Tax & Business Matters - Nigeria

The incredible 2011

Whichever way you look at it, 2011 has been an eventful year. Elections, additional banking reforms, taxation, security challenges and legislative activity including the much-discussed prohibition of same sex unions are just a few signposts along the way. As the popular saying goes, everything—whether good or bad—that has a beginning must come to an end.

As we look forward to the New Year with cautious optimism, it promises to be very interesting starting with the implementation of cashless Lagos by January 2012, possible removal of fuel subsidy, implementation of the new Personal Income Tax (Amendment) Act, transfer pricing and various fiscal policies outlined in the proposed 2012 budget among others.

Whatever happens in the tax world, I will keep you updated on this blog. Posts will resume in the first week of January.

As always, I’m delighted to hear from you so keep your comments and questions coming.

Wishing you all a Merry Christmas and a successful 2012.

Happy holidays!

Managing the complexity of Africa’s VAT systems

Among Africa’s 54 countries, most have a VAT system in place. None of these systems are identical. How can multinational companies operating across African borders manage this level of complexity?

We’ve just published the fourth edition of PwC’s Overview of VAT in Africa (2011) to help companies better understand the complex systems they face. The guide was compiled by PwC tax experts in 27 countries in Africa and it shows that it takes far longer for companies to comply with VAT than corporate income tax. Many companies that conduct cross-border transactions are unable to track their VAT payments due to complexity.

The guide shows that this complexity exposes multinational companies to tax risk, errors and inconsistencies. A lucrative deal can easily turn sour if the parties don’t take into account the potential liability for VAT registration or the basic structure of VAT in the country of operations. Penalty regimes are also often severe in African countries. In South Africa, for example, additional tax of up to 200% may be imposed for tax evasion as well as criminal prosecution.

Many companies operating in Africa are unable to claim VAT refunds as a result of unsophisticated tax systems, changes in legislation and unreasonable deadlines for submitting claims. Countries like Kenya require an audit before a refund may be released. In Nigeria, a refund is extremely difficult to obtain, even though the law provides for a VAT refund subject to an audit.

Some African countries that do not currently have VAT are looking into it. Swaziland recently announced plans to convert from a General Sales Tax system to VAT as a means of more efficiently collecting revenue. The Democratic Republic of Congo is also introducing a VAT system next year.

The Overview of VAT in Africa guide is based on law in force as of 31 July 2011 and outlines the VAT principles on VAT rates, registration with the relevant authorities, output tax, exemptions, zero-rating, input tax, international trade, VAT accounting, VAT records and record keeping issues and basic principles relating to other indirect taxes in each of these countries. 

To get a copy of the publication, please use link Overview of VAT in Africa

 

Fuel subsidy removal and tax

The Federal Government of Nigeria is planning to eliminate subsidy on fuel—expected to result in a considerable savings for the government. What impact will the subsidy removal have on companies and individuals? And what can government do to make sure that the savings don’t go to waste?

The price at the pump is likely to rise from N65 per litre to about N140 as of January 2012, which takes into account the landing cost of petrol and margin for transporters and marketers—according to the Petroleum Product Pricing Regulatory Agency pricing template. But the removal of the fuel subsidy, valued at N1.3 trillion by the Finance Minister, is unlikely to generate exactly the same amount in savings due to the impact on tax revenue. For instance, eliminating the subsidy will result in higher costs for companies leading to lower profit—and less tax revenue. Companies and individuals will consume less and therefore pay less VAT. Lower consumption among individuals could have a knock-on effect on economic growth, profitability and employment leading to less personal income taxes. Furthermore, one issue that has yet to be fully addressed is whether taxes like VAT will apply to the price of petrol once it’s fully deregulated.

That said, if the savings from removing the subsidy is managed transparently— and applied directly to develop infrastructure, fix power supply and create employment—then Nigerians might reasonably feel that the removal was worthwhile. Savings could also be invested in improving Nigeria’s refinery capacity, which would reduce our reliance upon imported refined products.

To show sincerity and demonstrate good faith, our government should look at other areas where savings can be made like the high cost of running government, due process in the award of contracts and diligence in monitoring project implementation.

What makes the fuel subsidy removal good or bad is what we do with the savings. Every effort should be made to ensure that full deregulation of petroleum products becomes a catalyst for economic development and further growth.

Click here to read the detailed article.