Tax & Business Matters - Nigeria

FIRS postpones commencement of the automated collection of VAT on imported goods purchased through digital platforms

The Federal Inland Revenue Service (FIRS) has postponed its intended commencement of the automated collection of Value Added tax (VAT) on imported goods purchased through digital platforms.

 

 

You may recall that the 2020 Finance Act amended the Value Added Tax (VAT) Act to require non-residents that make taxable supplies of goods and services to Nigerian customers to register and account for VAT on supplies to Nigeria. Following this amendment, the FIRS issued "Guidelines on Simplified Compliance Regime for Value Added Tax (VAT) for Non-Resident Suppliers" on 11 October 2021, with an effective date of 1 January 2022 with respect to supply of services and intangibles, and 1 January 2024 for goods. 

 

The FIRS had initially planned to roll out the regime with respect to supply of goods by non-resident suppliers, by 1 January 2024. However, the FIRS has decided to postpone it, to afford more time to develop a seamless process and collaborate more effectively with key stakeholders - for example the Nigeria Customs Service. Pending any next steps, the FIRS has stated that the existing guidelines for services and intangibles provided by non-resident suppliers, continue to remain in effect. 

 

See PwC Alert on the existing guidelines for the supply of services and intangibles by non-resident suppliers. 

Nigeria's 2024 Proposed Budget - Budget of renewed hope

The Federal Government of Nigeria recently presented the 2024 Budget proposal to the National Assembly. The Budget titled "Budget of Renewed Hope" shows a proposed expenditure of NGN27.5 trillion and an estimated revenue of NGN18.32 trillion for the 2024 fiscal year. We have analysed in our infographic a snapshot of the 2024 Budget proposal and its assumptions, relative to the 2023 approved and supplementary budgets.

See below:

 

FIRS announces waiver of penalties and interest on outstanding tax liabilities settled by 31 December 2023

The FIRS has issued a Public Notice waiving penalty and interest for taxpayers who settle their outstanding tax liabilities by 31 December 2023. Based on the Public Notice, the waiver was issued in recognition of the challenges being faced by taxpayers, and in line with government's commitment to support businesses.

The Public Notice does not limit the scope of the waiver, and therefore we expect that it should apply to all outstanding tax liabilities due to the FIRS, including from tax audits, investigations, desk reviews, VAT and WHT monitoring exercises, late filing or payment of taxes due to the FIRS, and so on.

Please see Public Notice here:

Download FIRS Public Notice - waiver of penalty and interest

No VAT on the rent of buildings even before recent tax law amendments, says the TAT

NGX Real Estate Limited (the “Company”) is a Nigerian real estate company in the business of acquiring, leasing, hiring, or part-exchanging real property. The Company earned rental income from real properties in 2020 and did not pay Value Added Tax (VAT) on the income. The Federal Inland Revenue Service (FIRS) audited the Company’s 2020 financial records and issued a tax assessment of N36,185,564.25 for an unremitted VAT. 

Issues considered include:

Whether or not the FIRS was right to have imposed VAT on the Company’s activities. The Company argued that the definition of “goods” in the VAT Act as amended by the Finance Act (FA) 2019, excluded the transfer of interest in land, and therefore VAT should not apply on the sale of buildings, being extensions of land. However, the FIRS contended that “land” and “buildings” were separate concepts and the exemption available to land did not extend to buildings. The FIRS argued that this was the reason that the exemption was expanded in the following year by the FA 2020 to cover both land and buildings.

The TAT’s ruling has clarified that VAT was exempt on the sale of interest in land and buildings in 2020, following the FA 2019 amendment. Further amendments by FA 2020 in the subsequent year have removed ambiguities in the reading of the law. There is no distinction in the VAT treatment with regards to the transfer of interest in residential or commercial real estate, as they are both VAT exempt based on the law. However, assessments need to be done in certain instances such as providing packaged accommodation e.g “serviced apartments”, “short lets”), provision of office space as a service and so on, as these may not meet the exemption criteria in the VAT Act.

Download Pwc Tax Alert - TAT rules no VAT on the rent of buildings

Download NGX REAL ESTATE v. FIRS - JUDGMENT

PwC Podcast: Tax Recap Series

The second edition of PwC’s Tax recap series is here!

