Vi-M Professional Solutions

Author: Vi-M Professional Solutions

  • Bill for Companies Income Tax Act Amendment.

    The Senate has passed for Second Reading, a Bill for the amendment of the Companies Income Tax Act (CITA), hereafter referred to as the and for other matters connected thereto. The Bill specifically seeks to amend Sections 34, 36, 39 and 40 of the principal Act.

    The proposed amendments are to encourage investments in the industrial and mining sectors of the economy in the rural areas, where ordinarily it would have been unattractive to invest. The Bill directly addresses the issues of stimulating economic activities through greater tax incentives, engendering economic development, promotion of industrialization and job creation in Nigeria.

    It is the expected that an amendment of the CITA in this regard will yield many benefits, some of which are; employment generation, particularly in rural places, local manufacturing, industrialization and development of rural areas.

    The Bill likewise seeks to provide a ten-year tax exemption for a new company going into business where infrastructures such as electricity, water, or tarred road are not provided by government, while companies investing in the mining and gas industries, respectively would be exempted for five years.

    This Bill for amendment has been referred to the relevant Senate Committee for further legislative inputs.

    Taxpayers wishing to access the existing Nigerian tax laws can do so by downloading our Tax Law App (Tax Law Book) from Google and IOS stores.

  • Bilateral Agreement on Taxation between Nigeria and Singapore.

    As part of moves to boost trade in Nigeria, the Federal Executive Council (the “FEC”) has approved a Bilateral Agreement between Nigeria and Singapore.

    The objective of the agreement is to encourage more direct flow of foreign investments into Nigeria and assist investors in ascertaining their tax obligations to ensure that nationals or enterprises are not taxed twice on income or profits derived from each of the countries. It is believed that the Bilateral Agreement will help ameliorate double taxation and prevent tax evasion on income and capital benefits. The agreement will also ensure a consistent and sustainable tax regime for each of the country.

    Nigeria is consistently ranked as one of Singapore’s top five trading partners and investment destinations in the region. It was estimated that the total bilateral trade in goods was $311 million in 2015 between the two countries<a href=”#_ftn1″ name=”_ftnref1″>[1]</a>.

    The underlying principle behind the agreement is based on the position that Singapore has been a major trading partner with Nigeria as they buy oil and other petroleum products from Nigeria and export to Nigeria substantial worth of goods.

    Relatedly, FEC has also approved a Bilateral Aviation Service Agreement (ASA) with Singapore and Qatar.

    The Nigeria-Singapore ASA provides a framework to enable the establishment of air linkages between both countries, as carriers from both countries can operate an agreed number of passenger and cargo flights between Nigeria and Singapore, and beyond both countries. This will serve to facilitate the growth of trade, investment, and tourism, as well as the people-to- people passages between the two countries.

    https://www.mfa.gov.sg/content/mfa/overseasmission/vienna-mission/speeches_press_statements_and_other_highlights/2016/201608/press_20160824.html

  • Tax Waivers; A Tool for Encouraging Tax Compliance

    The Concept of Tax Waivers

    Tax waivers are intentional acts of the relevant tax authority to relinquish or let go of a known right or claim to existing tax liabilities. Tax waivers can come in form of amnesty for back taxes, amnesty on penalties and interest, tax holidays/reliefs and tax exemptions. They are usually employed in order to incentivise various sectors of the economy or various categories of taxpayers, but ultimately to enhance tax revenue, voluntary tax disclosures/ payments, widening of taxpayer database, and enhancement/improvement of trade, industries and investments. 

    In spite of also having its down sides (particularly abuse of the process), tax waivers which have been successfully implemented have helped in:

    • Enhancing tax revenues ultimately
    • Reducing the cost and time of tax collection for both FIRS and the taxpayers
    • Engendering trust of the taxpayers in the tax authorities and collaboration between the two parties
    • Encouraging growth and investments in particular economic sectors 
    • Easing tax compliance burdens on certain categories of taxpayers e.g. small businesses and thereby encouraging an enabling business environment around them
    • Instituting voluntary tax compliance culture ultimately
    • Enhancing cross border trade and investments
    • Widening the taxpayer database
    • Enabling tax defaulters to come clean and engendering the culture of tax compliance going forward

    John F. Kennedy also alluded to the efficacy of tax waivers in his statement, “It is a paradoxical truth that tax rates are too high and tax revenues are too low, and the soundest way to raise the revenues in the long run is to cut tax rates”

    As part of the efforts of the Federal Inland Revenue Service, (FIRS) to promote voluntary compliance in Nigeria, it has recently approved a long expected tax waiver window as follows:

    1. Waiver of penalty and interest on all taxes administered by FIRS.
    2. This special waiver window will be opened for 45 days only, commencing 5thOctober 2016.
    3. The waiver is applicable only on penalty and interest and not on principal due.
    4. The waiver covers only a 3-year tax default period; 2013 to 2015, i.e. penalty and interest accruing on all taxes due between 2013 and 2015.
    5. The waiver covers all taxpayers (with regards to taxes payable to FIRS) in default.
    6. The remedial taxpayer is expected to present a payment plan on the outstanding Principal Tax Liability, acceptable to FIRS. Part payment/full payment of undisputed tax liabilities is to be paid, while the balance could be paid instalmentally, however, it is expected that a reasonable amount of not less than 25 per cent be paid on account.
    7. Applicants who want to take advantage of this special waiver window are expected to apply officially to FIRS.

    The waiver has been approved to allow remedial actions from otherwise non-compliant taxpayers.[1]  

    Non-compliant taxpayers may include:

    • Start-up businesses not yet acclimatized to its business or regulatory environment, and still struggling to survive.
    • Operators in the informal sector, without an iota of knowledge of what taxes they should pay.
    • Persons not at all registered for tax or registered but have not started paying any taxes.
    • Persons registered for tax with their bankers just for the purpose of collecting tax identification number for opening of business bank accounts. Such taxpayers do not have tax files with any tax office where they can file their tax returns. They are expected to go to their nearest tax offices and register appropriately for tax.
    • Taxpayers collecting value added tax, deducting withholding taxes and not remitting them.
    • Persons simply evading taxes, either by non-filing or by not disclosing incomes subject to tax. Several taxpayers in this category run several bank accounts and have employed different means of receiving incomes, while only disclosing a very small portion of those incomes.
    • Citizens stashing undisclosed funds outside the country, in the so-called tax havens
    • Taxpayers owing significant amounts in arrears of taxes due to inconsistency in tax payments or incorrect/incomplete self-assessments over a significant length of time.
    • Taxpayers who are simply aggrieved or distrusting of the tax system and so have simply decided not to pay taxes.
    • And all such others who for whatever reason, other than legal exemptions have not been fully compliant to taxes.

    It is the belief of the FIRS that the contemplated tax waivers, would among other benefits, boost tax revenues and increase the number of taxpayers in the FIRS database by between 500,000 and 700,000 taxpayers. FIRS also believes that these measures will go a long way in easing voluntary tax compliance by taxpayers.

    Several countries world over have also implemented tax waivers in form of tax amnesty. Most were successful, few were either not successful or were abused. Some cases are enumerated below for the enlightenment of our readers. 

    Ireland:In 1988, the Irish government introduced a comprehensive proposal that gave delinquent taxpayers ten months to pay overdue taxes without incurring any interest or penalty charges. According to the Central Bank of Ireland, the tax amnesty raised approximately 750 million dollars. This windfall again helped in reducing the treasury’s total borrowing requirement to approximately 34 percent of GDP in 1988, compared to 10 percent in 1987[2]. Other countries that implemented tax amnesty successfully in the 80’s include India, Argentina, Colombia, France, Belgium[3].

    Italy:Introduced a tax amnesty in 2001 that came to be known as Scudo Fiscale which was extended in 2003 in other to recoup money from funds stashed outside the country. In 2009 the Italian Amnesty yielded €80 billion, while the Bank of Italy estimated that Italian citizens held around €500 billion in undeclared funds outside the country[4].

    South Africa:The 2003 tax amnesty Regulation allowed South African residents to disclose their foreign assets, accumulated or transferred in contravention of Exchange Control without being exposed to any civil or criminal liability. Defaulters were given a time frame of 3 months to pay their default fee of 5 per cent for repatriated foreign assets and 10 per cent for foreign funds remaining offshore. In the 2003/4 offshore amnesty package, 42,000 South Africans came clean raising R2,9 billion in levies with R48 billion of the R69 billion declared having been held offshore illegally[5].

    Germany:In 2004, tax amnesty was granted by the German government. It was in respect of deposits and capital belonging to Germany’s war time generation. The tax amnesty generated up to 2.6 million Euros. Since 2004 when it was granted, more than 36,000 requests for tax amnesty were filed in Germany[6].

    Russia:  In 2007, a Russian tax amnesty programme generated $130 million in the first six months. The Russian programme was not open to anyone previously convicted of tax crimes such as tax evasion.This was done in a bid to encourage non-compliant tax payers to regularize their tax affairs and also to boost tax revenues and reverse capital flight from the country[7].

    Jamaica: The tax amnesty programme ran in Jamaica from June 30, 2008 to October 31, 2008. The tax amnesty covered all tax types; income tax, PAYE, property tax, general consumption tax, special consumption tax, education tax, transfer tax, stamp duty, asset tax, and contractors levy. 

    United States of America (U.S.A.):A federal U.S. tax amnesty was granted to more than 14,700 American taxpayers in the year 2009. The city of Los Angeles collected $18.6 million in its 2009 tax amnesty programme, claiming that the amount was $8.6 million more than was expected and that businesses saved $6.7 million in penalties. The State of Louisiana brought in $450 million from its 2009 tax amnesty programme, which was three times more than what was expected, according to Republican Governor Bobby Jindal[8]. Massachusetts raised $85 million through a tax amnesty programme while New York collected more than four times that amount.

    Greece:On September 30, 2010, the Hellenic Parliament ratified a legislation pushed through by the Greek government in an effort to raise revenue, granting tax amnesty to millions of Greek citizens by paying just 55% of the outstanding debts[9]. But in 2011, the European commission requested Greece to modify its tax legislation as its tax amnesty was considered discriminatory and incompatible with European Union treaties[10].

    Ghana:In 2012, Ghana also implemented a tax amnesty programme, granting reprieve to tax defaulters, and seeking to widen the income tax net to improve Ghana’s revenue inflows. The amnesty covered both registered and non-registered tax payers. The condition for benefitting from the amnesty was registration with the Ghana Revenue Authority or the Registrar General’s Department, submission or amendment of their tax returns and paying outstanding taxes within a certain time frame.

