Law and The Economy

‘Rendezvous’: Implications of Tax Provisions of Nigeria’s Finance Act (No.2) 2020 for Non-Residents

The FA2 2020 is arguably the widest scope and most far-ranging tax amendment legislation in recent history, if not overall in Nigerian tax history. Embodying 81 sections, it amends not only the ‘usual suspects’ – but also strictly non-tax but budget impacting legislation.

Introduction

President Buhari signed the Finance Act (No.2) 2020 (FA2 2020)[1] into law on 31st December 2020 – an improvement over the signing of FA2 2020’s predecessor legislation, in January 2020.[2]  Commendably, we are back to the days of related tax legislation being enacted alongside the annual Appropriation Act in order to keep the tax system current and enable traction, cum leverage, for meeting budgetary objectives. It is particularly heartwarming that the Buhari administration is keeping its promise, made in 2019, to enact the Finance Act annually. Between 1999 and 2019, the practice basically fell into disuse, not to talk of many tax legislative initiatives that did not see the light of day.[3] Under the military, the Budget Speech was usually followed/accompanied by the Finance (Miscellaneous Taxation Provisions) Decree (FMTPD) that gave a fillip to the budgetary policies of the relevant year, through amendments to extant tax legislation.[4]

The FA2 2020 is arguably the widest scope and most far-ranging tax amendment legislation in recent history, if not overall in Nigerian tax history. Embodying 81 sections, it amends not only the ‘usual suspects’[5] – but also strictly non-tax but budget impacting legislation, like the Public Procurement Act[6] (PPA) and the Fiscal Responsibility Act[7] (FRA). Even the Companies and Allied Matters Act 2020[8] (enacted in August 2020), was not left out.[9] Expectedly, many provisions formalise long-desired amendments, introduce new tax incentives or further refine them, whilst also reviewing sanctions for breach of tax laws.[10] But for a brief reference to gas utilisation incentives (amending section 39 CITA), FA2 2020 does not focus on the petroleum sector, presumably because of the comprehensive horizon of the Petroleum Industry Bill 2020 (PIB), currently under consideration by the National Assembly.[11]

This article discusses generally, and on a sectoral-agnostic basis, the Nigerian tax regulatory implications of FA2 2020 for non-residents (NRs), whether corporates or individuals, as respectively headlined below.

A. Capital Gains Tax Act (CGTA)

  • Bi-annual CGT Returns Upon Disposal of Chargeable Assets: NRCs that dispose of chargeable assets are required to compute, file CGT self-assessment returns, and pay the relevant CGT not later than 30th June and 31st December for chargeable assets disposed of during the periods: section 2 FA2 2020 (inserting new section 2(4) CGTA).
  • Location of Ship or Aircraft Used in International Traffic: Per the amended section 24(f) CGTA,[12] such vessels used in international traffic are no longer to be considered as located in Nigeria if the owner is a non-resident. Likewise, rights or interest in or over such vessel is not considered located in Nigeria if the holder of such a right is also an NR.

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B. Companies Income Tax Act (CITA) Amendments

  • Foreign Service Provider’s Fees: Section 7 amends section 13(2)(e) CITA (as first amended by FA1 2020) by effecting a typographical correction in the proviso. The tax treatment of foreign service providers to Nigerian clients (no further tax exposure after withholding tax (WHT) deduction on the NR service provider’s fees) – remains consistent with the general trend that Nigerian source investment income (on dividends, interest, royalties, or rentals) is ‘franked’ to NRs.
  • Non-Resident Companies (NRCs) to File Tax Returns with Audited Accounts: Section 16 FA2 2020 (amending section 55 CITA) now mandates NRCs deriving profit from Nigeria to file their actual accounts, effectively doing away with the “deemed profit” basis of an assessment that the FIRS utilised whenever NRCs failed, or were unwilling, for whatever reason, to submit actual data of their Nigerian operations.[13] By the new section 55(1A) CITA, such NRCs are required to submit, with their tax returns:

“…(a) the company’s full audited financial statements and the financial statement of the Nigerian operations, attested by an independent qualified or certified accountant in Nigeria; (b) tax computation schedules based on the profits attributable to its Nigerian operations; (c) a true and correct statement in writing, containing the amount of profits from each and every source in Nigeria; and (d) duly completed Companies Income Tax Self-Assessment Forms…”

However, where the non-resident company “only earns income on which withholding tax is the final tax…the obligation to file a tax return in the manner prescribed shall not apply to such company in that year of assessment”.[14] This is consistent with the earlier referenced section 7 FA2 2020. It appears that limiting the carve-outs in this way, is meant to send a serious message that the FIRS henceforth, means business, since FIRS ‘hands has now been forced’.[15]

Because section 14 CITA (tax regime for NR shipping and aviation companies) is still extant, but section 8 FA2 2020 excludes “income from leasing, containers, non-freight operations and any other incidental income liable to tax under section 9 [CITA]” from being subject to section 14 CITA, does it mean that income from the listed operations will never be subject to tax on a deemed basis? This because sections 14 and 15 CITA arguably still recognises the possibility of the deemed basis for shipping, aviation, and cable companies.[16] It appears that some clarity would still be needed, given propriety of questions of the implied repeal of some seemingly conflicting CITA provisions.

