National Information Technology Development (NITD) Levy: What You Should Know and Do About It

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Tuesday, March 23, 2021 / 11:35 AM / By Deloitte / Header Image Credit: NITDA

 

Background

NITD levy ('the levy') is an income tax payable by certain categories of companies that have an annual turnover of at least NGN100million; it is calculated as 1% of the Profit Before Tax (PBT) of liable companies. The National Information Technology Development Agency (NITDA) Act imposes the levy and requires the Federal Inland Revenue Service (FIRS) to administer it.

 

NITDA Act became law in 2007, and the NITD levy has been in force since then.

 

Who pays the NITD levy?

NITD levy is payable by the following categories of companies:

1.      GSM service providers and all telecommunications companies;

2.     Cyber companies and internet providers;

3.     Pensions managers and pension-related companies;

4.     Banks and other financial institutions;

5.     Insurance companies.

 

Is the NITD levy payable by foreign companies that derive income from Nigeria?

NITDA Act does not exclude foreign companies, directly or indirectly, from the NITD levy, therefore foreign companies would have to comply with the requirement to pay the NITD levy. NITDA and/or FIRS may need to provide some guidance around this matter, especially on the determination of the PBT of the Nigerian profits of liable foreign companies.

 

­What happens if I am not sure whether my business is exposed to the NITD levy?

Where the liability of your company is not immediately clear, you may need to refer to relevant legislation that regulates the categories of companies liable to the NITDA levy. The relevant legislation includes Banks and Other Financial Institutions Act, Insurance Act, Pension Reform Act and Nigerian Communications Act. If your business is captured under those legislation and/or your business is regulated by the regulatory authorities under those legislation, chances are that your company is liable to the NITD levy.

 

You may also consider approaching NITDA and/or FIRS for clarification about your NITD status.

It will be great for NITDA to issue Regulations that provide a detailed list of businesses that are liable to the NITD levy, to provide the desired clarity to the business world.

 

How do I pay NITD levy?

Section 16 of the NITDA Act requires FIRS to assess whether companies are liable to the NITD levy when it also assesses them to Companies Income Tax (CIT) and/or Petroleum Profits Tax (PPT). As FIRS typically relies on taxpayers to submit their CIT or PPT self-assessment returns, it is expected that FIRS will raise NITD levy assessment on liable companies at the earlier of when taxpayers submit their CIT/PPT returns or at the due date of those returns.

 

The NITD levy is payable within 60 days of receiving the FIRS' assessment notice.


So, you should wait for FIRS' assessment before you pay. If you do not receive FIRS' assessment, you may as well keep your money.

 

Do I have to submit a NITD levy returns?

You do not have to, because the NITDA Act does not place such an obligation on you.


Under the Tax Administration [Self-Assessment] Regulations (TASAR), FIRS requires submission of self-assessment NITD levy returns, as long as such obligation exists under the NITDA Act. There is no requirement to submit self-assessment NITD levy returns under the NITDA Act, which makes the self-assessment requirement under TASAR to be redundant.

 

In an FIRS publication titled 'Understanding the NITD levy' ('the Publication'), FIRS stated that it expects a taxpayer to submit self-assessment NITD levy returns within 6 months after its accounting year-end, alongside its CIT returns and also pay the levy by the submission date. This appears to be a recommendation and not an obligation, as the extant laws do not make self-assessment of NITD levy a requirement.

 

What happens if I do not pay or submit returns on time?

If you do not pay your NITD levy within 60 days after FIRS issues you an assessment, then you are liable to a penalty of 2% of the unpaid levy. The penalty becomes payable when FIRS issues you a demand note thereof. If after 2 months the penalty is unpaid, an offence has been committed which is liable to a fine of not less than NGN1million upon conviction. The Chief Executive Officer (CEO) of the company may also be prosecuted and punished.

 

You do not have an obligation to submit NITD levy returns, so there are no penalties thereof.

 

In the Publication, FIRS stated the due date of payment of an NITD levy demand note as 30 days instead of 60 days. Also, in the Publication, FIRS stated late payment penalty to be 10% of the unpaid levy and interest at Central Bank of Nigeria's Monetary Policy Rate (MPR), plus a spread to be determined by the Minister of Finance. Where the NITD levy is in foreign currency, FIRS states the benchmark rate to be the higher of MPR or London Interbank Rate. FIRS positions on penalty and interest on unpaid NITD levy are completely contradictory to the provisions of the extant laws; If FIRS enforces penalty on NITD levy on the basis of the Publication, it will be acting beyond the scope of the powers the extant laws bestowed on it.

 

What should I do when I receive a NITD levy demand note that contradicts the NITDA?

Please object to the demand note to the extent of the conflict and refer to the correct basis of assessment in the NITDA. You should pay your undisputed liability upon objection. If you had wrongly paid more than the correct penalty, there is scope to ask FIRS for a refund.

 

How do I account for the NITD levy in my financial statements?

NITD levy is a tax on profit, based on International Accounting Standard (IAS) 12's guidance, and should therefore be recognized as a tax expense below the PBT line, in the financial statements of the year it is incurred.


Where an entity incurs a penalty for late payment of NITD levy, such penalty does not qualify as an income tax and should therefore be recognized as an expense above the PBT line.

 

How does NITD levy impact other income taxes?

Section 12(2a) of the NITDA Act specifies that the NITD levy paid is tax-deductible. Therefore, in the calculation of a company's assessable profits, NITD levy should be treated as a deductible expenditure, notwithstanding that it is recognized below the PBT line. Only NITD levy paid is deductible; therefore, the NITD levy paid for a year is ordinarily deductible against the profit of the subsequent year. However, a company may also claim a deduction from the profit of the same year, where it would eventually make the payment before filing its annual income tax returns.

 

Illustration

The table below demonstrates how to account for NITD levy in a particular year, and how it qualifies as tax-deductible in the subsequent year. Please focus on the green and blue highlights. The assumption, in this case, is that Year 1 is the first year of business, which is why there is no NITD levy deduction in that year as none would have been paid in the previous year.


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What else do I need to do?

Review your tax compliance and reporting process and ensure it adequately helps you to comply with the NITD levy requirements and helps you to report it correctly in your financial statements. You should build relevant controls around these. If your company does not have a robust tax compliance and reporting process with adequate internal controls, your company is exposed to the risk of non-compliance and material misstatements around taxes in your financial statements.

 

What if I have questions?

If you have any specific questions that I have not addressed, especially if it relates to a live case you are dealing with, please send an email t0 nyusuf@deloitte.com.ng or TaxHelpdesk@deloitte.com.ng.


 

 Proshare Nigeria Pvt. Ltd.



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 Proshare Nigeria Pvt. Ltd.

 



 Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

 

 Proshare Nigeria Pvt. Ltd.

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