corporate lawyers are the ones collecting the money. No litigation lawyers. I have an article to back that.
[00:01:31] Speaker C: Up so we can build a nice.
[00:01:38] Speaker A: Yes, let's move from that and just dive into the stories of today. So CSE wants to tax content creators and we are wondering, is it a misunderstanding? What is going on? Do they really want to? Because it has to do with people that have large social media following and all. So what is it about Bolo?
[00:02:04] Speaker C: Okay, so the thing with that story is you need to understand the whole context behind it, where the statement was made, why it was made. So the corporate Affairs Commission registrar made that statement during when op paid a court c visit. The court c visit was to get merchants pos agents registered, about 300,000 of them. Right. So I guess naturally conversation moved to getting businesses registered in the country. And then he now mentioned content creators. So you were saying things around the lines of they are making a lot of money but they are not paying tax. Right. So is more of getting them to get registered. Right. Because the CAC is not a tax collector. Right. So we were saying things around getting them registered so that the tax collector can now tax them.
[00:03:10] Speaker A: That is firs or lirs in Lagos.
[00:03:14] Speaker C: So after that we saw news, right, on different news platforms where FIRS said they were clearing the air around the old issue. So FRS was not saying, oh, we do not have any tension. Start going after content creators yet? Yes, well, they didn't say yet, but what they did say was that they should pay tax, they should pay income tax. Right. And they said what their own job is to go after corporate entities that have revenues above 25 million. Error, right? Those are the ones they go after. To pay tax, you must pay their tax. So that is the old context behind. So it's not as if it's more of like an unofficial statement. So there was something going on, there were discussions. It's not as if Nigeria is now saying, oh content creators, we are coming for you, you must stop paying tax and things like.
[00:04:23] Speaker A: It didn't sound like something strange to me because every other market day something comes up, especially in Lagos state, about making content creators pay their tax register and stuff like that so that they can be on the, I wanted to say on the government payroll. I mean saying the government, you get what I'm trying to say. Omari, can you tell us if there's. Okay. So they said, okay, they are not taxing yet, but is there a possibility?
Do we have a precedence?
[00:04:56] Speaker B: So I think that the starting point is actually not to blow the lines.
The corporate Affairs Commission has no power to tax persons or corporate bodies. It's not within their purview.
Taxation lies within the purview of the joint tax board, which is made up of the FIRS for federal and the state internal revenue services.
So I think that's the starting point of the conversation and understanding where each person's role plays. But it's good that Bolo has given a bit of a context to that conversation. And I think that the registrar general may have been misunderstood or may have even in his remarks not clarified certain things. So let's clarify. What's the duty of CSE? CSE is corporate affairs commission. It has a duty to register and to some extent regulate the structuring of corporate entities in Nigeria. From business names, to limited liability companies, to incorporated trustees, to different types of limited liability. Limited, unlimited and limited by guarantee. Different structures, right?
But when it comes to taxation, taxation falls within the ambit of the Joint Tax Board for corporate entities, citizens of the FCT, members of the armed forces and federal employees. It falls within the ambit of the Federal Internal Revenue Service for persons living in the states, state employees, employees of companies, their tax regulation falls within the ambit of the state Internal Revenue Service for Lagos LIRs, as we call it. So it is this body that has the legal obligation to demand tax, right? So let's have that clear then. What's the next thing?
Whether or not content creators should be taxed, should be taxed. So here's the thing. I think that where they missed it in the conversation is not even understanding how taxation works, right? So for companies, companies are taxed by FRS, like I pointed out to where you hear things like company income tax, value added tax, and some other taxes, right?
For individuals, you hear things like personal income tax, irrespective of whether you are working somewhere or you are self employed or you are selling Google and Ebba down the road, personal income tax, which is taxed from your personal income, right? And then for entities or individuals like the good guys here in techpoint, whatever you earn is a percentage is deducted and paid through the state Internal Revenue Service.
And that's what I'm sure you probably have heard. Payee, right? And so that comes out. So when you talk about content creators, do they make income?
[00:08:33] Speaker C: Yes.
[00:08:34] Speaker B: Right. So the taxation for them has nothing to do with registration or incorporation.