Get the latest tax insights and practical takeaways from PwC's new video podcast, Tax recap series.

Whether you're a multinational corporation, local conglomerate, small business owner, freelancer, or a taxpayer simply looking to stay informed, PwC’s tax recap video series is for you.

In Episode 2, PwC's Seun Adu, Partner, Transfer Pricing and Ochuwa Alegeh discuss a recent ruling of the Tax Appeal Tribunal in a case between Check Point Software Technologies B.V. (Check Point) and the FIRS on the validity of the Income Tax (country-by-country reporting) Regulations 2018. 

WATCH HERE!!

Considerations on the Quick Wins Report by the Presidential Fiscal Policy and Tax Reforms Committee

The Presidential Fiscal Policy and Tax Reforms Committee (“the Committee”) was inaugurated on 8 August 2023 and tasked with the mandate of addressing critical challenges around 3 main pillars:

1. Fiscal Governance
2. Revenue transformation
3. Economic growth facilitation

The Committee streamlined its objectives under these pillars into 3 phases/milestones -

• Quick wins (to be completed within 30 days),
• Critical tax reforms (to be completed within 6 months), and
• Implementation (to be completed within 1 year).

The Committee, on 24 October 2023, presented its report to the President on the quick wins recommendations. The recommendations covered key economic matters such as foreign exchange management, multiplicity of taxes and efficiency of collection, quality of spending, stimulation of local production, facilitation of economic growth e.t.c. 

For many years, Nigeria has contended with a lot of bureaucracy and duplication in functions among government agencies which has resulted in a rigid civil service, administrative inefficiencies, and an escalation in the cost of governance. Streamlining and increasing collaboration among government agencies is expected to prune the civil service and make it leaner, focused and result -oriented, with the attendant benefit of promoting ease of doing business in Nigeria.

The recommendations from the Committee are commendable and are expected to contribute immensely to tackling some of the current economic challenges plaguing the country. It is however important that the policy is implemented in full as a large part of the recommendations are dependent on each other to achieve their desired outcome. Nigeria generated 98% of its revenue across all governments from less than 10 taxes, hence the recommendation to shrink the number of taxes (which officially are about 60) to a single digit would be beneficial to both government (in terms of collection efficiency) and to taxpayers who often have their businesses interrupted by non-state actors who collect the other less-revenue generating taxes.

Download PwC 2023 - Quick Wins Report

TAT rules that VAT applied on the supply of software licences prior to recent amendments to the VAT Act, among other matters

The Tax Appeal Tribunal (TAT) has ruled that Value Added Tax (VAT) was chargeable on the supply of all goods and services in Nigeria including software licences, even prior to the Finance Acts (FAs) which expanded and clarified the definitions of “goods” and “services” for VAT purposes. The TAT ruled that only items listed as exempt in the VAT Act remain VAT exempt. 

This ruling was issued in the case between the Federal Inland Revenue Service (FIRS) and MTN (or the “Company”), further to a review carried out on the Company by the Office of the Accountant General of the Federation (OAGF) for the 2007 to 2017 accounting periods. The OAGF provided a report on the review to the FIRS, which subsequently assessed MTN to outstanding taxes (including penalty and interest) of $135m.

One of MTN's arguments was that prior to the VAT Act amendments by the FAs, the supply of software licences were intangibles/incorporeal rights which did not meet the definition of goods or services in the VAT Act and therefore were VAT exempt. Such intangibles were only included as “VATable” by the recent amendments and as such, the amendments should not be applied retrospectively.

The TAT classified the supply of software licences as a service, and ruled that they were subject to VAT pre- FAs.

Prior to the tax law amendments introduced by the FAs from 2020, the definitions of “supply of goods” and “supply of services” in the VAT Act were not elaborate and therefore were given their literal meaning to exclude intangible property. This was confirmed by the Federal High Court in CNOOC vs FIRS where it was ruled that the transfer of interest in an Oil Mining Licence was an intangible property which fell outside the scope of goods and services. The TAT did not analyse whether the supply of software licences could be classified as goods or services within their ordinary meaning, or whether there was a distinction between the intangibles considered to be exempt in the CNOOC judgement and the nature of software licences in this case.