    Spain:In 2012, the Minister of Economy and Competitiveness, Cristobal Montoro announced a tax evasion amnesty for undeclared assets or those hidden in tax havens. Repatriation would be allowed by paying a 10 percent tax, with no criminal penalty and it applied to personal income tax, corporate income tax and non-resident income tax as long as they were voluntarily disclosed to the Spanish tax authorities by November 30, 2012[11]. 

    Portugal:Portugal’s regularization regime entered into force on November 1, 2013 and ended December 2013. The measure was designed to boost tax revenues, and to enable the Government to meet its public deficit target of 5.5 percent of gross domestic product from the other year.The scheme accorded exemption from the payment of default interest, compensatory interest, and administrative fees. In addition, the provisions reduced the fine to 10 percent, in cases where the legal tax debt recovery period ended on August. Portugal’s State Secretary for Tax Affairs Paulo Nuncio announced that the process yielded “a record sum” of EUR1.25bn (USD1.7bn) for the state, easily surpassing the initial target figure of EUR700m[12]. 

    United Kingdom:Tax amnesty has not been generally applied in the United Kingdom. The Board of Inland Revenue has however admitted that it has recovered over £2 billion from tax deals with Switzerland and Liechtenstein. All they had to do was to open accounts in Liechtenstein or Switzerland and all their offshore tax dodging could be included in a settlement even without them transferring any money 1. Though this still earned criticism from some revenue critics who said it was not the job of the Revenue to help tax evaders to mitigate their risk of tax penalties.

    Indonesia:Indonesia’s first period of tax amnesty program, ran from July to 30 September this year. The programme offered the most attractive tax rates to those taxpayers who had not fulfilled their tax obligations in recent years. Through the government’s tax amnesty programme they could declare previously undeclared assets and – if they have assets abroad (for example in the so-called tax havens) – they were encouraged to repatriate these funds into Indonesia through attractive tax incentives and immunity from prosecution, a move that met resistance in Singapore.

    Several big Indonesian businessmen publicly announced to support the program and repatriate offshore funds into Southeast Asia’s largest economy. The government and the nation’s financial authorities had prepared several investment instruments for these funds (allowing to absorb excessive liquidity in case the program is a huge success). 

    According to the data from Indonesia’s Tax Office on Thursday 15 September 2016, additional state revenue (from taxation) that was earned through the tax amnesty program stood at IDR 22.7 trillion (approx. USD $1.7 billion), or 13.8 percent of the government’s target (IDR 165 trillion). Ken Dwijugiasteadi, Director General of Indonesia’s Tax Office, indicated that since the start of September 2016, additional government tax revenue (collected through the amnesty program) averaged between IDR 1.5 – 2 trillion per day, a very strong performance[13]. 

    Tax Exemptions/ Incentives Already Existing in the Nigerian Tax System

    In Nigeria today, there are many tax exemptions/ reliefs already inherent in the tax laws and from which taxpayers have benefitted and could still benefit, only if they are aware of their existence. Taxpayers must not necessarily wait for special tax waiver programmes before they can come forward voluntarily to file tax returns and remit the associated taxes. Many of these plethora of tax incentives inherent in the different Nigerian tax laws are enumerated below for the enlightenment of our readers:

    1. Exemptions under the Companies Income Tax Act (CITA)
    1. General exemptions under CIT- incomes exempt from CIT

    There are certain companies’ or organisations’ incomes/profits that are within the scope of CITA but are granted exemption from the tax for various reasons ranging from the companies not being profit oriented organisations to incentivizing relevant sectors. 

    If profit accrues to a taxpayer (company/organisation) in any of the following categories[14], the profit is exempt from CIT as long as it does not originate from any trade or business carried on by such taxpayer:

    1. Any statutory or registered friendly society that makes profit as long as the profit is not from a trade or business carried on by such society.
    2. A co-operative society registered under any enactment or law relating to co-operative societies; its profits and profits from co-operative activities solely carried out with its members or from any share owned or other interest possessed by it in a trade or business in Nigeria carried on by some other persons or authority.
    3. Any company engaged in ecclesiastical, charitable or educational activities of a public character (e.g. churches, non-governmental organisations and schools).
    4.                 iv.          Any company formed for the purpose of promoting sporting activities and which uses the profits made (from non-trading activities) wholly for the purpose of promoting sporting activities. This exemption is however subject to such conditions as FIRS may prescribe.
    5.                   v.          Trade unions registered under any Trade Union Act 
    6.                 vi.          Dividends received from Unit Trust Schemes
    7. A body corporate established by or under any Local Government Law or Edit in force in any State of Nigeria.
    8.               viii.          Corporate organisations that serve as purchasing authorities established by an enactment and empowered to acquire any commodity for export from Nigeria and for the purchase and sale (whether for the purposes of export or otherwise) of that commodity.
    9. Any company established by the law of the state for the purpose of fostering the economic development of the state.
    10. Any profit of a company other than a Nigerian company which is not taxable for any other reason apart from the fact that it was brought into or received in Nigeria.
    11. Dividends, interest, rent, or royalty derived by a company from a country outside Nigeria and brought into Nigeria through “Government approved channels”[15]. 
    12. The interest accruing on foreign currency deposit accounts of a foreign non -resident company. 
    13.               xiii.          The interest accruing on foreign currency domiciliary account in Nigeria. 
    14. Dividends received from small companies in the manufacturing sector, in the first five years of operation.
    15.                xv.          Dividends received from investments in wholly export – oriented businesses.
    16. Any Nigerian company that exports goods, repatriates the proceeds into Nigeria and uses such proceeds exclusively for the purchase of raw materials, plants, equipment and spare parts.
    17. A company whose supplies are exclusive inputs/raw materials for the manufacturers of exported goods. The company however needs to collect a certificate of purchase of the inputs from the export manufacturer.
    18. A company established within an export processing zone or free trade zone and 100% of its production is for export. Where this is not the case, the percentage of locally consumed production to exports will be applied in determining the tax payable on its business profits.
    • Companies Income Tax (CIT) Exemption on Bonds and Short Term Federal Government Securities

    Under the CIT (exemption of bonds and short term government securities) order 2011, incomes and interests arising from the following instruments are exempt from CIT for ten (10) years starting from 2011:

    • Short term federal government of Nigeria securities, such as treasury bills and promissory notes;
    • Bonds issued by Federal, State and Local Governments and their agencies;
    • Bonds issued by corporate bodies including supra-nationals. 
    • Pioneer Status Tax Relief

    Pioneer profits are profits covered under the Industrial Development (Income Tax Relief) Act. This Act seeks to exempt from Companies Income Tax (CIT) for initial period of three years, which may be extended for an additional two years, profits made by pioneer industries from sale of pioneer products, in order to incentivise those industries where government sees favourable prospects and encourage their growth. A company which is granted this exemption from CIT enjoys what is called ‘Pioneer Status’. 

    There is currently an approved list of pioneer industries/products but any industry can be included in this list or granted the exemption when an application is made and the pioneer certificate issuing body- the National Investment Promotion Commission (NIPC) identifies a business case for such tax exemption. On application for pioneer relief, a service charge of 2% of projected tax savings over the pioneer period is payable to NIPC.

    The industries which are currently mostly targeted for this status include: energy sector, mining, railways/roads, education, health, aviation, sports and agriculture.

    • Gas utilizing companies and mining companies are also entitled to similar tax free periods (3-5 years) under CITA. 
    • Exemptions from CIT under certain conditions- Exemption of Profits Order

    Under the CIT (exemption of profits), Order issued in 2012, there are three situations giving rise to exemptions from income tax:

    • Employment tax relief: In any assessment period, any company with a minimum net employment (difference between incoming and outgoing employees) of 10 employees of which 60% are employees without any form of previous work experience, employed within their 3 years of graduation from school or any vocation, shall enjoy an exemption from income tax of 5% of its assessable profit in the assessment period (limited to the gross salaries of qualifying employees) in which the profits were generated. 
    • Work experience acquisition programme relief: Any company that has a minimum net employment of five new employees and retains such employees for a minimum of two years from the year of assessment in which the employees were first employed shall enjoy an exemption from income tax of 5%of its assessable profits in the assessment period in which the company qualifies. 
    • Infrastructure expenditure tax relief: According to the provisions of the Order, any company that incurs expenditure on infrastructure or facilities of a public nature shall be entitled to claim additional tax deductibility in this regard to the tune of 30% of the cost of the provision of the infrastructure or facilities in the period in which the facilities were provided. These amenities/infrastructures must be accessible to both the Company and the public and must be in use before the exemption can apply. Certification from the Company’s auditors is also required in this regard.

    Note that both reliefs above are only applicable for full time Nigerian employees who are not related by blood. Adjustments shall be made to the number of qualifying employees to exclude those with relationship ties. A certification is also expected to be issued in this regard by the Company’s external auditors before the exemptions can be allowed.

    • Interest Income Exempted
    • Interest on loan granted by any bank to a company in Nigeria engaged in: 
    • agricultural trade or business;
    • fabrication of any local plant and machinery or 
    • providing working capital for any cottage (home) industry established by the company; 

    is exempted from tax (including withholding tax), provided that the moratorium period is not less than 18 months and the interest on the loan is not more than the base lending rate at the time the loan was granted.

    1. Interest on foreign loans is exempt from tax (including withholding tax) as follows:
    • If the repayment period is above seven years and grace period is not less than 2 years- 100% tax exemption
    • If the repayment period is between 5 to 7 years and grace period is not less than 18 months – 70% tax exemption
    • If the repayment period is between 2 to 4 years and the grace period is not less than 12 months – 40% tax exemption
    • If the repayment period is less than 2 years- no tax exemption
    • Dividend Income Exempted

    No tax is deductible from or payable (in the hands of the recipient) on dividends paid out by a Nigerian company as follows:

    • Dividend settled/ paid by the issue of shares in lieu of cash
    • Dividend paid out of profits exempted from CIT under the CITA [See section 18, subsection 1 (c; ii), read in conjunction with section 43 (1) of CITA]
    • Dividend paid out of pioneer profits
    • Dividend paid out of petroleum profits

    Provided that the company paying the dividend issues a certificate to each of its shareholders setting out the amount of dividend to which such shareholders are entitled and the profits from which it has been paid. 