It has to do with them personally paying their taxes in the states where they are located. So the thing about it is the work is really for the internal revenue services of those individual states to find a means of encouraging residents to pay personal income tax. And guess what? There are so many rules today that you cannot assess certain provisions if you do not have a tax card. The only way you can have a tax card is to pay your personal income tax. For instance, if you want to apply for BTA, PTA, travel allowance and the likes, you've got to submit your tax card. If you're doing anything in Lagos state, for instance, they will ask you for your tax number, personal tax number. So for content creators, all that needs to be done is for them to pay, remit their personal income tax, not to register. Right.
But if you have an entity through which you are providing the services that you are providing, then it's more advisable to create a structure to it, right? So if the CAC register general had spoken to the need to have a structured creative ecosystem, that will be more conversations, right? But when it comes to tax, CSE has really no obligation. CSE can't tax you. Right? All you do after registration is that you file your annual returns. And if there's any significant change in your company or any change whatsoever, you ensure that you file it at the corporate Affairs Commission, which is more like a notification. But after that, I doubt that you ever have CSC knock on your door and say, guys, come and pay your tax.
[00:10:34] Speaker A: Yeah, thanks for clarifying that, Mariam Bolu. And I love that you mentioned how state revenue services should encourage everybody, citizens that live in those states, to pay their tax. And also, I think encouraging is something some people would not abide by. And that's why sometimes they try to want to enforce.
And anytime those kind of news come up, we are like, what is this? We are not even getting enough. What are you using the tax for? You get. But the fact that you cannot assess some services without your tax identification number, I think that should make people to pay their personal income tax even though they are deducted. We don't have a choice. I don't see my lirs email. I'm like, if they give me this money, I know what I need to do, but I would have paid it. I don't know.
But yes, please, let's pay our taxes.
[00:11:46] Speaker D: Be a good citizen.
[00:11:47] Speaker A: Forgive the government.
[00:11:48] Speaker B: Even the Bible says, give unto Caesar that which is Caesar. Right.
So taxes are a way of living. Right. The adequacy of its application is a conversation for another day.
[00:12:04] Speaker A: Encourage people.
[00:12:06] Speaker B: Right. But the thing is, the challenge oftentimes is that we see taxes as punishment.
So if we're able to change the mindset to see taxes as an obligation that you've got to meet, it's just like if you've got a prepaid meter at home, you've got to recharge your.
[00:12:33] Speaker A: Units or you will not use light.
[00:12:34] Speaker B: Whether or not you feel the light coming in is adequate or whatever, you've got to recharge it. Right. And so it's around that line, change of mindset.
[00:12:48] Speaker A: So we should not see tax as a punishment, but as an obligation. So carbon has acquired Vela Finance. Sounds like good news because I hear people congratulating them and not just acquiring like they were absorbed. Yes, that's the word. They were absorbed. So Jim was doing, just give us a lowdown of what's about.
[00:13:14] Speaker D: Okay, so it's an aquihaya.
That's what you're going for with absorbed.
[00:13:22] Speaker A: I love absorbed.
[00:13:23] Speaker D: Well, absorbed doesn't exactly paint the whole picture, but it's an aquihai. And basically they're getting the founders, they're getting some members of the team. So Vela Finance has been around for, I think under three years. And at the time of the acquisition they had about 8000 merchants. So Vela Finance provides business banking and some personal banking services. And carbon has been, we know what carbon has been doing for a while. They've been doing personal loans. And then in the last two to three years they've started adding, what do you call it now? They've started adding payments. So view payments, airtime and all of that. And I think sometime this year they mentioned or they announced that they would now be offering business banking services.
We will probably touch on that. But basically carbon wants to expand their business banking ambitions. And then they are saying that Vela finances experience and the technology they've built, the experience they've gotten, would be very integral to doing that. So right now, they're absorbing all of Vela finances, 8000 business customers, individuals would also have their accounts migrated in the process. But, yeah, that's like the roundup of what has happened.
[00:14:41] Speaker A: Yeah, it sounds like good news. Is it?
[00:14:44] Speaker D: Well, okay, yeah, it depends on who you're asking. But I mean, generally it looks like good news. So I don't know exactly the details because it hasn't been disclosed. We don't know how much this involved the founders, both on Carbon's end and Vela finances, and they seem happy with the deal. So I'm guessing it's good news.