One way of reconciling seeming conflict is to say the new section 55 CITA does not prevent the FIRS in deserving cases, from still issuing best of judgment assessments, a la section 65(2) CITA, notwithstanding that NRCs filed audited accounts of their Nigerian operations.[17] Another is that pre-FA2 2020 section 55 CITA amendment, the Courts have held that any conflict would be resolved in favour of section 30(1) CITA, given its ‘supremacy intent’. [18]

Clearly, NR shareholders/parent companies of Nigerian subsidiaries (qua equity/debt investors only), are not the focus of these provisions. NRCs without Nigerian subsidiaries working through agents,[19] or engaged in ‘tripartite’ or split contracts where they provide offshore elements of turnkey contracts alongside a local entity for the mutual Nigerian client,[20] will need to consider the impact of these provisions on their business/contracting model.[21]

With this provision, the issue of FIRS insisting on the filing of actual figures vis a vis recurrent shifting deadlines thereof will no longer be applicable; everyone’s hands has as it were been forced and default by non-residents will attract the requisite sanctions.[22]

C. Personal Income Tax Act (PITA) Amendments

  • The new section 6A PITA (vide section 25 FA2 2020) prescribes that “where an individual, executor, or trustee outside Nigeria carries on a trade or business that comprises the furnishing of technical, management, consultancy or professional services to a person in Nigeria, the gains or profits of the trade or business shall be deemed to be derived from and taxable in Nigeria to the extent that the individual, executor or trustee has a significant economic presence in Nigeria.” See section 6A(1). Its proviso that WHT on such income shall be the final tax thereon, is akin to the new section 13(2)(e) CITA proviso. Section 6A empowers the Minister to determine by Order, “what constitutes the significant economic presence of a non-resident individual, executor or trustee.” Presumably, this will, with necessary modifications, tow the lines of the CIT Significant Economic Presence Order 2020 issued pursuant to FA1 2020 CITA amendments.[23]

D. Tertiary Education Trust Fund (Establishment, Etc) Act

  • NRCs continue to be exempt from the 2% TETFund Tax on their assessable profits since they are not “registered in Nigeria”.

E. Customs & Excise Tariff, Etc (Consolidation) Act (CETCA)

  • Imports Now Subject to Excise Duties: By virtue of the new section 21(1) CETCA (vide section 37 FA2 2020), “goods imported” are now also subject to excise duties – alongside locally manufactured ones. Customarily, imports were only subject to customs (import) duty, and not excise.[24] The provision is so drastic that one wonders if it is a draftsman’s error? This writer thinks not, because the new section 21(1) CETCA starts with “Goods imported and those manufactured in Nigeria”[25] It would appear that reduction in import duties of motor vehicles, buses and trucks (see below) may now be compensated or ‘clawed back’ by the excise duties on such “goods”,[26] since vehicles etc, are “goods” for purposes of CETCA?[27]

