Lagos State Targets Creator Platforms With 5% Royalty Withholding Tax

Lagos State, Nigeria’s tax authority is pursuing a 5% withholding levy on payments made to creators on digital platforms, arguing that transactions for ebooks, courses and other digital content are royalty licences rather than straightforward sales.

On 15 July, Douglas Kendyson, founder and chief executive of creator economy startup Selar, accused the Lagos State Internal Revenue Service (LIRS) of “hounding” his company over a backdated 5% royalty fee on all sales processed through the platform.

The LIRS position: licence, not sale

In an emailed statement, LIRS said its stance rests on how the transactions are structured. When a customer buys an ebook or a course on Selar, they are paying to access a creator’s copyrighted work.

“Payment may constitute consideration for the use of, or the right to use, the creator’s intellectual property,” the agency said in the statement signed by Monsurat Amasa-Oyelude, its head of corporate communications.

LIRS is testing whether payments for digital content are royalties rather than sales, a distinction that could require creator platforms to withhold 5% before paying creators.

“Where royalty is paid to an individual, resident or non-resident, the applicable withholding tax rate under the WHT Regulations is 5%,” the statement read.

The agency views the transaction as a licence to use the work, not an outright sale.

“The relevant right is the creator’s intellectual property right, which is licenced by the creator to the purchaser, enabling the purchaser to access or use the digital content,” the statement read.

If a withholding obligation exists, the law places the duty on whoever makes or facilitates the payment. Creator economy startups such as Selar, Mainstack and Nestuge handle the money, so LIRS wants them to deduct the 5% at payout and remit it. The agency argues that 400,000 creators are hard to reach, but one platform is not.

Meetings and parallel compliance actions

On 17 July, two days after his public complaint, Kendyson disclosed that he had met informally with LIRS officials. He said some lines “could’ve gotten crossed,” and a formal meeting has been scheduled where both sides will work through how Nigeria’s new tax laws apply to creators.

LIRS confirmed the 17 July meeting but characterised it differently. The agency said the engagement was part of an ongoing exercise to reconcile outstanding records and clarify the statutory basis of its position, rather than to work through how the law applies to creators.

“The matter remains an open verification and reconciliation exercise,” the agency’s statement read. “Should the exercise ultimately establish a withholding tax liability, LIRS will issue a formal assessment through the statutory process with the attendant rights of objection and appeal before any liability becomes final and enforceable.”

That sequencing raises a question: if a formal assessment comes only after the meetings, why were the platforms not approached before any liability had been established? LIRS said this order is correct because the duty to withhold is “self-executing and does not depend on a prior notice, reminder, directive, or appointment by LIRS.”

The agency also confirmed that Selar is not alone and it is conducting compliance verifications “across digital economy platforms that process payment distributions to individual content creators,” adding that it is taking statutory action against Mainstack.

“With respect to Mainstack, the Service exercised its statutory powers under Section 67 of the Nigeria’s Tax Administration Act (NTAA), 2025, following the company’s failure to respond to official communications,” LIRS’ statement read. “However, upon receipt of Mainstack’s formal objection on Monday, 27 July 2026, the Service will invite the company to a statutory reconciliation meeting per the provisions of the Act.”

Mainstack declined to comment on any part of this article.

How the 5% withholding would work

Withholding tax is not an extra tax but an early instalment of income tax the creator already owes to LIRS, collected by whoever pays it.

“This is a deduction-at-source obligation on the payer, not a charge on Selar’s own income, and not a demand that Selar personally discharge tax liabilities properly belonging to individual creators from its own funds,” LIRS said, citing section 51 of the NTAA and Regulation 4(1)(f) of the Deduction of Tax at Source (Withholding) Regulations 2024.

A tax consultant at a Lagos advisory firm, who asked not to be named because he was not authorised to speak to the press, explained the mechanics.

“The withholding tax is not for the creator economy startups. Under the law, before they pay the creator, they’re supposed to withhold 5%.”

If a platform owes a Lagos-based creator ₦1 million (Nigerian naira, $735) in royalties, it must withhold 5%, which is ₦50,000 ($37); the creator then receives ₦950,000 ($698) in cash and a credit note for the remaining ₦50,000, which they can set against their own tax bill.

A credit note is the official receipt showing that tax has already been deducted and paid to the state on behalf of the creator. The creator must present it when filing their return so the amount is deducted from what they owe in taxes.

“They file their taxes. If their rate is 20%, they owe ₦200,000 ($147). They can say to the state, ‘I have a credit note for ₦50,000 ($37), so I only have a balance of ₦150,000 ($110) to pay,’” the consultant said.

“That’s why we don’t usually see withholding tax as a special category of tax itself. It’s just an advance of income taxes. The government wants to get their taxes early, because nobody wants to wait until the next year.”

A creator who files a tax return in Lagos would not lose 5% of her earnings. She would pay part of her tax bill earlier than expected and feel it in her cash flow.

Whether any of this applies depends on one question: is a creator licencing their work to the buyer or selling it to them? The answer sits in the contract between the platform and the creator.