Tax & Business Matters - Nigeria

The Windfall Tax Conundrum - Navigating the fiscal impact on Nigerian banks

The Nigerian government is proposing a 50% tax ("Windfall Tax") on realised profits made by Nigerian banks from exchange transactions in the 2023 financial year (FY). This proposal has sparked some debate considering the many practical concerns that it raises. One of such issues is that it retrospectively applies the tax on profits from the 2023, which the banks already filed and paid by June 2024. 

Please read our Article on the proposed Windfall Tax below:

Download The Windfall Tax Conundrum Navigating the Fiscal Impact on Nigerian Banks

Highlights of the Deduction at Source (Withholding) Regulations 2024

The Federal Ministry of Finance has recently issued the Deduction at Source (Withholding) Regulations 2024 (the “Regulations” or “WHT Regulations”), effective 1 July 2024, except for the rules applicable to the gaming sector which are billed to commence on 1 October 2024. These Regulations have introduced a number of changes to the Withholding Tax (WHT) regime in Nigeria.

Caveat: The Regulations have been signed by the Minister of Finance thus come into force in line with the Interpretation Act. The gazette is expected shortly in line with the Authentication Act as it announces it formally and validates its authenticity. It is less likely that the signed regulation in circulation will change but it is recommended that taxpayers rely on the gazetted version.

PwC has analysed the Regulations and highlighted relevant considerations. Please see our Tax Alert and the Regulations below:

Download PwC Tax Alert - Highlights of the Deduction at Source (Withholding) Regulations 2024

Download DEDUCTION OF TAX AT SOURCE (WITHHOLDING) REGULATIONS 2024

Nigeria enters tax treaty agreement with ECOWAS member countries

Nigeria has signed a new tax treaty with ECOWAS countries to eliminate double taxation on income, capital, and inheritance. This comes through an Order signed by the Minister of Finance on 1st May 2023 and is in addition to the 16 Double Tax Treaty Agreements that Nigeria has in force.

Effective from January 1, 2024, the treaty applies to various taxes like Personal Income Tax, Companies Income Tax, and Petroleum Profits Tax, Capital Gains Tax, Tertiary Education Tax, and National Information Technology Development Levy.

Key points include:

• Permanent Establishment (PE) rules: The treaty sets a 6-month threshold for creating a Permanent Establishment (PE) in Nigeria for construction and technical services. It also introduces rules for withholding tax on technical service fees at 5% for individuals and 10% for companies.
• Withholding Tax: Technical services will face a withholding tax of up to 5% for individuals and 10% for companies.
• Passive Income: Dividends and royalties paid to beneficial owners in member countries will have a maximum 10% withholding tax.
• Transport Profits: Shipping, airline, and road transport profits will only be taxed in the operator's home country.
• Capital Gains Tax: Tax on share sales will be due only in the shareholder's country unless the company's value is mostly from property.
• Non-Discrimination: Nationals of any member state won’t face more burdensome taxes in another member state than would apply to nationals of that state in the same circumstances.

This treaty promotes regional trade and investment, aligning with the African Continental Free Trade Area (AfCFTA) Agreement. This treaty has been gazetted, although it is uncertain if ratification by Nigeria’s National Assembly has happened. However, it appears unlikely that the tax authorities would dispute the effectiveness of a gazetted instrument. 

Download Tax Alert – Nigeria enters Tax treaty agreement with ECOWAS member countries

Download Community Rules (ECOWAS) ADTA Gazette

PwC Podcast: Tax Recap Series Episode 5

The April 2024 edition of PwC's Tax recap series is live!

In this episode, Kenneth Erikume, Partner and Lead Tax Reporting and Strategy and Ochuwa Alegeh share insights on 3 recent Executive Orders issued by the Nigerian government. These Executive Orders are:

1. Oil and Gas Companies (Tax Incentives, Exemption, Remission, Etc) Order, 2024
2. Presidential Directive on Local Content Compliance Requirements, 2024
3. Presidential Directive on Reduction of Petroleum Sector Contracting Costs and Timelines, 2024

The release of these Orders follow the circular on Fiscal Incentives for the Presidential Gas Growth Initiative recently issued by the Ministry of Finance. It also addresses some of the concerns of the stakeholders in the Petroleum sector regarding ease of doing business. However, achieving the objectives of the directives will depend on the government’s policy consistency, and collaboration and alignment of the Executive (including the Ministries Departments and Agencies) and the Legislature on the relevant tax and fiscal policy issues. 

