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Tuesday, 31 March
2020 / 11:37AM / By Oserogho & Associates / Header Image
Credit: LetsLaw
Introduction
The Hospitality Industry, particularly the Hotels, have prior to the outbreak of the Corona Virus, which virus is also known as the COVID-19 virus pandemic, grew exponentially, in line with the growth at the time in global Gross Domestic Product ("GDP") and millennial growth.
The passing into Law of
the Finance Act 2019, with its various Tax Amendments, could further excruciate
the enthusiasm of many Hospitality and Tourism Owners, Operators, Managers and
other stakeholders who are already over-burdened with infrastructure and
multiple taxes challenges.
We have tried to
simplify these recent Tax Amendments, with their impact on the Hospitality and
Tourism Industry.
Value
Added Tax Act (as amended)
The Value
Added Tax Act is the first key legislation that impacts on the
bottom-line of Hotels and other Hospitality Establishments. This is as the
principal function of a Hotel is to provide quality lodging or board, meals and
other associated ancillary hospitality services. The latter principal function
has tax implications that you must be aware of.
VAT Rate - The first major change that the amended VAT Act has brought into effect is
the increase in the Value Added Tax ("VAT") Rate from 5% to 7.5%. Hotels, other
hospitality and tourism businesses must therefore adjust their invoices to
reflect this increment in order for any defaulting business not to individually
bear any difference or short-fall in the collection of the correct VAT rate;
with the punitive penalties that also apply for non-compliance with the other
provisions of the VAT Act (as amended).
VAT Returns - In order to avoid the increase in the penalties for failure to file monthly
VAT Returns, remit any excess VAT to the federal tax authority, or claim a VAT
credit where there is one to be claimed, Hospitality and Tourism Owners,
Operators, Managers, etc whose businesses have an annual turnover or revenue in
the amount of Twenty-Five Million Naira (N25,000,000) and above must ensure
that they comply with the VAT Registration, Returns and Remittances filing
requirements.
Small
Companies - Hospitality businesses with an annual turnover of
Twenty-Five Million Naira (N25,000,000) or less in any accounting financial
year are exempted from VAT and Companies Income Tax ("CIT") compliance
obligations.
Non-Resident
Companies - In addition to non-resident companies like International
Hotel brands, franchisors, operators and managers, who are now required to
register for VAT compliances, these non-resident operators, franchisors,
managers, etc must also include in all their invoices the VAT rate of 7.5%. The
domestic recipient of the goods and services is in turn obligated to withhold
the 7.5% VAT, whether or not invoiced by the non-resident, and remit the
withheld VAT to the federal tax authority in the currency of the invoice
transaction.
Customs
and Excise Duties Act (as amended)
All goods, whether
manufactured locally or imported, are now liable to be charged the same Excise
Duty. Hotel Operators will therefore need to proactively investigate the
cost-benefit of purchasing locally manufactured goods as compared to foreign
manufactured goods.
Stamp Duties Act (as amended)
A single one-off Stamp Duty charge of N50 (Fifty Naira) now applies to every transaction, including electronic and bank transfers between separate parties, for every single transfer of Ten Thousand Naira (N10,000) and above.
Companies Income Tax Act (as amended)
Tax Rate - To encourage
entrepreneurship, the Companies Income Tax Act was amended to enable Limited
Liability Companies, including those in the Hospitality and Tourism Industry,
to enjoy lower Companies Income Tax rates. Small Companies, which are companies
with an annual turnover of Twenty-Five Million Naira (N25,000,000) or lower
will no longer pay any Companies Income Tax ("CIT") in any financial year-end
that their turnover does not exceed the N25Million threshold.
Following from the
immediate above paragraph, Medium-Sized Companies, which are companies with
annual turnovers of N25Million to One Hundred Million Naira (N100,000,000) are
now only liable to bear twenty per cent (20%) CIT on their annual profits. The
CIT rate for Large Companies, which are companies with annual turnovers above
N100Million, remains at thirty per cent (30%) of such large companies’ profits
derived from, accruing in, brought into or received within jurisdiction.
Tax Identification
Number ("TIN") - In addition to every Hotel’s registered operating entity
disclosing its registered incorporation number in all its correspondence and
other paperwork, all Hospitality and Tourism businesses must also have a Tax
Identification Number ("TIN") in order for such establishments to continue to
be allowed to operate their bank accounts and or open new bank accounts.
Conclusion
As commendable as many of the tax amendment
provisions in the Finance Act 2019 are, the controversy however continues as to
whether a consumer of the same hospitality and tourism goods and services is
liable to pay both the federal legislated VAT and the Consumption Taxes
legislated by some States without infringing the rules against Double Taxation.
A Constitutional amendment as opposed to continuing conflicting case law jurisprudence on this issue appears to be the more likely and effective solution to this quagmire.
Related Posts - Hotels
Disclaimer:
This is a free educational
material. It does not serve as a source of solicitation, advertisement or
the offering of legal services or advice of any kind. No Client/Attorney
relationship is therefore created. Readers are strongly advised to always
seek from qualified Legal Practitioners, competent legal counseling to their
specific factual situation.
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