F. Value Added Tax Act (VATA)

  • Effective Date of 7.5% Rate: FA1 2020 did not specify the effective date of the new VAT rate, a measure that was consummated by Ministerial Order to be 1st February 2020 (for monthly VAT filings due by 21st March 2020). Although the 7.5% rate has in practice been applicable thenceforth, section 42 FA2 2020 has now made assurance doubly sure, by enshrining same in VATA’s new section 4.
  • Taxable Goods and Services: The new section 2 VATA (vide section 40 FA2 2020) further attempts to build on the FA1 2020 ‘clarity amendments’ in defining “taxable goods and services”. Thus, by section 2(3)(b), taxable supply of services are deemed to take place in Nigeria if: (i) “the service is rendered in Nigeria by a person physically present in Nigeria at the time of providing the service”; (ii) “the service is provided to and consumed by a person in Nigeria, regardless of whether the service is rendered within or outside Nigeria or whether or not the legal or contractual obligation to render such service rests on person within or outside Nigeria”; or (iii) “the service is connected with existing immovable property …where the property is located in Nigeria.” By section 2(3)(c), VAT is applicable to transactions “in respect of an incorporeal”, if: (i) the exploitation of the right is made by a person in Nigeria; (ii) the right is registered in Nigeria, assigned to or by a person in Nigeria, regardless of whether the payment for its exploitation is made within or outside Nigeria; or (iii) the incorporeal is connected with a tangible or immovable asset located in Nigeria.”
  • Definition of “Goods” and “Services”: Section 44(b) FA2 2020 amends section 46 VATA by inserting new definitions as hereinafter appearing. “ ‘Goods’, for the purposes of this Act, means all forms of tangible properties, movable or immovable, but does not include land and building, money or securities;” whilst “ ‘services’ means: (a) anything other than goods, or services provided under a contract of employment; and (b) includes any intangible or incorporeal (product, asset or property) over which a person has ownership or rights, or from which he derives benefits, and which can be transferred from one person to another, excluding interest in land and building, money or security.” These clarification definitions, continuing from where FA1 2020’s clarification definitions stopped, will help to further obviate litigation, going forward.[28]
  • Time of Supply: The new section 2A VATA also attempts to ‘tighten’ the tests for applicability of VAT, affirming the intent to deal with substance, rather than form, of transactions. Thus, taxable supply is deemed to occur at the earliest of: (a) issuance of invoice or receipt; or (b) when payment for the supply is due or received: section 2A(1). Section 2A(2) imposes ‘the test of access’ in deeming taxable supplies between related parties or “connected persons”. Accordingly, it is immaterial that invoices are not issued – once the goods are removed or made available to the recipient, relevant service is furnished or the incorporeal becomes available for the use of the recipient, then a taxable supply has occurred. Section 2A(3) goes on to provide deemed timing of taxable supplies in respect of periodic payments in terms of “successive supplies” for each payment installment, being the earlier of when same is due or received or invoice issued therefor. This applies to milestone-based payments of construction, installation, manufacturing type contracts. Finally, for goods supplied under an installment credit agreement, taxable supply occurs upon the earlier of: delivery or when the supplier receives payment.
  • Registration by Non-Resident Companies: VATA’s new section 10 (vide section 43 FA2 2020) requires NRCs that makes a taxable supply of goods and services to Nigeria to register with the FIRS and obtain Tax Identification Number (TIN), which shall be reflected on their invoices; whilst the resident recipient (client) shall withhold and remit the VAT to the FIRS in the currency of the transaction. NRCs may also appoint local representatives to help them with their tax compliance obligations.[29] Section 10(5) concludes the section by stating that the FIRS “may issue a guideline for the purposes of giving effect to the provisions of this section.” Presumably such guidelines, (if and when issued), will not be an attempt to vary the statutory provisions, as such would clearly be ultra vires the FIRS. Expectedly, the FIRS may not be as concerned that an NRC that does occasional, (and maybe insignificant), taxable supply transaction with a Nigerian resident, is not registered and does not have TIN than for the relevant VAT to get remitted to FIRS anyway. Another point relates to the informal sector – VAT on taxable supplies (especially services) to individuals may still escape because the bulk of the enforcement focus is on businesses, rather than individuals. For example, individuals (in their personal capacities), do not have VAT reporting obligations.
  • VAT Deduction at Source: Section 10(2) VATA (as amended by section 36 FA1 2020), which authorises FIRS to direct operators in the oil and gas sector to deduct and remit VAT directly to the FIRS has now been repealed by virtue of non-inclusion in the new section 10 VATA. This omission is curious, given the time value of money on substantial sectoral VAT involving local counterparties, erstwhile directly remittable to the FIRS. Does this mean that once the vendor is a resident, Nigerian clients will no longer deduct and remit VAT on oil and gas invoices? The omission is not an issue for NRCs, since the requirement for residents to deduct and remit VAT on their invoices (irrespective of the sector), still applies. We believe that the FIRS will find some other statutory basis to continue insisting on the local counterparties’ sectoral VAT remittance, given that the practice has become entrenched, with beneficial impact, since it was instituted.[30]
  • Curiously, the new section 10 VATA has omitted the previous provision that if a non-resident does not include VAT on its invoice to the resident recipient of taxable supply, the latter is obliged to self-account for the VAT and remit same to the FIRS. It is respectfully submitted that such firm obligation ought to have been retained to make assurance doubly sure – it is not enough that NRs are obliged, by section 10(2) VATA to include VAT on their invoices for taxable supplies. FIRS’ attempts to cover the gap by utilising section 10(3) to appoint the resident recipient as an agent for VAT collection purposes will not be as efficient as clear obligation on such recipients to self-account where the NR fails to include VAT in their invoices.

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G. Stamp Duties Act (SDA)

  • There are no significant SDA changes of interest to NRs. It is noteworthy that vide section 46 FA2 2020, amending section 2 SDA), the Federal Government (FG) has re-affirmed the use of adhesive stamps issued by the Nigerian Postal Service (NIPOST) to denote duties in appropriate cases. [31]

H. FIRS (Establishment) Act FIRSEA

  • International Cooperation: The relevant FA2 2020 amendments to the FIRSEA with cross-border implications are considered below. Per the new section 8(1)(t) FIRSEA (courtesy of section 49 FA2 2020), the FIRS may provide assistance in the collection of revenue claims or any other administrative assistance in tax matters with respect to any agreement or arrangement made between the [FG] and the Government of any country or other persons or bodies as may be deemed necessary in that regard.”[32] These are followed by new section 25(3-5) FIRSEA, (vide section 51 FA2 2020). Section 25(3) and (5) evince strong intention to reverse the trend of losing potential tax revenues from international digital transactions. The former entitles the FIRS to “deploy any proprietary or third party payment, processing or other digital platform or application to collect and remit taxes due on international transactions in the supply of digital services to and from a person in Nigeria, in the case of transactions carried out through remote, digital, electronic or other such platforms.” Per the latter, (which is a flip of section 8(1)(t) FIRSEA), the FIRS “may receive assistance in the collection of revenue claims or any other administrative assistance in tax matters with respect to any agreement or arrangement made between the [Federal Government] and the Government of any country or other persons or bodies as may be deemed necessary in that regard.”
  • Confidentiality of Tax Payer Information: By virtue of new sections 39(1) and 50(5), the confidentiality of taxpayer information is guaranteed, but such shall not prevent disclosure to authorised foreign officials in furtherance of any cooperation agreement with any other country, government or tax authority.[33] Section 69 (vide section 56(a) FA2 2020), comprehensively defines taxpayer information to include information: (i) received or generated by the FIRS pursuant to extant legislation; (ii) in any form received, accessed, or produced by the FIRS pursuant to any exchange of information agreement or arrangement; and “(iii) written or electronic documents, returns, assessments, lists and copies of such lists relating to profits or items of profits of any person or to such matter which forms the basis of any agreement or arrangement with any country, government or tax authority”. Presumably, these would operate on the basis of reciprocity – the foreign counterparts will also have confidentiality carve-outs to enable them to supply information to FIRS when necessary.

