FIRS SUBJECT MATTER SPECIALIST (SME) PROGRAMME
TAX POLICY AND ADVISORY COURSE.
1.0
TAXATION
1.1
Introduction
(i).
According to the Revised National Policy Document (2017), “tax” “is any
compulsory payment to government imposed by law without direct benefit or return of
value or a service whether it is called a tax or not”
(ii)
In other words, a tax is a compulsory contribution to the state revenue levied by
the government on the worker’s income, business profits or added to the cost of
some good, services and transactions (VAT) that has no Quid-Pro-Quo.
(iii)
Tax can also be regarded as a mandatory contribution paid by individuals and
corporate organisations to the government based on predetermined conditions in
which there is no quid pro quo principle.
(iii)
Taxes, according to World Bank (2000), are compulsory transfer of resources from
the rest of the economy to the government.
(iv)
It can also be regarded as is an involuntary fee levied on individuals or corporations
that is enforce by the government entity at the federal, states or local government
levels in order to finance the activities of government and does not have QuidPro-Quo.
NB:
While tax is the money paid to government from taxation, taxation is the Act of
imposing tax or the practice/principal method of collecting taxes.
1.2
Taxes and other payments:
Some of the major areas where tax is different from other payments are as follows:





1.3
i
Tax does not require consent and not directly tied to any service rendered
The government compels tax payments through an implicit or explicit threat or
force
The imposing institution is government and not a private actor
It is not a voluntary payment and not always paid in kind
The formulation of tax policy is one of the most critical and contentious issues in
modern politics
Objectives of the Nigerian tax system
To promote Fiscal responsibility and accountability
This is one of the main objectives of the NTP. That is the government should transparently
and judiciously account for the tax revenues generated through taxation by investing the
tax revenue in infrastructural facilities or public goods and services as demanded by the
people.
ii
To facilitate economic growth and development.
This means tax payment should be able to lead to economic growth and development.
Taxes should not be imposed in such a way as to be too high to a point of discouraging
savings and investment or at best discourage marginal propensity to save.
iii
To provide government with stable resources for purposes of provision of
necessary public goods or services.
iv
To address inequalities in income distribution. Tax should be progressive and
not regressive or digressive in Nature.
v
To provide economic Stabilisation
Taxes can be used to manage both economic recession as well as economic boom.
Taxes should be used to minimise the negative impacts of volatile boom and recessions
in an economy and also helps to complement the monetary policy so as to complement
economic stability. During economic recession, government reduces tax in order to
increase aggregate consumption. Reverse is the case when there is economic boom.
vi
To pursue fairness and equity
This follows ability to pay principle. That means fairness among different income
categories and equal treatment of individuals in the same income bracket.
vii
To correct market failure/imperfections.
Market failure arises when private sector is not able to provide the needed public goods
or inefficiently provided because of free riders problem especially. Government comes in
to produce such goods using revenue collected from taxes. An imperfect market is one
in which individual buyers and sellers can influence prices and production, where there is
no full disclosure of information about products and prices, and where there are high
barriers to entry or exit in the market, Prices set by price makers rather than by supply
and demand, a small number of buyers and sellers etc. It's the opposite of a perfect
market, which is characterised by perfect competition, market equilibrium, and an
unlimited number of buyers and sellers. Taxes are imposed to reduce their excesses.
This means tax should be flexible enough as to enable adjustments as economic
situations warrant in order to achieve government intentions.
1.4
Guiding principles of the Nigerian tax system or a good tax Policy (Canon of
Taxation/Characteristics of Taxation
Adams Smith (1776) in his famous book, “Wealth of Nations” propounded four
cannons of taxation
i.
Canon of equity- Tax imposed on individuals should be in accordance with his
ability to pay. The yield from the tax must be certain
ii.
Canon of certainty- A tax should not cause hardship to the tax payer. Therefore,
this canon requires that the tax payer should be certain about the amount, time
and revenue of payment of the tax. In the same manner, the yield from the tax to
government must be certain.
iii.
Canon of convenience- This maxim seems to ensure that the time and method
of payment of the tax become most convenient to the tax payer. CIT- six month
after the end of the accounting period PIT- one month after the end of the month.
iv.
Canon of economy- This principle indicates that a good tax system will require
the least possible expenditure on collection of taxes. If a large part of the tax
revenues is spent in collecting it, it is undoubtedly an inefficient tax system. In other
words, cost of collection must be minimum as possible compared to the tax
revenue collected.
Other Modern Economists further propounded the following:
v.
Canon of Simplicity
The tax system must be simple and intelligible and straightforward and nontechnical to the people so that the taxpayer is able to calculate it without taking the
help of tax consultants. A complex as well as a complicated tax is bound to yield
undesirable side-effects. It may encourage taxpayers to evade taxes if the tax
system is found to be complicated. A complicated tax system may also be
expensive in the sense that even the most honest educated taxpayers will have to
seek advice of the tax consultants. Ultimately, such a tax system has the
potentiality of breeding corruption in the society.
vi
Canon of Diversity: A country’s tax structure should be dynamic or diverse in
nature rather than having a single or two taxes. Diversification in a tax structure
will enable the majority of the sectors of the population to pay taxes. Introducing
a single tax system pay will only force a particular sector to pay tax into the national
purse, leaving a large number of population out of the tax net. The incidence of
such a tax system will be greatest on certain taxpayers. As such, a diversified tax
structure will result in the allocation of burden of taxes among the vast population
resulting in a low degree of incidence of a tax in the aggregate.
vii.
Canon of Productivity
It is argued in the above canon that it is better to have fewer taxes with large
revenues, rather than more taxes with lesser amounts of revenue. It is always
considered better to impose the only taxes that are able to produce larger returns.
More taxes also tend to create panic, chaos and confusion among the taxpayers
and it is also against the canon of certainty and convenience to a reasonable
extent. This however depends of the level of productivity of the relevant sectors of
the economy.
viii.
Canon of Elasticity:
A good tax should be elastic and not inelastic or perfectly inelastic. It should consist
of those types of taxes that can easily be adjusted. Taxes which can be increased
or decreased, according to the demand of the revenue are considered to be ideal.
ix.
Canon of flexibility:
A tax system should be flexible and no too rigid in order to accommodate a change
of the rate without rigorous processes when government is seriously in need of
revenue. Again when there is recession in the economy, lowering the rate of tax
should not be a challenge to the government. Prevailing circumstances should also
be considered before introducing new taxes or review the existing ones
x.
Clarity. The tax system must be very clear to the taxpayer and not too ambiguous.
This can be done through public education of the application of the relevant tax
laws.
xi
Low Cost of compliance:
Cost of compliance with relevant tax laws should not be too costly for the taxpayer.
That is taxpayers should not find it too difficult to get to a tax offices to transact
their businesses. E.g. is E-transactions. The taxpayers should also be regarded as
esteemed customers and be treated with the highest level of respect
xii
Low cost of administration
Cost of administering tax should be as low as possible. Cost Benefit Analysis must be
carried out before imposing any tax or even carrying out a tax audit or investigation. Entire
machinery of tax administration should be efficient and cost effective.
xii
Fairness
The treatments given to all categories of taxpayers must be fair. In view of the above,
there must be an overwhelming reasons for granting tax incentives and concessions to
some preferred sector over others within the economy.
xiii
Economic growth and efficiency
Taxes should be imposed in such a way that it does not have negative impacts on the
marginal propensity to savings and investments with the resultant multiplier effect on the
economy. It should not also pose competitive disadvantage to local firms.
xiv
Transparency and Accountability
Tax administrators should be seen as transparent and accountable to taxpayers in the
use of tax revenues. Taxpayers should also be aware of the existing taxes or new ones
imposed on them.
1.4
Benefits of imposing tax by the government of Nigeria.
(a)
(b)
(c)
(d)
(e)
To fund public infrastructure such as transportation and services.
Taxes are used for social development and welfare programmes.
To fund free education and medicare
To secure a country’s border in order to prevent external aggression
To provide government services-Fire services, medical services, other social
security etc
To provide public goods, such as military, other law enforcement agencies
To provide for social security such as internal revolts-Boko Harram, Niger Delta
Avengers etc
To fund salaries and pensions of government employees
To pay the principal and interest of government debts.
To provide public goods, such as military, other law enforcement agencies
(g)
(i)
(j)
(k)
(l)
(m)
(k)
To provide for social security such as internal revolts-Boko Harram, Niger Delta
Avengers etc
To fund basic economic stability and social security scheme that are meant to help
people who are unemployed or with very low income earners.
It is seen as social responsibility of individuals.
1.5
Multiplicity of taxes
(n)
Question
It is always argued that multiplicity of taxes has always been seen as a bane in the
Nigerian tax system. In the light of the above:
(i)
(ii)
(iii)
What is multiplicity of taxes?
Mention and explain the negative impacts of multiple taxes in Nigeria
How can these impacts be ameliorated
Accordance to National Tax Policy (NTP) Document, Multiple taxation is “where the tax,
fee, or rates is levied on the same person in respect of the same liability by more than
one state or Local Government Councils.
In the words of Professor Sanni Abiola on “Multiplicity of taxes in Nigeria: Issues,
Problems and Solutions” in International Journal of Business and Social Science, He
argued that the definition given in NTP Document is very narrow because it applies to
only states and local government. According to him, multiple taxes can manifest in at least
4 ways:
 It refers to the various unlawful compulsory payments being collected by the local
and state governments without appropriate legal backing through intimidation and
harassment of taxpayers using stickers, mounting of road blocks, use of revenue
collection
 It also refers to situations where a taxpayer is faced with demand from 2/more
different levels of government either for the same or similar taxes. E.g
Administration of VAT/Sales tax simultaneously.
 It further refers to where the same level of government imposes 2/more taxes on
the same tax base. E.g CIT, Tertiary Education Tax, Technology levy on the same
company
 Where various government agencies “impose” taxes in form of fees/charges.
(ii)
Negative Impacts of multiple taxes in Nigeria
(a)
(b)
Impediments on ease of doing business in Nigeria
Impact on integration of National market because of the competitiveness with
imported products and to compete successfully in export markets
Disincentive to expand production leading to high prices (inflation)
Impact on integration of National market
Discourages investments in productivity enhancing measures and lower returns to
human capital (labour)/lower jobs creation
Lower tax compliance/Transparency resulting from increased costs.
Jeopardises direct foreign investments coming into Nigeria.
Loss of man hour to both the government and private business mainly due to
stoppage of production resulting from increased costs.
(c)
(d)
(e)
(f)
(g)
(iii)
Mitigating the impact of Multiplicity of taxes.
(a)
(i)
Delimiting the scope of taxes and levies collectible by each levels of government
via statute
Stoppage or restriction of the role of tax consultants in tax administration
Establishing revenue authority at the state and local government levels
Imposing penalties for contravention of the law
The state governments should not usurp the taxes assigned to the local
governments.
Make available to the local government all revenues from the federation account.
Ensure that the ministry of Local Government and house of assembly play their
oversight function very well on the activities of the local government
Unified tax administrative structure. This will prevent states and local governments
from attempting to take their own share of corporate tax through the back doors in
form of illegal taxes and levies.
(Ensure there is only one revenue agency per each level of government.
2.0
Tax System
(b)
(c)
(d)
(e)
(f)
(g)
(h)
* Tax system refers to the pattern of tax administration adopted by tax authorities world
over for purposes of achieving the purpose of imposition and collection of taxes. This is
achieved mainly through Tax Policy. Tax policy therefore refers to Guidelines and
principles established by government for imposition and collection of taxes.
* It is a set of Regulation, Institutes (or organisation with particular purpose) and Norms
(or standard) bound or put together in a unique mechanism for the purpose of achieving
a certain Tax Policy; (where Tax Policy refers to the Guidelines and Principles
established by government for imposition and collection of taxes).
* The tax system include a large number of tax forms that differ in each system. This
system is a set of institutes and instruments available to tax authorities for achieving
certain fiscal, economic and political goals within an economic system.
* Specifically, it can equally be regarded as a set of taxes in force in a country at a given
point in time.
* For instance Nigeria operates a decentralised system in which the various levels of
government are responsible for the taxes within their jurisdiction. Nigeria also employs a
progressive tax system where an individual with a higher income pays higher income
tax as against the lower income taxpayers.
The Nigerian tax system is made up of the following:
2.1.1 Tax Policy
2.1.2 Tax Laws
2.1.3 Tax Administration
2.1.1 Tax Policy - The Tax Policies of Nigeria.
Policies are general course of action adopted by organisation or even individuals for
purposes of achieving a set of objectives. Tax Policy therefore refers to the Guidelines
and Principles established by government for imposition and collection of taxes
Tax Policy is an administrative apparatus that is built to levy and collect tax, through
application of different rates. Tax policy makers debate the nature of the tax structure they
plan to implement and how they might affect individuals and businesses. It is always the
Technical Hub of any tax authority world over.
(a)
Objectives of Tax Policy
Tax policy is necessary as it provides the general framework and guidelines to effective
taxation in an economy. Specifically, tax policy:
(i)
Defines the economic structure of a country. This refers basically to the main
sectors of the economy which are: primary, secondary, Tertiary (services) sectors.
All these sectors work together to enable a country produce the goods, services
and other resources needed. Thus Economic structure is the underlining
framework, including transportation and communications system, industrial
facilities, education and technology etc that enables a country or region to
produce goods, services and other resources with exchange value. Nigeria
is a mixed economy with private and government sectors working. But government
may intervene to regulate the activities of the private sector.
(ii)
Defines the capacity and capability to administer taxes: “Capacity” refers to
what a person can do in a standardised controlled environment (that is ability or
power to understand something and impact on total environment) while “capability”
refers to what a person can do in his or her daily environment. (extent of someone’s
ability). The two are most times used interchangeably. The main reason the
headship of and tax administration must be technically competent.
(iii)
Defines the public service needs and expectation. Public service needs refer
to provision of essential public goods and services such as electricity or service
such as transportation, education, police, emergency services, social
workers etc to the public as these are financed with tax revenue.
(iv)
Defines a country’s access to such other sources of revenue such as aids, grants
etc
(v)
It also takes into account such nebulous (vague or cloudy) but important factors as
tax morale (what drives people to pay tax) tax culture (ability to know that tax
payment is civic responsibility) and perhaps above all the level of ‘trust’ existing
