Tax & Business Matters - Nigeria

TAT rules that an employer who defaults in its agency role to the Government is liable to penalty and interest

In 2017, the Lagos State Internal Revenue Service (“LIRS”) audited Container Services Limited (“CSL”) for the 2011 - 2016 Years of Assessment. The LIRS assessed the company to outstanding PAYE, Withholding Tax (WHT), Development Levy and Business premises levy liabilities plus penalty and interest. CSL objected to the assessment and the matter was eventually taken to the TAT.

The TAT ruled that CSL did not comply with the relevant provisions of PITA and the Regulations in delivering its agency responsibilities, hence, CSL is liable to the tax liability (including penalty and interest) assessed by LIRS.

 

This judgment re-emphasises the agency role of employers and the consequences of non-compliance with tax laws which could be business disruptions, and liabilities as high as the unpaid tax plus 31%.

See PwC's Tax Alert below:

Download PwC Tax Alert - TAT rules that an employer who defaults in its agency role to the Government is liable to penalty and interest

FIRS issues Guidance Notes on Tax Audits and Investigations

The FIRS released Guidance Notes on 28 October 2022 which set out general expectations of stakeholders regarding tax audits and investigations including timelines. These Guidelines provide a framework aimed at facilitating seamless tax audits and investigations exercises to increase trust, and reduce compliance costs.

Tax audits and investigations can be quite time, cost and resource demanding if not properly managed. It is therefore commendable that the FIRS has engaged with key stakeholders to seek input in putting together the Guidance Notes. The engagement and feedback process with relevant stakeholders should be sustained to ensure regular review of the Guidance Notes and further improvement of the audit and investigation process.

Please see our Tax Alert on this below:

Download PwC Tax Alert - FIRS issues Guidance Notes on Tax Audits and Investigations

 

More on the FIRS' appointment of Telcos and banks to withhold VAT

On 7 November 2022, the Federal Inland Revenue Service (FIRS) issued a Public Notice (the “Notice”) requiring certain companies to withhold VAT on taxable supplies from their vendors and remit to the Service. This is in line with the recent amendment to the Value Added Tax Act (VAT) Act, which empowered the FIRS to appoint any person to withhold or collect VAT and pay the tax by the 21st of the following month.

The appointment of MTN, Airtel and deposit money banks to deduct and remit VAT from their vendors is expected to provide intelligence to improve tax compliance, resulting in increased revenue for the government. However, it is unclear why the FIRS did not appoint other mobile network operators. This may be viewed as increasing compliance costs for the affected companies and impacting their competitiveness from an industry perspective. 

Please read more in our Tax Alert Below:

Download PwC Tax Alert - FIRS appoints Telcos and Banks to withhold VAT

 

 

FIRS appoints Telcos and Banks to withhold VAT

The FIRS has appointed MTN, Airtel and all money deposit Banks to collect or withhold VAT on invoices received from their vendors and remit to the FIRS effective from 1 January 2023.

What does this mean?

Ordinarily under a VAT system, a supplier or service provider charges VAT on their invoice which is to be paid by the customer along with the price of the good or service for onward remittance to the FIRS. However, under the Withholding VAT rule, a customer is required to pay the vendor net of VAT while the VAT is remitted directly to the FIRS. Currently a similar arrangement is applicable to companies operating in the Oil & Gas sector as well as Government and their agencies.

What will be the impact? 

1. Customers of MTN, Airtel and Banks will not be affected, and the prices of telecom and banking services should remain the same
2. The companies listed in the Notice and their vendors will be impacted except a vendor with annual turnover less than N25 million
3. The key issue will include compliance cost by the appointed companies and cash flow challenges for the affected vendors
4. Other issues to consider will include cut-off point and reconciliation, reverse charge of VAT, and import VAT.
5. The assurance by the FIRS to refund eligible input VAT by the affected vendors is expected to cushion the cash flow impact if efficiently implemented
6. Ultimately the Withholding VAT should provide the intelligence to improve tax compliance resulting in more revenue for the government. This however needs to be balanced within the context of the associated cost to the affected taxpayers.

