Tax & Business Matters - Nigeria

FIRS has introduced electronic filing of tax returns and online payment of taxes

The Federal Inland Revenue Service (FIRS) embarked on an Integrated Tax Administration System (ITAS) project in 2013. ITAS is aimed at enhancing tax administration and simplifying the tax compliance process in Nigeria through the use of technology.

When fully functional, taxpayers will be able to file their tax returns electronically, pay their taxes online, get instant credit for withholding taxes deducted on their income, generate tax clearance certificates and chat with their FIRS local tax office through the “Message Centre”.

For further insights, read our tax alert on the subject.

Download PwC Tax Alert_FIRS introduces electronic tax filing 

How Nigeria’s tax system discourages investments

Taxation affects investment decisions but the risk is not whether tax would be paid, it is the uncertainty of what, when, how and how much. Ironically, what businesses and investors need, as a matter of priority, is not tax incentives; it is the removal of tax disincentives. - Taiwo Oyedele

Read my article in today's Guardian newpaper for further insights. Link

Download How Nigeria discourages investment_Taiwo Oyedele

Government reviews pioneer status and other tax incentives

In the past few years, the FIRS has questioned the eligibility of some companies that were granted pioneer status incentive (exemption from corporate income tax). In view of this and given the recent decline in revenue, the federal government initiated a process to review existing incentive regime especially pioneer status. 

As part of the review, the management of the Nigerian Investment Promotion Commission (NIPC), the agency in charge of the incentive, was replaced and all applications for pioneer status were put on hold pending the outcome of the exercise. The NIPC organised a series of stakeholder meetings in November and December 2014. One of the key objectives was to provide policy clarifications on investment related issues including pioneer status.

The NIPC has now written to some companies that were granted the incentive for a straight 5-year period that it should have been for 3 years in the first instance. This is because the law does not provide for a straight 5-year grant but rather 3 years, then additional 1 year and a final 1 year subject to satisfactory performance. The FIRS has consequently raised additional assessments on some of the companies for the last 2 years of their 5-year pioneer status.

It is not clear yet if this will be extended to all companies that were granted the 5-year pioneer status or only those considered ineligible for the incentive. In any case, any company that is legally entitled to the incentive has a tenable argument based on the doctrine of legitimate expectation especially if NIPC granted the 5-years unsolicited and the FIRS never objected to it. 

These are tough times and hence the tough measures by government. Based on recent trend, it is extremely important to follow strictly what the law says rather than just the established practice of government agencies which can be challenged or reversed at any time.

The rate of withholding tax on construction and related activities has been reduced from 5% to 2.5%

The federal government has gazetted an amendment to the Withholding Tax Regulations 1997. The amendments have a commencement date of 1 January 2015. The changes introduced are:

1. The rate at which tax is to be deducted from "All aspects of building, construction and related services" is now 2.5% (previously 5%)
2. Related activities exclude survey, design and deliveries. This means that these categories of construction related activities will continue to attract withholding tax at 5%

The reduction in rate was necessitated by the low margin being earned by construction companies and the inability of FIRS to pay refiund for excess withholding tax credit notes.

The excluded services are considered as high margin but it will be necessary for the FIRS to provide clarification in terms of what constitutes these excluded services especially "Deliveries" which may be open to diverse interpretations. 

The retroactive commencement date of the changes may not be practicable to apply where withholding tax has already been deducted by payers before the regulations were published.

Given that the amendment relate to companies taxable under the Companies Income Tax Act, other entities not taxable under CITA will continue to suffer withholding tax at the rate of 5%. It is not clear if this was intended.

The FIRS commenced the process to review the WHT Regulations in 2013. Other desirable changes to the WHT Regulations to address key issues such as "ordinary course of business" are yet to be finalised.

I have uploaded a copy of the Regulations for your information and our tax alert on the subject.

Download WHT Regulation Amendment 2015

Download Reduction of WHT rate on construction contracts

Tax Appeal Tribunal says realisable price should be used for petroleum profit tax purposes

There has been a long standing dispute between the Federal Inland Revenue Service (FIRS) and oil producing companies on the applicable price of crude oil to be used for tax purposes. The Tax Appeal Tribunal (TAT) on 23 January 2015 ruled that the realisable price, and not the official selling price, should be used for the tax years during which the relevant Memorandum of Understanding (MOU) between the government and the oil companies remained valid. 

It is unlikely that this decision will bring closure to the issue especially for periods not covered by the MOU and for oil companies that do not operate under such agreements.

Read our tax alert and a copy of the judgment below for further details.

Download Tax Alert_TAT decision on realisable price

Download TAT ruling on realisable price_Jan 2015

Expatriates no longer need re-entry visas to re-enter Nigeria

The Nigeria Immigration Service (NIS) has issued a circular titled “Abolition of Re-entry Visa” indicating that the Minister of Interior has approved the discontinuance of re-entry visas for purpose of re-entering Nigeria for expatriates that have valid residence permits.

Before now resident expatriates in Nigeria had to obtain re-entry visas to enable them re-enter the country anytime they travelled abroad.  The visas are issued at an extra cost and the fees payable/number of permissible entries is dependent on the nationality of the expatriate.

See a copy of our alert below on the subject.

Download Regulatory Alert on Reentry Visas_February 2015

The tax free zone authority has established a free zone tax administration unit

In order to streamline the administration of permissible taxes within the tax free zones, the Oil & Gas Free Zone Authority (OGFZA) has established the Free Zones Tax Administration (FZTA) Unit with effect from January 2015.

According to the OGFZA, this has become necessary to avoid unfriendly situations where various tax agancies relate directly with free zone enterprises often resulting into disputes. Going forward, all tax matters relating to the free zones will be coordinated by the FZTA. The applicable taxes as stated by the OGFZA are:

1. PAYE tax of employees of free zone enterprises
2. Withholding tax of third party transactions in the free zones
3. VAT of third party transaction in the free zones
4. ITF deductions for training of free zone employees

See a copy of our alert and the FTZ Notice below for your reference.

Download Oil and Gas Free Zone Authority Establishes Tax Administration Unit

Download FTZ tax administration Notice_Feb 2015

FIRS retains interest rate for tax default at 15% for 2015

The law establishing the FIRS, the Federal Inland Revenue Service (Establishment) Act, prescribes interest rate for late or non payment of tax at CBN Monetary Policy Rate (MPR) plus a spread (additional rate) to be announced by the Finance Minister. Although the minister is yet to announce any spread, the FIRS issued a public notice in September 2014 stating that tax default interest rate for 2014 was 15% at a time when MPR was 12%. The CBN subsequently increased the MPR from 12% to 13% in November 2014.

FIRS has now issued a notice to confirm that interest rate for tax purposes will remain at 15% for 2015. 

See a copy of the notice below.

Download FIRS Notice of interest rate_2015
 

February 2015 Tax Calendar

In this time of falling government revenue, there is a lot of focus on tax compliance by various tax authorities. Below is our tax calendar for February 2015 to help remind you of the relevant due dates for your tax payments and filing obligations.

Download Tax Calendar_February 2015