between people and their government in an economy.
(b)
Benefits of Tax Policy
(i)
(ii)
(iii)
(iv)
(v)
(vi)
Provision of general framework for effective and efficient taxation practices.
Provides direction and focus on general tax practice
Harmonisation of divergent opinions on a particular tax and issues around it.
Provides a basis for luring direct foreign investment.
Consolidates several documents into a single document for ease of reference
Serves as a tool that propels national economic development.
(c)
Tax Policy Department of Federal Inland Revenue Service & its
Responsibilities
(i)
Role statement
To collate and review all government policies and laws on taxation and enhance their
systemic and efficient implementation through the provision of tax advisory, circulars
regulations and Tax Treaty Agreements.
(ii)
Key Responsibilities
(a)
Develop for Management approval, Information Circulars, Regulations and
Presidential/Ministerial Orders to give effect to critical tax policy interventions.
(b)
Identify and pursue resolution of ambiguous provisions in the tax laws and policies
by proposing appropriate amendment and changes including provision of rulings.
(c)
Collaborate with relevant stakeholders (including the Federal Ministry of Finance,
Ministry of Justice, NASS) in the pursuit of legislation and policy improvements.
(d)
Collaborate with the Federal Ministry of Finance, Ministry Foreign Affairs, Ministry
of Justice as well as National Assembly in the negotiation, ratification and
implementation of Tax Treaties and acting on behalf of the Competent Authority in
liaison with other relevant government and international agencies to attend to all
requests for information from all treaty partners.
(e)
Respond to taxpayers’ enquiries on technical tax matters and collaborate with
Taxpayer Service Department in the provision of taxpayer information circulars and
guidance for publication on FIRS website and other appropriate media.
(f)
To ensure timely preparation of TECOM deliverables/memoranda on issues
referred to the Department by TECOM/Management.
2.1.2 Overview of Nigeria Tax Policy-(Pre-Reform Era)
The Nigeria Tax Policy has evolved overtime that it would be inconclusive to trace the
recent tax policy reform without reference to the status prior to this time.
+ Tax policy in Nigeria though without been put into a document has thrived on the fiscal
objectives of government providing directions; and in the last decade, Nigeria has
pursued a consistent set of fiscal objectives which are:
(i)
Pursuance of a deliberate low tax regime, aimed at reducing individual tax burden
in order to encourage savings and investment
(ii)
Use tax incentives to stimulate economic growth and promote the development of
certain sectors of the economy such as solid minerals, agriculture, oil & gas etc.
(iii)
Deliberate move from income tax to consumption tax, which is easy to administer,
less prone to tax evasion with high volume of tax yield.
(iv)
Moving from traditional coercive approach to encouraging voluntary compliance.
(v)
Introduced self-assessment regime to encourage taxpayer participation in the
assessment process of the law and mechanism of an efficient tax administration
to curb tax evasion and avoidance.
(vi)
Creation of modern tax administration that can match the avoidance practices.
2.1.3 Process of Tax Policy Formulation in Nigeria
(d)
Tax Laws Formulation Processes
The tax law formulation process:
• Starts with identification of tax related issues that hinder smooth administration of taxes.
• The identification can be made by any stakeholder such as tax authorities, taxpayers,
government, tax practitioners/bodies such as CITN, etc.
• Tax Policy and Advisory Department anchors and drafts a proposal for amendments to
tax laws.
• FIRS sends the proposal to Minister of Finance
• Minister of Finance presents the draft to Federal Executive Council (FEC) for approval.
• Attorney General puts it in a bill form and sends to National Assembly (NASS) through
the President in an executive bill format.
• NASS considers the bill via it's laid down parliamentary rules and regulations and
passes same into law.
2.1.3 The National Tax Policy
Benefits of Tax Policy
(iii)
(v)
Harmonisation of divergent opinions on a particular tax and issues around it.
Consolidates several documents into a single document for ease of reference
(i)
What is National Tax Policy and when was the revised National tax policy
approve by the Federal Executive council?
Mention and explain the major objectives of the National Tax Policy
The Nigeria tax system is faced with some challenges. Mention and explain
some of these challenges.
(ii)
(iii)
(i)
National Tax policy refers to a statement of the Objectives, Principles, Rules and
Modus-Operandi which are meant to guide the administration of taxation at all
levels of government with a view to achieving set of macro-economic objectives.
(The Macro-economic objectives are Economic growth, Full employment, Price
stability and Balance of payment stability).
(ii)
It can also be regarded as the “Bible” that guides the Thinking, Formulation &
(Execution of “strategies” relevant to taking tax administration at all levels and the
tax system at large to optimum heights.
(iii)
The NTP is expected to provide a “direction for the Nigeria’s tax system and
establish a framework that all stakeholders would subscribe to and to which they
would be held accountable” It also provides direction for the future of the tax
system of the nation.
2.1.4
Rationale for National Tax Policy
The reasons for reform and the decision to develop a National Tax Policy could be traced
back to the structure of the existing tax system and some of its inherent problems such
as:
(i)
The increased demand to grow internally generated revenue, which has
led to the exercise of the powers of taxation to the detriment of the taxpayers
who suffer multiple-taxation and bear a higher tax burden than anticipated;
(ii)
Insufficient information available to taxpayers on tax compliance
requirements which created uncertainty and room for leakages in the tax
system.
(iii)
Multiple taxation by government at all levels, which impacted negatively
on the investment climate in Nigeria. Elimination of multiple taxation is
therefore of major concern at all levels of government.
(iv)
Lack of accountability for tax revenue and its expenditure.
(v)
Lack of clarity on taxation powers of each level of
government/encroachment on the powers of one level/state by another
(v)
Lack of skilled manpower and inadequate funding which led to the
delegation of powers of revenue officials to third parties, thereby
creating uncertainty in the tax system and increasing the cost of tax
compliance.
(vi)
Use of aggressive and unorthodox methods for tax collection.
(vii)
The non-refund of excess taxes to taxpayers, due to obsolete laws, that
do not reflect Nigeria’s current realities.
(viii)
The lack of a specific policy direction for tax matters in Nigeria and the
absence of laid down procedural guidelines for the operation of the various
tax authorities.
These and other problems plaguing Nigeria’s tax system have not been adequately
tackled for many years. One of the reasons for this was Government’s heavy reliance on
revenues derived from oil, as a result of which little or no attention had been given to
revenue from other sources, such as taxation.
However, there is now a renewed
commitment by the Federal Government to diversify the economy by growing the non-oil
tax revenue in order to develop a stable and sustainable revenue source to finance
developmental projects.
Flowing from the above, it is evident that the tax system required reform. Although there
had been several reforms in the past, these reforms were not pursued under any
policy direction and, in some cases, were carried out in an uncoordinated manner.
This informed the decision of the Study and Working Groups (referred to above) that
there should be a National Tax Policy that would provide a direction for Nigeria’s tax
system and establish a framework that all stakeholders would subscribe to and to
which they would be held accountable.
(ii)
The major objectives of the National Tax Policy
The NTP is expected to achieve the following specific objectives:
(a)
(b)
(c)
(d)
(e)
To guide the operation and review of the tax system;
To provide the basis for future tax legislation and administration;
To serve as a point of reference for all stakeholders on taxation;
To provide benchmark (a standard or point of reference) on which stakeholders
shall be held accountable; and
To provide clarity on the roles and responsibilities of Stakeholders in the tax
System.
(iii)
Key features of the informal National Tax policy in Nigeria in the last two
decades are:
(a)
Pursuance of a low tax regime with the aim of reducing tax burden and thereby
encouraging saving and investment.
(b)
Deliberate shift of emphasis from Direct to Indirect tax which is less prone to
evasion.
(c)
Movement from the traditional coercive method of taxation to voluntary
compliance.
(d)
Introduction of self-assessment to encourage taxpayers’ participation in the tax
assessment process which is considered to be more democratic in nature and
realistic in approach.
(e)
Using the due process of the law and mechanism of an efficient tax administration
to curb evasion and avoidance.
(f)
Streamlining of taxes with a view to avoiding multiplicity of taxes.
(g)
Use of tax incentive to stimulate economic growth and promote development of
certain sector of the economy such as solid minerals, agriculture, oil & gas etc.
(iii)
The major challenges of the existing Nigerian tax system
The attempts to develop a national tax policy for Nigeria can simply be traced to the
structure in the existing tax system and some problems identified. Some of these are:
(a)
Lack of robust framework for the taxation of informal sector and high network
individuals, thus limiting the revenue base and creating inequity;
Fragmented database of taxpayers and weak structure for exchange of information
by and with tax authorities, resulting in revenue leakage;
Inordinate drive by all tiers of government to grow internally generated revenue
which has led to the arbitrary exercise of regulatory powers for revenue purpose;
Lack of clarity on taxation powers of each level of government and encroachment
on the powers of one level of government by another;
Insufficient information available to taxpayers on tax compliance requirements thus
creating uncertainty and non-compliance;
Poor accountability for tax revenue;
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
(k)
(l)
Insufficient capacity which has led to the delegation of powers of revenue officials
to third parties, thereby creating complications in the tax system;
Use of aggressive and unorthodox methods for tax collection;
Failure by tax authorities to honour refund obligations to taxpayers;
The non-regular review of tax legislation, which has led to obsolete laws, that do
not reflect current economic realities; and
Lack of strict adherence to tax policy direction and procedural guidelines for the
operation of the various tax authorities.
Lack of specific policy direction for tax matters in Nigeria and the absence of laid
down procedures for various tax authorities to operate.
THE REVISED NATIONAL TAX POLICY
Question
(i)
Explain the genesis of the revised National Tax Policy that was approved by
FEC on 1st February, 2017.
(ii)
What are the mandate of the committee set up in that respect?
(iii)
What are the rationale for the review and the recommendations in view of the
challenges of Nigeria tax system identified.
(iv)
What are the current challenges identified as facing the tax system by the
committee
(v)
Key recommendations of the committee
(vi)
Mention the main thrust of the National Tax Policy
Answer
(a)
Tax policy refers to a statement of the Objectives, Principles, Rules and ModusOperandi which are meant to guide the administration of taxation at all levels of
government with a view to achieving set of macro-economic objectives. (The Macroeconomic objectives are Economic growth, Full employment, Price stability and Balance
of payment stability).
It can also be regarded as the “Bible” that guides the Thinking, Formulation & Execution
of “strategies” relevant to taking tax administration at all levels and the tax system at large
to optimum heights.
The NTP is expected to provide a “direction for the Nigeria’s tax system and establish a
framework that all stakeholders would subscribe to and to which they would be held
accountable” It also provides direction for the future of the tax system of the nation.
The Federal Executive Council (FEC) thus approved a Revised National Tax Policy for
the country on the 1st of February, 2017. The new policy is one of government’s efforts
to widen the nation’s tax net to shore up the revenue accruing to the country. It is the
outcome of the recommendation of the committee set up to review the “Old” National Tax
Policy by the then Minister of Finance (MOF) in August, 2016.
NB:
The new tax policy was approved by the FEC on 1st February, 2017
(b)
Mandates of the committee
The committee was mandated among other things:
(i)
(ii))
(iii)
To review and update the Tax Policy Document which was 1st published in 2012.
To identify some luxury items for purposes of increasing the tax rates and
To recommend workable implementation of the New National Tax Policy
Document.
(c)
Rationale for Revised National Tax Policy
Some of the major reasons for the review of the NTP are:
(i)
(vi)
(vii)
(viii)
To make the National Tax Policy conform to global Best Practice as well as aligning
with the nation’s socio-economic realities.
To entrench an improved Tax Policy to effectively harness the much needed
resources necessary for the nation’s sustainable economic growth and
development
To recommend a list of tax laws and regulations that need to be reviewed or
amended
To widen the nation’s tax net to shore up the revenue accruing to the country.
To identify some luxury goods for increased tax rate. Some of these luxury goods
are Champagne, Alcoholic beverages, Yachts, Private jets, Luxury cars
based on engine capacity, Expensive cosmetics and Perfumes, Topnotch
mobile phones such as iphones and ipads, Designers watches, Jewelry and
Retailer clothing, gadgets.
To ensure competitive and robust macro-economic environment
To address problem of multiple taxes
To improve the Tax to GDP ratio
(c)
Main thrust (Principal purpose) of the new National Tax Policy
(ii)
(iii)
(iv)
(v)
If properly implemented, the new Tax Policy will:
(i)
(ii)
(iii)
(iv)
Guide the operation of our tax system towards meeting its objectives
Provide the basis for future tax legislation and administration
Serve as a reference point for all stake holders.
Hopefully provide a benchmark (evaluation of standard) on which stakeholders
can be held accountable in the tax system.
(v)
(vi)
(vii)
(d)
Align all existing and future taxes based on capacity, fairness and simplicity among
other variables
Reinforce the role of the MOF in formulation, Coordination and implementation of
Tax Policies on on-going basis.
Recognise the primacy (importance) of the taxpayers and clearly states their rights
and duties.
The current challenges identified as facing the tax system by the committee
When fully implemented, the Policy is expected to address key challenges confronting
the Nigeria tax system including:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(e)
Low tax to GDP ratio
Fragmented database of taxpayers and weak structure for exchange of
information
Multiplicity of taxes and revenue agencies
Poor accountability for tax revenue
Use of aggressive and unorthodox methods for tax collection
Failure by tax authorities to honour refund obligations to taxpayers
The non-regular review of tax legislation, which has led to obsolete laws that do
not reflect Current economic realities.
Key recommendations of the committee
Some of the key recommendations to address the challenges include:
(i)
(ii)
(iii)
(iv)
(iv)
(v)
1.1
Ensuring that there is only one revenue agency per level of government
Establishment of a Tax court as an independent body to adjudicate in tax matters
Lower tax rate and VAT compliance threshold for SMEs
Establishment of an Office of Tax Simplification for continuous improvement to tax
legislation and administration and develop Key Performance Indices for Nigeria to
attain a top 50 position on the global index of ease of paying taxes by 2020 and
consistently improve on the ranking
Administrative framework for amnesty and whistle blowing as part of the strategies
for curbing evasion and widening the tax net
INEC to mandate political parties to articulate, prepare, provide and make public
their Tax Agenda before and during election campaigns
Guiding Principles of Nigeria Tax System
All existing and future taxes are expected to align with the following fundamental features:
(a)
Equity and Fairness: Nigeria tax system should be fair and equitable devoid of
discrimination. Taxpayers should be required to pay according to their ability.
(b)
Simplicity, Certainty and Clarity: Tax laws and administrative processes should
be simple, clear and easy to understand.
(c)
Convenience: The time and manner for the fulfilment of tax obligations shall take
into account the convenience of taxpayers and avoid undue difficulties.
(d)
Low Compliance Cost: The financial and economic cost of compliance to the
taxpayer should be kept to the barest minimum.
(e)
Low Cost of Administration: Tax Administration in Nigeria should be efficient
and cost-effective in line with international best practices.
(f)
Flexibility: Taxation should be flexible and dynamic to respond to changing
circumstances in the economy in a manner that does not retard economic
activities.
(g)
Sustainability: The tax system should promote sustainable revenue, economic
growth and development. There should be a synergy between tax policies and
