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Tuesday,
January 07, 2019 /11:52 AM / By Taiwo Oyedele* Tax Partner, PwC
Nigeria / Header Image Credit: ACCA Global
Each
time you blinked in 2019, something happened in the tax space, some positive,
some not so positive while others were completely outrageous. Like the
proverbial blind men trying to describe an elephant based on the different
parts of the elephant's body they touched, their individual story Is likely to
be true but incomplete and perhaps misleading. This article seeks to bring the
different pieces of the 2019 tax elephant together to help you make a sense of
it all and provide some insights into expectations for 2020.
2019 Tax Policy Events
Budget and fiscal policy direction - The 2019 Budget was signed into law on 27 May 2019 but contained no specific fiscal policy measures while the 2020 Budget was signed into law on 17 December 2019 returning the country to a calendar fiscal year.
Although the 2020 Budget was presented to the National Assembly accompanied by a finance bill containing sweeping fiscal measures, the finance bill was not signed into law along with the Budget.
Supporting
infrastructures - The "Companies Income Tax (Road
Infrastructure Development and Refurbishment Investment Tax Credit Scheme)
Order 2019" was introduced to enable private sector companies fund the
construction of roads in exchange for negotiable tax credits.
Ease
of doing business and paying taxes - In line with the
ease of doing business initiative, NOTAP commenced an automated platform for
the registration of technology transfer agreements aimed at reducing the
bureaucracy involved in the paper-based registration process. Nigeria improved
from 146 to 131 on the latest ease of doing business ranking but the country
declined from 157 to 159 on the ease of paying taxes.
The
Nigeria Immigration Service (NIS) introduced electronic yellow fever cards to
replace the old "yellow card" for travellers. This is meant to curb abuse and
illegal practices regarding vaccination for travellers. The NIS also published
guidelines on Migrants e-Registration requiring foreigners to register on or
before 31 December 2019 or face sanctions.
Incentives
reform - The Nigerian Investment Promotion Council published
reports of Pioneer Status Incentives (PSI) granted, declined or cancelled from
2017 to the first quarter of 2019, as well as application guidelines and
delegation order.
Fighting
tax evasion & avoidance - an Executive Order on
Voluntary Offshore Assets Regularisation Scheme (VOARS) introduced in October
2018 which required persons who hold offshore assets and income to declare
voluntarily within 12 months and pay either a one-time levy of 35% or the
applicable taxes plus penalties and interest expired in October 2019. No public
information has been provided regarding the success of the scheme.
The
Financial Reporting Council of Nigeria published its Code of Corporate
Governance applicable to companies. It requires an organisation to develop a
policy on related-party transactions among others.
Following
Nigeria's signing of the Multilateral Convention on Mutual Administrative
Assistance in Tax Matters (MAC) and the Multilateral Competent Authority
Agreement (MCAA) on the Automatic Exchange of Financial Account Information,
signed by Nigeria on 17 August 2017, the FIRS issued the Income Tax (Common
Reporting Standard) Regulations, 2019. This is expected to pave the way for the
FIRS to receive specified information on the bank accounts held by Nigerian tax
residents in over 100 countries and in exchange provide similar information to
the other countries. Consequently, Nigerian financial institutions are required
to submit certain information to the FIRS on an annual basis.
2019 Tax Administration
Technology
and ease of paying taxes - The Joint Tax Board
(JTB) launched a new unified Tax Identification Number (TIN) to enable tax
authorities efficiently manage their taxpayers base and for taxpayers to view,
retrieve and update their tax profiles online.
The
Lagos State Internal Revenue Service (LIRS) introduced an Enterprise Tax
Administration System, a digital, end-to-end, multi- channel solution for tax
filing and payments. The system is designed to perform tax registration, tax
calculation, filing of returns, payment and processing of treasury receipts.
In
order to promote investment, the FIRS issued guidelines on Mutual Agreement
Procedure (MAP) for dispute resolution regarding international tax disputes
arising from inconsistent interpretations of double tax agreement (DTA)
provisions, which may result in double taxation for taxpayers. Also, the FIRS
announced a 30-day window to ease the issuance of Tax Clearance Certificates
commencing 2 Jan 2020 to 31 Jan 2020.