WATCH NOW!!!

PwC Podcast: Tax Recap Series Episode 4

PwC's Tax recap series presents yet another exciting pack of insights in this 4th edition!

Esiri Agbeyi, Partner and Africa Family Business Leader, and Chisom Urom, discuss:

• the recent circular on fiscal incentives for the gas sector;
• the Federal High Court ruling that clarifies tax deposits are not mandatory for tax cases to be heard;
• Insights on building sustainable family businesses and recent trends in the private wealth space.

WATCH HERE!!!

TAT upholds the six year limitation period for the issuance of tax assessments by authorities and rules that tax authorities can delegate tax investigation functions to third parties

Lafarge Africa Plc ("Lafarge" or "the Company") was subjected to a tax investigation by the Ogun State Internal Revenue Service ("OGIRS") spanning 2010 to 2014. OGIRS issued separate assessments at different times between 2019 and 2020. In January 2021, OGIRS issued another revised assessment, asserting its connection to the previous issuestriate income.

The Company appealed to the TAT, contending that OGIRS had violated the terms of the settlement agreement established after the 2020 assessment. Furthermore, the company challenged the 2021 assessment, arguing that it exceeded the prescribed six-year limitation period specified in section 55 of the Personal Income Tax Act ("PITA"). In addition to these objections, the company asserted that OGIRS had unlawfully delegated its responsibilities to a private entity, thereby rendering the assessment invalid.

TAT's decision

• The law imposed a 6-year limitation period for the issuance of assessments against a taxpayer after the expiration of the relevant year of assessment, except where the taxpayer had committed fraud, willful default or neglect.
• There was no binding agreement between the Company and the Tax Authority to restrict the Tax Authority from issuing additional or revised assessments.
• There is no statutory restriction on the delegation of the power of tax investigation

In view of the above, tax authorities are prompted to exercise diligence and timeliness when issuing assessments and pursuing potential tax liabilities from taxpayers. At the same time, taxpayers are encouraged to remain vigilant and enforce their rights, which includes a right not to be subjected to endless audits, outside the prescribed time in the law.

PwC is pleased to have represented the Company in this successful appeal.

Please see our tax Alert and the Tribunal decision below:

Download (New Update) PwC Tax Alert - Lafarge V OGIRS-1

Download Judgement on Lafarge v. OGIRS

FIRS waives penalties for taxpayers who are able to file all outstanding TP returns and CbCR notification forms by 30 June 2024

The Federal Inland Revenue Service (FIRS) has issued a Public Notice granting taxpayers up till 30 June 2024 to regularise and file their outstanding Transfer pricing (TP) returns and Country by Country Reporting (CbCR) notifications. Based on the Public Notice, taxpayers that file on or before 30 June 2024 can enjoy a waiver of all administrative penalties (previously imposed or to be imposed by the FIRS) under the TP Regulations and CbCR Regulations. 

 

The Public Notice also announces that the filing of TP returns and CbCR notifications have been migrated from e-TP Plat to the TaxProMax platform. The migration takes effect immediately and will apply to all future TP filings. Taxpayers may also choose to refile their previously filed returns on the TaxPro-Max. 

 

Our key takeaways

• The Public Notice gives taxpayers the opportunity to enjoy a waiver of the administrative penalties stipulated in the TP Regulations and CbCR Regulations for all outstanding TP related filings up to 30 June 2024;
• The FIRS has now migrated the filing of TP returns and CbCR notifications from e-TP plat to TaxProMax. The TaxProMax platform can be accessed using the same login credentials used for the income tax filings.
• Taxpayers are currently facing challenges accessing the TaxProMax platform to file their TP returns and CbCR notifications. As such, taxpayers are advised to begin their filings as early as possible, to avoid any issues that may happen close to the deadline.  