other economic policies of government.
1.2
Taxation as a Tool for Economic Management and Development (Goals of
the Tax System)
Question
The tax system is expected to support sustainable growth and development at all
times in line with National Tax Policy Document. In this regard, the tax system
should be geared towards meeting the following goals: List and explain these goals
Answer
The tax system should support sustainable growth and development at all times. In this
regard, the tax system should be geared towards meeting the following goals:
(a)
Wealth creation and employment
The tax system should be designed to promote social, political and economic
development. Accordingly;
i. Tax policies shall promote employment, export and local production;
ii. Tax policies and laws shall not be retroactive;
iii. Tax policies and laws should ensure equal investment opportunities and support for
businesses whether local or foreign;
iv. Tax policies and laws on investments should be long term focused and tenured to
enable investors plan with reasonable certainty;
v. Any incentive to be granted should be broad, sector based, tenured and transparent.
Implementation should be properly monitored, evaluated, periodically reported and kept
under review;
vi. Revenue forgone from tax incentives or concessions should be quantified against
expected benefits and reported annually. Where the benefits cannot be quantified,
qualitative factors must be considered; and
vii. Tax policies on investments should not promote monopoly such as entry barriers or
otherwise prevent competition.
(b)
Taxation and Diversification
There should be concerted efforts to attract investments in all sectors of the economy,
with more focus on promoting investment in specific sectors as may be identified by
government in the overall interest of the country from time to time. This will boost the
revenue base for optimum revenue generation.
(c)
Focus on Indirect Taxation
The tax system should focus more on indirect taxes which are easier to collect and
administer and more difficult to evade. Tax rates should be progressive and should be
designed to promote equality. The tax system should gradually seek a convergence of
personal income tax and capital gains tax rates with corporate income tax rates to reduce
opportunities for tax avoidance.
(d)
Convergence of Tax Rates
Tax rates should be progressive and should be designed to promote equality. The tax
system should gradually seek a convergence of the highest marginal rate of personal
income tax, capital gains tax rates and the general companies income tax rates to reduce
opportunities for tax avoidance.
(e)
Special Arrangements and Other Incentives
Special arrangements should be sector based and not directed at entities or persons.
Also, special arrangements such as free zones and other tax incentives or waivers should
not be arbitrarily terminated except as provided in the enabling legal framework or treaties
at the time of creation. Government should provide tax incentives to specific sectors or
for such specific activities in order to stimulate or retain investment in the sector. The
process of granting and renewing the incentives, waivers and concessions shall be
transparent and comply strictly with legislative provisions and international treaties.
(f)
Creating a Competitive Edge
i. Reduction in the Number of Taxes
Taxes should be few in number, broad-based and high revenue-yielding. The
administration of the taxes should also be simplified for ease of enforcement and
compliance.
ii. Avoidance of Multiple Taxation
Taxes similar to those being collected by a level of Government should not be introduced
by the same or another level of Government. The Federal, State and Local Governments
shall ensure collaboration in harmonizing and eliminating multiple taxation.
(g)
International and Regional Treaties
A wide network of International and Regional treaties would be beneficial to the economy.
In this regard, Nigeria shall continue to expand its treaty network in the best interest of
the Nigerian State. Generally, treaties should prevent double taxation without
creating opportunities for double non-taxation (tax is not paid at both source
country as well as residence country). Eg, if the tax rate for CGT in Nigeria is 0%. Thus a Nigeria
investor need not pay tax in Ghana, if he does same business there.
Existing treaties should be reviewed regularly and where necessary renegotiated in line
with international best practices. New treaties should consider benefits to Nigeria both in
the short, medium but more importantly long term.
Nigeria’s model double tax treaty should be regularly reviewed to adequately cater for the
best interests of the country. Appropriate measures shall be taken to ensure that all
treaties duly signed and ratified are implemented.
STAKEHOLDERS IN THE NIGERIAN TAX SYSTEM & ORGAN RESPONSIBLE FOR
IMPLEMENTAION OF NATIONAL TAX POLICY.
Question
(a)
List and explain the key or relevant stakeholders in the Nigerian tax system
and what are their relevant roles?
(b)
Which organs are responsible for the implementation of the National Tax
Policy and what are their responsibilities?
(a)
The key stakeholders in the Nigeria tax system can be broadly categorised as
follows:
(a)
The Government
All levels and arms of Government, Ministries, Extra-Ministerial Departments and
Agencies are to:
(i)
(ii)
(iii)
(iv)
(b)
Implement and regularly review tax policies and laws;
Provide information on all revenue collected on a quarterly basis;
Ensure adequate funding, administrative and operational autonomy of tax
authorities; and
Ensure a reasonable transition period of between three and six months before
implementation of a new tax.
The Taxpayer
A taxpayer is a person, group of persons or an entity that pays or is liable to tax. The
taxpayer is the most critical stakeholder and primary focus of the tax system. The taxpayer
shall consider tax responsibilities as a civic obligation and constant duty that must be
discharged as and when due. In view of this, the taxpayer shall be entitled to:
(i)
Relevant information for the discharge of tax obligations;
(ii)
(iii)
(iv)
(v)
(c)
Receive prompt, courteous and professional assistance in dealing with tax
authorities;
Raise objections to decisions and assessments and receive response within a
reasonable time;
A fair and impartial appeal; and
Self-representation or by any agent of choice, provided an agent acting for financial
reward shall be an accredited tax practitioner.
Revenue Agencies
Revenue agencies that are responsible for the collection and administration of revenue
shall:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(d)
Treat the taxpayer as a customer/esteemed taxpayer
Ensure efficient implementation of tax policies, laws and international treaties;
Facilitate inter-agency co-operation and exchange of information;
Undertake timely audits and investigations;
Undertake tax awareness and taxpayers’ education, and
Establish a robust process to prevent, detect and punish corrupt tax officials.
Professional Bodies, Tax Practitioners, Consultants and Agents
The above bodies of stake holders shall:
(i)
Act in accordance with professional code of conduct and ethics;
(ii)
(iii)
Not aid and abet tax evasion and corrupt practices, and
Actively promote effective tax compliance.
(e)
Media and Advocacy Groups
The media and other advocacy groups shall:
(i)
Promote tax education and awareness;
(ii)
Articulate, protect and advance taxpayers right;
(iii)
Advance accountability and transparency in the utilization of tax revenue;
(iv)
Ensure accurate, objective and balanced reporting in accordance with their
professional code of conduct and ethics; and
(v)
Ensure that aspiring political office holders clearly understand the Tax Policy and
the Nigerian tax system and are able to articulate their plans for the tax system to
which they will be held accountable.
(b)
The organs that are responsible for the implementation of the National Tax
Policy and their responsibilities are as stated below:
(a)
The President and Governors
(i)
Budget Speeches: The President and Governors shall ensure that Budget
Speeches and presentations for the fiscal year contain the fiscal policies and
summary statements of the expected tax revenue. This will give key stakeholders
a sense of what government plans to do and enable them to plan accordingly.
(ii)
One Revenue Authority per level of government: The President and Governors
should work towards ensuring that there is only one revenue agency per level of
government. This would streamline revenue administration and improve efficiency
of revenue collection. Ministries, Extra-Ministerial Departments and Agencies
other than tax authorities should not become tax collecting bodies.
(iii)
Tax Court: The Executive shall sponsor a bill for the establishment of a tax court
as an independent body to adjudicate in tax matters.
(b)
Legislature
(i)
Taxation committee/Tax policy implementation committee: The National and
State Houses of Assembly are encouraged to establish a Taxation Committee to
focus on tax matters and collaborate with the Tax Policy Implementation
Committee.
(ii)
Review of tax rate applicable to small businesses in line with current economic
realities. The income tax rate for small businesses should be further reduced as
an incentive to encourage compliance and promote Micro, Small and Medium
Enterprises (MSMEs). This is why in Finance Act, 2019, graduated rate are:
(iii)
- 0% for small companies
Less than 0r equal to N25m per annum
- 20% medium Size companies
Greater than N25m but less than N100m
- 30% for large companies
Greater than N100m
Review the minimum threshold for VAT registration and compliance in order to
protect micro-businesses.
The amendment to Section 15 of VATA created a threshold for taxable persons
with a taxable supplies of N25m and above are required to charge, collect, remit
and remit the tax and file monthly returns to FIRS
(c)
Ministry of Finance
(i)
The Minister of Finance shall set in motion machinery for Tax Reform.
(ii)
The Minister of Finance shall establish a Tax Policy Implementation Committee to
monitor compliance, regularly review the Policy and make appropriate
recommendations.
(iii)
The Minister of Finance/Commissioners of Finance shall ensure automation of
collection and remittance processes of taxes by all Ministries, Extra-Ministerial
Departments and Agencies.
(iv)
Ministry of Finance shall create a dedicated tax policy website. Apart from
sensitizing the general public on the provisions of the Tax Policy, such a platform
would facilitate feedback from stakeholders on the existing and future policy
proposals.
(d)
Ministries, Departments and Agencies (MDAs)
(i)
Periodic report: Head of MDAs shall give periodic report(s) to the Ministry of
Finance on the level of implementation of the National Tax Policy. Apart from
sensitising the MDAs to the provisions of the Tax Policy, such reports would afford
the Ministry of Finance the opportunity to determine the level of compliance and
devise appropriate responses as may be necessary to improve implementation.
(e)
Tax Authorities
(i)
To promote tax awareness and a tax culture in Nigeria, the Federal and State tax
authorities through the Joint Tax Board shall set aside a uniform day in the year as
a National Tax Day, e.g Tax Thursdays. Also, Government should make concerted
efforts to ensure that taxation is taught at all levels of education. The following
universities offer degree in Taxation in Nigeria: Adamawa State University, Uniben,
Caleb University, Lagos, Federal University, Dutse and Nasarawa State
University, Keffi
(ii)
Tax authorities shall establish administrative framework for amnesty and whistle
blowing as part of the strategies for curbing evasion and widening the tax net.
(iii)
Federal and State Tax authorities should respond promptly to the changing
business environment as it affects tax administration and develop a workable
framework to meet the taxpayer demands in this respect.
(f)
Independent National Electoral Commission (INEC)
(i)
Tax Agenda: The Independent National Electoral Commission (INEC) shall by
necessary Regulation and Rules mandate political parties to articulate, prepare,
provide and make public their tax agenda before and during election campaigns.
This will make political parties reflect more deeply in an organised fashion on the
financial implications of their promises and the options of financing them. This
would also help the taxpayer know the preferences of each party on tax matters
and take informed decision.
Nigerian Tax Laws
The Nigerian Tax Laws refer to the package of written and gazetted rules being applied
by the three levels of government namely, the Federal, State and Local governments for
the administration of taxation in Nigeria.
The following are the notable tax legislations in Nigeria to date:
1.
2.
3.
4.
Capital Gains Tax Act (CGT) Cap C 1, LFN 2004
Casino Tax-Cap C3 LFN
Companies Income Tax Act (CITA), Cap C21, LFN 2004 (as amended to date).
Deep Offshore & Inland Basin Production Sharing Contracts-Cap D3-LFN
5.
6.
7.
8.
9.
Federal Inland Revenue Service (Establishment) Act, 2007
Income Tax (Authorised Communication) Act-Cap 14-LFN
Industrial Development (Income Tax Relief)-Cap 17, LFN
Industrial Inspectorate Act-Cap 18, LFN
National Information Technology Development Agency Act (NITDA)-Cap N156,
created in 2001
10
Nigeria Export Processing Zone ACT-LFN Cap N107
11
Oil & Gas Export Free Zone Act-Cap O5,LFN
12
Personal Income Tax Act, (PITA) Cap P8, Laws of Federation of Nigeria (LFN)
2004. This is the consolidation of the PITA 1993 (with subsequent amendments)
13
Petroleum Industry Act, LFN, 2021
14.
Petroleum Profit Tax Act (PPTA), Cap P13, LFN 2004 (as amended to date).
15
Stamp Duties Act (SDA) Cap S8, LFN 2004
16
Taxes and Levies (Approved List of Collection) Act, Cap T2, LFN
17
Tertiary Education Trust Fund (Establishment etc) Act, LFN, 2011
18
Value Added Tax Act (VATA) Cap VI, LFN 2004 as amended to date.
19
Venture Capital (Incentives) Act, Cap V2, LFN
20
Nigeria LNG (Fiscal Incentive, Guarantee & Insurance Act
Others
21
National Agency for Science and Engineering (NASENI)-Applicable to companies
with Turnover of N 100m and above (0.25% of Profit Before Tax)
22.
Nigeria Police Trust Fund Act-Passed by National Assembly in April 2019 and
signed into law on April 24th April, 2019 (0.005% of “ Net Profit” of companies
operating business in Nigeria
23.
NYSC Trust Fund (Establishment) Bill, 2021. Passed the 3 rd reading (1% of Net
Profit of companies in Nigeria)
These are fully discussed under Tax Legislation (chapter 4)
Tax Administration
Question:
(i)
Explain the history of Tax Administration in Nigeria
(ii)
What are the general constraints to Tax Administration in Nigeria
(iii)
How can these constraints be ameliorated?
(a)
History of taxation in Nigeria dates back to even when the name Nigeria wasn’t
coined. During this time, the tax administrators then were the traditional chiefs tax agents.
At this time, it was mostly farm produce and other primary goods.
The modern taxing system by the Federal Government of Nigeria under it taxation arm;
Federal Inland Revenue Service (FIRS) could be traced back to the year 1939 when the
Companies Income Tax Ordinance was created.
After the creation of this first taxation body, it had always changed, in response to the
changes made to the tax law which are caused by several other factors. In 1978, the Task
Force on Tax Administration under the leadership of Alhaji Shehu Musa formed the
Federal Inland Revenue Service (FIRS) as the operational arm of Federal Board of Inland
Revenue (FBIR).
In view of the above, Tax Administration refers to the package of activities relating
to the planning, organising, directing and controlling of the taxation function of the
government in a way that best guarantee the attainment of set macro-economic
goals for a nation.
Tax administration in Nigeria is vested in the three tiers of government. Taxes payable
to the Federal Government are administered by the Federal Inland Revenue Service
(FIRS), while those payable to the State Governments are administered by the State
Boards of Internal Revenue (SBIRs) of the thirty- six states of the Federation (including
Abuja, FCT), Local Governments also administer rates and levies collectible by them
through their various councils.
The tax authorities of these three tiers of government derive their creation from Federal
laws and they include:
The areas of Tax Jurisdiction are stated under TAXES AND LEVIES (APPROVED LIST
OF COLLECTION) ACT, CAP T2, LFN
1.1
The Federal Tax Authority
 Federal Inland Revenue Service (FIRS) and its Management Board
(Sections 1, 2 and 3 of the FIRS (Establishment) Act. No 13, 2007.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(a)
(b)
(c)
Companies Income Tax
Withholding tax on companies, residents of the Federal Capital Territory, Abuja and nonresident individuals.
Petroleum profits tax.
Education Tax.
Value Added Tax.
Capital gains tax on residents of the Federal Capital Territory, Abuja, corporate and nonresident individuals.
Stamp duties on bodies corporate and residents of the Federal Capital Territory, Abuja.
Personal income tax in respect of:
(ix)
Members of the armed forces.
Members of the Nigeria Police Force.
Residents of the Federal Capital Territory, Abuja; and (d) Staff of the Ministry of Foreign Affairs
and non-resident individuals
National Information Technology Development Levy .
1.2
The State Tax Authority
 State Board of Internal Revenue (SBIR) (Section 87 (1) & 2 of the Personal
Income Tax Act (PITA), Cap P8 of LFN, 2004 as amended.
 Personal income tax in respect of: (a) Pay-As-You-Earn (PAYE); (b) Direct taxation (Selfassessment)
 Withholding tax for Individuals
 Capital gains tax for individuals
 Stamp duties on instruments executed by individuals.
 Pools betting, lotteries, gaming and casino taxes.
 Road tax.
 Business premises registration


