    • Common Wealth Tax Relief

    Nigeria is a member country of the Commonwealth of Nations. CITA therefore grants tax relief to any Nigerian company which proves to the satisfaction of the tax authority, that it has paid or is liable to pay Commonwealth Income tax for any year of assessment on any part of its profits to which it is also liable to pay tax (or has paid tax on) in Nigeria. The tax relief is the Commonwealth rate of tax[16]subject to a limit of half of the CIT rate (15%).

    In the case of a non-Nigerian Commonwealth country liable to tax in Nigeria but has paid Commonwealth income tax on the same profits, the relief to be given from CIT shall be half of the Commonwealth rate of tax (if the tax rate does not exceed the CIT rate). If the Commonwealth rate of tax exceeds the CIT rate, the relief to be granted will be limited to the difference between the CIT rate (30%) and half of the Commonwealth rate of tax.

    1. Double Taxation Relief

    Double tax relief (which supersedes the Commonwealth tax relief, wherever it is in place) is granted under CITA where there is a Double Taxation Agreement (DTA) in place between Nigeria and any other country. A double tax agreement is a reciprocal arrangement whereby two countries agree not to tax the income of individuals or companies brought or received into their territory if such individual or company had already paid tax on such income in the other country. 

    There are several methods of calculating double tax relief under CITA.

    Nigerian tax treaty relations can be categorised as follows:

    • Treaties in force in Nigeria: United Kingdom, Pakistan, Belgium, France, The Netherlands, Romania, Canada, South Africa, China and DTA relating to air and shipping signed with theItalian Government. 
    • Treaties concluded but not ratified by the National Assembly: Spain, South Korea, Sweden andTunisia.
    • Treaties concluded but yet to be signed: Mauritius, Algeria andDenmark.
    • Concluded treaties requiring re-negotiation: Bulgariaand Turkey.
    • Concluded treaties requiring clarification on date of entry into force: Philippines, Czech Republic andSlovakia.
    • Treaties due for the second round of negotiations: Syria, Iran, India, Ethiopia, andRussia.
    • New countries selected for new tax treaty negotiations by Nigeria: Qatar, Japan, The United Arab Emirates, Ghana, Sierra Leone, Kenya, Cameroon, The Gambia, Kuwait, Equatorial Guinea andMalaysia.
    • Countries which have approached Nigeria for new tax treaty negotiations: Liberia, Kuwait, The United Arab Emirates, India, Poland andEgypt.
    • Exemptions under the Export Processing Zones (EPZ)

    One of Nigeria’s economic goals is to transform the national economy, especially to reduce Nigeria’s international trade deficit and trade imbalance. The following incentives are therefore available for approved enterprises operating within the EPZs:

    1. Companies operating within the EPZs are exempt from income taxes, provided that 100% of the goods produced in the zones are meant for export. Exports from the EPZs into Nigeria which is Customs Territory shall attract the appropriate duty on imported raw materials.
    2. VAT on goods produced in the EPZs is zero rated.
    3. All companies located within EPZs should file tax returns to EPZ authorities even though no tax is payable.
    4. Exemptions from import and export levies and taxes apply within the EPZs, except where the entities transact business outside the EPZs.
    • Exemptions under the Tertiary Education Trust Fund (establishment) Act 2011
    • Un-incorporated entities; i.e., companies not subject to Companies Income Tax
    • Non-resident companies not registered in Nigeria
    • Companies without assessable profits
    • Exemptions under the Value Added Tax Act
    • Exempt goods under VAT:
    • Basic foods items (unprocessed food stuff or agricultural produce)
    • All medical and pharmaceutical products sold/ supplied
    • Books and educational materials 
    • Baby products 
    • Locally produced fertilizer, agricultural and veterinary medicine, farming machinery and farming transportation equipment 
    • Plant, machinery and goods imported for use in the free trade zones
    • Plant, machinery and equipment sold to oil and gas companies in the downstream sector for utilization of gas.
    • Tractors, ploughs, agricultural equipment and implements sold to farmers
    • Exempt Services:
    • Medical services
    • Services rendered by community banks, people’s bank and mortgage institutions
    • Plays and performances conducted by educational institution, as part of learning
    • Exempt Instruments:
    • According to the VAT modification order gazette of 2011, all government bonds, government securities and corporate bonds and proceeds thereof (for a duration of 10 years)
    • Asset-backed securities and mortgage- backed securities are also exempted from tax (2010, by presidential order).
    • Zero-Rated Goods and Services:
    • All non-oil exported goods and services[17]
    • Goods and services purchased by diplomats or embassies 
    • Goods purchased for use in humanitarian donor funded projects 
    • Exemptions under the Stamp Duties Act

    General exemptions from all stamp duties include:

    1. Capital and transfer duties in case of reconstruction or amalgamation of companies, where not less than 90% of the shares of an existing company is being acquired.
    2. Transfer duty in case of transfer of property between associated limited liability companies where not less than 90% of either’s share capital is owned by the other or another third party company owning not less than 90% shares in each of them.
    3. Transfer of shares in the government or legislative stocks or funds in Nigeria.
    4. Instruments for the sale, transfer or other disposition, either absolutely or by way of mortgage, or otherwise, of any ship or vessel or any part, interest, share or property of or in any ship or vessel.
    5. All instruments on which the duty would be payable by government.
    6. All instruments on which the duty would be payable locally by government in Nigeria or any of the departments thereof.
    7. All documents relating to the transfer of stocks and shares.
    8. Reduction in stamp duties for re-issues of previously executed debentures to 20% of the stamp duty otherwise payable on a new debenture of the same value (2010, by presidential order).
    • Exemptions under the Petroleum Profits Tax (PPT) Act
    • Dividends declared from profits on which PPT has been paid is not subject to any tax.
    • Refined petroleum products (white products), including diesel and kerosene. 
    • Royalties paid are tax deductible.
    • Tertiary Education tax is also tax deductible.
    • Where a company engaged in petroleum operations is engaged in the transportation of chargeable oil by ocean going oil-tankers operated by or on behalf of the company from Nigeria to another territory, income from such transportation is excluded from PPT. It is however, taxable under the Companies Income Tax Act.
    • Exemptions under the Withholding Tax (WHT) Regime
    • Goods supplied in the ordinary course of business (that is, directly by the producer/dealer, without involving any middle man. Over the counter purchases are also included under this category).
    • Recoverable expenses, when clearly separated on the invoice.
    • Dividends distributed out of pioneer profits are exempt from WHT.
    • Dividends distributed out of petroleum profits are exempt from WHT.
    • The interest accruing on foreign currency domiciliary account in Nigeria is exempt from WHT.
    • See also ‘interest income exempted’ under exemptions from CIT [See 1 (f) above].
    • See also ‘dividend income exempted’ [1 (g) above].
    • Dividends received from small companies in the manufacturing sector, in the first five years of operation are exempt from WHT.
    • Dividends received from investments in wholly export – oriented businesses are exempt from WHT.
    • Exemptions under the Capital Gains Tax Act
    • Shares, stocks, bonds and government securities.
    • Mortgage-backed securities and asset-backed securities (2010, by presidential order).
    • Roll-over relief is available for qualifying assets (within the same class) repurchased with the proceeds of the asset(s) disposed.
    • Exemptions under the Personal Income Tax (PIT) Act
    • Contributions to pension
    • Gratuities
    • National housing fund contributions
    • National health insurance schemes
    • Life assurance premium
    • Consolidated relief allowance of N200,000 plus 20% of gross income, subject to a minimum tax of 1% of gross income, whichever is higher.
    • Asset-backed securities and mortgage- backed securities are also exempted from tax (2010, by presidential order).
    • Other general incomes exempted from PIT: 
    • The emoluments payable from United Kingdom Funds to members of visiting or other Forces and to persons in the permanent service of the United Kingdom Government in Nigeria in respect of their offices under the United Kingdom Government and the emoluments payable to members of any civilian component, and the income of any authorised service organisations, accompanying the visiting Forces: This exemption does not apply to a Nigerian citizen or a Nigerian resident.

    All consular fees received on behalf of a foreign State, or by a consular officer or employee of the state, of his own account, and all income of such officer or employee, except income in respect of any trade, business, profession or vocation carried on by an officer or employee or in respect of any other employment exercised by him within Nigeria.

    Provided that this exemption shall not apply where the employee is engaged in domestic duties or where the officer or employee ordinarily resides in Nigeria and is not also a national of the foreign State.

    • Interest accruing to a person who is not resident in Nigeria as follows: 

    (a)        the interest on a loan charged on the public revenue of the Federation and raised in the United Kingdom;

    (b)       the interest on a bond issued by the Government of the Federation to secure repayment of loan raised from the International Bank for Reconstruction and Development under the authority of the Railway Loan (International Bank) Act;  

    (c)        the interest on any money borrowed by the Government of the Federation or of a State on terms which include the exemption of interest from tax in the hands of a non- resident person;

    (d)       where the Minister of Finance so consents, the interest on any moneys borrowed outside Nigeria by a corporation established by a law in Nigeria upon terms which include the exemption of such interest from tax in the hands of any non-resident person;

    (e)        the interest on deposit accounts, provided the deposit into the account are transfers wholly made up of foreign currencies (funds) to Nigeria through Government approved channels and the depositor does not become non-resident after making the transfer while in Nigeria.

    For the purpose of the exemption of interest specified above, a person shall only be deemed to be resident in Nigeria for a year of assessment if he is in Nigeria for a period or periods amounting to 183 days or more in any twelve months’ period commencing in the calendar year and ending either in the same year or the following year.

    • Interest on any loan granted by a bank to a person – 

    (a)        engaged in –

    (i)     agricultural trade or business’

    (ii)    the fabrication of any local plant and machinery; or

    (b)        as working capital for any cottage industry established by the person under the Family Economic Advancement Programme, if the moratorium is not less than 18 months and the rate of interest on the loan is not more than the base lending rate at the time the loan was granted.

    For the purpose of the above exemption also, a person shall only be deemed to be resident in Nigeria for a year of assessment if he is in Nigeria for a period or periods amounting to 183 days or more in any twelve-month period commencing in the calendar year and ending either in the same year or the following year.