See a copy of the Notice here: Download FIRS VAT withholding notice_Telcos & banks

FHC rules that the FIRS is the relevant authority to collect N50 Stamp Duty on bank transfers

The Stamp Duties Act was recently amended to introduce a N50 stamp duty or Electronic Money Transfer Levy (EMTL) on electronic receipts or transfers of N10,000 and above in any bank. Further to this amendment, the Federal Inland Revenue Service (FIRS) and the Central Bank of Nigeria (CBN) directed Guaranty Trust Bank Plc (GTBank) to collect and remit the N50 duties to the FIRS.

The Anambra State Internal Revenue Service (AIRS) subsequently wrote to GTBank demanding that duties on transactions concluded by individuals resident in Anambra State, be remitted to AIRS. This led to the sealing and locking up of some of the bank’s branches in the state. GTBank then approached the Federal High Court (FHC) to seek the interpretation of the relevant tax laws.

Takeaway

The FHC ruled that electronic receipts and transfer of money transactions between customers is a banking transaction, and the Bank is a party. Therefore, the FIRS is the lawful authority to collect the said duty.

This judgement is expected to bring some respite to banks and other financial institutions who may be swamped with conflicting demands from the FIRS and State tax authorities where they have branches, to remit the N50 duty collections. 

Please read our Tax Alert below:

Download PwC Tax Alert - FHC rules that the FIRS is the relevant authority to collect N50 Stamp Duty on bank transfers

Insights on Nigeria's 2023 Budget of Fiscal Sustainability and Transition

President Muhammadu Buhari presented the 2023 Budget proposal (“the Budget”) to the Joint Session of the National Assembly on 7 October 2022. The Budget tagged “Budget of Fiscal Sustainability and Transition'' is designed to achieve the National Development Plan 2021 to 2025 and assist with the smooth transition from one administration to another.

 

Some highlights

• The budget expenditure of N20.51trn represents the highest in Nigeria’s history, and is to be (partly) funded by expected revenue of N9.73 trn. The country’s highest recorded deficit of N10.78trn (4.78% of estimated GDP) is to be financed by new borrowings, privatisation proceeds and drawdown on loans already secured for specific projects. 
• The budget deficit exceeds the expected revenue of N9.73 trn by about 11%. Put in perspective, Nigeria needs to generate an additional 111% of its current revenue (i.e. more than double its revenue) to be able to meet its expenditure needs without borrowings. 
• The non-debt recurrent expenditure (NDRE) of N8.27trn remains the largest expense in the budget (about 40%), and is 16% higher than the 2022 revised budget of N7.11trn. It includes personnel cost of N4.99trn, which accounts for 60.33% of NDRE.

Nigeria faces numerous challenges ranging from global headwinds such as high interest rates, supply chain disruptions, rising energy and food prices, to local challenges such as insecurity, rising debt, high inflation, low crude oil production and crude oil theft, labour issues and flooding. 

Low revenue mobilisation typically translates to high borrowings, implying increased debt service costs. In 2023, the debt service cost of about N6trn, represents about 31% of the Budget. This underscores the need for urgent action to address revenue underperformance and expenditure efficiency. Concerted efforts are required to also improve the policy environment and address insecurity in order to boost domestic investment and attract foreign direct investment.

Please see our Tax Alert below:

Download PwC Tax Alert - Budget of Fiscal Sustainability and Transition

 

PwC Tax Academy - Highlights of 2022 tax and fiscal policy changes: implications for your business, grey areas and outlook for 2023

PwC's Tax Academy will be hosting a session titled "Highlights of 2022 tax and fiscal policy changes: implications for your business, grey areas and outlook for 2023” on Tuesday, 22 November 2022.

Tax is an important source of revenue for the country and the government is constantly looking for new ways to increase tax revenue and improve tax administration.There have been quite a lot of fiscal policy changes in recent times, and it is important for taxpayers to understand these changes, assess compliance and evaluate the implications for their business.

In this session, we will examine the tax and fiscal policy changes that have occured in 2022, and discuss the outlook for 2023.