1.3
The Local Government Tax Authority





















D.
Development levy for individuals
Naming of street registration fees in State Capitals.
Right of Occupancy fees on lands owned by the State Government.
Market taxes and levies where State finance is involved.
Hotel, Restaurant or Event Centre Consumption Tax, where applicable
Entertainment Tax, where applicable
Environmental (Ecological) Fee or Levy
Mining, Milling and Quarry Fees, where applicable
Animal Trade Tax, where applicable
Produce Sales Tax, where applicable
Slaughter or Abattoir Fees, where state finance is involved
Infrastructure Maintenance Charge or Levy, where applicable
Fire Service Charge
Economic Development Levy, where applicable
Social Services Contribution Levy, where applicable
Signage and Mobile Advertisement, Jointly collected by States and Local Governments
Property Tax
Land use charge, where applicable.
 Local Government Revenue Committee (Sections 90 of PITA, Cap P8 LFN,
2004 as amended.
Shops and, kiosks rates
Tenement rates
On and off liquor license fees
Slaughter slab fees.
Marriage, birth and death registration fees.
Naming of street registration fee, excluding any street in the State Capital
Right of Occupancy fee on lands in rural areas, excluding those collectable by the Federal and
State Governments.
Market taxes and levies excluding any market where State Finance is involved.
Motor Park levies.
Domestic animal license fees.
Bicycle, truck, canoe, wheelbarrow and cart fees, other than a mechanically propelled truck.
Cattle tax payable by cattle farmers only.
Merriment and road closure levy.
Radio and television license fees (other than radio and television transmitter).
Vehicle radio license fee (to be imposed by the local government of the State in which the car
is registered.
Wrong parking charges.
Public convenience, sewage and refuse disposal fees.
Customary burial ground permit fees.
Religious places establishment permit fees.
Signboard and advertisement permit fees
Wharf Landing Charge, where applicable
Harmonised Taxes and Levies
- Members of the Joint Tax Board (JTB) are to advised the Minister of Finance on determining the
amounts payable and review rates from time to time with due cognizance to changes in economic
trends in the country.
- Collections of the taxes and levies listed in the schedule are to be harmonized among the States and
Local Governments where applicable as follows:

A single Inter-State Road Taxes sticker for any vehicle within Nigeria designed by the Joint Tax
Board for all the states and the stick is to be administered by all the states.

A single haulage fee payable at the points of loading in the state of departure and single haulage
fee payable at the points of discharge of the goods which the states are required to set up
institutional structure to collect.

Wharf Landing fee collected by the state where there are facilities to administer such fees which
may be jointly administered by the state and local government and proceeds from collection
shared in line with an agreed proportion.

A single parking permit sticker designed by the JTB and issued by the operators of the parks
where vehicles are parked in the courses of their journey.

Fire Service Levy should be a charge on business premises and corporate organisation and
the Federal Fire Service can only collect fire service levies in the FCT and not in state.

Road Worthiness Certificate fee should be collected by the state in which the vehicle operates
and should be administered by Board of Internal Revenue in conjunction with appropriate
agencies.
E. Offences and Penalties

It is a mandatory provision of the Approved List of Taxes Law that no person other than the
legally authorised tax authority of either the Federal or State or Local government area, as
applicable, can access and collect any tax except as authorised under the Approved List of
Taxes Law.

The unlawful mounting of road blocks on expressways in any part of Nigeria for the purpose of
collecting any tax or levy with or without Policemen or other law enforcement agents is forbidden
and punishable under this referenced Law.

Any person who collects or levies any tax or levy, or who mounts a road block or causes one to
be mounted for the purpose of collecting any tax or levy contravenes Section 2 of the Approved
List of Taxes Law and is liable on contravention to a fine of N50,000 or three years imprisonment
or to both the fine and the term of imprisonment.
(b)
The major constraints to the effectiveness of Tax Administration in Nigeria.
The major constraints to the effectiveness of tax administration in Nigeria are:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
Improper use of tax consultants
Limited or lack of independence of the state tax authorities
Inadequate funding especially at the state levels and local government levels too.
Lack of qualified and experienced tax officials at the states and local government
levels.
Tax evasion and avoidance
Poor level of computerisation especially at other levels of tax administration.
Complete neglect of tax authorities
Lack of tax education
Non availability of tax statistics
Multiplicity of taxes
(xi)
(xii)
Regulatory challenges (NIPC)
Underground/Hidden economy (Informal sector, portfolio companies, undeclared
economic activity, Non declaration of other incomes) etc.
(xiii) Political interference/corruption
(xiv) Complexity of the tax laws
(xv) Perception about government usage of tax revenue
(xvi) High tax rate- leading to tax haven
(xvii) Complicated registration procedure
(xviii) Lack of necessary enforcement on the part of tax authorities
(c)
These constraints can be ameliorated as follows:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
Autonomy especially to the states Internal Revenue Service
Strict enforcement of the tax laws, hence, need for tax education.
The use of computer technology
Strengthening the tax audit process
Tax rates and use of tax monies judiciously
Public enlightenment campaign
Writing of tax laws in plain language
Taxpayer Identification Number (TIN)
Collaboration with regulatory agencies such as CAC, NCS, CBN as well as private
institutions such as banks and insurance companies
(x)
Disclosure and sharing of tax information (EOI)
(xi)
Encouraging voluntary compliance-E.g., responding to the welfare need of the
taxpayer, trust and confidence in the tax authority
(xii) Patriotism and positive tax culture via rebranding efforts of the ministry of
information. Tax payment should be seen as civic responsibility and Political
leaders should also be patriotic.
(xiii) Religious education/responsibility-In Mathew 22: 17-21----give Creaser -------and
-In Matthew 17:24-27. In Muslim, Quran 5:1 called on all Muslims thus: O you
who believe, fulfil all obligations. In other words, evoking religious injunction could
elicit more voluntary compliance.
(xiv) Harmonisation of taxes to reduce double/multiple taxes on a single taxpayer
(xv) Improve our records/database to track all potential taxpayer. Need to update on
regular basis.
(xvii) Elongated tax operations (twilight shift)/24/7 as practised in some tax jurisdictions.
This is to fulfil the principle of convenience and economy on the part of taxpayers
(xviii) Tax laws should be codified in simple, non-technical language. If possible in the
three major languages in Nigeria-Hausa, Ibo and Yoruba
(xix) Need for effective judicial system to advocate on tax issues.
FISCAL FEDERALISM
1.0
Introduction/Explanation
Fiscal Federalism can be defined as a system in which there exists in one country more
than one (1) level of government, each with different Expenditure, Responsibilities and
Taxing powers. In view of this, Fiscal Federalism in Nigeria involves constitutional
sharing of powers and functions between the Central/Federal government, 36
States (plus FCT) and the 774 Local Governments of the Federation. It is a fiscal
arrangement as a result of the federal system of government. Fiscal Federalism is a
system of revenue allocation formulae put in place to enable all levels of government
perform their constitutionally assigned responsibilities.
According to Anyafo in Somorin (Tejutax), Fiscal Federalism is a system of taxation and
public expenditure in which Revenue Raising power and control over expenditure is
vested in various levels of government within the nation, ranging from national
government to the smallest unit of local government.
1.1
Features of Fiscal Federalism
(a)
Protection by the constitution: Each levels of government are created and
protected by the Constitution, with sovereignty stemming neither from above, nor from
below, but distributed between the three (3) by the Constitution.
(b)
Subordination: No level of government is entirely subordinated to the other; each
has powers and these are guaranteed by the Constitution.
(c)
Supremacy rests in the Constitution: Formal changes in the relative position, or
powers of each level of government cannot be achieved by one level alone, but are
subjected to some form of mutual consent; the method for effecting such changes
(amendments) is outlined in the Constitution.
(d)
Each levels of government enact legislation affecting the same citizens: the
central government enact laws in certain fields for the whole (or possibly part) of the
country. Same is applicable to states and even Local Government.
(e)
Overlapping of jurisdiction is inevitable within a federal system. When such
overlapping exists, there is a need to determine, in the Constitution, which of the two
levels of legislation shall prevail if the laws are found in contradiction.
(f)
Federal constitutions must be, at least, partly written so that the allocation
of fields of jurisdiction is made clear and guaranteed. Such constitutions are also said
to be rigid since, for the most part, it would require more than a simple majority of the
legislatures to change it.
(g)
Jurisdictional disputes between the three levels of government are decided
upon formally by a Supreme or Constitutional court: Such a Court finds its existence
guaranteed in the Constitution. Ordinarily, the court is also beyond the control of anyone
level of government.
(h)
Disputes may also be resolved by bypassing the court system if the two
levels of government so desire: the issues can be resolved politically or administratively
through processes and institutions of intergovernmental co-operation.
(i)
Allocation of jurisdiction/autonomy: Each level of government is not only
allocated a list of fields of jurisdiction but, as well, given autonomous revenue sources to
finance its operations. A government without revenues of its own, would not really be a
sovereign entity.
1.2
Cardinal principles of Fiscal Federalism
In Nigeria, certain basic principles are used for revenue allocation. These can be
subsumed under six (6) broad headings:
(a)
Principle of Delegation of Fiscal Powers
This principle is to enable each component of a federation to achieve a measure of fiscal
autonomy
(b)
Principle of Fiscal Diversity
The aim of this principle is to create an allowance for each state of the federation to
develop at its own pace; taking into consideration the resources available to the state.
(c)
Principle of Mitigation of Tax and Service Capacity Differentials
The aim of this principle is to achieve a reduction in state and local difference in tax
capacity and public service levels thereby fostering a measure of even development.
That is to close the gap in the development in each state.
(d)
Principle of Essential Public Service
The aim of this principle is to ensure the provision of a minimum of essential public
services in each state and locality. Essential public service involves provision of
necessary infrastructure or public goods and services such as transportation,
telecommunication, public water system, health services etc
(e)
Principle of Derivation
The principle is based on the retention of tax revenue generated by the area of origin.
The principle requires that the component units of the federation is able to control some
of their preferences in their own way with their own resources
(f)
Principle of Needs
This is based on the number of adults’ male taxpayers. The Riesman Commission in
(1958) however widened the base of the principle of need to include such factors as
population, basic responsibility of each regional government, the need for continuity in
regional public service and the need for balanced development
Other principles that are of less emphasis are:

National Interest/even development

Population: Can be one of the basis for sharing national resources.

Geographical peculiarities-The constituent polities in a federal system must be
fairly equal in population and wealth or else there will be no be balance
geographically or numerically.

Absorptive capacity–Ability of a state to identify, assimilate, transform and apply
valuable external knowledge or a limit to the rate or quantity of scientific or
technological information that a state can absorb. That is ability of component
state to employ research and development and other technological
information to develop their states.

Internal Revenue efforts-IGR

Equality of states: Ability to bridge the gaps in the development of component
states.

Fiscal efficiency-Ability of the state to generate revenue through elimination of
waste and inefficiency in revenue generation. That is cost of revenue generation
should not be greater than actual revenue generated.