    • The income of a national of the United States of America from employment by the International Co-operation Administration, being an Administration or Agency formed and directed by the Government of that country. 
    • The income of a national of the United States of America from employment by the International Development Services as agents or the International Co-operation Administration.
    • The income of an individual from employment by the Ohio University of Athens, Ohio, as agent for the International Co-operation Administration, in connection with any Scheme for the training of teachers in Nigeria.
    • An income in respect of which tax is remitted or exempted under the provisions of the Diplomatic Immunities and Privileges Act or of any enactment, order or notice continued in force or affected by that Act.
    • The income of a local government or government institution.
    • The income of any ecclesiastical, charitable or educational institution of a public character in so far as such income is not derived from a trade or business carried on by such institution.
    • Wound and disability pensions granted to members of the Armed Forces or of any recognised national defence organisation or to persons injured as a result of enemy action.
    • Pensions granted to a person under the provisions of the Pensions Act relating to widows and orphans.
    • The income of a trade union registered under the Trade Union Act, in so far as the income is not derived from a trade or business carried on by that trade union.
    • The income of a statutory or registered friendly society in so far as such income is not derived from a trade or business carried on by such society. 
    • The income of a co-operative society registered under the Co-operative Societies Act 1993, not being income from any trade or business carried on by the society other than the co.-operative activities solely carried out for and with its members or from any share or other interest possessed by that society in a trade or business in Nigeria or elsewhere carried on by some other person or authority.
    • A sum received by way of death gratuities or as consolidated compensation for death or injuries.
    • A sum withdrawn or received by an employee from a pension, provident or other retirement benefits fund, society or scheme approved by the relevant tax authority, and a sum withdrawn or received by an employee from a national provident fund or other retirement benefits scheme established under the provisions of any enactment for employees throughout Nigeria.
    • Dividends
    • ·        Any compensation for loss of employment.
    • The income of a non-Nigerian citizen, who is in employment in Nigeria, under a Technical Assistance agreement between the Nigerian government and the employer, being any Government, organisation or agency. 
    • The interest accruing to a person on foreign currency domiciliary accounts.
    • Income earned from outside Nigeria by a temporary guest, lecturer, teacher nurse doctor and other professional and brought into Nigeria provided that such income is deposited in a domiciliary account in an authorised bank in Nigeria.
    • Income from dividend, interest, rent royalties, fees and commission earned from abroad and brought into Nigeria in convertible currency and paid into a domiciliary account in a bank approved by the Government. 
    • Income earned from abroad by an author, sportsman, playwright, musician, artist, and brought into Nigeria is exempt from tax provided that such income is brought in foreign currencies and paid into a domiciliary account in an authorised bank in Nigeria.
    • Bonds issued by Federal, State and Local governments and their agencies
    • Bonds issued by corporates including supra-nationals
    • Interest earned by holders of these bonds and short term securities

    Any dividend, interest, or royalty accruing from all the ‘other general incomes exempted under PIT’ are not necessarily exempted from WHT. 

    Conclusion

    In the wake of the economic recession, small, medium and large businesses in Nigeria have clamoured for certain fiscal incentives. We believe that the grant of tax waiver by FIRS, in Nigeria at this time, is a big step to alleviate this situation, provide a soft-landing for many defaulting taxpayers and promote voluntary tax compliance. It is also an action that aligns with that of several other tax authorities world over. We therefore urge every affected taxpayer to come forward as quickly as possible, and take maximum advantage of this 45-day tax waiver window currently running in Nigeria. 

    [1]Taxpayers should please note that penalties & interests subsists in the nation’s tax laws for tax defaulters.

    [2]FRBNY Quarterly review 1989. 

    [3]FRBNY Quarterly review 1989.

    [4]https://en.wikipedia.org/wiki/Tax_amnesty

    [5]http://www.biznews.com/matthew-lester/2016/03/02/matthew-lester-treasury-reloads-offshore-amnesty-not-legally-binding/

    [6]Global Journal of Politics and Law Research Vol.3, No.3, pp.105-120, June 2015

    [7]www.tax-news.com/archive/story/Russian_Tax_Amnesty_Yields_130m

    [8]http://www.nola.com/business/index.ssf/2009/12/louisiana_tax_amnesty_programme_3.html

    [9]Daley, Suzanne (February 20,2011) “Greece Effort to Limit Tax Evasion Have Little Success” www.mobile.nytimes.com/2011/02/21/world/europe/21greece.html?referre=.see also www.ft.com, http//newsletters.usdbriefs.com

    [10]“EU Commission tells Greece to change tax amnesty” (www.reuters.com)

    [11] http://www.google.com/hostednews/ap/article/ALeqM5hnFSPUep6RURQ2ECN6RbXxxOcLHQ?docId=7d94f79512bd4f47a84a0f48cfd722b4

    [12]http://www.tax-news.com/news/Portugals_Exceptional_Tax_Amnesty_Surpasses_Expectations____63251.html

    [13]http://www.indonesia-investments.com/news/todays-headlines/update-indonesia-s-tax-amnesty-program-singapore-banks-to-police/item7192

    [14]When a company in any of the categories (i) to (vi) and (vii) to (xii), is paying out money from such profits, as dividends, interest, rent or royalty to its investors, it is still required to withhold the applicable taxes from such payments as withholding tax is not part of the exemptions in this regard.

    [15]Central Bank of Nigeria, or any bank, or other corporate body appointed by the Minister as authorised dealer under the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act or any enactment replacing that Act.

    [16]The income tax rate applicable in the relevant Commonwealth country to which the tax relief relates. 

    [17]Exported service in this case means a service performed by somebody or company residingin Nigeria to a person outsideNigeria. Note the condition of residency for the service supplier, and the condition that the service must be rendered to a person outside Nigeria. Services performed and consumed in Nigeria, on the order of non-resident persons, therefore, do not qualify as exported service.

  • VAT: TAX INVOICING & REVENUE ACCOUNTING CHALLENGES

    Filing of Value Added Tax (VAT) returns and payment of tax due is made monthly but not later than the 21st day of the month following the month in which the transaction occurred. It is usually based on the value of the supplies done. There are some issues to note in calculating VAT payable where certain selling arrangements or circumstances are in place. One of the critical issues has been the point at which VAT should be computed under different selling arrangements.

    Some of the arrangements include trade/ cash discounts, credit sales, deferred consideration, bad debts, returns/refunds, upfront fees and customer loyalty programmes. In some of these, the tax authority’s treatment may vary from the position of the taxable person. The difference is between the cumulative invoices and turnover disclosed in the audited accounts at the end of the trading period of a company. It is not likely that the invoices’ summary at the end of a trading period would agree with the turnover for the same period due to different provisions of the accounting standards, especially the International Financial Reporting Standard (IFRS). 

     Notwithstanding any variation in accounting standards, Nigerian Value Added Tax administration is invoiced-based. Consequently, whatever approach is adopted to determine the value of the consideration in accordance with the law, VAT becomes chargeable at the point of raising the invoice. Agitations have been expressed on the reasonableness of paying VAT on amounts that are yet to be collected from customers vis-à-vis the impact on cash flow of the taxpayer. While the fears appear sound and founded, it may be counteracted by the fact that a set-off exists by claim of input tax on credit purchases that have not been paid for by the taxpayer.  Also, the choice of business arrangement is that of the business person and not universal; whereas taxation is of universal application.

    The Concept of Tax Invoices Versus Accounting Revenue/Turnover

    It is pertinent to note that since accounting ‘revenue’ or ‘turnover’ is usually a focal point for computation of VAT payable, determining the appropriate VAT treatments of these sale arrangements requires a sound understanding of the prescribed accounting treatments. 

    The law requires every taxable person who makes a taxable supply to issue a tax invoice showing, among other information, the gross amount of transaction, the rate of tax applied and the tax charged to the purchaser. The law therefore presupposes that the issuance of tax invoices for every taxable supply made, both in goods and services. This implies that the focus of the law is on value of taxable supplies as shown on the invoice rather than as shown in the financial accounting systems. In other words, by law, VAT payable is invoice-based.

    In practice therefore, a meeting point must be established between these two focal points (accounting revenue and tax invoices). This is particularly important in dealing with reconciliation of VAT paid against the turnover in the audited accounts. Taxpayers experiencing this situation are advised to keep proper records of tax invoices issued and the cumulative VAT payable/ paid based on such invoices. 

    The unique selling arrangements discussed in this article are good examples of occasions where such discrepancies usually arise.

    Trade/Cash Discounts Allowed 

    International Accounting Standard (IAS) 18 provides that the amount of revenue recognised for a transaction is the net of any trade discounts or volume rebates given because these discounts and rebates are not received as consideration by the seller (IAS 18:10). 

    Under a trade discount arrangement, invoices issued will reflect the amount of agreed consideration between buyer and seller less any trade discount granted.  In this wise, the amount chargeable against the customer is the selling price less trade discount.  This net value is the base for computing VAT.

    The determination of VAT payable in a cash discount arrangement, on the other hand, is made on the basis of ‘above the line’ items on the invoice. i.e. actual selling price before cash discount is deducted. In other words, VAT at 5% is to be applied on the normal selling prices of such goods/services without any consideration for cash discounts allowed. This is because cash discounts are purely discretionary business decisions by business owners for the purposes of encouraging early payment and therefore should not affect the VAT payable to the tax authorities on the normal selling prices of those goods and services.  In addition, payment of VAT burden is on the consumer and not the supplier.

    Credit Sales

    VAT on credit sales is required to be computed on the total supplies. There are controversies around payment of VAT on credit sales but the fact remains that no company’s trade credit policies are set in agreement with the tax authorities, neither are eventual payments by their customers monitored by the tax authorities. Credit sales are purely business decisions by management of business entities and should not affect the VAT payable on any taxable supplies made in the period. As pointed out earlier, partial equilibrium is attained with the allowance of input tax claims on credit purchases.

    Deferred Consideration

    Most trade receivables are due within a relatively short time frame, such as one month or less. But in special circumstances, the seller may allow the buyer an extended period of time for payment of the consideration, usually spanning months or years. This is all dependent on the nature of goods or service sold or rendered and the sales agreement between the buyer and the seller.

    According to IAS 18, the consideration or selling price in such an arrangement consists of two elements- the actual price of the good or service (principal element) and the interest element arising from the financing plan. As the time value of money in such circumstance would not be the same as in a normal short-period credit sales transaction, an interest element is imputed into the price of the goods/services supplied to make up for the length of time it takes the buyer to pay up. In other words, this is treated partly as a financing arrangement. 

    Such arrangement is also similar to a finance lease arrangement where both the capital element and the interest element are inherent. Usually, such sales are covered by written agreements which stipulate the business terms and how the periodic payments are to be made. Tax invoices are issued as each payment falls due. VAT element is required to be inputted to such invoices, but only to the portion of the consideration which relates to the actual selling price of such goods or services supplied. The interest element should be clearly separated on the invoice as VAT is not applicable on it. This is similar to a finance lease arrangement where the interest portion is a return on investment and is not liable to VAT.

