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:
- 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.
- 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.
- 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.
- 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.
- 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.