Land Mass
1.3
Roles Fiscal Federalism play in the Nigerian Tax System
(a) Devolution of taxing power
The role of fiscal federalism lies in every constitution and in a democratic dispensation
where taxing power is devolved to the lower tiers of government while the centre still
retains majority power.
(b)
Sharing of taxing rights
It has shaped the Nigerian tax system where collection of specific types of taxes are spelt
out as well as sharing of taxes collected.
(c)
Efficient allocation of resources
It is equally important in the allocation of resources which can be done effectively by the
states and the local government because they are closer to the people and understand
what their communities require. That is in view of the fact that the states and local
government are closer to the people than the central government resources are
assumed to be better allocated.
(d)
Sharing of tax collection rights
It has played the major role of shaping the Nigerian Tax system in terms of who collects
what, how it is collected, who controls what is collected, how what is collected is shared,
who is responsible for spending what is collected and who is ultimately responsible and
accountable to the taxpayers for revenue collected and its expenditure.
(e)
Differences between states and Local government
Differences between states and local levels are taken into account
(f)
Resource control
More efficient politics as citizens have more influence on the resources within their
regions.
(g)
Heterogeneous society
It works better in a diverse society like Nigeria.
1.4
Various commissions set up by the various governments to address the
challenges of Fiscal Federalism in Nigeria
Various formulae have been adopted over the years to guide the allocation of the common
resources of the nation. In view of this, various commissions were constituted at every
point in time for this purpose and the essence is to ensure FAIRNESS and EQUITY to all
sections of the country and to all tiers of government.
Some of the factors considered since 1946 when the process of revenue allocation
started in Nigeria and the various commission and committees are discussed.
(a) Philipson’s Commission (1946):
This Commission introduced three (3) principles namely:
(i) Derivation,
(ii) Even Progress and
(iii) Population.
In the distribution of revenue. By Derivation, the Commission meant that each unit of
Government would receive from the central purse a proportion of its contributions to the
central pool.
(b) Hicks-Philipson Commission (1951)
This Commission recommended four (4) General principles such as:
(i) Independent revenue,
(ii) Derivation,
(iii) Need
(i) National interest
As the criteria for Revenue Sharing.
(c) Chicks Commission (1953)
The main principle for this Commission was derivation.
(d) Raisman Commission (1957)
In view of the dissatisfaction in the existing formulae for distribution, the commission
recommended:
(i) Need,
(ii) Balanced development and
(iii) Minimum responsibility with a percentage division of 40% to the north, 31% to the
east, 24% to the west and 5% to southern Cameroon.
(e) Binns Commission (1964)
This Commission rejected the principles of need and derivation; it increased the
percentage on general import, revenue from Mining Rent and Royalties’ payable to the
Distributable Pool Account from 30% to 35%. It recommended a percentage division of
42% to the north, 30% to the east, 20% to the west and 8% to the mid-west.
(f)
Dina Commission (1969)
This Commission renamed Distributable Pool Account as State Joint Account. It also
created the Special Grant account and advocated for a permanent planning and fiscal
commission. It further recommended
(i) National minimum standards,
(ii) Balanced development in the allocation of the states’ joint account and
(iii) Basic need.
(g) Aboyade Commission (1977)
It recommended a national minimum standard for:
(i)
(ii)
(iii)
(iv)
(ii)
National Integration (22%),
Equality of access to development opportunities (25%),
Absorptive capacity (20%),
Fiscal efficiency (15%) and
Independent revenue effort (18%).
Other criteria are:
(i) Federal Government,
(ii) States Government
(iii) Local Governments
(iv) Special fund
57%
30%
10%
3%
(h) Okigbo Commission (1980)
The Okigbo Commission recommended percentages on principles:
(i) Population
(40%),
(ii) Equality
(40%),
(iii) Social development (15%) and
(iv) Internal revenue effort (5%).
Other Criteria are:
(i) Federal Government,
(ii) States Government
(iii) Local Governments
(iv) Special fund
53%
30%
10%
7%
(i) RMAFC (1988)
It introduced five (5) principles namely;
(i)
(ii)
(iii)
(iv)
(v)
Equality of states,
Population,
Social development factor,
Landmass and terrain,
Internal revenue effort and special fund.
Other are:
(i) Federal Government,
(ii) States Government
(iii) Local Governments
50%
30%
15%
(iv)
5%
Special fund
From 1994 to 1998 during Abacha regime, it adopted and maintained the formula
bequeathed to it by the Babangida regime. This formula is presented below:
(i) Federal Government
(ii) State Government
(iii) Local Government
48.5%
24%
20%
(iv) Special Fund
7.5%
Current Sharing Formula: Under the current revenue sharing formula, the federal
government takes 52.68 percent, the states 26.72 percent and the local government
councils, 20.60 percent with 13 percent derivation revenue going to the oil nine
producing states.
(iv)
Roles Fiscal Federalism play in the Nigerian Tax System.
(a)
Devolution of Taxing Power: The role of fiscal federalism in the Nigerian tax
system lies in every constitution in the democratic dispensations devolving more taxing
power to the lower tiers of government though the federal government still has the major
power to legislate and impose taxes.
(b)
Shaping Nigeria Tax System: It has also played the major role of shaping the
Nigerian Tax system in terms of who collects what, how it is collected, who controls what
is collected, how and what is collected is shared, who is responsible for spending what is
collected and who is ultimately responsible and accountable to the taxpayers for revenue
collected and its expenditure.
(c)
Supremacy of the constitution: The role of FF lies in every constitution and in a
democratic dispensation where taxing power is devolved to the lower tiers of government
while the centre still retain majority power.
(d)
Efficient Allocation of Resources: It is equally important in the allocation of
resources which can be done effectively by the states and the local government
because they are closer to the people and understand what their communities
require.
(e)
Regional and local differences are taken into account: Where revenue is to be
shared.
(f)
Lowers planning and administrative cost: Since each tier of government has
its own areas of jurisdiction.
(g)
More efficient politics as citizens have more influence
(h)
It works better in a diverse or heterogenous society like Nigeria.
NB
The National Tax Policy (NTP) also recognises the major role of fiscal federalism
the Nigerian tax system in articulating the roles of the various arms of the three tiers of
government.
The role of fiscal federalism in the tax system may continue to evolve as states agitate
for more control over their resources and seek power and authority to impose more taxes
in order to increase their revenue to meet up their responsibilities.
1.5
National Tax Policy and Fiscal Federalism
The National Tax Policy (NTP) also recognises the major role of fiscal federalism in the
Nigerian tax system in articulating the roles of the various arms of the three tiers of
government.
It also stated that there should be strict adherence to the principles of Fiscal
Federalism, which will include the basic understanding of which revenue functions are
best centralised, those that should run concurrently and which are better placed under
the sphere of other levels of government..
The role of fiscal federalism in the tax system may continue to evolve as states agitate
for more control over their resources and seek power and authority to impose more taxes
in order to increase their revenue to meet up their responsibilities.
Under the 1999 constitution, item 58 and 59 of part 1 (2nd Schedule)-EXCLUSIVE LIST
1.
Vested the power to legislate and impose stamp duties and taxes on incomes,
profits and capital gains both for individuals and corporate bodies in the Federal
Government. In other words only the Federal Government has the exclusive power to
impose tax on individuals and corporate bodies by way of decrees and Act
2.
While the imposition of taxes on individuals and corporate bodies is under the
Exclusive list of the constitution, the collection of such taxes is placed under the
CONCURRENT LEGISLATION LIST. This is to say the powers to collect such taxes is
shared among the three tiers of government.
Exclusive Legislative list
In a federal system of government there is what we call the exclusive list concurrent list
and residual list. Exclusive is for federal government that's Federal government alone
which involves security currency and international relations. E.g. Security, Currency
and International relations.
Concurrent List
It includes the power to be considered by both the Federal and state governments.
Residual:
Contains powers exercised by States and Local Government councils in Nigeria.
6.6 Taxes and Levies (Approved List for Collection) Act
The tax collection jurisdiction for the three tiers of government (Federal, States and Local
Governments) is provided in the Taxes and Levies (Approved List of Collection) Act Cap.
T2, LFN 2004.
*
Federal Government
 Companies Income Tax
 Withholding tax on companies
 Petroleum Profit tax
 Value Added Tax
 Tertiary Education Trust Fund
 Capital Gains Tax on residents of the FCT, bodies corporate and non-resident
individuals
 Stamp duties on instruments executed by bodies corporate and residents of FCTA
 Personal Income Tax in respect of:

Members of the Nigerian Police force

Members of the Armed Forces of the Federation

Staff of the Ministry of foreign affairs

Non-resident individuals
 National Information Technological Development Fund (NITDA)
 Deep offshore & Inland Basis PSC Act
 Nigeria LNG (Fiscal Incentive, Guarantee & Assurance) Act
 Industrial Development (Income Tax relief) Act
 Industrial Inspectorate Act
State Government
 Personal Income Tax in respect of:

Pay As You Earn (PAYE)