    This treatment is buttressed by section 5 (2) of VATA which provides that where the supply of taxable goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be such part of the consideration as is properly attributed to it. 

    Where this split is not properly reflected on the invoice, it will be difficult to differentiate the interest portion of the consideration to which VAT will not be applicable. Clear disclosure is therefore very important.

    Bad Debts

    Bad debts proven to be uncollectable and on which VAT had been paid in earlier periods can be allowed as offset from VAT payable in future periods.

    Returns/Refunds

    Sometimes companies have a refund policy for goods sold but returned by the customer for whatever reason that is agreeable to both parties. Amounts refunded would be deducted from revenue originally recognised. VAT is to be calculated based on the subsisting revenue at the end of the monthly reporting period. Since VAT returns are to be made 21 days following the month of transaction, and the window for returns is usually very short in practice, it is expected that any refunds that may impact revenue for any particular tax period would have been reflected in revenue/turnover before the associated VAT returns are filed in the month. 

    However, where the returns and refunds are made after the VAT attributable to the sale has been remitted, amounts verifiable as refunds would be accorded the same treatment as bad debts and allowed as offset from VAT payable in future periods. 

    Goods on Test Usage

    For goods given out on test usage, revenue for both accounting and VAT purposes is recognised when the test period is over and the test-user opts to buy the product.  At this point, the owner raises invoice for the sale of the product. Thus, VAT is applicable once there is sale.

    Upfront Fees

    Where fees for services rendered are payable upfront, e.g. mobilisation fee (under a construction contract or deposit for supply of goods or services), and there is neither exchange of goods or services nor transfer of risks and rewards of ownership to the buyer, such payment may not be recognised as revenue but deferred as unearned revenue.  Payments are only recognised as revenue only to the extent that goods or services have been provided and by reference to the stage of completion of the transaction. 

    Invoices may not be issued but receipts may be issued to acknowledge payment received.  VAT may not be due on such payment unless the advance payment is invoice based. If VAT is paid in line with the revenue recognition method, the onus is on the taxpayer to keep record of the basis for the difference between the sales invoice amount and the accounting revenue recognised in the affected periods. 

    Customer Loyalty Programs

    Some entities make use of customer loyalty programmes to incentivise customers to buy their goods or services. Customers buying goods and services are granted customer award credits (often described as ‘points’) by the entity, which can be redeemed for awards such as free or discounted goods or services.

    The accounting standards require the consideration received or receivable on such sale to be allocated between the award credit and the main component(s) of the sale. The award credit portion is deferred and not recognised as revenue until the seller has fulfilled its obligations in respect of the award credits i.e. when the free or discounted goods have been redeemed by awardees. 

    Under the customer loyalty program, the accounting turnover for the periods involved would most likely differ from the invoice turnover. This is because the tax invoice is usually issued on the actual offer price of the main good or service which fetches the future awards/discounts, while the accounting revenue for this good or service would be lower at the initial periods, since the revenue recognised would be split between the main good or service which is sold and the award (which is recognised only at later periods when the awardees claim them). 

    Only the actual selling price (under normal circumstances) of all the goods or services involved – both the main goods or services sold and the award credit (either as free or discounted products) would be considered for VAT purposes. As explained earlier under ‘cash discount arrangements’, the invoice should reflect the actual selling price of the goods/services and the 5% VAT payable on it prior to recognising any award components ‘below the line’. This is because customer loyalty programs are also not the making of the tax laws/authorities. They are pure business decisions taken at the discretion of the business owners and therefore should not affect the VAT payable on the actual prices of the goods and services. It should also be noted that VAT is paid by the consumer and not the person that is implementing the loyalty programme.

    There are several sales strategies employed by companies, depending on the managements’ focus and sometimes industry practice. The general interpretations of the provisions of the VAT Act should always guide determination of VAT liability on such transactions.

  • 31 countries including Nigeria, sign tax co-operation agreement to enable automatic sharing of Country-by-Country MNEs’ information. Does Nigeria have the necessary infrastructure to activate the automatic exchange?

    You would recall that in November last year, the Organisation for Economic Cooperation and Development (OECD) and the G20 leaders endorsed the Base Erosion and Profit Shifting (BEPS) package, with a 15-point Action Plan on improving the effectiveness of international tax system.

    The BEPS package has so far formed a springboard for a shift in focus to designing and putting in place an inclusive framework for monitoring and supporting implementation of BEPS measures, with all interested countries and jurisdictions invited to participate on an equal footing, including developing countries.

    Part of these continuing efforts to boost transparency by multinational entities (MNEs), is the signing of Multilateral Competent Authority Agreement (MCAA) for the automatic exchange of Country-by-Country (CbC) MNE reports by Nigeria and 30 other countries earlier this year.

    According to the provisions of the MCAA, by the time the first exchange of CbC reports takes place, all signatory Competent Tax Authorities to the MCAA are expected to have the following in place:

    appropriate safeguards to ensure that the information received remains confidential and is used for the purposes of assessing high-level transfer pricing risks and other base erosion and profit shifting related risks, as well as for economic and statistical analysis, where appropriate.

    the infrastructure for an effective exchange relationship (including established processes for ensuring timely, accurate, and confidential information exchanges, effective and reliable communications, and capabilities to promptly resolve questions and concerns about exchanges or requests for exchanges and compliance errors/default by Reporting Entities within their jurisdictions, and

    the necessary legislation to require Reporting Entities within their jurisdictions to file the CbC Reports.

    A Competent Authority, which is a signatory to the MCAA is expected to send to the Co-ordinating Body Secretariat at the OECD, prior to signing or immediately after signing the MCAA, a notification asserting that all the above are in place and the date on or after which the CbC reporting requirement is expected to take effect.

    We await the CbC reporting legislation in Nigeria (as this is currently not yet in place), and the official notification from the Federal Inland Revenue Service (FIRS) of the commencement date for the CbC reporting requirement in Nigeria. The automatic exchange of CbC reports with Nigeria will only be activated after this awaited commencement date.

    Worthy of note is the fact that according to Action 13 of the BEPS Package, CbC Reports are only intended to be part of a more comprehensive three-tiered documentation structure:

    CbC reports

    Global master files (representing a broad view of the global MNE groups operations, structures, strategic business profits drivers, major products and services, intercompany relations, value points/regions and pricing strategies etc.), and;

    Local files (consisting of the local companies’ structures, organograms, management structures, intercompany agreements, competitors, functional analyses, benchmark analyses, price determinants etc.).

    This three-tiered documentation represents a standardised approach to transfer pricing documentation which will provide tax administrations with relevant and reliable information to perform an efficient and robust transfer pricing risk assessment analysis.

    Although Nigeria is yet to put in place the necessary infrastructure to facilitate/enable sharing of CbC reports to it by other signatory Competent Authorities to the MCAA, it is advisable for MNEs operating in Nigeria to be proactive about all Transfer Pricing documentation requirements in order to stay ahead of the rapidly changing global tax terrain.  Bankable financial reports complying with the International financial reporting standards (IFRS) for all entities within the MNE Groups (including PEs), are also expedient for capturing of consistent financial information in the three-tiered TP documentation.

    According to Action 13 of the OECD BEPS Action Plan on Transfer pricing documentation and Country-by-Country Reporting, the CbC reports should contain information regarding the global allocation of the income, the taxes paid, and certain indicators of the location of economic activity among tax jurisdictions in which MNE Groups operate. MNEs with group consolidated revenues (as disclosed in their consolidated financial statements of the immediate prior accounting period before the CbC reporting year) of less than approximately Euro750m or its equivalent in local currency, are not required to file CbC reports. All entities doing business in the applicable tax jurisdiction whether they be parent companies, ultimate parent companies, local subsidiaries of foreign parent companies or business operations by foreign companies constituting taxable presence are expected to comply.

    Australia, Austria, Belgium, Chile, Costa Rica, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Japan, Liechtenstein, Luxembourg, Malaysia, Mexico, Netherlands, Norway, Poland, Portugal, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland and United Kingdom.

  • A New Year; Planning in Uncertainty

    Every new year, amidst joyous gratitude for surviving the old year, we still experience a feeling of anxiety because we are uncertain about what the new year holds. Only little baby steps of faith, with careful planning, execution and the determination to succeed, one day at a time, can see us through the mist.

    As part of our careful planning for the year, let us remind ourselves of a few routine business requirements:

    Tax Clearance Certificate (TCC):

    Business and personal TCCs are renewable every year, to account for the taxes that were paid in the immediate past year of assessment (and two preceding years before that). There is only a three-month window to 31 March during which we can still make use of our prior year’s TCC, after which it expires. Thus, we need to begin early enough to make preparations for applying for, and renewing our existing tax clearance certificates. Amongst other uses, such as in dealing with government, obtaining facilities or visas, every tax paying law abiding ‘person’ in Nigeria is expected to possess a valid tax clearance certificate.

    Preparing for audits of financial statements and submission to relevant regulatory bodies, where applicable:

    This is a task that many finance people find very unpleasant. For entities with 31 December year end, this exercise is already due. Using the one-day-at-a-time approach, we can begin by contacting our external auditors, completing and putting all accounting books and documentations in order and holding pre-audit planning meetings to guide us through the daunting process of preparing for and executing the final audits of our financial records.

    Provisioning for tax and planning for other corporate tax compliance requirements:

    As we tidy up our accounting books and records (for 31 December year end companies), we need to also provision for our business tax liability based on the profits for the year. The initial tax estimates should be prepared based on management accounts, thereafter, revisions can be made based on draft audited accounts and subsequently, final draft audited accounts.The Self-Assessment Regulations of 2012, requires companies to file their tax returns, not later than the due date of six (6) months after their financial year end, with little or no room for extension of filing deadline. The Regulations only allow for installment payments without interest charges when they are made before the filing deadline. Installment payments can be granted after the filing deadline under the Regulations but only to a maximum of 3 installments with interest at the CBN minimum re discount rate. Therefore, any company (with 31 December year-end) that would prefer to make payments in 6 monthly installments should compute their taxes based on management accounts for the year, and start paying by end of January after duly notifying FIRS of its intentions to settle in installments.

    We recommend that you read our https://www.vi-m.com/tax-services/now-that-the-ifrs-conversion-roadmap-is-over-how-compliant-have-your-ifrs-based-tax-returns-been a detailed article on preparing/filing an International Financial Reporting Standards (IFRS) based tax returns and the deferred tax intricacies/ considerations.

