KEY TAX AND REVENUE HIGHLIGHT IN THE NIGERIAN TAX SYSTEM FOR THE YEAR 2018
The 2018 fiscal year witnessed an increased tax activism by the revenue authorities, the Ministry of Finance and the federal government of Nigeria (FGN). These events clearly demonstrated the government’s intention to widen the tax net and raise additional revenue. The high tax revenue drive in the year 2018 was evidenced by the extension of the Voluntary Assets and Income Declaration Scheme (VAIDS), amongst other major activities in the year.
As part of the Federal Inland Revenue Service’s (FIRS) collection efforts in the year, banks were appointed as agents for collection of tax from taxpayers that were considered to be in default of tax payments and their bank accounts were frozen for this purpose. These developments were mainly due to the dip in global oil prices and the revenue shortages, which encouraged the government to push towards diversification of the economy and improvement of Nigeria’s tax to Gross Domestic Product (GDP) ratio.
This article seeks to review the key highlights for 2018 in the Nigerian tax world.
Key Tax and Revenue Highlights in 2018
In the year 2018, the FIRS recorded a total tax revenue collection of about ₦5.32 trillion. The oil component of the ₦5.32 trillion is ₦2.467 trillion (46.38%), while the non-oil component is ₦2.852 trillion (53.62%). The FIRS has a revenue target of ₦8 trillion for 2019.
The World Bank Group, which tracks the ease of doing business in different countries, published its 2019 Doing Business Report in October 2018. The Report ranks Nigeria at 146 out of 190 countries on the ease of doing business index, a drop from 145 ranking for the year 2018. However, on the ease of paying taxes, Nigeria recorded an improvement from 171 in 2018 to 157 in 2019. This growth may be attributed to regulatory reforms such as the introduction of ICT initiatives geared at improving the tax system and making the payment of taxes easier and simplified.
Tax Legislation and Regulatory issues
2.1 The extension of the Voluntary Assets and Income Declaration Scheme (VAIDS)
As mentioned earlier, the VAIDS, which was originally introduced in July 2017, was extended till 30 June 2018. According to the Chairman of the FIRS, the Scheme generated about ₦54 billion in paid taxes. Upon conclusion of the VAIDS, the FIRS undertook an exercise to track non-compliant taxpayers with annual banking turnover of ₦1 billion and above. This exercise accounted for about ₦21 billion additional taxes.
2.2 Introduction of Voluntary Offshore Assets Regularisation Scheme (VOARS)
On 8 October 2018, President Muhammadu Buhari signed Executive Order No. 008 authorizing the Attorney-General of the Federation and Minister of Justice to set up a Voluntary Offshore Assets Regularization Scheme in Switzerland. The Scheme applies to all persons, entities and their intermediates who hold offshore assets and are in default of their tax liabilities.
The Scheme provides a one-year window commencing 8 October 2018, during which affected taxpayers can declare their offshore assets and income from sources outside Nigeria that relate to the preceding 30 years of assessment, regularize their tax status and ensure full compliance. To participate, eligible taxpayers must voluntarily make complete and verifiable disclosures of their offshore assets and income through the Voluntary Offshore Assets Regularization Facility in Switzerland to be set up by the FGN.
Such taxpayers are also expected to, amongst other things, pay a one-time levy of 35% of their offshore assets to the FGN in lieu of all outstanding taxes, penalties and interest; and ensure full tax compliance on their residual offshore assets after accessing the Scheme by paying taxes to the FGN. In exchange, qualified taxpayers shall obtain permanent immunity from criminal prosecution for tax offences, waiver of interest and penalties on the declared and regularized offshore assets and waiver from tax audit of the declared and regularized offshore assets.
Any eligible taxpayer that fails to take advantage of the opportunity provided by the Scheme shall, upon its expiration, be liable to pay in full, the principal tax liability due (inclusive of interest and penalties). The taxpayer may also be subject to comprehensive tax audit, investigation, charges and enforcement procedures concerning the offshore asset.
2.3 The Income Tax (Country by Country Reporting) Regulations, 2018 (The CbC Regulations)
The FGN also released the Income Tax (Country by Country Reporting) Regulations, 2018 (the CbC Regulations) giving effect to the Country-by-Country Multilateral Competent Authority Agreement signed on 27 January 2016 and ratified on 3 August 2016.
The CbC Regulations which was published in an official gazette dated 8 January 2018 requires Multinational Enterprises (MNEs) headquartered in Nigeria that meet the specified threshold of global revenue to provide tax authorities with information about the MNEs’ global activities, profits, and taxes. This is to better assess international tax avoidance risks; improve transparency in the tax practices of the MNEs; and prevent tax evasion or avoidance through base erosion and profit shifting.
2.4 The revised Income Tax (Transfer Pricing) Regulations 2018
Similarly, the FIRS released the revised Income Tax (Transfer Pricing) Regulations 2018 (the TP Regulations) which ushered in a Transfer Pricing (TP) specific penalty regime. The TP Regulations repeals the Income Tax (Transfer Pricing) Regulations No. 1 2012 (the 2012 Regulations) and has an effective date of 12 March 2018. However, the TP Regulations will be applied to the basis period commencing after 12 March 2018. The revised TP Regulations introduces a stiffer TP Regime in Nigeria. Although the exemption of certain categories of companies from contemporaneous TP documentation requirement will reduce the compliance burden on such companies, the introduction of stiff administrative penalties for TP offences is a material change that will affect taxpayers.