Please see Public Notice here:

 

Download Public notice on migration of TP filing to TaxPro-Max

FHC nullifies the requirement to pay security deposits before appeal at the TAT and the courts

The Federal High Court (FHC) of Nigeria recently made a significant ruling in the case of Joseph Bodunrin Daudu SAN v. Minister of Finance Budget and National Planning & 2 Ors. The FHC struck down provisions that required taxpayers to pay security deposits before filing appeals at the Tax Appeal Tribunal (TAT) and the courts. These provisions, found in various rules and Practice Directions, were deemed to infringe upon taxpayers' constitutional right to fair hearing and were consequently declared null and void.

The FHC's decision highlighted the importance of the right to appeal as a constitutional right and criticised the deposit requirements for imposing an undue burden on taxpayers. The offending provisions were struck down, allowing taxpayers to file appeals without payment of any deposit.

While the ruling is lauded for upholding taxpayers' rights, questions remain regarding the interpretation of relevant laws and the standardisation of deposit requirements which still exist in the FIRS Establishment Act. The constitutionality of rules of court and practice directions also remains contentious, indicating potential further legal challenges.

Overall, the ruling provides clarity on taxpayers' rights in Nigeria's tax dispute resolution process and underscores the need for transparent and fair procedures in tax administration.

Please see our tax Alert  and the FHC ruling below:

Download Tax Alert_FHC nullifies the requirement to pay security deposits

Download JB DAUDU SAN V HON M 1

Nigeria Economic Outlook: Seven trends that will shape the Nigerian economy in 2024

PwC Nigeria has released its latest Nigeria Economic Outlook, highlighting the seven key trends that will shape the nation's economic trajectory in 2024. The report projects a marginal decline in inflation and 3.1% rise in GDP, and notes that achieving sustainable growth in 2024 requires balancing ambitious fiscal reforms with effective budget implementation. It also stresses the importance of aligning fiscal and monetary policy to stabilise prices and reach target goals

Based on the report, the seven key trends that will shape the Nigerian economic outlook in 2024 are:

1. Executing fiscal reforms: balancing ambition with budgetary implementation

Nigeria's ambitious revenue targets for 2024 depend heavily on oil prices and reform implementation.

Historically, actual revenue realised has averaged less than 70% of the total budget. Achieving budgeted oil revenue in 2024 will depend on OPEC oil production quota, international oil prices, improved security in the oil-producing regions, and geopolitical factors.

The proposed fiscal reforms have potential to boost non-oil revenue and shape the economy, but success hinges on effective budgeting and execution.

2. Evolving monetary policy stance: finding the right framework and instruments to achieve price stability

CBN has deployed several monetary policy tools and instruments to achieve price stability. Despite the deployment of monetary policy tools, the inflationary pressure has persisted. To succeed, the Central Bank of Nigeria (CBN) must independently pursue inflation goals, emphasising inflation control, and maintaining a stable financial system.

Finding coherence and alignment between fiscal and monetary policy to stabilise prices may enable the achievement of statutory and policy targets in 2024. CBN clarity of policy, transparency of market operations and consistent communication will enhance stability to exchange rate price discovery and market activities.

3. Investors’ will be cautiously optimistic

Foreign portfolio investment flows to the capital market may remain cautious due to residual challenges.

Investors’ outlook may be dampened by downgrades from FTSE Russell and MSCI, specifically due to delays in capital repatriation. Despite this, Moody’s, Fitch, and S&P maintained a speculative credit rating due to drawbacks on reforms and several fiscal challenges that persist.

FDI flows are expected to improve in 2024 driven by notable expansion in the growing ICT and Manufacturing sectors.

4. Undulating pathways to unlocking productivity in the economy

Limited fiscal space for public investment and difficulty attracting private investments constrain the ability to make essential infrastructure improvements.