    Transfer pricing (TP) documentations and filing:

    The TP Regulations were issued in August 2012, requiring every company in Nigeria operating within a group structure or involving in related party (or controlled) transactions to comply with its requirements. This involves completing and filing disclosure and declaration forms along with the corporate tax returns. But before then, the company must have completed its contemporaneous annual (meaning it has to be updated yearly) TP documentations in line with the prescribed guidelines/provisions of the TP Regulations. The full documentation is also expected to be submitted within 21 days once FIRS requests it of any company. It is therefore advisable to begin early enough in the year to prepare or update the TP documentations, as the case may be, since FIRS may demand for it any time.

    Tax audits/TP audits (where applicable):

    It is a common practice of the tax authorities (particularly the State tax authorities) to carry out tax audits every new year. Last year, FIRS communicated its intention to commence joint tax audits in collaboration with the State tax authorities. This proposed practice is yet to commence as FIRS has not issued an operational guideline in this regard. It is expected that this guideline would be released later this year. However, to assist us in planning for any eventual tax audit, we recommend our detailed article on https://www.vi-m.com/tax-services/another-year-another-round-of-tax-audits-and-possibly-tp-audits preparation for tax and TP audits.

    Employer annual statutory returns:

    Section 81 (2) of the Personal Income Tax Act (PITA) requires every employer to file a return with the relevant tax authority, of all emoluments paid to its employees in the previous year, not later than 31 January of every year. Penalty for non-compliance for incorporated businesses is N500,000, while that of unincorporated entities is N50,000. For the purpose of this directive, annual forms H1 (employers annual form) and form G (employers’ remittance card) are to be completed and filed with the tax authorities of the employees’ states of residence.

    Returns by all taxable persons (employees, self-employed persons and unincorporated entities): Section 41 (3) of the Personal Income Tax Act (PITA) requires every taxable person to submit a return of income from all sources earned in the preceding year, any deductions, reliefs or allowances pertaining to such income(s) and the tax assessments on such income(s) as computed in line with the PITA. This return is to be submitted on or before 90 days from the beginning of the year. For the purpose of this directive, form A (Income Tax Form for Returns of Income and Claims for Allowances and Reliefs) is to be completed and filed by/for each taxable person (employees and self-employed persons) annually within the stipulated time window.

    Review of employee related taxes:

    A review of the employee related taxes for the previous year would help ascertain the accuracy of the payroll information to be submitted and ensure that any over/under deducted taxes can be recovered/remedied.

    Review of business processes generally:

    General high level review of tax/regulatory compliance and other business processes such as front desk/customer care, sales/marketing/brand eminence, human resource/talent management, finance, information technology/risk, procurement, logistics etc. (depending on the industry in which one operates) might be advisable. This is to ensure that where there are documented policies/best practice guidelines, they are strictly adhered to in order to avoid leakages or liabilities of any kind. Where there are no such documented procedures/guidelines, considerations can be made for putting them in place or reviewing/updating existing ones.

    A stitch in time, saves nine…

  • Developments in Nigerian Taxation; Save us O Lord! from tax

    According to Benjamin Franklin, “In this world nothing can be said to be certain, except death and taxes”. Will Rogers completed the statement by adding that the only difference between death and taxes is that death does not get worse every time congress meets.

    In the wake of taxation as an alternate source of revenue in an era of dwindling oil prices, the Nigerian government becomes even more determined to drive compliance to tax to a near perfect point. This has become expedient in order to raise adequate funds for execution of government projects. Consequently, certain new actions have been taken and introductions/changes made in Nigerian taxation for this purpose. Although the intention of the government behind sourcing increased revenues through taxation may be genuine, Nigerian businesses and investors alike continue to decry the resultant multiplicity of taxes to which compliance is made even more impracticable by dwindling economic activities and harsher business environment. 

    There have also been side talks of propositions around increase in existing tax rates, particularly, in Value Added Tax (from the current 5% to 10%). This however, does not seem to be part of government’s current agenda as the Acting Executive Chairman of FIRS at a meeting with CITN delegates on 19 October 2015 asserted that the paramount issue now for the tax authority is to strengthen the tax system and enhance compliance based on already existing laws. 

    Highlights of the new developments in Nigerian taxation (in the order of newest to oldest) already made however, particularly since the second quarter of this year are as follows:

    1. As noted by BusinessDay on 2 November 2015, a new National Security Tax Fund Bill 2015 is currently before the senate for passage. This bill seeks to establish a National Security Tax Fund to provide adequate funding for security agencies in the country for crime detection and prevention. It proposes the payment of up to 5% of business profits as tax by all registered companies operating in Nigeria into the fund. The funds so realised would be disbursed among security agencies in the following manner: Nigeria Police Force 35 percent, Nigerian Civil Defence Corps 15 percent, Department of State Services 15 percent, Nigerian Prisons 25 percent and Nigeria Fire Service 10 percent.Under the proposed bill, the Federal Inland Revenue Service (FIRS) shall assess and collect the imposed tax when assessing Companies Income Tax or Petroleum Profits Tax.
    2. FIRS, on Monday 12 Oct, commenced nationwide VAT and WHT check. Full -fledged nationwide tax audit exercise also commenced from 2 November 2015 and is expected to last for a minimum of 30 days.
    3. All companies paying interim dividend are now mandatorily required to compute and pay interimCompanies Income Tax (CIT) prior to paying such dividend in line with section 43 (6) of the Companies Income Tax Act (CITA). Such interim CIT paid will be offset against the final CIT computations at the end of the financial year.
    4. Taxpayers who are not registered for tax can now pay tax without Tax Identification Numbers (TIN). Collecting banks have been furnished with 2 unique TIN (16192267-0001and 16192618-0001) for use in processing such tax payments. Hopefully, the data supplied by taxpayers while making payments in this regard can be applied in generating individual TINs for them. This directive will mostly impact taxpayers in the informal sector.
    5. On 5 October 2015, the Organisation for Economic Co-operation and Development (OECD) released final reports on the 15 focus areas of its Action Plan on Base Erosion and Profit Shifting (BEPS). Actions 8 to 10 of this plan focus on updates to the OECD Transfer Pricing Guidelines. Recall that the Nigerian Transfer Pricing Regulations (the Regulation) are tailored towards the OECD Transfer Pricing Guidelines and are to be applied in a manner consistent with the provisions of these Guidelines and all updates to them. Hence the need to be aware of such updates. Highlights of the new guidelines on Transfer Pricing under Actions 8 to 10 of the final OECD report include:
    • New guidance on intangibles aimed at preventing the allocation of profits to jurisdictions where no value is created
    • New guidance to align rewards with risks especially with returns on funding activities and hard-to-value intangibles which have no specific comparables
    • New guidance on valuing returns for low-value adding intragroup services such as back-office services e.g. accounting, HR and other management services. An elective simplified approach of adopting a standard 5% mark-up has been recommended (amongst other approaches) with guidance on the prescribed documentation/reporting for MNEs to enable them apply such simplified approach.
    • New guidance on cost contribution arrangements aimed at ensuring that the value of contributions made by participants are in proportion to their reasonably anticipated benefits.
    • New guidance on commodity transactions, recommendations on documentation of price-setting policies by taxpayers and adoption of deemed pricing date for controlled commodity transactions where no actual agreed pricing dates exist.
    • Additional work to be conducted to produce new guidance on the application of transactional profit split method. This TP method is commonly adopted for valuing intangibles.

    Other Action Plans (or focus areas 1 to7 and 11 to 15), may not have immediate impact on Nigerian businesses since Nigeria is not one of the member countries of OECD. But since these action plans are general recommendations on how to increase tax revenues and avoid profit shifting and tax base erosion, it may be expected that Nigeria may adopt some of these recommendations in the near future.  

    • A new FCT Internal Revenue Service (IRS) Act was enacted recently by the Federal Government. The Act establishes the Federal Capital Territory Internal Revenue Service (FCT IRS) charged with the responsibility of assessing and collecting taxes in the FCT. The First Schedule to the new Act listed the legislation to be administered by the FCT IRS to include the Personal Income Tax Act, Capital Gains Tax Act, Stamp Duties Act, Federal Capital Property Tax Regulations and all enactments or laws imposing taxes and levies within the FCT. It is unclear due to some inconsistencies in the wordings of certain provisions of the Act, whether Companies Income Tax of bodies corporate is included in the applicable legislations. The commencement date of the Act was also not mentioned but the Act is expected to have taken effect upon its first official release in the 2nd quarter of this year. 
    • Also, in the 2nd quarter of this year, the Federal Government issued a gazette, “Schedule to Taxes and Levies (Approved List for Collection) Act (Amendment) Order, 2015” – to amend the Taxes and Levies (Approved List for Collection) Act of 1998. In this amendment Order, several new taxes were added to the list of taxes hitherto collectible by the Federal, State and Local Governments respectively. Several of these taxes were previously introduced and administered in some States based on evaluations of the peculiarities of their economic landscape.  The Federal Government has however, now provided a legal basis for the nationwide application these taxes. Highlights of the amendments include:
    • Addition of ‘National Information Technology Development Levy (NITD Levy)’ to taxes collectible by the Federal Government through the FIRS. 
    • Taxes to be collected by State Governments have now been increased from 11 to 25. These added taxes include: Land use charge, Hotel, Restaurant or Event Centre Consumption Tax; Entertainment Tax; Environmental (Ecological) Fee or Levy; Mining, Milling and Quarrying Fee; Animal Trade Tax; Produce Sale Tax; Slaughter or Abattoir Fees where State Finance is involved; Infrastructure Maintenance Charge or levy; Fire Service Charge; Property Tax; Economic Development Levy; Social Service Contribution; Signage and Mobile Advertisement, Jointly collected by States and Local Governments.
    • Business premises registration and annual renewal fees previously fixed at certain amounts for urban and rural areas respectively, are now fluid and are to be determined on a State by State basis. 
    • Wharf Landing Charge has been included in the list of taxes collectible by the Local Governments.

    As it is, there is little or no far reaching, easily accessible platform through which the Government notifies the public of the comprehensive taxes they ought to pay, how to calculate and how to pay them. It is an unspoken expectation for the taxpayer to be well aware of the taxes they ought to pay and comply with the tax requirements fully. After all, it is often said that ignorance of the law is no excuse. This leaves so many taxpayers, in the informal sector especially, oblivious and helpless as to how to go about the issues of tax compliance. Many of them cannot also afford the services of professional tax advisors. And this cumulates in little or no compliance to tax for which they, in turn, are penalised. A vicious circle indeed.