Direct Taxation (Self-Assessment)
 Withholding tax (Individuals only)
 Capital Gains Tax (Individuals only)
 Stamp duties on instruments executed by individuals only
 Pools Betting, lotteries, gaming and casino tax
 Road Taxes
 Business premises registration fee in respect of urban and rural areas which
includes registration fees and per annum renewal as fixed by each state.
 Development levy (individuals only), not more than H100 Per Annum on all taxable
individuals
 Naming of streets registration in the state capitals
 Right of occupancy fees on land owned by the state government in Urban Areas
of the state
 Market taxes & levies where state finance is involved.
 Land use charge, where applicable
 Hotel, restaurant or event center consumption tax where applicable
 Entertainment tax, where applicable
 Environmental (ecological) fee or levy
 Mining, Milling and quarrying fee, where applicable
 Animal trade tax, where applicable
 Produce sales tax, where applicable
 Slaughter or abattoir fees, where state finance is involved
 Infrastructure maintenance charge or levy, where applicable
 Fire service charge
 Property tax, where applicable
 Economic development levy, where applicable
 Social services contribution levy, where applicable
 Signage and mobile advertisement, jointly collected by states and local
government.
*
Local Government
 Shops and kiosks rates
 Tenement rates
 On & Off liquor license fees
 Slaughter slabs fees
 Marriage, birth & death registration fees
 Naming of streets Registration fee, excluding any street in the state capitals
 “R” of “O” fess on lands in rural Areas excluding those collectibles by the Federal
NS States government
 Market taxes and levies excluding market where state finance is involved
 Merriment and road closure levy
 Radio & Television license fees (other than radio and Television transmitter)
 Vehicle radio license fee (to be imposed by the local government of the state where
the car is registered
 Wrong parking charges
 Public convenience, sewage and refuse disposal fees
 Customary burial ground permit fees
 Religious places Establishment permit fees
 Signboard and Advert permit fees
ROAD INFRASTRUCTURE DEVELOPMENT AND REFURBISHMENT
INVESTMENT
TAX
CREDIT
SCHEME
(“THE
SCHEME”)-
RESPONSIBILITY OF FEDERAL INLAND REVENUE SERVICE (FIRS)
1.0
Historical Background
1.1
Qualifying Expenditure: In accordance with the Second schedule to
the Act, these are capital expenditure incurred in respect of:
(i) Plant, (ii) Machinery, (iii) Furniture and fittings, (iv) Buildings-(Industrial
and Non Industrial), (v) Mining, (vi) Motor Vehicles, (vii) Research &
Development, (viii) Plantation Equipment etc.
1.2
Capital Allowances
Capital allowances is the practice of allowing a company to get tax relief on
tangible capital expenditure by allowing it to be expensed against its annual
pre-tax income. Generally, the capital allowances will exist for only specified
items of tangible capital expenditure, and the expensing is usually spread
over a fixed period of years.
Capital allowances are in contrast with depreciation, which is not allowed as
a deduction for tax purposes, and must be added back to net profit for tax
purposes. If capital expenditure does not qualify for a capital allowance, then
it means that the business gets no tax relief on such expenditure.
1.3
(a)
Types of Allowances
Initial allowances (IA)
This is an allowance given when the asset is first used for purposes of trade
or business at the appropriate rate per centum, set forth in the Table to the
Second Schedule of such expenditure. It is granted once in the lifetime of a
particular asset in the first year in which the asset is “in use”.
(b)
Annual allowances (AA)
This is an allowance made to a company/taxpayer for each year of
assessment, in its basis period for which that asset was used for the purpose
of that trade or business at the rate specified in respect thereof in Table n of
this Schedule of such expenditure after the deduction of initial allowance
where applicable, provided that an amount of N10 shall be retained in the
accounts for tax purposes until the asset is disposed of. Annual allowance is
always used to determine the lifespan of the asset.
(b)
Investment Allowance
Where a company has incurred an expenditure on “Plant and Equipment”,
there shall be allowed to that company an investment allowance in addition
to an initial allowance under the Second Schedule of this Act. At the rate of
10 percent of the value of such expenditure as provided in subsection (2) of
this section and shall be in addition to an initial allowance under the Second
Schedule of this Act, except that an investment allowance shall not be taken
into account in ascertaining the residue of qualifying expenditure in respect
of an asset, for the purpose of the said Schedule.
(d)
Balancing Charge
This arises when the disposal value of an asset is more or higher than the
Tax Written down value (TWDV). This is always added to the assessable
profit on the tax computations table and taxed accordingly.
(e)
Balancing Allowance
This arises when the disposal value of an asset is less or lower than the Tax
Written down value (TWDV). This is always deducted from the assessable
profit on the tax computations table
(f)
Rural Investment Allowance
Where a company incurs Capital Expenditure on the provisions of facilities
such as electricity, water, tarred road or telephone for the purpose of a
trade or business which is located at least 20 kilometers away from such
facilities provided by the government, there shall be allowed to the company
in addition to an initial allowance under the Second Schedule to this Act
an allowance (in this Act called "Rural Investment Allowance") at the
appropriate per cent certain as set out in subsection (2) of this section of the
amount of such expenditure:
Provided that where any allowance has been given in pursuance of this
section, no investment allowance under section 32 of this Act shall be
due or be given in respect of the same asset or in addition to the allowance
given under this section.
(2)
The rate of the rural investment allowance for the purpose of this
section shall be as follows‐
(a)
No facilities at all...........................................................................100%
(b)
No electricity...................................................................................50%
(c)
No water.........................................................................................30%
(d)
No tarred road...............................................................................15%
(e)
No telephone....................................................................................5%
NB: For the purpose of this section the Rural Investment Allowance shall be
made against the profits of the year in which the date of completion of the
investment falls and the allowance or any fraction thereof, shall not be
available for carry forward to any subsequent year whenever full effect
cannot be given to the allowance owing to there being no assessable profits
or assessable profits less than the total allowance for the year the investment
was made.
(g)
Investment Tax Relief (ITR)–(Not more than 3 years and not to
companies already enjoying Pioneer Status)
40 (10) says where a company has incurred an expenditure on electricity,
water, tarred road or telephone for the purpose of a trade or business
carried on by the company which is located at least 20 kilometers away
from electricity, water, tarred road or telephone facilities which are provided
by the government, the company shall be allowed a relief called "Investment
Tax Relief' for each year expenditure is incurred on each such facility at the
following rate of the expenditure:
(i)
No facilities at all...........................................................................100%
(ii)
No electricity …………………………………………………………...50%
(iii)
No water………………………………………………………………...30%
(iv)
No tarred road ………………………………………………………...15%
(v)
No telephone …………………………………………………………….5%
Sec 40 (11) For the purposes of subsection 11 of this section, a company
shall not be allowed to claim the Investment Tax Relief for more than three
(3) years and the relief shall not be available to a company already granted
the pioneer status.
Sec 41 Investment Tax Credit (ITC) Replacement of obsolete plant and
machinery
Section 41 CITA states that where a company has incurred an expenditure
for the replacement of an obsolete plant and machinery, there shall be
allowed to that company, 15% investment tax credit.
2.0
Companies Income Tax (Exemption of Profit) Order, 2012
Item 3 of the above order states that “any company that incurs expenditure
on infrastructure or facilities of a public nature shall be entitled to an
exemption from Income Tax of an additional thirty 30 percent of the cost of
the provision of the infrastructure or facilities in the assessment period in
which the infrastructure or facilities were provided”. This Order was to last
for five (5) years.
The above exemption shall be in addition to the usual deductions allowed in
respect of the cost incurred under the relevant provisions of CITA and shall
form part of the deductible expenses of such a company. Infrastructure of
facilities of a public nature shall include:
(i)
Power (Electricity)
(ii)
Roads and Bridges
(iii)
Water
(iv)
Health, Education and sporting facilities and
(v)
Such other infrastructure and facilities as may be determined by order
issued from time to time by the Minister of Finance and published in the
Federal Government Gazette on the recommendation of the Federal Inland
Revenues Service to be a public nature.
Infrastructure or facilities provided by a company must be accessible for use
by the public or community within the area in which the infrastructure or
facilities are sited except where this is otherwise impracticable or an
exemption is obtained by the company from the Minister of Finance in
respect of the infrastructure or facilities.
To qualify for exemption, under this paragraph, the infrastructure of facilities
must be completed and “in use” by the company and the public.
The exemption in this paragraph shall be enjoyed in the assessment period
in which the infrastructure or facility was provided and may be carried forward
for a maximum of two (2) assessment periods following the period in which
it first became available.
3.0
Road Infrastructure Development and Refurbishment Investment
Tax Credit Scheme, Order 2019 (herein after referred to as “Executive
Order 007), 2019
3.1
Introduction
One of the necessary and sufficient conditions for Economic Growth and
Recovery in Nigeria is the development of road/transportation infrastructure
by leveraging private sector capital and capability. The ultimate objective is
to encourage industrialization, improve productivity of and competitiveness
in the manufacturing sector.
Road infrastructure has an enabling effect, either directly or indirectly, on
most sectors of the economy – particularly the manufacturing sector.
3.2
Passenger and Freight movement in Nigeria: It is argued that
currently, about 90% of passenger and freight movement across Nigeria is
done by road. This implies that road transportation is sine qua non (without
which) (i.e indispensable or necessary) to the growth and development of
the Nigerian economy.
3.3
Budgetary Allocations: Unfortunately, budgetary allocations to road
projects has repeatedly proven to be insufficient to meet road infrastructure
demands. For instance, in 2018, the FGN allocated approximately 12%
(about N344bn) of its planned capital expenditure for the year to the
construction and rehabilitation of about twenty (20) roads nationwide.
Presumably, it is the insufficient capacity to finance road projects from the
budgetary allocations that had necessitated several Public Private
Partnerships (PPP), including the Infrastructure Tax Relief (ITR)
introduced in 2012.
3.4
Marginal success of PPP & ITR: In spite of the PPP & ITR mentioned
above, there are still increasing demands for road Infrastructure in the
country. It is also argued that the issues around full cost recovery,
administrative bottlenecks, ease of participation, funding, etc,
prevented intending taxpayers who would otherwise have participated in a
PPP road project under the ITR.
3.5
Emergence
of
Road
Infrastructure
Development
and
Refurbishment Investment Tax Credit Scheme: In view of the above
limitations, the Road Infrastructure Development and Refurbishment
Investment Tax Credit Scheme is expected to address most of these
limitations and encourage private sector participation in road development.
With emphasis placed on ease of participation in the Scheme, the extent and
timing of capital recovery and alternative methods for extracting the value of
tax credits. It is also expected that large corporates, particularly those whose
operations are currently hindered by access to motorable roads required for
evacuation of their products, will be encouraged to channel capital towards
road development and refurbishment; both as corporate social responsibility
and also with a view to eventually recovering their cost through tax credits.
4.0
Need for Government to Focus on Roads
4.1
Impact of Federal Roads
Federal roads are critical in unlocking socio-economic development. While
they account for just 17% of the total national road network, Federal roads
carry more than 80% of national vehicular and freight traffic. (Nigeria’s road
network consists of 200,000Km of which N33,000km are Federal Roads
according to the Ministry of Power, Works and Housing). The deficit in roads
is so large that there is a need to mobilise additional funding sources.
Thus, adequate road infrastructure should improve the conditions for
business operations in Nigeria, increase business profitability, enhance
employment and by extension, tax revenue in the long run. There is also the
opportunity for the FGN to redirect funds that ought to be used for road
projects towards the development of other sectors of the economy.
4.2
Approval of Road Trust Fund in 2017
In view of the above, the Federal Executive Council at its meeting on
Thursday, 26 October, 2017, approved the establishment of Road Trust
Fund (RTF or the Scheme). RTF is conceptualized as a public private
partnership (PPP) initiative by Federal Ministry of Finance (FMF) and
Federal Ministry of Power, Works and Housing (FMPWH).
Thus, His Excellency, President Muhammadu Buhari, GCFR, on 25
January, 2019, as such signed the Executive Order No. 007 on Road
Infrastructure Development and Refurbishment Investment Tax Credit
Scheme (“the Scheme”).
4.3
Power of the President to exempt by Order
This is in line with Section 23(2) of CITA, which gives the President of the
Federal Republic of Nigeria the power to exempt by order:
(a)
Any company or class of companies from all or any of the
provision of this Act: or
(b)
From tax all or any profits of any company or class of companies
from any source on any ground which appears to it sufficient
4.4
RTF & ITR Compared
RTF is a revision of the infrastructure tax relief (ITR) incentive under the
erstwhile Companies Income Tax (Exemption of Profits) Order, 2012. ITR
granted companies that incurred expenditure of public nature (including road
construction), tax relief of 30% of the cost incurred in providing the
infrastructure or facility. The relief is enjoyed via deduction from the income
tax of the company. RTF however gives a relief of 100% of cost plus a mark
up on cost. The design and cost of the roads will be approved by the Federal
Ministry of Power, Works & Housing (FMPWH) and also certified by the
Bureau of Public Procurement (BPP).
3.4
Objectives of the Scheme
The Scheme which is a Public-Private Partnership intervention is anchored
on the following key objectives:
(a)
Private Sector Funding of roads: To enable the Federal Government
of Nigeria to leverage on private sector funding for the construction or
refurbishment of Eligible Road infrastructure projects in order to address the
problem of infrastructure deficit in Nigeria.
(b)
Efficient and Effective development of road Infrastructure: To
focus on the development of Eligible Road infrastructure projects in an
efficient and effective manner that creates value for money through
private sector discipline.
(c)
Guarantee of full recovery of funds: To guarantee Participants in the
Scheme timely and full recovery of funds provided for the construction
or refurbishment of Eligible Road infrastructure projects;
(d)
To provide incentive for Private sector: To provide incentives for
private sector investment in Nigerian roads across key economic
corridors and industrial clusters, thereby relieving the government of
the burden of funding the initial outlays for these investments.
4.6
Unique Features of the Scheme
(a)
100 percent cost recovery: The Scheme guarantees Participants a
minimum recovery of 100% of their Project Cost. This is a significant
improvement on previous infrastructure development incentives that
offered taxpayers limited cost recovery ranging between 30%-70% of
their investment.
(b)
Collective (joint) Financing of project: Participants are permitted to
act in concert (i.e as a collective) to finance and oversee an eligible
road project(s). Each Participant in the collective will be separately
entitled to a Tax Credit in proportion to its financial contribution.
(c)
Annual issuance of Tax Credit: Tax Credits will be issued to
Participants annually based on construction milestones achieved, and will
become immediately available for use. This is another noteworthy distinction
from previous infrastructure development incentives.
(d)
Sale/Transfer of tax credit: Participants may sell or transfer the whole
or part of its unutilized Tax Credit to any interested party, subject to
complying with protocols prescribed in the Scheme. This means that a
Participant, who for any reason does not wish to utilize its Tax Credit, may
easily recover its investment without recourse to the FGN.
(e)
Administration of the scheme: The Scheme will be administered and
implemented by the Road Infrastructure Development and Refurbishment
Investment Tax Credit Scheme Management Committee (“the Committee”).
The Committee, which will serve as a one-stop liaison office for the Scheme,
is expected to reduce the administrative bottlenecks typically associated with
dealing with multiple ministries/Parastatals in obtaining approval of road
projects.
4.7
Highlights/Overview of the Order
(i)
Period: The scheme is designed to be in force for a period of ten (10)
years
(ii)
Management: The scheme is to be anchored by a committee known
as “Road Infrastructure Development and Refurbishment Tax Credit
Scheme Management Committee” (the “Committee”) comprising of
the Honourable Minister of Finance as the chairman, permanent
Secretary Ministry of Finance as Secretary and 14 members
(representing various ministries and MDAS inclusive of FIRS).
(iii)
Utilisation of project costs: Participants shall be entitled to utilize the
project cost incurred in construction or refurbishment as credit against
Companies Income Tax payable.
(iv)
Single uplift/Mark-up: Beyond that, participants are entitled to a
single uplift equivalent to the prevailing Central Bank of Nigeria
monetary policy rate plus two (2) percent of the project cost which shall
be tax exempt and form part of the tax credit. The uplift is based on
estimated cost of the project. i.e 1m {MRR + 2% (Cost)}
(v)
Transfer/Trading of certificates: The Road Infrastructure Tax Credit
(RITC) Certificate is transferable (traded in part or whole) as an
instrument on the Stock Exchange
(vi)
Professional Fees: For a refurbishment/construction cost of N10b and
above, attracts professional fees not more that 1.25% of the cost
mentioned above.
(vii) Group Taxation and Trading tax attributes on the FMDQ OTC
Securities Exchange
Paragraph 4(4) of the RIDRITCS Order introduces the novel concept of
Group Taxation into the Nigerian Corporate taxation by permitting any
participant to transfer its Investment Tax Credit benefits to its parent,
Subsidiary, Sister or any other company operating within its recognised
group companies. Similarly, Paragraph 4(5) allows participants or
beneficiary companies to trade their Investment Tax Credit as tradable
instruments on the Financial Markets Dealers Quotations Over the
Counter Trading (FMDQ OTC) Securities Exchange
4.8
Expected Benefits of the credit Scheme
4.8.1 Expected Benefits to the Companies
The expected benefits for companies that take advantage of the Scheme
include:
(i)
Full recovery of cost: Companies will be allowed to recover 100% of
costs incurred on road infrastructure as a tax credit against total tax payable
in addition to the single uplift. This is however different from a tax exemption.
A tax credit is an amount that a taxpayer is permitted to subtract from
taxes owed to Government or a recognition of taxes already paid. A tax
exemption is where the taxpayer is relieved entirely of the duty to pay
tax.
(ii)
Accelerated depreciation (Capital Allowances) to enable recovery
in 3 years rather than 4 years for standard assets; and
(iii)
Direct intervention on Roads by Companies: Ability to directly
intervene in roads that are critical to their businesses which drives
competitiveness.
4.8.2 General Benefits of the Road Trust Fund
(a)
Increased funds for road development: Increases funds available
for road development and accelerates road provision across the nation.
(b)
Reduce Pressures on Federal Budgets: Reduces pressure on the
Federal Budget by allowing private engagement.
(c)
Efficient delivery of road projects and cost reduction: by providing
a new benchmark in road costing. Private sector participation in what was
previously a Federal Government monopoly will create more efficient
delivery of road projects. Better negotiation and the promise of prompt
payment to contractors, is expected to materially reduce project costs.
(d)
Alternative Funding of Roads projects: Provides alternate funding
to the Government for road infrastructure development.
(e)
Collaboration (joint financing): Creates a platform for collaboration
among private sector players as well as between private sector and
Government.
(f)
Encourages co-operation in business districts affected by poor
road infrastructure: which will enhance output and reduce business
operating costs.
(g)
Allows businesses to direct funds that would otherwise have been ‘tax
Naira’ (funds fully taxed) into much needed areas of infrastructure.
5.0
Responsibilities of FIRS
(a)
FIRS has the responsibility of issuing the Road Infrastructure Tax
Credit (RITC) Certificate to participants on annual basis within 14 days
of issuance of certificate of work done by the Committee. Unutilized tax
credit shall be carried forward until fully utilized.
(b)
The RITC that may be utilized to set off tax liability in any particular
year is limited to 50% of the CIT payable. However, the limitation does
not apply to RITC issued with respect to Economically Disadvantaged
Area.
(c)
Participants are precluded from benefiting from other tax credit, capital
allowances, relief or incentive on the project cost incurred.
(d)
FIRS is to keep a register of the participants/beneficiaries of the
Scheme and a record of issue of RITC to participants and beneficiaries
in the scheme.
(e)
Where the RITC is transferred/disposed, FIRS is responsible for
issuing a certificate to the transferee.
(f)
Where the RITC disposed at a premium, the gains shall attract CGT
and where it is discounted, the loss shall not be an allowable deduction
for CIT purposes.
6.0
Recommendations by FIRS
To ensure easy and effective administration of the Executive Order 07, the
following are recommended:
(a)
Certificates may be issued at denominated face value, for instance
₦100 million so as to ensure easy transferability. It could also be enforced
that trading should only be done in units of the face value of the Certificates.
(b)
Since the RITC is an instrument tradable on the Relevant Securities
Exchange, it is expected that the number and frequency of exchange will
increase over time. Thus, to ensure smooth administration of taxes and tax
credits in cases of transfer of certificates, the RITCs could also be made
bearer’s certificate with no name but numbers for tracking.
(c)
Since the RITC issued with respect to Economically Disadvantaged
Areas (EDAs) can be used to offset tax liabilities without limit, the Service
may wish to introduce two categories of RTCs to enable it distinguish those
issued with respect to Economically Disadvantaged Area from others.
7.0
(i)
Relevant Terminologies
“Beneficiary”: Means a company appointed by a Participant to
utilise the whole or part of the Road Infrastructure Tax Credit initially
issued to a Participant in the Scheme or any person that has
purchased or otherwise acquired the rights to utilise the Road
Infrastructure Tax Credit initially issued to a Participant in the Scheme;
(ii)
“Committee”:
Means the Road Infrastructure Development and
Refurbishment Investment Tax Credit Scheme Management
Committee established pursuant to this Order, chaired by the
Minister of Finance as Chairman, the Minister responsible for
Works as Deputy Chairman and comprising members indicated in
the First Schedule to this Order.
(iii)
“Disposal”: Means a sale, transfer, assignment or any
transaction or agreement that expressly contemplates the sale,
transfer or assignment of the whole or part of the Road Infrastructure
Tax Credit Certificate from a Participant to another person or company
for a consideration in money or money’s worth;
(iv)
“Economically Disadvantaged Areas”: This means any area or
location in any geopolitical zone or State designated as
‘Economically Disadvantaged’ by the President, on the advice of
the Minister of Finance. For the purpose of advising on the
designation of an area as Economically Disadvantaged, the
Minister of Finance shall give due consideration to such
factors as:
 whether the average income level of the inhabitants of such areas
falls below the minimum wage;
 the availability of infrastructure such as electricity,
water, sewage, telecommunication, transportation facilities
etc.;
 the volume and nature of economic activity being undertaken in such
areas; and
 any other factors as may be considered relevant for the
determination of an Economically Disadvantaged Area by the
Minister of Budget and National Planning.
(v)
Eligible Road: This means any road approved by the President as
Eligible for the Scheme on the recommendation of the Minister of
Finance and as duly notified to Participants and published pursuant
to this Order.
(vi)
Participant: This means
 any company or corporation (other than a corporation sole),
established by or under the Companies and Allied Matters Act or any
law in force in Nigeria duly designated as a Sponsor of an Eligible Road
pursuant to this Order;
 any company or corporation (other than a corporation sole),
established by or under the Companies and Allied Matters Act or
any law in force in Nigeria certified by the Committee to be eligible to
participate in the Scheme;
(vii)
“Project
Cost”:
This
means
any
expenditure
wholly,
reasonably, exclusively and necessarily incurred by a Participant
for the construction or refurbishment of an Eligible Road as
quoted by the Participant in its Project Cost bid and as certified by
the Committee.
(viii) Relevant Securities Exchange: Means the FMDQ Over-TheCounter (‘OTC’) Securities Exchange, or any other relevant
securities exchange, duly authorised and regulated by the Securities
and Exchange Commission.
NB: Financial Markets Dealers Quotations (FMDQ): It is an over-thecounter (“OTC”) securities exchange with a mission to empower the
financial markets to be innovative and credible, in support of the
Nigerian economy.
8.0
Conclusion: On the whole, Nigerians are optimistic that the Scheme
will be instrumental to closing the widening infrastructure deficit in Nigeria
and promoting the overall growth and development of the economy.
APPENDICES
Pilot
Phase-Private
Sector,
Eligible
Roads
and
Management
Committee.
Appendix 1:
Pilot Phase-Private Sector: In this pilot phase, the following six private
sector companies have chosen to participate in the Scheme:
a)
Dangote Industries Limited;
b)
Lafarge Africa Plc;
c)
Unilever Nigeria Plc;
d)
Flour Mills of Nigeria Plc;
e)
Nigeria LNG Limited; and
f)
China Road and Bridge Corporation Nigeria Limited.
Appendix 2:
These investors will be investing in the following 19 eligible road projects,
totalling 794.4km which have been prioritised in 11 states across each of the
six geo-political zones:
a) Construction of Ashaka-Bajoga Highway in Gombe State;
b) Reconstruction of Dikwa-GambaruNgala Road in Borno State;
53
c) Reconstruction of Bama-Banki Road in Borno State;
d) Rehabilitation of Sharada Road in Kano State;
e) Rehabilitation of Nnamdi Azikiwe Expressway / Bypass, in Kaduna State;
f) Reconstruction of Birnin Gwari Expressway – Road in Kaduna State;
g) Reconstruction of Birnin Gwari – Dansadau Road in Kaduna State;
h) Reconstruction of Makurdi-Yandev-Gboko Road in Benue State;
i) Reconstruction of Zone Roundabout-House of Assembly Road in Benue
State;
j) Reconstruction of Obajana-Kabba Road in Kogi State;
k) Reconstruction of Ekuku-Idoma-Obehira Road in Kogi State;
l) Construction of AdaviEba-Ikuehi-Obeiba-Obokore Road in Kogi State;
m) Rehabilitation of Lokoja-Ganaja Road in Kogi State;
n) Ofeme Community Road Network and Bridges in Abia State;
o) Rehabilitation of Obele-Ilaro-Papalanto-Shagamu Road in Ogun State;
p) Reconstruction of Sokoto Road in Ogun State;
q) Reconstruction of Apapa-Oshodi-Oworonshoki-Ojota Road in Lagos
State;
54
r) Construction of Bodo-Bonny Road & Bridges across Opobo Channel in
Rivers State; and
s) Rehabilitation of Benin City – Asaba Road in Edo State”.
Appendix 3:
The management committee: This is chaired by the Honourable Minster of
Finance but has the Minister of Power, Works and Housing as its Deputy
Chairman and the Permanent Secretary of the Federal Ministry of Finance
as its Secretary. “The other members of the management committee are
drawn from a number of relevant federal Ministries, Departments and
Agencies (‘MDAs’) which she identified as:
a) The Federal Ministry of Finance;
b) The Federal Ministry of Power, Works and Housing;
c) The Federal Ministry of Industry, Trade and Investment;
d) The Federal Ministry of Justice;
e) The Bureau of Public Procurement;
f) The Federal Inland Revenue Service;
g) The Nigerian Investment Promotion Commission;
h) The Securities and Exchange Commission;
i) The Infrastructure Concession Regulatory Commission;
55
j) The Budget Office of the Federation;
k) The National Bureau of Statistics;
l) The Nigeria Sovereign Investment Authority; and
m) The Office of the Chief of Staff to the President.
FINANCE ACT, 2019-AMENDMENTS TO THE RELEVANT SECTIONS OF THE TAX
LAWS
1.0
Introduction
The Finance Act 2019 was signed into law on the 7th January 2020 by the President of
the Federal Republic of Nigeria. Subsequently, the Honourable Minister of Finance,
Budget and National Planning announced the implementation date to commence on the
1st of February 2020.
2.0
Objectives
The passage of the Finance Act is an important milestone for Nigeria as it marks a return
to an era of active fiscal supervision motivating regular review of the macro-economic
environment and stimulation of the economy on an annual or at least regular basis by
means of such instruments as a Finance Act. It is instructive that the Finance
(Miscellaneous Provisions) Act No.30 of 1999 represents the last time Nigeria utilised this
budgetary fiscal tool in moderating the tax environment for business. The Act sets five
strategic objectives, which include:






Raising government revenue through various fiscal measures,
Reforming domestic tax laws to align with global best practice,
Promoting fiscal equity by mitigating instances of regressive taxation,
Supporting small business entities in line with Ease of Business Reforms and
Introducing tax incentives for investments in infrastructure and capital market.
It achieves the progressive system of taxation.
The Finance Act amends certain provision in the Companies Income Tax Act (CITA),
Value Added Tax Act (VATA), Petroleum Profit Tax Act (PPTA), Capital Gains Tax Act
(CGTA), Personal Income Tax Act (PITA), Stamp Duties Act (SDA) and Customs and
Excise Management (Consolidated) Act.
56
1.0
COMPANIES INCOME TAX ACT (CITA)
(i)
Section 9-Charge to Tax (i.e income charged to tax)

Subsection 1 says, Tax shall be imposed on profit AI, DF, BI and RI in Nigeria
in respect of “that are not subject to tax under CGTA, PPTA and PITA. These
profits shall include"……. all items………… as listed in the Act.
The provision is to create certainty on the present operation of the Section, that any
income that have not been subjected to tax under CGTA, PPTA and PITA shall be subject
to tax under CITA and any income that is subject to tax under any of those laws shall be
exempted from tax under CITA.

Introduction of new sub-section “d” after sub-section “c” (which properly
defines interest and dividends as it relates to Security Lending Transaction
(SLT).
To provide clarification that payments made by a Borrower to Lender in a SEC approved
Security Lending Transaction as a compensation for loss of interest or dividend shall
be treated as interest or dividend, as the case may be.

Proper Definitions of Interest and Dividend
* Interest: Interest includes compensating payments received by a Borrower from its
approved agent or a Lender in a Regulated Securities Lending Transaction provided that
the underlying transaction giving rise to the compensating payment is a receipt of interest
by a Lender on the collateral it received from its approved agent or a Borrower in a
Regulated Securities Exchange Transaction.
* Dividend: shall include compensating payments received by a Lender from its approved
agent or Borrower in a Regulated Securities Lending Transaction if the underlying
transaction giving rise to the compensating payment is a receipt of dividends by a
Borrower on any shares or securities received from its approved agent or a Lender in a
Regulated Securities Lending Transaction";
(ii)
Section 10-Identification of a company

Old Section 10 deleted and substituted with a new section 10 (TIN displayed & TIN
required for banking transactions) as follows:
10 (1) Display of TIN: Every company shall have a tax identification number (TIN), which
shall be displayed by the company on all business transactions with other companies and
individuals and on every document, statement, returns, audited account and
correspondence with revenue authorities, including the Federal Inland Revenue Service,
Ministries and all Government agencies.
57
(2) Provision of TIN for Banking and other Financial Services: Every person engaged
in banking or other financial services in Nigeria shall require all companies to provide their
TIN as a precondition for opening an account or, in the case of an account already opened
within three months of the passage of this Act, the bank shall require such TIN to be
provided by all companies as a precondition for the continued operation of their bank
accounts.”
(iii)
Section 13- Nigerian Companies
Erstwhile tax law stated the Basis of taxing a Foreign Company: Fixed base,
Habitual operation of Trade, Single contracts and artificial transactions and need
adjustments to reflect arm’s length transactions. This has been amended to
introduce:

Digital Economy: if the company transmits, emits or receives signals, sounds,
messages, images or data of any kind by cable, radio, electromagnetic systems or
any other electronic or wireless apparatus to Nigeria in respect of any activity,
including electronic commerce, application store, high frequency trading,
electronic data storage, online adverts, participative network platform, online
payments and so on, to the extent that the company has significant economic
presence in Nigeria and profit can be attributable to such activity.

Significant Economic Presence: If the trade or business comprises the
furnishing of Technical, Management, Consultancy or Professional services
by a person outside of Nigeria to a person resident in Nigeria to the extent that
the company has significant economic presence in Nigeria. WHT is payable
when payments are made. The WHT on all these transactions shall be the final
tax on the income of a non-resident recipient who does not otherwise have Fixed
base, Habitual operation of Trade, Single contracts and Artificial
transactions/fictitious (and need to be adjusted to reflect Arm’s length transaction).

Determination of significant Economic Presence: The Minister for Finance is
by this amendment, and by Order determine what constitutes the significant
economic presence of a company other than a Nigerian company.
NB: This provision will also widen tax net and allow for more revenue generation
as payments made to companies that have no physical presence in Nigeria will be
subject to 10% WHT, even where such transaction would not have been liable to
WHT under the existing Section 81 of CITA and the WHT Regulations.
58
Section 16 of CITA – Insurance companies
(iv)

Life Insurance minimum tax–Section 16(9)(c) suggests that after all deductions
have been granted to life insurance companies, the company must have 20% of
its gross income available as taxable profit. This is a type of minimum tax
provision different from the general minimum tax provision in Section 33(1)
of the CITA. This effectively means that insurance companies are almost always
subject to a higher basis of minimum tax compared to other companies.
In the new finance Act, 2020, insurance companies are subjected to minimum tax just like
any other companies as indicated below:

Definition of Investment Income (new subsection 6): Investment income
for the purpose of taxation of a life insurance company under this section
means income derived from investment of shareholders' funds."
This provides clarification on what will constitute the investment income
of a life insurance business that is subject to tax, which is any income
derived from the investment of shareholders’ fund.

Term limit for tax losses carried forward –Section 16(7) of the CITA limits the
period of carrying forward tax losses for life and general insurance businesses to
four (4) years of assessment after which any losses recouped are deemed to have
lapsed. With the amendment, losses can be carried forward indefinitely like
other companies.
This provides fiscal equity by aligning the treatment of tax losses in the Insurance
sector with the treatment in other sectors of the economy. The sector has longed
for this amendment for many years.

General Insurance (Tax deduction of reserve for unexpired risk)–Section
16(8)(a) of the CITA limits the amount of deduction for unexpired risks to 25% of
total premium for marine cargo and 45% of other classes of general insurance
business. This is inconsistent with Section 20(1) (a) of the Insurance Act which
prescribes time apportionment as a basis for determination of the provision of
unexpired risks. This provision is upheld in the Finance Act, 2020.

General Insurance (Claims and Outgoings)-The Act deleted the word “outgoing”
in subsection 9 (c) and restated it as “except that after allowing for all the
outgoing and allowance under schedule 2 of CITA as may be restricted under
the provision of the Act, for any year of assessment, not less than an amount equal
to 20% of gross income shall be available as “total Profit” of the company for tax
purposes”. (That is “total profit” is limited to 20% of gross income)
59

Introduction of Minimum Tax- new subsection “12” to section 16:
The Finance Act now provides a minimum tax regime for the insurance business
in Nigeria, to make the minimum tax provision of insurance companies consistent
with that of other companies, which is provided for in the new Section 33 of CITA.
This is as follows:
* 0.5% of gross premium for Non-life insurance or
* 0.5% of gross income for Life Insurance businesses.
(v)
Section 19 of CITA–Payment of Dividend by a Nigerian Company

States that where Dividend is paid out of no total profit or total profits are less than
the dividend paid by a Company, the dividend paid is taken as the total profit and
taxed at the rate of 30%. A strict interpretation of this provision has sometimes
resulted in further taxation of profits that have already suffered tax, i.e., after-tax
profits transferred to retained earnings account. In some other instances, this
provision has been applied to dividends paid out of tax-exempt profits, thereby,
effectively rescinding the tax-exemption on those profits. The unintended
consequences of a strict interpretation of the rule has caused several disputes
between taxpayers and the Federal Inland Revenue Service (FIRS), some of which
have been adjudicated on by the courts in favour of the FIRS.

The Finance Act seeks to mitigate the above incidence of (double) taxation by
excluding certain profits from the rule. These profits include:
*Franked investment income,
*After-tax profits,
*Tax-exempt income and
*Distributions made by Real Estate Investment Companies etc.
IOWs, the provisions of subsection (1) of this section shall not apply to (a) Dividends paid out of the retained earnings of a company. Provided that the dividends
are paid out of profits that have been subjected to tax under this Act, the Petroleum Profits
Tax Act, or the Capital Gains Tax Act;
b) Dividends paid out of profits that are exempted from income tax by any provision of
this Act, the Industrial Development (Income Tax Relief) Act, the Petroleum Profits Tax
Act, or the Capital Gains Tax Act or any other legislation;
(c) Profits or income of a company that are regarded as franked investment income under
this Act; and
(d) distributions made by a Real Estate Investment Company to its shareholders from
rental income and dividend income received on behalf of those shareholders;
60
The reason behind the amendment is to ensure that an income that have been subjected
to tax in one year of assessment or exempted from tax by any legislation is not subjected
to tax in any other year of assessment. By implication, companies are encouraged to
properly track the sources of the dividends they declare (and possibly disclose these
sources on their financial statements) in order to enjoy the exemptions.
(vi)
Section 20 of CITA-Nigerian Dividends received by companies other than
Nigerian companies

(vii)
This Section requires every company liable to tax under CITA to make an advance
payment of CIT prior to payment of interim dividend. This requirement is regarded
as a moribund and therefore deleted by the Finance Act 2020, so as to remove the
repetition of the provision in Section 19.
Section 23-Profits Exempted from Tax
Introduction of new sub-sections:
(o): (i) Exemption of Tax by Small Companies
 The profits of any company that has gross turnover of N25 million and below
(otherwise called a “small company”) that register for tax purpose and file its tax
return as required under the Act will be exempted from CIT. The proviso will
encourage small companies that are presently out of the tax net to come forward
to register and file returns. Any small company that fail to file its returns on due
date will not be entitled to the incentive, which means its income will be liable to
tax at the next rate of 20%.

The profits of a small company which is derived as a dividend from another small
company in the manufacturing sector is exempted from CIT within the first 5
years of the paying company

(q): Profits of any Nigerian company in respect of goods exported from Nigeria,
and repatriated provided the proceeds of such exports are used to purchase raw
materials, plant and equipment and spare parts. However, the proceeds that are
not utilised for that purpose will be subject to tax.

(s): The dividend and rental income received by a Real Estate Investment
Company on behalf of its shareholders provided that:
(i) A minimum of 75% of dividend and rental income is distributed; and
(ii) Such distribution is made within 12 months of the end of the financial year in
which the dividend or rental income was earned.
61

(t): Compensating payment which qualifies as dividend from lender to borrower
as discussed in Section 9 (1) (c) of this Act

(u): Compensating payment which qualifies as dividend or interest under section
9 (1) (c) of the Act by an approved agent from borrower or lender on behalf of a
lender or borrower in a Regulated Security Lending
Also new Sections as follows were introduced:
(1A) WHT deductions on Dividend, Interest, Rent or Royalty shall be paid by a company
exempted from tax under subsection 1 (a-e), (h-l), (o), (q), (r), and (t)
(1B): Tax deductions from:

Shareholder from Dividend, Rental Income received from Real Estate Investment
company

REIC on management fee, profits or other income earned for and on its own
account

REIC on Dividend and Rental Income that is not distributed after 12 months from
the end of the financial year in which the dividend or rental income is earned.
(1C): Any company engaged in agricultural production shall be granted the following
incentives in addition to the incentives in this Act:


(viii)

Tax free period of 5 years, renewable for another 3 years subject to satisfactory
performance
Such a company cannot be granted similar incentives under any other Act in
Nigeria.
Section 24-Deductions Allowed
An amendment was introduced in the opening paragraph of Section 24 by inserting
after the word “profits" in line 5, the words "chargeable to tax".
*Implication: This implication of this is that it is only expenses incurred wholly,
exclusively, reasonably and necessarily (WERN) in the production of profit
chargeable to tax that will be an allowable deduction. In other words, expenses
incurred in the production of profit not “chargeable to tax” is not exempted under
the Act. It is pertinent that a company should track their expenses relating to profits
and be sure that they are incurred WERN.
62

Introduction of Interest deductibility rule and introduction of a new 7 th
schedule to the Act
Section 24(a) introduced a restriction on deductibility of interest arising from loan
obtained by a Nigerian company or a fixed base of a foreign company in Nigeria
from a foreign connected person. This rule which was further explained in the
newly introduced Schedule 7 to CITA implies that only 30% of the company’s
earnings before interest, tax, depreciation and amortisation (EBITDA) that will be
allowed for each accounting year. The excess thereof can be carried forward,
allowing it to be deducted based on 30% EBITDA for a period of 5 years from the
date for which the excessive interest expenditure was first computed and thereafter
lapse after 5 years.