Infrastructure funding may remain insufficient in 2024. The allocated infrastructure spending budget for 2024 is ₦1.32 trillion, falling short of both the World Bank's suggested 70% infrastructure-to-GDP benchmark (currently at 30%) and the yearly $150 billion requirement specified in the National Integrated Infrastructure Master Plan for 2021- 2025.

Security spending in the past nine years amounted to ₦14.8 trillion. Despite increased spending, insecurity remains a challenge and jeopardises national stability, negatively affects economic activities and undermines investor confidence.

5. Persisting vulnerability to external pressures with potential of ‘shocks’

Geopolitical, economic, environmental, political and trade trends will shape the dynamics and outlook for the Nigerian economy in 2024. If the Russia-Ukraine war intensifies, it could lead to increased global energy and commodity supply risks.

Nigeria may experience increased inflation and food security challenges due to grain import disruptions and high petroleum product cost.

The outcome of elections in several countries globally, especially USA, UK, and Taiwan may shape the dynamics of trade and capital flows around the world in 2024.

6. Consumers may likely adjust better to the evolving policy and macro realities

Consumer spending may be pressured in 2024 due to rising prices of goods and services (increasing food and transportation costs), coupled with lower disposable income. However, private consumption is expected to be marginally better than 2023.

Poverty levels are projected to increase to 38.8% in 2024. Despite the low unemployment rate in the country, low consumer spending and purchasing power remains an issue, especially in the absence of commensurate increase in minimum wage to mitigate the inflationary growth in the economy.

7. Improved sectoral development riding on reforms

GDP may grow marginally by 3.1% in 2024 on the back of sustained policy reforms. The growth projection is driven by ongoing reforms, recovering oil production, and a proactive policy environment.

Possible downside risks to this projection include sustained rise in fiscal debt, elevated interest rates, high inflationary levels, foreign exchange liquidity pressures, high exposure to shocks in the global value chain, poor non-oil revenues and sector development.

In terms of sectoral growth, the main drivers of GDP growth in the last 12 months have been the financial services, information and communication, and utilities sectors. The firm expects these sectors to continue to drive growth in the short term. Further, sectoral growth will be driven by a combination of demand dynamics, investment, government reforms and trade dynamics.

 

Please read the full report here:

Download PwC 2024 strategy& release

FG waives VAT and Customs Duties on gas and gas equipment

In December 2023, the Ministry of Finance (MoF) released a Circular on fiscal incentives for the gas sector. This Circular is in line with the Presidential Gas for Growth Initiative which aims to improve the investment climate in Nigeria and to increase the utilisation and supply of gas in the domestic market. The Circular contains incentives and directives to the Nigerian Customs Service (NCS) and the Federal Inland Revenue Service (FIRS).

Key highlights:

1. The Circular reiterates the Customs Duties exemption in the law applicable on machinery, equipment or spare parts imported into Nigeria for the exploration, processing or power generation through the utilisation of Nigerian gas. Further to this, the Circular lists 41 equipment categories which qualify for this import duty waiver, including CNG and LPG conversion kits, cascades, dispensers; gas washing machines, gas leak detectors, regulators, storage tanks of all sizes, dedicated LPG vehicles and dedicated CNG vehicles.

2. The Circular also directs the FIRS and the NCS to apply a zero percent VAT rate on the following items:

• Feed Gas for all processed gas
• Compressed Natural Gas (CNG)
• Imported Liquefied petroleum gas (LPG)
• LPG and CNG equipment components, conversion and installation services
• All equipment relating to the expansion of CNG, LPG and the Presidential CNG initiative, including conversion kits

Some new exemptions were introduced such as the exemption of imported LPG from VAT, compared to the VAT Modification Order (VMO) 2021 which only exempted locally produced LPG. Also, the circular exempts “feed gas for all processed gas”. This should mean that natural gas is now exempt from VAT.

There may be some questions around the legal basis of the Circular. However, we expect that it would have practical effect because it grants incentives rather than impose new obligations.

Please see the Circular and our TAx Alert below:

Download PwC Tax Alert - FG waives VAT and Customs Duties on gas and gas equipment

Download MoF Circular on VAT exemption