Tax & Business Matters - Nigeria

TAT rules on the conditions for deductibility of expenses and claim of input VAT

The Federal Inland Revenue Service audited Chi Limited and issued a tax assessment of about N585m. In arriving at the assessment, the FIRS:

1. disallowed certain expenses for Companies Income Tax ( purposes including expenses for: sales promotion, bad and damaged goods, repairs and maintenance, and statutory fees paid to the Abia State Government Advertising Agency. The FIRS also disallowed foreign exchange losses on usance adjustments, exports and loan revaluations, and subjected certain exchange gains to tax. According to the FIRS, the expenses were not justifiably proven to have been Wholly, Reasonably, Exclusively, and Necessarily (WREN) incurred for business purposes.
2. adjusted the Company’s input VAT claimed on raw and packaging materials on the basis that input VAT should only be claimed when the relevant output has been sold. The FIRS also adjusted input VAT in respect of discounts granted by Chi to its distributors.
3. calculated penalty and interest on the assessment.

The TAT ruled in favour of the FIRS on all issues. 

This judgement re-emphasises the need to keep adequate support documentation. The expenses were disallowed largely due to the failure to provide enough support documents on the part of the taxpayer. Companies that incur significant write offs due to obsolescence or damaged goods should also maintain a company policy and endeavour to carry out other reasonable procedures to justify the expenses, as this is an area typically scrutinised by the FIRS.

With regards the issue of input VAT, there may be scope for the decision to be appealed, in line with some of the technical points in our analysis.

Please see our Alert and the TAT judgement below:

Download PwC Tax Alert - TAT rules on the conditions for deductibility of expenses and claim of input VAT (1)

Download CHI V. FIRS Judgement

 

FIRS and LIRS agree to establish joint audit and investigation framework

The Federal Inland Revenue Service (“FIRS”) and Lagos State Internal Revenue Service (“LIRS”) signed a Memorandum of Understanding (MoU) to establish a Joint FIRS and LIRS Audit and Investigation Team (“JAIT” or “the Team”) on 6 February 2023. The JAIT implementation committee organised a sensitisation meeting on 10 August 2023 to educate stakeholders on the guidelines for successful implementation of the collaborative framework. The objective of the MoU is to harmonise the tax procedures between the FIRS and LIRS, foster collaboration, promote exchange of information and reduce time and cost for relevant stakeholders.

There are perceived concerns about the likelihood of success of the JAIT initiative, considering the short lived nature of a similar policy introduced in 2017 which aimed to harmonise audits among the FIRS and all the State Internal Revenue Services (SIRSs). However, carrying out a pilot with only the FIRS and LIRS under the JAIT is more practical. 

In our Tax Alert below, we have analysed the JAIT initiative and put forward key highlights of the MOU, for your reading pleasure

Download PwC Tax Alert - FIRS and LIRS agree to establish joint audit and investigation framework

 

FHC upholds Tribunal’s ruling on the taxation of income earned by non-resident shipping companies in Nigeria

CMA CGM Delmas SA (the “Company” or “CMA-CGM”) is a French shipping company that transports freight from foreign countries to Nigeria and vice versa. The Federal Inland Revenue Service (FIRS) audited the Company’s tax returns for the 2014 and 2015 years of assessment (YOAs) and assessed the Company to additional tax of about N1bn in respect of damages, cleaning fees, Shipper’s load, stow and count (SLAC), NIMASA Environmental Levy and bonded terminal commission.

The Company objected to the assessment on the grounds that the income items constitute income from the operation of ships in international traffic, which are exempt from Companies Income Tax (CIT) based on the Nigeria-France Double Taxation Agreement (DTA).

Please see our Tax Alert on this ruling below, together with the FHC judgement below:

Download Tax Alert - FHC upholds Tribunal’s ruling on the taxation of income earned by NRCs in Nigeria

Download Judgment - CMA CGM DELMAS SA vs. FIRS

 

 

 

 

 

The New Audit Wave: What you should know

In February 2023, the Business Facilitation (Miscellaneous Provisions) Act 2022 was enacted to promote the ease of doing business in Nigeria.This Act amended several legislation including the Industrial Training Fund (ITF) Act and the National Housing Fund (NHF) Act. Some of these amendments are likely to result in reduced revenue for the affected regulatory authorities, hence, we envisage an increased scrutiny to close out ongoing audits and new audits on prior periods.

For the purpose of this alert, we will be focusing on the National Pension Commission (NPC), the Industrial Training Fund (ITF) and the Employee Compensation Scheme (ECS).

Download PwC Tax Alert - The new audit wave - what you should know

Presidency postpones commencement of Finance Act 2023 and other related matters

On 4 July 2023, President Bola Ahmed Tinubu released two executive orders which postpone the effective date of the Finance Act and the Customs Order to 1 September 2023 and 1 August 2023 respectively.

The recently released Executive Orders are the Finance Act (Effective Date Variation) Order 2023 and the Customs, Excise Tariff (Variation) (Amendment) Order 2023. 

Please read our Tax Alert below. We have also included the Orders:

Download PwC Tax Alert - Presidency postpones commencement of FA 2023

Download Finance Act (Effective Date Variation) Order 2023

Download Customs Variation Order 2023