LIRS and Selar Disagree Over How Creator Payments Should Be Taxed

A disagreement between creator-economy platform Selar and the Lagos State Internal Revenue Service (LIRS) is highlighting a wider question for Nigeria's digital economy: should payments for digital products be treated as ordinary sales or as royalties for tax purposes?

The dispute began publicly on July 15, when Selar founder and CEO Douglas Kendyson accused LIRS of pursuing the company over a proposed 5% withholding tax on sales processed through its platform.

LIRS has since explained that its position is based on the nature of the transactions taking place on platforms such as Selar.

According to the tax authority, when customers pay for digital products such as ebooks or online courses, the payment may represent consideration for the right to access or use the creator's intellectual property.

If classified as a royalty, the applicable withholding tax rate would be 5%.

Why LIRS Is Looking at the Platforms

The issue is not simply about whether creators owe tax.

The bigger question is who is responsible for collecting it.

Platforms such as Selar, Mainstack and Nestuge facilitate payments between customers and creators. LIRS therefore wants platforms that fall within the relevant rules to deduct the applicable tax before paying creators.

The logic is straightforward: collecting tax through a smaller number of digital platforms could be more practical than attempting to individually reach hundreds of thousands of creators.

LIRS said it is conducting compliance checks across digital platforms that distribute payments to individual content creators.

Selar Says Its Payments Are Not Royalties

Selar disputes the tax authority's interpretation.

The company argues that its business model is primarily based on providing software and payment infrastructure to creators rather than licensing their intellectual property to customers.

In a statement, Selar described its service as a software-as-a-service platform providing tools such as online storefronts, payment integration and content delivery.

The company maintains that the money it pays creators represents proceeds from transactions processed through the platform and not royalty payments.

This distinction is central to the dispute because the classification determines whether the 5% withholding obligation applies.

The Contract Could Be Important

Tax and legal experts say the agreement between Selar and its creators could play a significant role in determining how the transactions are classified.

Selar's terms give the platform permission to use, reproduce, distribute and publicly display creator content through its service.

That has led some lawyers and tax specialists to argue that the relationship could resemble a licensing arrangement.

Kelechi Ibe, co-founder of tax compliance startup Taxstreem, said the licensing provisions could support treating payments to creators as royalties.

However, Selar argues that its terms of service should not be viewed in isolation when determining its tax obligations.

The company says the wider commercial relationship—including the software, storefront, payment and delivery services it provides—must also be considered.

Substance Over the Wording of a Contract

Another important issue is the principle of substance over form.

Tax authorities can examine what a transaction actually represents rather than relying solely on the terminology used in a contract.

This means that simply describing a payment as a commission or sales proceeds may not necessarily prevent the tax authority from treating it differently if the underlying transaction operates like a royalty arrangement.

The disagreement therefore goes beyond the wording of Selar's terms and into the structure of the company's entire business model.

What Would a 5% Deduction Mean for Creators?

If the payments are ultimately treated as royalties subject to withholding tax, the 5% deduction would generally represent an advance payment toward the creator's income tax liability rather than an entirely separate tax.

For example, if a creator is owed ₦1 million, a 5% withholding would amount to ₦50,000.

The creator would receive ₦950,000 while the ₦50,000 would be remitted to the relevant tax authority.

The creator would then receive documentation showing that the tax had already been deducted.

When filing an annual tax return, that amount could potentially be credited against the creator's final tax liability.

Small Creators Could Feel the Impact Differently

While the deduction may be relatively straightforward for high-earning creators who already have significant income-tax obligations, smaller creators could face a different situation.

The 5% deduction would be calculated from gross payments, while an individual's final income-tax liability depends on applicable income levels, reliefs and deductions.

This creates the possibility that some creators could have more tax withheld during the year than they ultimately owe.

In such cases, recovering the excess would depend on the creator having the necessary tax records and successfully completing the relevant filing and refund process.

That could create additional administrative pressure for smaller creators who may not have accountants or tax advisers.

Selar's Scale Makes the Issue Significant

The dispute could have implications far beyond one company.

Selar says it paid more than ₦18 billion to about 400,000 creators in the previous year.

That makes the platform an important part of Nigeria's growing digital creator economy.

If LIRS ultimately applies the same approach across similar platforms, other creator-economy businesses could face comparable compliance requirements.

LIRS has already confirmed that Mainstack is also subject to regulatory action relating to its tax compliance.

LIRS Says No Final Assessment Has Been Issued

Despite the public dispute, LIRS says the matter is not yet a final tax assessment.

The agency described its engagement with Selar as an ongoing verification and reconciliation process.

According to LIRS, if the investigation establishes that withholding tax is owed, the agency would issue a formal assessment through the statutory process.

Companies would then retain their legal rights to object and appeal.

This means the final treatment of creator payments has not yet been conclusively determined in Selar's case.

Nigeria Has Faced Similar Platform Tax Disputes

The disagreement also echoes an earlier dispute involving ride-hailing company Bolt.

In that case, Nigeria's former Federal Inland Revenue Service sought to involve Bolt in collecting VAT relating to transactions involving drivers and vendors on its platform.

Bolt argued that it was primarily an intermediary connecting users with service providers.

The Tax Appeal Tribunal rejected the company's challenge in 2023, and the Federal High Court in Lagos upheld the decision.

Bolt has since appealed the matter to the Court of Appeal.

The case demonstrates the broader challenge facing digital platforms: regulators increasingly expect companies that facilitate transactions to play a role in tax collection even when they do not directly provide the underlying product or service.

What This Could Mean for Nigeria's Creator Economy

The Selar dispute could become an important test of how Nigeria's tax system treats digital businesses and creators.

For regulators, requiring platforms to withhold taxes could make collection more efficient and reduce the difficulty of tracking hundreds of thousands of individual taxpayers.

For platforms and creators, however, the concern is whether transaction-level deductions could create cash-flow problems, especially for smaller sellers.

The bigger issue is therefore not simply whether creators should pay taxes.

It is how those taxes should be calculated, collected and credited without creating unnecessary barriers to participation in Nigeria's growing digital economy.

For now, LIRS says its assessment remains preliminary, while Selar continues to dispute the classification of its creator payouts as royalties.

The outcome could set an important precedent for how Nigeria taxes digital content, online platforms and the increasingly valuable creator economy.