    Fortunately, a compendium of tax law mobile application (the first of its kind) has been recently developed and published on Google Play Store by Vi-M Professional Solutions. Taxpayers can now download the app (published as ‘Tax Law Book’) and have full and easy access to the Nigerian tax and related laws. Since the application is updated by the developer with new changes in the tax laws, taxpayers can also now have automatic access to all changes and introductions to these tax laws to date. 

    Tax Law Book is a compilation of all the Nigerian tax related laws and regulations (as amended to date) designed in a very user friendly, easy to read, easy to navigate, easy to interpret and understand format. By reading these tax laws, the taxpayers can now find out, at the click of their phones, how the Nigerian taxes apply to them and their business. The link to the ‘Tax law Book’ on google play is https://play.google.com/store/apps/details?id=com.vi_m.tax1.

  • Tax Awareness in an Era of IGR Drive

    It is no longer news that the President of the Federal Republic of Nigeria, President Buhari, has mandated the State Governors to source for funding from the States’ Internally Generated Revenues (IGR) as opposed to the hitherto overreliance on allocations from the Federation and Value Added Tax Accounts respectively. This shift in focus from oil revenue to IGR is a laudable development especially at this time, since it is hoped that a positive and consistent implementation of this mandate will have the long-term effect of bringing about rapid economic development in each State of the Federation. There is also the possibility that it will elicit greater resourcefulness and entrepreneurial capabilities on the part of the State Governments as they seek avenues to generate more revenue through both tax and non-tax sources. 

    Given that taxation is currently the main source of IGR, the intention or idea behind the IGR mandate should not be for the State Governments to begin harassing taxpayers unnecessarily, neither should it suggest imposition of additional taxes and levies to overburden the taxpayer. A more legitimate and effective approach would be to develop initiatives to revamp and restructure the tax administration processes within the States. This exercise should be directed mostly towards automation of the existing and potential taxpayer database, automation of tax payment and remittance systems, enlargement of taxpayer database to bring in every taxable person (if possible) into the tax net, setting up strong internal controls around the tax collection process and overall revision of all Board of Internal Revenue processes. Further; training and empowering the tax officials technically, setting up teams of technical advisors consisting of well-bred tax professionals, creation of greater transparency and accountability in tax collection are all measures that would enhanced revenue generation and close tax leakages substantially. 

    A recent World Bank report argues that obvious reforms such as improvement of tax agencies could lead to much higher tax collections. Kieran Holmes of the Britain’s Department for International Development helped Rwanda to increase its tax revenue by six and half times after automation of the tax collection process. Lagos State of Nigeria made N276.1bn in 2014 tax year (2013: N384.2bn) in taxes, mostly due to automation and reforms of its tax systems. Tax experts in developed countries also believe that the more tax revenue a country generates the greater developmental growth it attains. A quick analogy to confirm the veracity of this assertion would be to compare the tax to GDP ratios in developed countries to those of the developing countries. On the average, developed countries collect an average of 34% while developing countries average 13%. Nigeria’s tax to GDP ratio (applying the N4.5trillion average taxes collected in 2014) is roughly 4.5% of the rebased GDP. 

    It will suffice to point out that taxation is not the only source of internally generated revenue. State Governments should also explore other revenue generation avenues inherent in the economic and social make up of their States. They should look at resuscitating dwindling but otherwise buoyant economic sectors, creation of opportunities for foreign direct investments, Public-Private Partnerships (PPP), concessions, investments, job creation to guarantee the multiplier effect of income and consumption and other legitimate money yielding initiatives. All these initiatives, whilst benefitting the citizenry and guaranteeing rapid economic development, would also have that multiplier effect of increasing tax revenues.  

    What then should the taxpayers, the single most important group of stakeholders in the IGR loop, do in order to remain on the compliant side of the law in the heat of the revenue drive?

    The first is to familiarize oneself with the taxes, which the State Governments are eligible to collect. The Taxes and Levies (Approved list for collection) Act of 1998 (as amended), prescribes the taxes collectible by the Federal, State and Local Governments respectively, based mostly on the income derivation principle. The taxes specified in the Act as collectible by the State Governments are as follows:

    • Personal income tax- PAYE and direct assessment
    • Withholding tax, capital gains tax (for individuals only)
    • Stamp duties on instruments executed by individuals only
    • Business premises registration fee
    • Development levy (individuals only) 
    • Right of Occupancy fees on lands owned by the State Government in urban areas of the State 
    • Road taxes
    • Naming of street registration fees in the State Capital
    • Pools betting and lotteries, gaming and casino taxes  
    • Market taxes and levies where State finance is involved

    The duty of administration and collection of these taxes within the States lie with the State Boards of Internal Revenue. 

    Personal income tax (PIT) is administered either through the Pay-As-You-Earn (PAYE) scheme for employees- both expatriates and indigenes, or by direct assessment for other individual taxpayers and unincorporated entities. PIT is levied on income of individuals, communities and families, and on income arising or due to a trustee or estate. The PIT charge is based on a graduated table of tax rates, designed to impose greater tax charge on higher income earners. After taking cognizance of consolidated tax relief of N200,000 or 1% of gross emolument, personal allowance of 20% and pension deductions at 8%, the effective tax rate for income earners below N5m varies between 1-10%, while that of income earners between N5m and N15m falls between 10-15%. Income earners above this income band naturally pay tax at a higher rate, between 15% and 20%. 

    PAYE deductions from employees’ salaries are required to be remitted by the employer on behalf of the employees on or before the 10thof every month, while direct assessment remittances should be made annually, on taxable profits. The general rule (though there are circumstantial exceptions) is that tax remittances are to be made to the State Tax Authority where the taxpayer resides.

    Withholding Tax (WHT) is an advance payment of tax by taxpayers. It is deducted from payments made on suppliers’ (or beneficiary’s) tax invoices at source and at specified rates. WHT is not deductible where the supply consists of sale of goods in the ordinary course of business. The rates of WHT alternate between 5% and 10%, depending on the nature of transaction giving rise to the payment. WHT deducted from payments made to individuals or unincorporated entities resident in Nigeria, are required to be remitted to the beneficiary’s State of residence. Such remittances are to be made on or before the 21 of every month.

    Capital gains tax (CGT) is the tax on capital gains accruing to any company, enterprise or individual when a disposal of chargeable asset (mostly capital items) is made. The rate of CGT in Nigeria is 10% of the gains derived from disposal of such chargeable assets. A deferment of the tax payable on such gains can however be made when such gains are re-invested, or intended to be, in assets of similar class within two years of disposal of the original asset. CGT accruing to individual taxpayers are payable to their States of residence. 

    Stamp duties are charged on legally stamped, written instruments of a contractual nature and which can be admissible in any judicial or quasi-judicial proceeding. The State Governments collect the stamp duties on instruments executed by individuals. Stamp duties are charged ad valorem, that is, in proportion to the estimated value of the goods or transaction concerned. Land documentations are specifically charged at 75kobo for every N50 of the value of the land.

    Business premises registration fee is levied on every business premises in the State. The charge varies from State to State but the maximum amount to be levied is, for urban areas; N10,000 for initial registration and N5,000 for subsequent annual renewals. For rural areas; N2,000 for initial registration and N1,000 for annual renewals. Development levy is payable by every taxable individual at N100 per annum. For employees, their employers are expected to deduct and remit this tax on their behalf.

    Right of occupancy fees are payable on transfer of title by the State Governors on landed property to individuals and business organizations acquiring lands in any State. The State Governor, at his discretion, determines the amount of this fee or rent. In Lagos State, perfection of title fee was recently placed at 3% of the fair value of the property. 

    Other taxes types listed in the Act as collectible by the State Governments do not currently have weighty impacts on business organizations in Nigeria. Although some State Governments have captured taxable persons’ information at the point of vehicle registration. For companies operating within the transportation sector, road taxes (fees on licenses required to drive a vehicle in public places) can have significant impact on their business cash flows. Traders in the open markets pay uniform presumptive taxes annually, as determined by the respective States.

    The Nigerian taxpayer should also be aware that many State Boards of Internal Revenue have begun the process of reforming and fully automating their tax processes in order to bring in as many taxpayers as possible into the tax net to reduce tax leakages considerably. These States, as well as the Federal Government are collaborating with banks, Joint Tax Board (JTB), ministries, agencies and unions within their States to exchange information on taxable persons. The impending presumptive income tax assessment regime (for self-employed people and sole traders whose incomes do not exceed N6 million per year) is also geared towards generating tax revenue, no matter how small, from even the lowest income earners in the informal sector. Many business organizations have hitherto relied on tax evasion and settlement of corrupt tax officials but a probing question would be; would this approach continue to thrive when the IGR budgets are looming? It all culminates in the awareness that effective implementation of the IGR mandate simply spells out the fact that there may be little or no hiding place for tax evaders.

    It will be a worthwhile exercise therefore, for taxpayers to revisit their internal tax compliance processes in order to ensure that what ought to be done is done. Taxpayers should also equip themselves with the knowledge of the taxes that legitimately apply to their businesses. Lack of proper awareness in this regard can lead to either non-compliance with the tax laws, tax leakages through preventable means or payments of excess taxes to revenue driving tax officials. Taxpayers may also make themselves vulnerable to payment of taxes not listed in the approved list for collection. Where in doubt, the help of professional tax advisors should always be sought.

  • How practicable is the tax refund process in Nigeria?

    Prior 2007, tax refund in Nigeria was not practicable, perhaps because the tax laws did not stipulate modalities for refund. Pursuant to the Federal Inland Revenue Service (Establishment) Act of 2007, a dedicated account from which tax refunds could be made was created. Tax refund monies as may be approved by the National Assembly had thenceforth been credited to this account from the Federation account in line with the annual tax refund budgets prepared  by the Federal Inland Revenue Service (FIRS).

    In recent times, several taxpayers have received even very huge sums of tax refunds following genuine claims from FIRS. This is a testimony of the efficacy of recent reforms being implemented by the FIRS towards achieving a fair and dependable tax system. Many taxpayers however are yet unable to come forward for claim of tax refunds either due to lack of faith in the veracity of the tax refund system or scare for the precluding tax audit and its daunting process or just sheer unawareness that there are tax refund prospects existing in their current business activities. 