I. Nigeria Export Processing Zones Act; and Oil & Gas Export Free Zone Act

  • Fiscal Exemptions subject to Tax Filing Compliance Requirements: Section 18(1) of both legislation has been amended in pari materia with the insertion of a new section 18(1)(a): “exemption from taxes, levies, duties and foreign exchange regulations in accordance with section 8 of this Act, always subject to the provisions of the Banks and Other Financial Institutions Act 2020, provided that all companies registered and operating in the Zone shall comply with the provisions of section 55(1) of the [CITA] and render returns in the manner prescribed therein to the [FIRS] and all penalties prescribed in the [CITA] and the [FIRSEA] that may apply in the event of non-compliance with 55(1) CITA shall apply to such companies in the event of failure to comply.”[34]

J. Fiscal Responsibility Act and Public Procurement Acts

  • The amendments seek to improve transparency in order to give more comfort to private sector counterparties in financial and contractual dealings with the FG. How well these will work in practice remains to be seen, but these are welcome steps, that should further the cause of good governance and anti-corruption. Of particular significance are the provisions on open competitive bidding and International Competitive Bidding.[35]

Conclusion

The FA2 2020 Tax Amendments shows the FG’s serious intent of making Nigerian tax law start keeping pace with (global) business realities. Not that there is any choice in this regard anyway, given the significant pressure to raise funds for public spending. The digital economy is getting bigger and more pervasive by the minute, and the FG loses out on the action, at its peril. As noted in this writer’s review of FA1 2020, the annual enactment of FAs will be to the Nigeria public fisc’s advantage, as the FG can make necessary scope, focus, and policy adjustments in response to developments in the business universe.

Given the historic bad press on illicit financial flows by NRCs,[36] it is prescient for them to take note of tax regulatory developments in Nigeria with a view to working compliance processes into their Nigerian business strategy, in order to obviate regulatory and reputational risks. The clear message from the FG to NRCs on tax compliance enforcement is that it would no longer be business as usual. On their part, it is expected that the FG and State Governments will ‘up the ante’ in effective delivery of more optimal governance in a manner that reduces the weight of “implicit taxation” on the business community.[37]

Endnotes.

[1] The writer calls this legislation FA2 2020 (which its section 81 states “may be cited as the Finance Act, 2020”) because its predecessor was wrongly referred to as Finance Act 2019 – even though the predecessor was signed into law on 13th January 2020. Given that the present legislation was signed on 31st December 2020, it is respectfully submitted that both legislation are Finance Acts (Nos. 1 and 2) of 2020.  By section 80 FA2 2020, it “takes effect from 1st January, 2021 or such other date that shall be indicated by the National Assembly by law or by Presidential Order).”

[2] For the purposes of this article, we will employ FA1 2020 as the abbreviated reference to the predecessor legislation.

[3] The Petroleum Industry Bill 2008 (itself resulting from a lot of preparatory groundwork), and many subsequent versions languished within the corridors of the legislative process for many years without being passed, despite all the associated fanfare. It is generally hoped that the current PIB 2020 before the National Assembly (NA) will be successfully enacted in 2021, having currently passed 2nd Reading in both chambers of the NA. Space limits discussion of aborted tax bills since the advent of Nigeria’s 4th Republic in 1999, but one of the successful efforts was enactment of the FIRSEA in 2007, a brand new legislation which amended and was made superior to then extant tax legislation (see section 68 FIRSEA). The enactment of FIRSEA was a watershed in Nigerian taxation. For a historical perspective, see ‘How We Reformed FIRS, Grew Nigeria’s Revenues – Former Chairman, Ifueko Okauru’, Premium Times, 28.11.2021: https://www.premiumtimesng.com/business/428493-how-we-reformed-firs-grew-nigerias-revenues-former-chairman-ifueko-okauru.html (accessed 23.01.2021); being excerpts of a paper, ‘Transforming the Public Sector in Nigeria: Lessons From My leadership of the [FIRS]’, delivered under the auspices of the Africa Initiative for Governance (AIG) and Oxford University’s Blavatnik School for Government (BSG).

[4] See for example, respective Finance (Miscellaneous Taxation Provisions) Decrees of 1985 to 1999, which also amended tax legislation as necessary.

[5] Companies Income Tax Act, Cap. C21 Laws of the Federation of Nigeria (LFN) 2004 (CITA); Personal Income Tax Act, Cap. P8, LFN 2004 (PITA); Capital Gains Tax Act, Cap. C1, LFN 2004 (CGTA); Value Added Tax Act, Cap. V1, LFN 2004 (VATA); Customs & Excise Tariff, Etc (Consolidation) Act, Cap. C49 LFN 2004 (CETCA); Customs & Excise Management Act, Cap. C45 LFN 2004 (CEMA); Stamp Duties Act, Cap. S8, LFN 2004 (SDA); Industrial Development Income Tax Relief Act, Cap. I7, LFN 2004 (IDTRA); and Federal Inland Revenue Service (Establishment) Act, Cap. F34, LFN 2004 (FIRSEA).

[6] Act No. 14 of 2007 and administered by the FG’s Bureau of Public Procurements (BPP). Prior efforts to amend the PPA had been unsuccessful. See Mohammed B. Attah, ‘Public Procurement Law: Let 9th Assembly Learn from History’, The Guardian, 01.09.2019: https://guardian.ng/saturday-magazine/cover/public-procurement-law-let-9th-assembly-learn-from-history/ (accessed 23.01.2021).