2.5 FG approves new excise duty rates for tobacco products and alcoholic beverages
President Muhammadu Buhari, on 11 March 2018, approved an amendment to the extant excise duty rates for tobacco products and alcoholic beverages (beer, wine and spirits). Under the new scheme, tobacco products would attract specific rates (ranging from ₦1 to ₦2.90 per stick of cigarette) in addition to the existing 20 percent ad valorem rate. For alcoholic beverages, however, the existing ad-valorem rates would be replaced with specific rates (ranging from ₦0.30k to ₦2.00 per centilitre of beverages).
The new excise duty regime, which has an effective date of 4 June 2018, has been moderated over a three-year period in order to minimize the impact on prices of the affected products.
2.6 FG signs double taxation agreement with Singapore
The Federal government of Nigeria signed a bilateral agreement with Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and Capital Gains. The Agreement was signed on 2 August 2017 and approved by President Muhammadu Buhari on 26 March 2018.
The Inland Revenue Authority of Singapore announced, on 3 August 2018, that the double taxation agreement (DTA) had been ratified in Singapore, and would enter into force on 1 November 2018, with an effective date of 1 January 2019. However, the Agreement will need to be ratified by Nigeria’s National Assembly, as required by the Nigerian Constitution, before it enters into force in Nigeria. The DTA clarifies the taxing rights of both countries on income arising from cross-border transactions between Nigeria and Singapore and also reduces the incidence of double taxation on such income.
2.7 FG signs double taxation agreement with Spain
President Muhammadu Buhari, on Friday, 26 January 2018 signed the Avoidance of Double Taxation Agreement between the Federal Republic of Nigeria and the Kingdom of Spain (Domestication and Enforcement) Act, 2018. The Agreement had been awaiting ratification by the legislature for about nine years, as required under the Nigerian Constitution.
2.8 Introduction of Flare Gas (Prevention of Waste and Pollution) Regulations, 2018
President Muhammadu Buhari, in his capacity as the Minister of Petroleum Resources, has signed the Flare Gas (Prevention of Waste and Pollution) Regulations, 2018 into law. The Regulations seek to minimize the environmental and social impact caused by flaring natural gas, protect the environment, prevent waste of natural resources and create social and economic benefits from gas flare capture. The effective date of commencement of the Regulations was 5 July 2018.
2.9 Lagos State Government passes Land Use Charge (LUC) Bill into law
On 29 January 2018, the Lagos State House of Assembly passed the LUC Law, 2018 to repeal and replace the LUC Law, 2001. The Law imposes a land-based charge on all real properties situated in Lagos State. It also consolidates all property and land based rates and charges payable under the Land Rates Law, Neighbourhood Improvement Charge and Tenement Rates.
The Law defines property to include a building, any improvement on land, a parcel of land, leasehold of up to ten years. It, however, exempts property owned and occupied by a religious body and used exclusively as a place of worship or religious education, public cemeteries, property used as a registered educational institution certified by the Commissioner to be non-profit making, all palaces of recognized Obas and Chiefs not used for commercial purposes and any property as may be exempted by the Governor in a State Official Gazette. The annual land use charge is arrived at by multiplying the market value of the property by the applicable relief rate and annual charge rate described in the schedule to the Law. A general relief of 40% is applied in the calculation of the charge. The penalty for non-compliance with the provision of the LUC Law is ₦250,000 or imprisonment for a period of 3 months.
2.10 The reconstitution of the Tax Appeal Tribunal (TAT)
The TAT, which was dissolved in 2016, was reconstituted by the Federal Government across the six geopolitical zones as well as Lagos State and the Federal Capital Territory, Abuja. The reconstitution was announced by the then Honourable Minister of Finance, Kemi Adeosun, in Abuja on 12 July 2018.
The reconstitution of the TAT will expectedly foster speedy resolution of existing and fresh tax disputes. With the increased budgetary target of the FIRS and the increased disputes between the tax authorities and taxpayers, the reconstitution of the TAT is certainly timely.
2.11 Passage of CAMA (Repeal and Re-enactment) Bill, 2018
On Tuesday, 15 May 2018, the Senate passed the CAMA (Cap C20, LFN, 2004) Repeal and Re-enactment Bill, 2018, following a recommendation of the Senate Committee on Trade and Investment. The Bill consolidates the proposed amendments from two related bills: CAMA Cap C20 LFN, 2004 (Amendment) Bill, 2016 and the CAMA Cap C20 LFN 2004 (Amendment) Bill, 2017.
The Bill seeks to establish an efficient means of regulating businesses, minimize the compliance burden of small and medium enterprises (SMEs), enhance transparency and shareholder engagement and promote a friendly business climate in Nigeria.
Andersen Tax: Nigerian Tax and Fiscal Outlook 2019
KPMG: Nigerian Tax Journal 2019