Tax & Business Matters - Nigeria

Highlights from the Court of Appeal Decision re VAT on foreign services

This was an appeal against the judgement of the Federal High Court (FHC) which ruled that VAT was payable on satellite bandwidth as an imported service. The 3 questions for determination by the Court of Appeal (CoA) are:

Issue #1 - Whether imported satellite bandwidth was subject to VAT and whether the foreign supplier carried on business in Nigeria. FIRS had argued that the service is supplied in Nigeria and it is not listed as exempt so it is VATable.

Decision - In so far as the bandwidth capacities are supplied in Nigeria, the foreign company carried on business in Nigeria within the meaning of S10(1) of VATA. The location of the Supplier is not relevant (similar to the scenario of imported Frozen Fish where VAT is collected upon import). The judgment interpreted Carry on based on dictionary meaning as “to continue doing something” and stated that Section 54 of CAMA is not relevant because it has a different purpose and thrust.

Issue #2 - Whether the duty to remit VAT by the local recipient of service is separate and independent of the condition by the foreign supplier to charge VAT.

Decision - The duty to remit VAT by the recipient is separate from the duty of the foreign company to register and charge VAT and not a condition precedent. It is only a procedural provision and does not interfere with the substantive duty of VAT remittance. The CoA stated that the issue was whether the decision of the lower court was correct and not whether the reasons given for the decision are correct.

It also stated that the foreign supplier contracted its VAT obligation to the local recipient but in any case the recipient will still be liable even without the duty being contracted because FIRS can assess the tax under S7(2) and the recipient is required to render returns under S15 both of the VAT Act.

Issue #3 - Whether the destination principle and reverse charge were wrongly applied by the FHC given that such are not contained in the VAT Act. FIRS had argued that the destination principle is implicit in S10(2) by virtue of the phrase “… supplied in Nigeria…” while reverse charge is provided for by the phrase “… the person to whom the goods and services are supplied in Nigeria shall remit the tax …”

Decision - The CoA ruled in favour of the FIRS saying that the “destination principle” promoted by the OECD, stipulates that goods imported from a State are exempted from VAT and are instead taxed in the destination State in which the goods are imported. And “reverse charge” in exoteric terms, is applicable in the EU whereby the buyer of goods or services assumes responsibility of paying the applicable VAT instead of the supplier. The CoA said the lower court may have been wrong in alluding to Reverse Charge but its decision that the transaction is VATable by virtue of S2, 10 and 46 of VAT Act is correct, and the Destination Principle was not stated as a reason by the FHC.

PwC's thoughts:

The bases for concluding that VAT is applicable in this case can still be contested. For instance, the judgment states that bandwidth capacity qualifies as carrying on business in Nigeria because it is supplied in and continuously utilised in Nigeria. The judgment again focused on "carrying on business" rather than "carrying on business in Nigeria" given the admission that the foreign supplier did not operate in Nigeria. The judgment seemed to draw a nexus based on the transponders in Nigeria used to convey the bandwidth signals. Also, the judgement seems to interchange “charging” and “remittance” of tax such that the obligation to remit tax is construed to include the obligation to charge the tax. The reference to EU “reverse charge” was erroneously described as a requirement “to pay” rather than “to charge” with the latter being the issue in contention.

Read our alert below for more insights and download a certified true copy of the judgement.

Download PwC Tax Alert_CoA decision re VAT on imported services_July2019

Download Vodacom v. FIRS (240619 Court of Appeal Judgement)

African Continental Free Trade Agreement: What you need to know and the real issues for Nigeria

As at the commencement of the African Continental Free Trade Agreement (AfCFTA) on 30 May 2019, 52 African countries have signed the agreement while 3 countries – Republic of Benin, Eritrea and Nigeria are yet to sign. The key objective of AfCFTA is to boost intra-African trade through progressive elimination of tariffs and non-tariff barriers to trade in goods and liberalisation of trade in services. The Agreement will also involve cooperation on investment, intellectual property rights and competition policy.

Some stakeholders have raised concerns about the risk of transshipment and dumping of goods which may hurt domestic businesses especially infant industries. However, the AfCFTA Treaty already has provisions to address these concerns. The real issues are not with the AfCFTA Treaty itself but potentially its implementation. The best way to address the identified challenges is to get involved. If you are not at the table, then you may be on the menu. Like Nelson Mandela once said, I hope that our choice on this matter reflects our hopes and not our fears.