[7] Act No. 31 of 2007.

[8] Act No. 3 of 2020.

[9] Section 60 FA2 2020 amends section 432 CAMA 2020 to the effect amongst others, that: (a) unclaimed dividends of private companies shall, after 12 years, be added to the distributable profits to other shareholders; (b) for listed companies, unclaimed dividends shall be transferred to the Unclaimed Dividends Trust Fund, but which shall be a special debt owed by the FG to the shareholder and claimable at any time, by such shareholder.

[10] CGT compliance by way of filing self-assessments is now twice yearly, on disposal of chargeable assets before 30th June and 31st December respectively (section 2 FA2 2020, inserting a new section 2(3) CGTA); compensation for loss of office above N10 million is now subject to CGT and the CGT liability must be deducted and remitted to the relevant tax authority within timeliness of the PAYE Regulations under the PITA (section 4 FA2 2020 amending section 36 CGTA; interest income on loans granted for “primary agricultural production” (comprising primary crop, livestock, forestry and fishing production respectively) are now tax exempt provided that – the moratorium is not less than 12 months and interest rate is not more than the base lending rate at any time (section 6 FA2 2020, amending section 11 CITA). The erstwhile beneficiary of section 11(2)(a) CITA exemption was “agricultural trade or business”; section 9 FA 2020 amends CITA’s section 16 to provide for minimum tax payable by insurance companies (almost on similar terms as other companies, see section 13 FA2 2020 amending section 33 CITA: 0.5% of “gross premium” and “gross income” for non-life and life underwriters, vs 0.5% of gross turnover, less franked investment income. However in all cases, there is a 0.25% safe harbour for tax returns filed and due for years of assessment between 1st January 2020 and 31st December 2021, both dates inclusive. Thus, the 0.5% minimum tax rate becomes applicable thereafter. Essentially, FAs1 &2 2020 has progressively improved the general minimum tax benchmarks of section 33 CITA, which were considered punitive to businesses. For example, FA1 2020 exempted small companies with less than N25 million gross turnover from minimum tax; By section 10 FA2 2020 (amending section 23 CITA), real estate investment companies now enjoy tax exemption on dividend and rental income even if they do not distribute 75% of such income anymore (itself an amendment introduced by section 9 FA1 2020); section 8 FA2 2020 disapplies section 14 CITA regarding “income from leasing containers, non-freight operations or any other incidental income liable to tax under section 9 [CITA]” (see further discussion in Section A (CITA Amendments), below).  Other incentives include that small and medium sized companies in primary agricultural production are eligible for up to 6 years’ tax holiday (4 years in the first instance, and additional maximum 2 years subject to satisfactory performance): section 23 FA2 2020 inserting new section 1(7) IDITRA; deductibility of premiums paid on  life insurance of the taxpayer or his spouse: section 29 FA2 2020 amending section 33 PITA; individuals earning less than the National Minimum Wage are exempt from tax: sections 30 and 31 FA2 2020 (amending sections 37 and 108 PITA respectively); reduction of tariffs on cars and tractors (from 30% and 35% to 5%), buses and trucks (from 35% to 10%), respectively: section 38 FA2 2020 (amending 1st Schedule CETCA); import duty exemption for commercial airlines in Nigeria in respect of “their aircrafts, engines, spare parts and components, whether purchased or leased” (section 39 FA2 2020, amending 2nd Schedule CETCA). Commercial aircrafts, their engines and spare parts are now VAT exempt (amended Part 1, 1st Schedule VATA (“Goods Exempt”)); and commercial airline tickets and hire, rental or lease of agricultural equipment for agricultural purposes are also VAT exempt (amended Part 2, 1st Schedule VATA (“Services Exempt”). Section 11 FA2 2020 (vide new section 25(7)-(9) CITA) provides for deductibility of pandemic, natural disaster type donations. Examples of stiffer sanctions include: (a) companies are to keep proper books and accounts and failure to provide any record or book pursuant to any request by the FIRS attracts N100,000 and N50,000 penalty for the first, and each subsequent month, of default (section 17 FA2 2020, inserting by substitution, a new section 63 CITA); (b) unauthorised disclosure or misuse of taxpayer information is punishable with fine of up to N1 million or to up to 3 years imprisonment or both (new section 39 FIRSEA vide section 54 FA2 2020; (c) penalties and fines imposed by legislation are no longer deductible (section 12 FA2 2020 amending section 27 CITA), etc. In addition, more specific provisions for seamless operation of the tax refund process has been enacted: section 50 FA2 2020, (amending section 23 FIRSEA). Finally, Part XV (sections 75-79) FA2 2020 establishes the Crisis Intervention Fund and Unclaimed Funds Trust Fund.

[11] See for example, Peter Uzoho, ‘All Eyes on PIB’, ThisDay, 19.01.2021, pp 25 and 28; also available online at: https://www.thisdaylive.com/index.php/2021/01/19/all-eyes-on-pib/ (accessed 23.01.2021).

[12] The amendment is vide insertion of “used in international traffic” after “aircraft” line 1 of section 24(f) CGTA.