The only question now remains. We would like to know the details, like everything that went down behind the scenes. So maybe, I guess it's good news.
[00:15:21] Speaker A: Okay, so during the conversation that has always come up during this time, where companies are struggling to survive is one of the ways companies can survive, instead of selling their assets, laying off, merging acquisitions and all. So I don't know if you can take a guess what's behind this acquisition because is it just like a relationship scene? Right. Carbon could have gone on and just built carbon business. Who built a business? Distinct merchant recently? Was it moneypoint as a business banking. Business banking. I think another fintech, I think block.
[00:16:12] Speaker D: Has, there are quite a few brass.
[00:16:14] Speaker A: So they could have gone ahead to just build it because they said they've been in the process. So I'm trying to understand what is behind this. Is it just the relationship or something was going on with Vela finance.
[00:16:27] Speaker D: Okay, so you have two options if you want to expand your capabilities. Either build from scratch or you buy.
[00:16:34] Speaker A: Okay.
[00:16:35] Speaker D: And there's no one size fits all. It's probably you looking at, okay, if I build from scratch, I would not have it from day one. It's probably going to take a few months, maybe a few years. There'll be experimentations, there'll be some failures along the way. So if I buy, on the other hand, I'm getting a team that has been doing this thing for quite some time. We are hitting the ground running, in the words of our president, hitting the ground running from day one. And that is something that could be attractive for anybody who is in an acquisition.
[00:17:13] Speaker C: Right.
[00:17:13] Speaker D: So every business, I'm already using the word relationship, but you get point, like every business transaction is kind of driven by some relationship.
You are not going to acquire the company. And a founder that you hate, it.
[00:17:29] Speaker A: Might be to kill you would not.
[00:17:32] Speaker D: Do an aqui, hire the founders.
This is not succession, where you make some very irrational moves. But, yeah, the relationship definitely plays a part. Both founders say they've known each other for some time, and that means they understand how they work. They kind of are aligned on the vision. And I think something to point out is carbon says, we've been doing business loans for a while, but not at the standard that we want. And they believe that some of the capabilities that Vela finance has built, especially around artificial intelligence, can help them with doing that. I don't know if you would have questions on what specific capabilities I'm referring to.
[00:18:16] Speaker A: Yeah.
[00:18:16] Speaker D: Okay. So basically, Vela finance has been using artificial intelligence. I know that you may sneak up, but they say they've been doing that for a while. And basically what it does now, or what it would do for carbon customers is their transactions can be analyzed by artificial intelligence and they can draw insights from it. So you may be making a lot of payments or a lot of money may be passing through your account, but you don't have visibility on it. You don't really know what's happening. I mean, you have the high level overview, but you don't really know the insights. So could you be saving costs some way? Could you be cutting costs in some way? So I think this is what AI would help with. At least that's what they say they would be starting with. But of course, there are a lot of other applications in business banking that they may want to explore in the future.
[00:19:11] Speaker A: Yeah, I'm wishing them because Amari is in the house, in the building. I like to understand, before we talk about other things, I would like to understand the legal equations around, because I start up lawyer now, so the legal amications around acquiesce.
[00:19:30] Speaker B: So it's deep.
But you first of all have to look at what the initial structure for velafinance was and if it allows for that level of acquisition and all that. Right. But when it comes to acquisition, it's some boardroom work back and forth, depending on what the type of acquisition is.
What you see in the media is not what it is. Back end. It's a lot that happens. Right? What level of acquisition is it complete acquisition? Is it majority shareholding?
What are the things? What role will the founders of Vela finance play?
What level of equity are they now going to have? Are they selling everything? Are they moving from being owner shareholders to becoming employee directors? Or consultants, so the entire gamut. But I think that what we should take from this, especially for the startup ecosystem and founders, is scaling many startup entrepreneurs, or many entrepreneurs who are startup founders, build businesses with the passion, with the understanding of the problem, but with very little view as to the magnitude of the market and the service they intend to provide and their ability to provide that service.
And so when the market receives you, you now get into a situation where you're like Abegu, and then you start looking for people who have the capacity.
Why? Those people are looking for the grit, technical knowledge and new age understanding.
So it's a convenient marriage, right? If you look at carbon, you look at the people who have. Those guys have been in banking since they were babies, right? Their parents are veteran bankers.