Here are my proposed next steps and key priorities for Nigeria:

1. Review and harmonise trade policies
2. Identify areas of competitive advantage
3. Build institutional capacity
4. Address non-tariff barriers
5. Develop safeguards
6. Engage key stakeholders and build consensus
7. Build robust infrastructure (long term)

Read my article for further insights and download a copy of the AfCFTA below:

Download African Continental Free Trade Area_What you need to know and real issues for Nigeria_Taiwo Oyedele

Download African Continental Free Trade Area_The Treaty

Download ECOWAS Revised-treaty

Tax Appeal Tribunal rules that withdrawal of voluntary pension may be taxable but it is not the responsibility of the employer

The Lagos Internal Revenue Service (LIRS) following a tax audit for 2013 and 2014 years of assessment issued a Notice of Refusal to Amend (NORA) to Nexen Petroleum Nigeria Limited (“the company”). The LIRS assessed the company to additional liabilities on the grounds that the company had under remitted Pay As You Earn (PAYE) tax by taking statutory tax relief for Voluntary Pension Contributions (VPCs) made by its employees to pension fund administrators (PFA).

The Tax Appeal Tribunal's decision addressed the following key issues:

1. That all pension contributions, including voluntary pension contributions without any limit, are tax deductible
2. There is no requirement for the employer to ensure that VPC was not withdrawn by the employee within a period of time to qualify for tax deduction on the contribution
3. That the agency responsibility of an employer to deduct and remit PAYE does not extend to any tax that may become payable upon withdrawal of voluntary pension contributions by an employee from the PFA

This implies that where any withdrawal of voluntary pension is taxable, it is the employee who will be responsible for the tax. It does not however preclude the tax authority from appointing a valid agent (including the employer) for future deduction of any applicable tax on such withdrawal.

Read our alert for more:

Download PwC Tax Alert_Voluntary Pension Contribution_June2019

Tax Appeal Tribunal says gratuities are not taxable

Previously, section 3 of the Personal Income Tax Act of 1993 (PITA 1993) – i.e. the charging section – imposed tax on gratuities, and the 3^rd Schedule to the Act exempted gratuities up to N100,000 from tax. The implication was that gratuities in excess of N100,000 were subject to tax.

However, section 3 of PITA 1993 was subsequently amended by the Finance (Miscellaneous Tax Provisions) (No.3) Decree (1996 Decree) removing “gratuities” from taxable income. However, the exemption under the 3^rd Schedule was not amended. This created an apparent conflict in that while on one hand section 3 did not specifically mention gratuities as taxable, the 3^rd Schedule inferred that gratuities in excess of N100,000 are taxable. This conflict created an uncertainty as to whether gratuities are subject to tax or not.

The Abia State Board of Internal Revenue (ASBIR) subjected Nigerian Breweries (NB) to tax on gratuities paid to the latter’s former employees. ASBIR also computed interest and penalties against NB. The ASBIR argued that based on Paragraph 18 of the 3^rd Schedule to PITA 2011 only gratuities not exceeding N100,000 were tax exempt.

NB’s position was that the intention of the law was to exclude, in its entirety, gratuity from tax because “gratuities” was deleted from the charging section. Also where there was a conflict between a section in a statute and a provision in the Schedule, the section would prevail.

Our alert below contains further insights.

Download PwC Tax Alert_Court says gratuities are not taxable_June2019 

Court of Appeal: Non registration with NOTAP does not invalidate a contract

The Court of Appeal has reversed the decision of the Federal High Court (“FHC”) in Stanbic IBTC Holdings Plc (“Stanbic”) v Financial Reporting Council of Nigeria (FRCN) & Anor (2015), which had held that failure to obtain NOTAP approval (on a registrable contract) rendered the contract illegal and void; and payment could not be made on an unregistered contract.

The Court of Appeal held that NOTAP’s scope does not cover contracts for exporting technology out of Nigeria and section 7 of the NOTAP Act does not deal with or provide for the validity or legality of unregistered or non-registration of contract(s) under Section 4(d). And the NOTAP Act does not render such contracts as invalid, illegal, null and void.

See our alert below for details:

Download PwC Regulatory Alert_NOTAP registration and validity of contracts_May2019

LIRS to issue new tax identification numbers to taxpayers

The Lagos State Internal Revenue Service (LIRS) on 30 May 2019 issued a Public Notice informing the public of the new Tax Identification Number (TIN) which will be issued to every individual, registered business and incorporated companies.

The new TIN is part of the deployment of a new tax administration system by the LIRS called the Lagos State Government Electronic Banking System (LASG-EBS) and the integration of the LASG-EBS Taxpayers Identification Digit (PID) with the Joint Tax Board (JTB) nationwide TIN. The new TIN which will provide individuals and companies access to the LASG-EBS will be biometric based and linked to the Bank Verification Number (BVN) of the individuals or companies.

Read our alert below for more:

Download PwC Tax Alert_LIRS New TIN Registration_June2019