Expanding
the tax base - The LIRS issued a Public Notice
mandating employers to deduct and remit capital gains tax on compensation for
loss of employment and any other capital sum paid to employees. The LIRS also
issued a notice on the new JTB TIN for every individual, registered business
and incorporated companies. The new TIN will provide access to the Lagos State
Government Electronic Banking System (LASG-EBS) and linked to the BVN of
individuals or companies.
The
FIRS published a circular on the claim of tax treaty benefits under the
avoidance of double taxation agreements with Nigeria including the eligibility
criteria, procedures, and principal purpose test.
Tax
enforcement and revenue generation - The FIRS started
to enforce compliance with Nigeria's Country-by-Country Reporting Regulations
including imposition of administrative penalty of N5 million in the first
instance and N10,000 for every day of default. The Service also began
enforcement of its transfer pricing rules including imposition of
administrative penalties under the Income Tax (Transfer Pricing) Regulations,
2018 which replaced the 2012 TP Regulations.
The
substitution order to banks appointing them as collection agents of taxpayers
considered to be delinquent in their tax payments which started in 2018
intensified in 2019. The FIRS released a notice threatening to go after the
directors, managers, secretaries and other persons concerned with the
management of companies to recover tax liabilities owed by their companies.
The
FIRS issued a notice to the effect that WHT and VAT are due on all forms of
payments or compensation made to agents, dealers, distributors and retailers by
principal companies.
In
a bid to raise revenue from the digital economy, the FIRS announced its
intention to appoint financial institutions and other service providers
involved in online payment settlement to collect VAT on online transactions
effective from January 2020.
Change
of leadership - A new Chairman was appointed to
lead the FIRS along with a new Board comprising of 14 other members. By
implications the Chairman of the FIRS doubles as the Chairman of the Joint Tax
Board, the body of all tax agencies in Nigeria.
2019 Tax Laws and Regulations
Raising
revenue - Certain provisions of the Finance Bill seek to
raise revenue for government - the increase in VAT rate from 5% to 7.5%;
restriction on deductibility of interest on related party loans; deemed
services PE and taxation of digital transactions; non-deductibility of expenses
incurred to generate exempt income; introduction of WHT on petroleum profits
dividend; and rationalisation of tax waiver on foreign loan interest among
others.
The
president signed into law, a bill to amend the Production Sharing Contract Act
in the petroleum industry. The amendment introduced a field-based royalty rates
of 10% for deep offshore (>200m water depth) and 7.5% for frontier/inland
basin operation as well as an incremental royalty rate based on the price of
oil.
The
Nigerian Police Trust Fund Act was signed into law on 24 June 2019. It
establishes a Fund to train police personnel and procure security machinery and
equipment. The Act imposes a levy of 0.005% of the "net profit" of companies "operating business" in Nigeria.
The
National Assembly introduced a Bill to impose and collect communication
services tax on charges payable by consumers of electronic communication
services in Nigeria at the rate of 9%.
Tax
enforcement - The National Assembly is seeking to
pass a Bill that will create a Tax Police Commission to enforce the collection
of taxes across the country.
Housing - The 8th National Assembly passed a National Housing Fund Bill to
repeal the extant NHF Act. Some of the provisions include a compulsory 2.5%
contribution of monthly income by employees, 2.5% levy on cement; and
investment of 10% of profits by banks, insurance companies and PFAs. The Bill
was denied assent by the President.
Tax Justice and Dispute Resolution in 2019
No
to arbitrary taxation - In the case between
Theodak Nigeria Limited v FIRS, the Federal High Court ruled that FIRS cannot
assess companies to income tax based on value of properties, as the taxpayer is
not in the business of selling properties.
The
Tax Appeal Tribunal (TAT) ruled that the fact that a taxpayer had paid a tax
liability in full does not prevent the taxpayer from contesting the liability
where the assessment was defective.