[13] Incidentally section 30(1)(b) CITA vests FIRS with discretion to assess and charge on turnover of trade or business in section 13(a)-(d) equivalent scenarios, where there are “no assessable profits” or they are in FIRS opinion, “less than might be expected to arise from that trade or business or … the true amount of the assessable profits cannot be ascertained”. By section 30(1)(b), the FIRS may assess and charge: (i) “on such fair and reasonable percentage of the …turnover attributable to the fixed base”; (ii) based on profit attributable to business conducted through the dependent agent; (iii) “on such fair and reasonable percentage of the turnover of the [turnkey] contract”; and (iv) “on such fair and reasonable percentage of that part of the turnover” as may be determined by the FIRS, in case of artificial or fictitious transactions between related parties. Furthermore, section 65(2)(a) and (3) CITA empowers the FIRS to assess taxpayers using its best of judgment, where the company (irrespective of residency), has either submitted a return or failed to do so. Historically, given practical challenges of assessing the Nigerian profits of NRCs to tax, the FIRS developed the practice of “deemed profits”, whereby 20% of the NRC’s  Nigerian revenue is regarded as taxable profits, to which the 30% CIT rate is then applied to produce an effective CIT rate of 6% of the gross Nigerian revenue. This practice arguably served both stakeholders (FIRS and NRCs), but was clearly not the gold standard; and therefore was not likely to be in place in perpetuity. Whilst a point in its favour is its simplicity (and potential cost savings), there is a risk that the FIRS could be missing out on tax revenues, because the deemed profits arrangement assumes that the underlying figures are correct. Incidentally, there has been litigation where NRC tried to claim deductible expenditure (recharges), in order to effectively reduce the profit margin from 20%, which the FIRS successfully resisted. See for example, the Court of Appeal (CA) decisions in Saipem Contracting Nig Ltd & 2 Ors v FIRS & 2 Ors [2019] 5 NWLR (Pt. 1664), 78; and FBIR v Halliburton WA Ltd [2016] 4 NWLR (Pt.1501], 53. Arguably, whilst deemed taxation could be fingered as one of the ways through which Nigeria suffers from Base Erosion and Profit Shifting (BEPS), there should still be some room for it in very exceptional cases. It is also recognised that requisite documentation under the Transfer Pricing Regulations 2018 and Income Tax (Country by Country Reporting) Regulations, 2018 (the CbCR Regulations) will also help the FIRS in this regard, where NRCs have transactions with their Nigerian affiliates.

[14] Section 16 FA2 2020 also introduces a new section 55(7) which empowers the FIRS to waive the requirement for audited accounts (vide notice to “specify the form of the accounts to be included in a tax return” “in respect of small and medium companies”. But this will not apply to non-residents because by definition, small and medium companies are presumably residents. See sections 23(1), 40 and 105_CITA (as amended by sections 9, 16 and 22 FA1 2020 respectively).

[15] Cf. section 14(1)-(4) CITA: which specifies the basis of taxing NR shipping and aviation companies in respect of their Nigerian traffic (ss.1), the possibility of using comparable foreign tax authority basis for the Nigerian traffic (where ostensibly ss.1 is considered not feasible), (ss.2); ss.3 expressly recognises deemed basis “on a fair percentage on the full sum receivable in respect of the carriage of passengers, mails, livestock and goods shipped or loaded in Nigeria”, subject to the company’s ability, within 6 years, to ask for re-computation of its tax liability pursuant to ss.2, obtain a refund or otherwise; and the decisions arising from the re-computation being potential triggers for tax dispute resolution provisions (of CITA and FIRSEA). Finally, ss. 4 is to the effect that “the tax payable be any company for any year of assessment shall not be less than two per cent of the full sum receivable in respect of the carriage of passengers, mails, livestock or goods shipped or loaded into an aircraft in Nigeria.”  

[16] Per section 15, “Where a company other than a Nigerian Company carries on the business of transmission of messages by cable or by any form of wireless apparatus, it shall be assessable to tax as though it operates ships or craft, and the provisions of the preceding section shall apply mutatis mutandis to the computation of its profits deemed to be derived from Nigeria as though the transmission of messages to places outside passengers, mails, livestock or goods in Nigeria.”

[17] See also section 30(1)(b), which admittedly can only be triggered if the stated conditions exist: Addax Petroleum Services Ltd v FIRS (2013) 9 TLRN 126 at 135. Also, according to the Tax Appeal Tribunal (TAT) in Addax, “in considering what is fair and reasonable, the Respondent may consider tax rates on other companies, and tax rates in other jurisdictions.”

[18] See FBIR v Halliburton WA Ltd (supra), at 90C-E.

[19] Although section 78 CAMA 2020 prescribes that foreign companies can only do business in Nigeria through local subsidiaries, aviation and shipping companies illustrate the fact that it is legally possible for NRCs to “do business in Nigeria” without local incorporation; see for example, section 14(1) CITA. Also, use of local agents is still a valid way of indirectly “doing business” in Nigeria. Technology has even made physical tests tenous, hence the welcome recent FA1 and FA2 2020 amendments to Nigeria’s fixed base/permanent establishment rules.

[20] In such split or tripartite contracts, the respective (onshore and offshore) services and related payments, are clearly delineated between the service providers (contractors) and the mutual client, such that each ‘contract’ can stand alone.