They've grown into an environment where it's a no. I'm sure I said to one of them, I say, I'm sure you guys discuss banking at dinner. They just laughed, right? But the doziers have been actively in banking true time and understand the power of pivoting. That's one thing they've always done, right, diamond bank, at the time when you realize that pivot. But the lesson to learn here is, as you build, one of the things you should start envisaging is your future.
And so it's easier to now even curate your structure such that if you know that in the next five years I'm collapsing into XYZ, or I'm going to be getting into a symbiotic relationship, or I'm building to be acquired, that works. But if you also look at the back end of this acquisition, is that the ultimate central vision may be watered down on the altar of a business decision.
Please consider to get the ultimate vision of the founders. The problem they've sought to solve by building that innovative solution stands the risk of being watered down or even eliminated by a business decision.
One independence that the ecosystem has in the tech and innovation space is that we don't sacrifice the problem solving components of the innovative solutions we provide on the altar of anything, even business decisions.
But that's different. When you deal with the traditional business entities, everything is about cobo, dollar and pound and euro, and the market and things around it, right? So you now stand that risk of, hey, this is not going to sell to the board. Let's tweak this, let's tweak this. By the time they tweak, tweak, tweak, tweak, tweak, tweak, tweak.
You've lost the real essence of what you have built, right. Because part of the conversation will be. So when I sit in MRD meetings with clients and startups, one of the things I say, look, what's negotiable and what's not. And so when you agree on what's not negotiable, even in the long term, right. Then the conversation is had neatly. So what you have is that we're beginning to have series of startup founder merchants who are providing big solutions that are being bought by traditional entities.
But after celebrating these purchases, these measures, these acquisitions, whatever interesting name acquire, let's do an impact assessment.
How many of them remain true to the purpose.
So really, what problem are we really solving?
[00:25:15] Speaker A: Money problem.
[00:25:19] Speaker B: Yes. So it's an important conversation to have while working on, because I know expansion is a big deal, right. Ability to service the market is an even bigger deal, right.
Which oftentimes startup founders don't have.
But also you will also find that a lot of them have been unable to scale into the market because of initial primary acts of indiscipline, waste, flavor spending.
Right.
And I think that one of the conversations that you should have should be to now do a comparison between traditional business establishments and the startup business ecosystem.
[00:26:13] Speaker A: I think that's a conversation I would like to like. Every opportunity I get, I try to compare what goes on.
[00:26:20] Speaker B: Compare, for instance, how Koscharis built the Kosharis brand from the scratch slot, right?
Look at some of these entities and how they built from the scratch, from a small room to. So imagine if the Facebook. So today I stumbled on a video I'll share with you guys, right? I stumbled on a video of Mark Zuckerberg sharing the Facebook idea in 2005, right? Sharing the idea. What was the idea? Like, you meet people on campus, I've seen Bolu. Now Bolo has a beard.
I want to get to know Bolu more. I go look him up on Facebook, right?
[00:27:09] Speaker C: Okay.
[00:27:09] Speaker B: Bolo likes dogs. Bolu likes, Bolo eats a lot.
So when next I see Bolu, I'm like, okay, Bolo, let's go have pizza.
Because you seem to know him more. Now imagine if that idea, for the benefit of scaling, was bought over by, let's say, Sony.
Sony Pictures, right?
Where these people that do films.
These people that do these films, yes. Who didn't realize that the market time was going to come where you were going to Kodak, where you are going to move from film photography to digital photography, right? So what if they had money and they said, no, let's buy it over so we can now start printing postcards.
Right? Let's start producing postcards. Right? So what now happens is if I find Bolu, I can now make a postcard, right, and send to Bolu.
[00:28:21] Speaker A: I can't imagine.
[00:28:22] Speaker B: So what they are trying to do is modernize their market idea.
That would have killed the Facebook vision.
[00:28:33] Speaker A: I think startups don't make this decision.
[00:28:39] Speaker B: Hopefully.
So you would know that sitting here, anything I have the advantage of is that I have spoken to tons and tons of startup founders and many of them build businesses so that somebody can acquire them. So I say to them, oftentimes, are you solving a problem or are you positioning yourself for a purchase?
[00:29:05] Speaker A: And it's good to define it from the beginning so that you know where you are.