    Certain triggers for tax refund may include (but not limited) to the following:

    • Overstatement of tax amounts remitted online into the tax accounts by the collecting banks
    • Tax remittances made with mistaken Tax Identification Numbers (TIN)
    • Outstanding input Value Added Tax (VAT) claim resulting from zero rated VAT supplies, supplies to oil and gas companies or government agencies and supplies to enterprises operating within the free trade zones
    • Taxes deducted or paid on the supplies aspect of a split contract arrangement
    • Excessive tax payments arising from errors or mistakes on the part of the taxpayer in assessing or filing tax returns, or errors arising from wrong bases of tax calculations except where such calculations were based on generally prevailing practice of the FIRS at the time of filing the tax returns.
    • Excess of utilizable withholding tax (WHT) credits over current and projected tax liabilities.

    No refund mechanism is currently in place at the points of exit from the country on goods purchased by tourists or visitors.

    A prerequisite for grant of tax refund claims is the performance of tax audit by FIRS to verify the basis of claim. Given the difficulties, rigors and administrative costs/ inconveniences associated with prolonged tax audit processes in Nigeria, this prerequisite stands in the way of many genuine claims of tax refunds by taxpayers. Sometimes these tax audits run into several months and years of meetings, reconciliations and endless requests for provision of documents by the tax authorities.

    The Acting Executive Chairman of FIRS, Sam Ogungbesan, in his recent interview session with Business Day representatives, however, gave hope to taxpayers as he enumerated the current reforms within the Service, targeted at simplifying and reducing the cost of tax audits to the barest minimum for both taxpayers and FIRS. He pointed out that the reforms would ensure that time spent on field and post field reconciliations/ reporting by tax officials would be reduced significantly. Further, the audit, taxpayer service and debt management functions, would henceforth be separated from the regular Integrated Tax Office (ITO) operations and run by very experienced tax officials. This is a comforting development, as time spent on unnecessary arguments over technical issues with inexperienced tax officials would be eliminated.

    Section 23 (2) of the FIRS Establishment Act also gives exclusive powers to FIRS to decide who is eligible for tax refund and this decision is subject to such rules and conditions as may be approved by the Board. A reference to ‘such rules and conditions’ immediately begins to create doubts in the mind of a refund awaiting taxpayer as to the possibility of full satisfaction of such ‘conditions’. The clause also creates certain degrees of reservations or lack of faith around the objectivity and straightforwardness of the entire process. 

    FIRS, nevertheless, has made efforts to describe its initial expectations from any taxpayer seeking to make claims for tax refund. These requirements as published on the FIRS website are as follows: 

    1. The taxpayer must be registered for tax 
    2. The tax refund application letter must state clearly, the precise trigger for the refund, the tax type for which refund is being sought and the period of transactions giving rise to the claim of refund.
    3. Supporting documents to the stated transactions must be appended to the application letter for submission to FIRS. 

    When all tax audits and checks are completed, and amount of tax refund is confirmed and approved by the Board, such refund is expected to be made within 90 days of the board’s approval. In practice, the entire process of tax refund may take not less than 6 months to one year to complete. This is very discouraging, given that in developed countries such as UK and US, tax refunds are typically made by the Revenue Authorities within a period range of 3 to 6 weeks after application is made. 

    These challenges notwithstanding, taxpayers with genuine claims of tax refund are encouraged to follow the lead of several recent beneficiaries of tax refund in Nigeria who took the bold step regardless of the difficulties involved. It paid off eventually, proving that the process of tax refund in Nigeria is very much practicable. In case of doubts by a taxpayer around his or her company’s entitlement to tax refund(s), the help of professional tax advisors may be sought, to carry out a tax refund existence check in order to confirm the viability or otherwise of such claims before further steps can be taken. 

  • Sustaining and growing your small business; the power of positive thinking

    The law of positive thinking and attraction advocates the use of positive thoughts, intuition and self belief to attract one’s desired circumstances. It follows then that small business owners must de-emphasize challenges and limitations and begin to conceptualize the big businesses of their dreams and the process(es) of bringing these concepts to fruition. Challenges abound in running a successful business venture, but challenging situations have been known, over time, to carry with them several pockets of growth opportunities; opportunities that are most often found in positivity.

    Some of the challenges which usually limit the growth of small business owners, especially in Nigeria, bother around start-up, funding, lack of innovative business ideas, lack of adequate managerial skills resulting majorly to staffing and employee retention issues and poorly structured business processes. These are all surmountable challenges and must not be perceived as impediments to the growth of any small business.

    Start-up issues

    Before starting a new business, it is important to have the right motive in place. Getting into business for the wrong reasons may be the beginning of a long term limitation. A prospective business owner should be self aware of his own strengths, be passionate about the business he/she is venturing into, have very good transferable skills, conceive a long term vision and mission for his/her business venture and have his/her ideas documented in a solid business plan. Issues that must be considered within the business plan include business registration or incorporation status i.e. sole proprietorship, partnership, limited liability company etc. (the vision for the business should drive the choice of the business vehicle), the business activity, cash flow projections, funding, branding strategies, business culture, ethics, corporate governance, applicable taxes, strategies for proper insititution of internal business processes such as information technology supports, marketing/sales, human resource, finance, procurement, logistics, productions etc.  The Good Book says that a house built on a solid foundation does not fall.

    Funding 

    Every business requires funding to survive. In fact, without funds (no matter how little) a business venture cannot kick off. Even the business of consulting where human capital is the initial investment requires some level of funding to kick off. Before venturing into business therefore, the prospective business owner should have the funds in place at least for a lean start up. 

    Funds for the continuity of any existing business can be raised internally or externally. If the right business structure is in place to drive revenue growth, soon enough, capital invested can be turned around as profits to provide internal funding for the business. Unfortunately, no investor would like to invest in an unprofitable venture, therefore, to also have access to external funds, a business owner(s) must be seen to be making the best of his/her own personal investments in the business. In other words, the business must be perceived to be profitably run and managed.

    There are different sources of external financing for small businesses in Nigeria. The Central bank of Nigeria (CBN) has been particularly interested in providing avenues for funding small businesses. From May 2010, CBN approved N500billion debenture stock to be issued by Bank of Industry (BOI), N200billion of which was meant for providing funding for small businesses and the manufacturing sector. Small and Medium Enterprise Development Agency of Nigeria (SMEDAN), a co-operative society for small businesses also have supportive structures for small business growth in place. Federal Mortgage Bank, Diamond Bank, Fidelity Bank and other deposit money banks have different initiatives in place to aid small business growth and to provide small business funding. One main prerequisite to assessing funds however, through any of the aforementioned avenues is the availability of a properly documented and viable business plan. 

    It follows then that the lack of sources of funding is not the real problem as is generally portrayed but perhaps the lack of requisite entrepreneural capabilities. Entrepreneural and business management skills can be acquired and honed through constant participation in training programs. Many of the small business support initiatives also offer training on how to conceptualize and draw up viable business plans.

    Innovative business ideas

    It is a presupposition that the lack of conformity that usually drives business owners into business in the first place would guarantee their ability to create things different from the norm. But we still find some businesses seeming to ‘follow the bandwagon’ and reacting only to competition. The ability to stand out from the crowd and create a niche for oneself in one’s own unique area of strength is very important for success. Creativity is essential for staying ahead of trends in planning the business products, outlook, branding, marketing and sales materials/avenues and importantly, in managing scarce human and material resources. 

    Staffing and employee retention issues

    At start up, business owners are constrained to manage very lean resources. Most times they find themselves playing multiple roles – chief executive officer, marketing and sales director, sales assistant, chief operating officer, finance manager, human resource officer, IT manager, graphic designer etc. Humans are intelligent beings and can aquire/apply multiple skills but the truth is that a ‘one man’ business would always assume the size and capabilities of one person. Unless one’s vision is to remain as an independent businessman, continuing this kind of structure when the business can afford good employees to run its business processes would be detrimental to business growth. 

    The ability to deal with, influence and communicate with people is very important for a business owner to attract and retain the right set of human resources necessary for business growth. A self aware business owner should understand his or her strengths and if this is not one of them, should imperatively hire someone to complement him/her in this area. It is also expected that every business owner should continuously improve himself or herself by investing in leadership training courses. Secondly, business owners must be willing to maintain a significant budget for their human capital, and hire the right set of people to run the different functions within the business. Spending petty amounts on cheap labour would only guarantee cheap returns and additional headaches for the business owner. Thirdly, the benefits of employing the services of professional advisers to provide professional opinion on this and all the other critical process areas cannot be overemphasized. These are worthwhile investments for the continued growth of any business. 

    Pooly structured business processes

    The quality of the internal process structure of every business directly determines its growth. Business owners must strive to put in place formidable structures around core business processes such as product development, information technology supports, marketing and sales, finance, procurement and logistics, corporate communications, talent management etc. Process documents (or policy and procedure manuals) for all the critical process areas should be put in place for uniform compliance and be updated occassionally to align with international best practices. In fact, it is important that from day one, the culture and practices of every growth aspiring business should mirror those of the big organizations since that is the desired ultimate destination of every small business . 

    The finance function, specifically, usually receives little attention from small business owners. Often, a small business owner fails to draw a line between his or her personal expenses from his or her personal bank account and the business expenses from both the personal bank account and the business’ bank account. Secondly, books of accounts are neither kept nor are periodic financial reports made available to capture the assets, liabilities and financial performance of the business at a glance. The business owner(s) is often found to be figuring everything out in his or her mind. Taxes are neither planned nor remitted, and sometimes sensitive expenses such as employees’ salaries are made in cash!

    Experienced employees or professional service providers should be engaged to provide book-keeping, accounting, financial reporting, treasury management, fixed assets management, account receivable and payable management, tax planning, advisory and compliance, internal controls design and financial reporting services. When these are in place, the benefits usually outweigh the costs which are most times, upon enquiries, very affordable.

    Another critical business process which when properly structured, brings with it high potentials for business growth is corporate communications. This includes branding and brand perceptions, marketing, corporate social responsibility/ volunteer assignments, management communications, employee communications, etc. The business needs to define the kind of perception it wishes to engender in the minds of its stakeholders and general observers. A beautifully designed and functional website, emails and email marketing, effective marketing materials and advertorials, social media leverage, blogs and publications, effective business proposals, volunteer works etc. can help position an otherwise small business in the limelight. Corporate communications consultants can also assist the business a great deal in this regard.

    Many Government agencies, regulatory agencies, banks, co-operative societies and associations, including the National Association of Small and Medium Scale Entities (NASME) and several large organisations (in perfomance of their corporate social responsibilities) have put measures in place, and run several programmes to encourage the growth of small businesses. A small business owner can always tap into any of these supportive schemes in working towards the sustenance and growth of his or her small business.