[21] Major changes to Nigeria’s permanent establishment rules were introduced vide the FA1 2020, especially to embody digital taxation. See sections 13(2) CITA (vide section 4(a) FA1 2020). For a historic discussion (pre-FA1 2020 amendment), see Afolabi Elebiju and Chuks Okoriekwe, ‘Taxation of the Digital Economy: Rethinking the Fixed Base Rule in Nigeria’, IBLR, Vol.2, No. 1 (May 2019), pp 1-13; also available online at: https://lelawlegal.com/index. php/page/blogs/288 (accessed 18.01.2021). It is noteworthy that before the FAs 2020 amendments, the split or tripartite contract arrangement – as response to taking the offshore elements of a turnkey contract outside the Nigerian tax net – had come under intense challenge, as many cases involving multinational oil service companies (and sometimes their Nigerian affiliates) vs the FIRS at the TAT and Federal High Court (FHC) has shown. Indeed the CA interpreted the Saipem tripartite contract as a single (turnkey) contract: Saipem (supra), at 118H -119A.

[22] See for example, the new section 53 CITA provision (on self-assessment of tax payable, vide section 15 FA2 2020). Section 53(1) provides that: Every company filing a return under section 52, 55 or 58 of this Act shall – (a) in the return, compute the tax payable by the company for the year of assessment; and (b) forward with the tax return, evidence of payment of the tax due.” Ss. 53(2) and (3) goes on to provide that where the returns fail to declare the true and correct amount of tax payable, such company shall be immediately liable to pay any outstanding tax so identified and assessed, including penalty and interest which shall accrue from the date the incorrect return was filed.

[23] The CIT SEP Order 2020 was issued by the Minister of Finance in February 2020. For a pre-FA2 2020 discussion of potential tax exempt treatment of (transactions involving) Nigerians in the diaspora, see Afolabi Elebiju and Gabriel Fatokunbo, ‘Remittances: Legal Regulatory and Commercial Issues in Diaspora Transactions’, LeLaw Thought Leadership, February 2020, available at: https://lelawlegal.com/add111pdfs/REMITTANCES.pdf. For another perspective, see Chuks Okoriekwe, ‘Options: Plugging Nigeria’s Perennial Revenue Gap through Diaspora Taxation’, LeLaw Thought Leadership, August 2019, available at: https://lelawlegal.com/add111pdfs/Chuks-Okoriekwe-Options-Plugging-Nigerias-Perennial-Revenue-Gap-through-Diaspora-Taxation1.pdf (both accessed 31.01.2021).

[24] For further discussion that excise duties applied to local manufactures, see generally Emeka Ihebie, ‘Excise Duties in Nigeria’, in ‘Indirect Taxes in Nigeria’, (CITN, 2014), pp 166-192. Obviously, FA2 2020 needed to amend the Customs & Excise Tariff Consolidation Act (which together with its sister legislation, the Customs & Excise Management Act (CEMA), focused excise duty on locally produced goods), in order to achieve the new legislative intent.

[25] That the provision is deliberate is also underscored by new section 21(2) CETCA which imposes excise duties on “telecommunication services provided in Nigeria”, albeit commencement of excise on telecoms services would be pursuant to an Order by the President

[26] There is no question that motor vehicles and the like are “goods” for the purposes of CETCA, otherwise on what basis are they subject to import duty under CETCA (and CEMA)? All these questions are brought about by the doubts arising from FG’s apparent plan to impose excise duty on “goods imported” into Nigeria. Instructively, although CETCA does not define “goods”, its Para 2, First Schedule (Classification of Goods Imported) provides that “Goods imported into Nigeria shall, for customs purposes, be in accordance with the form of customs tariff set out in the First Schedule to this Act” and obviously vehicles such as cars, buses and trucks are so listed.  CEMA however defines goods to mean “all kinds of articles, produce wares, merchandise and livestock and includes money stores, baggage and mail.”

[27] As noted in preceding footnote, CETCA’s definitional omission is cured by other provisions; so it is “all is well that ends well”. Cf. with VATA’s definition of “goods” which admits no doubt that cars, buses and trucks are “goods” subject to VAT.

[28] There has been multifarous litigation, touching on the construction of VATA’s definitions, amongst other provisions. For example, whether bottled water was VATable or exempt was an issue in Monamer Khod Enterprises v. FIRS Unreported, Suit No. FHC/S/SC/1/2004 and Warm Springs Waters Nigeria Limited & 8 Ors. v. FIRS (2015) 20 TLRN 29. “Exported services” was a point of major controversy despite FIRS Circulars. How much did VAT apply to real estate? Cases like Ess-ay Holdings Ltd v. FIRS (2020) 53 TLRN 1 and Ellah Ltd v. FIRS (2020) 53 TLRN 50 reached different conclusions. How about choses in action intangible/mining rights? See CNOOC E&P Nigeria Ltd v. AG Federation & 2 Ors (2011)4 TLRN 184. This writer’s view is that starting with FA1 2020, the VATA has now been benefiting from much more precise and ‘intentional’ language which will narrow the scope for potential interpretative disputes. Two of this writer’s contributions (in his ‘Taxspectives by Afolabi Elebiju’ column) to some of the related VAT controversy discourse were: ‘Why Are You Charging Us VAT?’, THISDAY Lawyer, 24.01.2012, p.14: https://lelawlegal.com/ add111pdfs/Why-Charge-Us-VAT1.pdf; and ‘All Things Not Bright and VATable’, THISDAY Lawyer, 28.06.2011, p.12: https://lelawlegal.com/add111pdfs/All-Things-Not-Bright-and-VATable11.pdf, (both accessed 23.01.2021).