[00:29:08] Speaker B: So if you say, look, I want to build a unique solution that I can sell to XYZ, right?
[00:29:14] Speaker A: That's fine. Towards it, yes.
[00:29:16] Speaker B: I want to solve a problem for the larger good of the society, especially you see this fintech space, right?
[00:29:25] Speaker D: I actually think it makes perfect sense for you to build a fintech for acquisition right now. It makes perfect sense. It is a perfect business decision.
[00:29:33] Speaker A: Yeah.
[00:29:34] Speaker B: So let me tell you, if you look at the traditional financial institutions, one of the things that you see is that they lack innovation.
[00:29:40] Speaker A: Ouch.
[00:29:42] Speaker B: They understand the market and they are only innovating around market expansion to be safe. Right. The value add they are bringing, how to make it easier for Bullu to bring our money from his pocket to give them. Right. So you hardly see the traditional financial institutions providing solutions that make your life easier. They make your spending or your saving or your whatever easier because it's aligned to their market philosophy and it's all about profit. But then you have a piggy vest that is incentivizing the saving culture to help you save more, make some money, give you a sense of ownership and accountability. Oh, well, I'm doing advice for this.
You are able to balance the value add semi profit. Do you understand me? So for them, they are identifying your problem, they are solving your problem, and then they are making some profit from it. A bank or a traditional financial institution is looking to increase its customer base, to expand its market, and to make money in the process. And so whatever value add they claim to bring is centered around what their objective is.
So if you're building for them, that's okay. But if you're building for people and they buy you over, best believe that they will water down that value add you intend to give the people, which is your predominant selling point.
We've got to now train and create a crop of leaders in the ecosystem who are willing to go the long haul.
Seek financing if you need to seek financing. Right. Stay small longer because you have financial challenges and then continue to grow. All these buyouts sell out.
You guys have data, right? So go and look at all these guys that have been bought out.
[00:31:48] Speaker A: It depends. Okay, so I think what you can just leave the founders with is define your intention from the start. Yeah, right. There's no judgment here. Just stick with what you decided. You say it is for the better good of the community. Don't go another three years and say, I'm tired, I want to make money.
[00:32:08] Speaker B: Now, or we need to expand. We need to expand, someone needs to buy you out.
[00:32:14] Speaker A: Just have a vision and stick to it. Thank you very much, Omari.
[00:32:18] Speaker B: That was very insightful, but that does not mean let's not be too hard. That does not mean that there are also no genuine collaborations and acquisitions. Right. Carbon, I will even say, is a startup. Both of them maybe just from two ends of the stick. Right? So this is not speaking directly to this transaction, but speaking generically to what is happening. And yes, there may be need for. They say two heads are better than one. I say two good heads, two bad heads, currency. You know how many heads?
But, yeah, but oftentimes collaborations.
So when it gets to the table of acquisition, the conversation has to be intentional. And 90% of the time they miss this conversation because the conversation is more financial.
What am I getting for what I have built through time? This is what I have. So it's always a money decision. And we, Nifemi, Bolu, chimgoziri, are not really in the mix when it gets to that table. It's about naira, interest, benefits, sit on the board, shareholder rights and XYZ.
And so that objective that led Bolu to build that is really not a key consideration for anybody on table. Yes, it's a great idea and want to propel it and want to leverage on it. So what happens is that when you buy, oftentimes the buyer now with ownership balconies, dissects to pick what he needs and discards what he doesn't need. And oftentimes sometimes they would discard the main thing.
[00:34:30] Speaker A: Yes.
Okay, so make the right decisions when it comes to collaboration and use yellow. Let them advise you.
You got to make those silly mistakes. Thank you very much for joining us in the studio today and to our audience and listeners. I hope you've visited the Techpoint Africa website today. If you have not, you can go there to keep up with all the news that is going on in the african tech space and keep yourself up to date. We also have our newsletters still running Techpoint Digest modern workplace newsletter equity merchant newsletter. Make sure to subscribe to them. You will see them pop up in any of those articles on our website when you read them. And don't forget to if you're listening to us on Spotify, please drop a reaction, drop a review so that other listeners can also find us. And if you want to get more intimate, you can send us an email on podcast at Techpoint Africa. Podcast no, not with s podcast at Techpoint Africa.
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