Download PwC Tax Alert - TAT ruling on supply of software licenses

Download MTN v. FIRS - JUDGMENT

PwC Podcast: Tax Recap Series

The maiden edition of PwC’s Tax recap series is here!

Whether you're a multinational corporation, local conglomerate, small business owner, freelancer, or a taxpayer simply looking to stay informed, PwC’s tax recap video series is for you.

Get the latest tax insights and practical takeaways from PwC's new video podcast, Tax recap series!

In Episode 1, PwC's Kenneth Erikume, Partner and Leader, Tax & Regulatory Services, and Ochuwa Alegeh discuss the Finance Act 2023, the joint audit framework between the FIRS and LIRS, and recent Federal High Court tax judgments. #Watch now!

WATCH HERE!!

TAT rules on the validity of the Income Tax (Country-by-Country Reporting) Regulations 2018

In March 2022, the Federal Inland Revenue Service (FIRS) served Check Point Software Technologies B.V. (Check Point) with notices of administrative penalties for the late filing of its Country by Country Reporting (CbCR) notification forms for the 2019 and 2020 financial years. These penalties were levied as stipulated in the Income Tax (Country by Country Reporting) Regulations 2018 (CbCR Regulations ). Check Point objected to the notices on the basis that the CbCR Regulations were invalid because they were not issued following the due process required by law. The FIRS refused to withdraw its penalty notices and, as a result, the company approached the Tax Appeal Tribunal (TAT) for a decision.

Check Point's position was based on the following:

• The CBCR Regulations were issued by the Chairman and not the Board of the FIRS as required by the FIRS Establishment Act (FIRSEA).
• The CBCR Regulations were issued pursuant to the Country-by-Country Multilateral Competent Authority Agreement (CbC MCAA) – a Multilateral treaty which had not been passed into law by the National Assembly 

In a judgment delivered on 17 August 2023, the TAT generally agreed with Check Point and ruled that the penalties served by the FIRS were unconstitutional and void.

The ruling calls into question the validity of some of the other regulations that were issued by the FIRS during this period (such as the 2012 and 2018 TP Regulations). We expect that the FIRS will appeal the decision of the TAT and possibly take steps to regularise any regulations that may be vulnerable to a similar challenge.

Download PwC Tax Alert - TAT ruling on the validity of the CBCR regulations

Download CHECKPOINT v. FIRS - JUDGMENT

Nigeria's Tax Summaries - Tax Data Card 2023

We are pleased to share PwC's 2023 Tax Data Card, a summary of the major tax and related regulations in Nigeria. The publication has been updated to include new changes introduced via the Finance Act 2023, which became effective from 1 September 2023. It also includes amendments from the Petroleum Industry Act 2021 as well as the Electricity Act 2023.

This edition is interactive making it easier for you to navigate. Simply tap on any topic from the content page to access the relevant pages.

This edition covers the following:

1. Capital Gains Tax (CGT)
2. Companies Income Tax (CIT)
3. Information Technology Tax (IT Tax)
4. Personal Income Tax (PIT)
5. Petroleum Industry Act (PIA)
6. Petroleum Profit Tax (PPT)
7. Tertiary Education Tax (TET)
8. Withholding Tax (WHT)
9. Double Tax Treaties (DTT)
10. National Agency for Science & Engineering Infrastructure (NASEMI) Act
11. Nigeria Police Trust Fund (NPTF) (Establishment) Act
12. Customs and Excise Duties (C&E)
13. Stamp Duties Act(SD)
14. Value Added Tax (VAT)
15. Employee Compensation Scheme (ECS)
16. Industrial Training Fund (ITF)
17. National Housing Fund (NHF)
18. Pension Contributions
19. Local Content Regulations (Cabotage, ICT, Oil & Gas, Power sector)
20. Nigeria Export Processing Zone Act (NEPZA)
21. Pioneer Status Exemptions (PSE)
22. Road Infrastructure Tax Credit Scheme  (RITC)

Download PwC - 2023 Nigeria Tax Data Card