[29] Cf. with the prior (wider provision of) section 10(1) VATA (as amended by section 36 FA1 2020), which requires NRCs that carries on business in Nigeria to register for VAT with FIRS using the address of its Nigerian counterparty for correspondence purposes. Note also that section 10(3) has now been widened to empower FIRS to appoint “such other person” in place of the local counterparty of the NRC to make the VAT deduction and remittance. This gives FIRS more flexibility, for example, where the recipient (local counterparty) is not the party to pay for the taxable supply to the recipient. In such situation, FIRS can appoint the payee to withhold and remit the VAT.

[30] Indeed the prior leadership of FIRS (without legal basis), in August 2019 attempted to extend the local counterparties’ VAT source collection approach to the FMCG and telecommunications sectors, but the new FIRS leadership appeared to have jettisoned implementation of the FIRS Notice issued in that regard.  See FIRS Notice (published in Nigerian newspapers on 14.08.2020), captioned “…Deduction at Source of Withholding Tax (WHT)/Value Added Tax (VAT) on Compensation Paid to Agents, Dealers, Distributors and Retailers by Principal Companies”. The FIRS Notice stated in part: “It has come to the notice of the Service that some companies do not deduct WHT/VAT from the compensation paid to their distributors contrary to the provisions of the Companies Income Tax (Rates, Etc. Deduction at Source (Withholding Tax) Regulations S.I 10 1997 and Paragraph 3.8 of [FIRS] Information Circular 2006/02 of February, 2006, which states that ‘commission earned by distributors/dealers will be subjected to WHT and VAT.’ ” See also, ‘FIRS Public Notice On Deduction At Source of WHT And VAT On Compensation Paid By Principal Companies’, Proshare, 15.08.2019https://www.proshareng.com/news/Taxes %20&%20Tariffs/FIRS-Public-Notice-On-Deduction-At-Sourc/46626 (last accessed 29.01.2021).

[31] For a detailed discussion of current issues in Nigerian SD landscape, see Afolabi Elebiju, (ed.), ‘Questions and Pathways: Recent Issues in Nigerian Stamp Duties’ Regulatory Framework’(‘LeLaw on Stamp Duties’), December 2020; excerpts available at: https://lelawlegal.com/add111pdfs/Thought_Leadership_Stamp_Duties_Cover.pdf (accessed 23.01.2021).

[32] Section 8 FIRSEA sets out the powers and functions of the FIRS.

[33] Section 50(5) FIRSEA as amended provides: “Where any agreement or arrangement with any other country, government or tax authority for exchange of information or with respect to relief for double taxation of income or profits includes provision for the exchange of taxpayer information with that country for the purpose of implementing a tax relief or preventing avoidance of tax, or for such other purposes as may be enshrined in the agreement or arrangement, the obligation as to secrecy imposed by this Act shall not prevent the disclosure of such information to the authorized officers of the Government of such country.”

[34] It is noteworthy that NRCs can technically be in FTZs and not be regarded as being in Nigeria, since Nigeria is “customs territory”; they can bypass CAMA’s requirement for local incorporation by registry an FTZ Enterprise (FTZE) within the relevant FTZ. For a more detailed discussion, see Frank Okeke and Ayo Fadeyi, ‘Nigerian FTZs: Frequently Asked Questions (FAQs)’, LeLaw Thought Leadership, November 2018: https://lelawlegal.com/ add111pdfs/FTZ.PDF; and Afolabi Elebiju and Frank Okeke, ‘Journeys: Current State Assessment of Nigerian Export Processing/Free Trade Zones Regime’, LeLaw Thought Leadership, April 2020: https://lelawlegal.com/add111pdfs/ FTZ(1).pdf (both accessed 23.01.2021).

[35] See for example, sections 24-25 PPA.

[36] See Chijioke Nelson, ‘Nigeria Reports Multinationals’ Tax Evasion to Global Body’, The Guardian, 20.02.2018: https://guardian.ng/news/nigeria-reports-multinationals-tax-evasion-to-global-body/ (accessed 18.01.2021); Oluseyi Awojulube, ‘FIRS: Nigeria Lost N5.4trn to Tax Evasion by Multinationals in 10 Years’, The Cable, 12.01.2021: https://www.thecable.ng/firs-nigeria-lost-n5-4trn-to-tax-evasion-by-multinationals-in-10-years (accessed 18.01. 2021). See also excerpts of Dr. Akin Adesina’s speech (referred to in footnote below) that: “Profit shifting, base erosion and tax avoidance by multinational corporations form a huge part of ‘Africa’s missing taxes’; and account for a large share of the over $60 billion illicit capital flows that Africa loses annually. If companies invest in Africa, they should pay taxes in Africa.  Governments should use Business Investment Treaties and Avoidance of Double Taxation to strengthen these incentives. If a company works in Nigeria, benefits from Nigeria, it should pay taxes in Nigeria.”

[37] See ‘Nigerians Pay One of World’s Highest “Implicit Tax Rates’ Adesina’, Premium Times, 21.01.2021: https:// www.premiumtimesng.com/news/headlines/437921-nigerians-pay-one-of-worlds-highest-implicit-tax-rates-adesina.html (accessed 23.01.2021). According to Dr. Adesina in his remarks at the 1st FIRS’ National Tax Dialogue on 21.01.2021, this is as a result of businesses having to provide unavailable public services to themselves in lieu of government: electricity, water, security, etc; after having paid their taxes: “Truth be told, Nigerians pay one of the highest implicit tax rates in the world – way higher than developed countries.” 

Afolabi Elebiju is the founding Principal at LeLaw Barristers & Solicitors (www.lelawlegal.com), a niche commercial law firm in Lagos.

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