In
another judgement, the TAT ruled that it is illegal to impose taxes based on
the Taxes and Levies (Approved List for Collection) Act without a primary
taxing law since the Taxes and Levies Act simply allocates taxing rights among
the three tiers of government. It also stated that assessments that do not
follow due processes are invalid.
In
a suit between Nigerian Breweries and Abia State Board of Internal Revenue, the
TAT ruled that gratuities are wholly exempt from tax on the ground that where
there is a conflict between a section in a statute and a provision in the
Schedule to the statute, the section would prevail.
Ease
of doing business - The Court of Appeal
reversed the decision of the Federal High Court in Stanbic IBTC Holdings v
Financial Reporting Council of Nigeria & Anor (2015), which had held that
failure to obtain NOTAP approval (on a registrable contract) rendered the
contract illegal and void; and payment could not be made on an unregistered
contract.
The
Court also held that NOTAP approval does not apply to technology transfer from
Nigeria to a foreign company.
Raising
revenue - In a case between Nexen Petroleum Nigeria Limited
vs LIRS, the TAT ruled that withdrawal of voluntary pension may be taxable if
withdrawn earlier than allowed, but it is not the responsibility of the
employer to account for tax that may arise from the withdrawal.
In
Vodacom vs FIRS, the Court of Appeal ruled that imported services are subject
to VAT, on the ground that VAT is chargeable in cross-border transactions "where the person receiving the service is resident". However, in another case
between Alan Gray vs FIRS, which involved VAT on exported services, the
tribunal ruled that the basis for charging VAT in cross-border transactions is "where the service was performed and not the location of the consumer".
The
TAT also ruled that excess dividend tax at 30% is applicable notwithstanding
that the dividend was paid out of profit of a previous year, on which tax had
been paid.
The Global Tax Stage in 2019
The
Organization for Economic Cooperation and Development (OECD) published the full
version of its 2017 Model Tax Convention. It is designed to provide a standard
template for concluding avoidance of double taxation treaties between countries
to facilitate economic development, limit double taxation, prevent double
non-taxation, and enhance mutual agreements and assistance on tax matters.
On
the African stage, the historic African Continental Free Trade Area agreement
entered into force on 30 May 2019 and was signed by Nigeria on 7 July 2019. Its
key objective is to boost intra-African trade through progressive elimination
of tariffs and non-tariff barriers to trade in goods and liberalization of
trade in services. Also, the treaty will promote cooperation on investment,
intellectual property rights and competition policy.
What to expect in 2020
The
Finance Bill which introduces sweeping changes to different tax laws will have
the biggest impact on the Nigerian tax environment in 2020 with MSMEs as the
biggest winners. Given the current cozy relationship between the Executive and
the Legislature, the chances of the PIB being enacted into law in 2020 is high.
With
respect to tax administration, tax authorities at all levels will continue with
their aggressive measures to raise revenue but actual results will fall short
of budget. It is however wise for taxpayers to voluntarily comply and brace up
for more tax disputes.
Globally,
the tariff war between the Trump administration and the rest of the world will
continue while efforts by the OECD to fight tax avoidance will record some
progress but taxation of the digital economy will continue to be a thorny issue
without global consensus while more countries will resort to unilateral
measures.
About The Author
Taiwo Oyedele is the Head of Tax and Corporate Advisory Services at PwC
Nigeria. He has been in the forefront as a thought leader and prominent speaker
on key accounting and tax issues including the tax implications of IFRS
Adoption and Transfer Pricing. Taiwo writes articles in leading national
newspapers, professional journals, international magazines and newsletters. He
is a regular presenter and a highly sought after public speaker delivering over
200 speeches and presentations around the world in the past 3 years alone.
Taiwo is the Head of PwC Tax Academy, Dean of the Direct Taxation Faculty of
the Chartered Institute of Taxation of Nigeria, member of the Nigerian Taxation
Standards Board and a member of the Taxation and Fiscal Policy Management Faculty
Board of ICAN. He can be reached via @taiwoyedele
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