Exemption: This rule does not apply to a Nigerian Subsidiary of a foreign company
engaged in banking or insurance business.

Mandatory distribution by Real Estate Investment Company (REIC) (Newly
introduced by the NSE)
Section 24 (K) of CITA implies that dividends or mandatory distribution by a
qualifying REIC (duly approved by SEC) to its shareholders will be allowed as
deduction under the Act. Companies are to note that it is only the mandatory
distribution arising from rental income that will be allowed under this provision.
Any other distribution arising from other income, such as management fees, or any
other profit it made on its own account shall not be allowable deduction under this
Act.

(ix)
Compensating payments, which qualify as interest under section 9(1) (c) of this
Act, made by a Lender to its approved agent or a Borrower in a Regulated
Securities Lending Transaction" equally exempted.
Section 27-Deductions not allowed

Related party expenditure: Section 27 of CITA removes the requirement to obtain
the consent of the minister before incurring management fees for it to be an
allowable deduction.
In its place, every expense incurred within or outside Nigeria involving related
persons must meet Transfer Pricing requirements otherwise such expense will
be disallowed.
Other Disallowable Expenses under this new act are:
63






(x)
Expenses incurred in deriving exempt income
Expenses of capital nature
Expenses already allowed under CGT
Compensating payments (dividends) made by a borrower to a lender under
section 9 (1) (c)
Penalty prescribed by any Act of NA for violation
Any tax or penalty born by a company on behalf of another person.
Section 29-Basis of computing Assessable profits

Commencement
Commencement: Section 29 is amended to ensure that a company commencing a
business computes its tax payable on the assessable profit on actual year basis for
the 1st year. That is to say, a company commencing business on 30th of June will
compute its tax from the date it commenced business up to the date it has picked as
its accounting date.
(a)
For the 1st year, the assessable profits shall be the profits from the date in which
it commenced to carry on such trade or business in Nigeria to the end of its 1st
accounting period
(b)
For the 2nd year, the assessable profits shall be the profits from the first day
after its first accounting period to the end of its second accounting period.
(c)
For the third year and for each subsequent year thereafter, the assessable
profits shall be the profits from the day after the accounting period just ended.
Examples:
Commencement
Accounting date
Year
1
2
3
4

1/4/2017
30th September every year
Accounting
2017
2018
2019
2020
Basis Period
1/4/2017-30/9/2017
1/10/207-30/9/2018
1/10/2018-30/9/2019
1/10/2019-30/9/2019
Cessation: Cessation is now to be assessed from the beginning of the last
accounting period to the date of cessation. However shall be payable within 6
month from the date of cessation
64
Example
Commencement
Accounting date
Ceased business:
2018
1/4/2017
30th September every year
On 30th June, 2018
1/10/207-30/6/2018
Section 29 (9) – Cases of merger, acquisition, takeovers etc
(xi)
Old Act
 Exemption from commencement and cessation
 Exemption from CGT
 Assets taken over at TWDV
New Act.
 Exemption from VAT
 365 days relationship before
 365 days relationship after which assets can be disposed. If the assets are
disposed before the 365 of the merger, the above concession will be rescinded.
(xii)
Section 31-Total Profits from all sources (Restriction of Losses carried
forward)
The restriction of loss carried forward was deleted in section 2 (3) of CITA IN 2007.
However the portion that says "but such deductions shall not be made against the
profit of the company after the fourth year from the year of commencement of such
business" in Section 2 (ii) was erroneously left in the act. This is now deleted by the
Finance Act, 2020. This is to allow for indefinite carry forward of losses.
(xiii)
Section 33-Payment of Minimum tax.
(a) Replacing the existing subsection (2) with the following new subsection (2):
"(2) For the purposes of subsection (1) of this section, the minimum tax to be levied and
paid shall be 0.5% of gross turnover of the company, less franked investment income.

A company that earns gross turnover of less than N25m in the relevant year of
assessment is exempted from minimum tax.

25% imported equity capital which were hitherto exempted from the earlier
provision is now removed.
(xiv)
Section 39- Gas Utilisation in the downstream sector
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
A company engaged in gas utilisation (downstream operations) are granted the
following exemption:
(a)
An initial allowance of 3 years and renewable for 2 years upon satisfactory
performance.
However, a new section 3 which says:
(i) Any company that has claimed or wishes to claim the incentives under the
Industrial Development (Income Tax Relief) Act in respect of the same qualifying
capital expenditure." is now inserted.
Purpose: To avoid double Deeping by ensuring that a company that has enjoyed
tax holiday under the IDITRA is not allowed to also enjoy another tax holiday
(xv)
Section 40- Rate of Tax
Section 40 of CITA has been amended and ………………have been deleted.

Now graduated tax rate of:
-
0% for small companies
20% for medium size companies
-
30% for large companies

No more pre-operation levy payment before collection of TCC by a company that
is yet to commence business
(xvi)


Less than or equal to N25m per annum
Greater than N25m, but less than
N100
Greater than N100m
Section 41 & 43-Replacement of obsolete plant and Machinery and dividends
and tax on interim dividends paid by Nigerian companies respectively
No more ITC for the replacement of obsolete plant
Tax payment on interim dividend is no longer applicable
(xvii) Section 77-Time within which tax (including provisional tax) is to be paid.



Provisional tax is no longer applicable. Now deleted.
Tax payment is to terminate on the company’s dues date
Bonus to taxpayer to encourage early payment of taxes, not later than 90 days
before the due date. As follows:
(i) 2%, if such company is a medium-sized company; and
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(ii) 1% for any other company; on the amount of tax paid, which shall be available
as a credit against its future taxes.

(xviii)
Any balance of taxes unpaid as at the due date shall attract interest and penalties
as provided in this Act or any other relevant law for failure to pay on the due date
in accordance."
Section 78-Deduction of Tax from Interest

A new subsection 6 which Exempts WHT on compensating interest from Lender
to approved agent for the benefit of the Borrower, paid under a Security Lending
Transaction was included.

Clarification that the exemption is only when the payment is made from Lender to
approved agent for the benefit of the borrower and does not include when the
payment is made directly from Lender to Borrower or from approved agent to
Borrower.
(xix)
Section 80-Deduction of Tax from Dividend
A new subsection 5 was inserted to:

Exemption of WHT on dividend payments/distributions from REIT to REIC.

Exemption of WHT on compensating dividend, paid by a Borrower to its approved
agent or Lender under a Security Lending Transaction.

Exemption of WHT on compensating dividend, received by an approved agent
from a Borrower and paid to a Lender under a Security Lending Transaction.

Clarification that REIC is not exempted from WHT on dividend distributed to its
shareholders
(xx)
Section 81-Deduction of Tax at source (WHT)

Exemption of WHT on dividend payments/distributions from REIT to REIC.

Exemption of WHT on compensating dividend, paid by a Borrower to its approved
agent or Lender under a Security Lending Transaction.

Exemption of WHT on compensating dividend, received by an approved agent
from a Borrower and paid to a Lender under a Security Lending Transaction.
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
Clarification that REIC is not exempted from WHT on dividend distributed to its
shareholders
A New paragraph 9 was inserted to:

To exempt compensating payments made under the SEC approved Security
Lending Transactions from WHT obligations under the WHT Regulations.

Reduced the WHT on contracts for construction of roads, bridges, buildings and
power plants from 5% to 2.5%
(xxi)



Section 105-Interpretation
The amendment deleted “Board” and replaced it with “Service”
To align CITA provision with FIRSEA
To align CITA provision with FIRSEA
Third Schedule- Relief for foreign loan
The 3rd schedule has been amended to reduce the relief granted on foreign loans as
follows:
Former moratorium (Legal authorisation for debtors to postpone debt payment)
Repayment period
Grace period
Tax exemption including Moratorium
Above 7 years Not less than 2 years
100%
5-7 years
Not less than 18 months
70%
2-4 years
Not less than 12 months
40%
Below 2 years
Nil
allowed
Nil
New Moratorium
Repayment period
Grace period
Tax exemption including Moratorium
Above 7 years Not less than 2 years
70%
5-7 years
Not less than 18 months
40%
2-4 years
Not less than 12 months
10%
Below 2 years
Nil
Nil
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allowed
NB: Moratorium is however defined as a period during which the borrower is not expected
to make any principal or interest repayments, and where any principal or interest
repayments are made during the period, the tax exemptions shall be adjusted by the
Service in a proportionate manner.
(xxii) A New 7th Schedule was inserted- Deductible Interest

The 30% on EBITDA limitation is applicable to all interest payable by the
company and not just interest payable to the connected person.

The limitation is only applicable to a Nigerian company or fixed base that has
borrowed money from foreign related connected party.

The limitation is not applicable to Nigerian Banks and insurance that are
subsidiary of foreign companies but applicable to Nigerian Banks or insurance
companies that are parents to foreign companies.

Any interest disallowed as a result of the 30% limitation may be carried forward
for a maximum period of 5 subsequent years.
2
VALUE ADDED TAX ACT AMENDMENT IMPLICATION
(i)
Section 2: Taxable good and services
Goods-The erstwhile provisions of the VAT Act did not contain a definition of goods.
Consequently, VAT-able goods had, in practice, been limited to tangible goods that are
not exempted under the First Schedule to the Act. Incorporeal property was generally
accepted as non-VATable, by taxpayers, on the basis that such property neither
constitute goods. In the new Act, Incorporeal property such as rights, patents, trademarks,
royalties are now taxable.
Service- *The services are rendered in Nigeria by a person physically present in Nigeria
at the time of service provision; or
* The services are provided to a person in Nigeria, regardless of whether the services are
rendered within or outside Nigeria.
(ii)
Section 4-Rate of Tax
The increase in tax rate from “5%-7.5%”
(iii)
Section 8-Registration for VAT
Refusal or failure to register for VAT attracts
*(a) N50,000 for the first month in which the failure occurs; and
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*(c) N25,000 for each subsequent month in which the failure continues as against
N10,000 & N5,000 in the erstwhile law.
* Deregistration/Cessation: Where a taxable person permanently ceases to carry on a
trade or business in Nigeria, the taxable person shall notify the Service of its intention to
deregister for tax purposes within 90 days of such cessation of the trade or
business."
(iv)
Section 10-Registration by non-resident company
Section 10 of the VAT Act is renamed
"Non-resident companies to include the tax on its invoices" and re-enacted as follows:
a) A non-resident company shall include the tax on its invoice for the supply of taxable
services; and
b) The person to whom the services are supplied in Nigeria shall withhold and remit the
tax directly to the Service in the currency of payment (just like oil and gas companies)
c) The service may, by notice, determine and direct the companies operating in the oil
and gas sector which shall deduct VAT at source and remit same to the service.
This is amended to emphasise the duty to withhold tax and remit same on person
receiving supplies in Nigeria. This will improve VAT collection.
(v)
Section 14-Collection of tax by taxable person

Introduction of self-Account (self-charge)
Where a person to whom taxable supplies is made in Nigeria is issued an invoice on which
no tax is charged, such a person shall self-account for the tax payable and remit the tax
to the Service within the timeline prescribed under Section 15 of this Act.

This provision places the duty to collect VAT and remit same on the purchaser where
the supplier is a non-resident or cannot collect or fails to collect. This will ensure no
transaction by taxable persons escapes VAT.

It also means if a taxable person receives supplies from a person below the threshold of
N25m or from any other non-taxable person, the taxable person receiving the supplies
has the obligation to self-charge and account for the VAT.
(vi)
Section 15 (1)-Taxable person to render Returns
Section 15 (1) is repealed and replaced with the following provisions:

"A taxable person who in the course of a business has made taxable supplies or
expects to make taxable supplies, the value of which, either singularly or
70
cumulatively in any calendar year, is twenty-five million Naira (N25,000,000) or
more;
*Shall render to the Service, on or before the 21st day of every month in which this
threshold is achieved and on or before the same day in successive months
thereafter, a return of the input tax paid and output tax collected by him in the
preceding month in such a manner as the Service may from time to time prescribe.

This provision places the burden of filing tax returns only on taxable persons with
up to N25m turnover.

A taxable persons who has attained N25 million turnover in the preceding year
should continue to collect VAT even if it has not attained N25million in the current
year. Also, a person who has not attained N25 million turnover in the previous
year is expected to start collecting VAT in the current year as soon as it attains or
has a valid expectation of attaining a turnover of N25m within the year.

The following provisions shall not apply to a taxable person under the N25m
threshold:
(vii)
Section 16-Remission of Tax
Section 16 of the VAT Act is hereby amended as follows:

A taxable person shall, on rendering a return under subsection (1) of section 15 of
this Act
(i) If the output tax collected exceeds the input tax paid, remit the excess to the Board;
(ii) If the input tax paid exceeds the output tax collected, be entitled to utilize the excess
tax as a credit against subsequent months (instead of refund).
*NB: The taxable person would only be entitled to a refund from the Service, of excess
tax not utilised as a credit, upon provision of such documents as the Service may,
from time to time, require
(viii)
Section 19-Effect of failure to render Returns
Section 19 of the VAT Act relating to BOJ assessment is amended as follows:

If a taxable person does not remit the tax within the time specified in section 15 of this
Act, a sum equal to 10 per cent of the tax not remitted and interest at the prevailing
Central Bank of Nigeria minimum re-discount rate shall be added to the tax not remitted
and the provisions of this Act relating to collection and recovery of unremitted tax,
penalty and interest shall apply.
71

The Service should notify the taxable person or his agent of the tax due together
with the penalty and interest and if payment is not made within thirty days of such
notification, the Board may proceed to enforce payment as provided in section 15
of this Act."

The provision increases the penalty from 5% to 10% to deter evasion and align
the penalty provision with that of FIRSEA
(ix)
Part IV (Sections 21 to 24)

(x)
These section are deleted in order to align VAT Act with Tax Tribunal provisions
under the FIRSEA
Section 28-Failure to notify change of address
Section 28 of the VAT Act is renamed "Failure to notify of change of address or permanent
cessation of trade or business" and hereby re-enacted as follows:
A taxable person who fails to notify the Service of any change of address within 30 days
of such change, or who fails to comply with the requirement for notification of permanent
cessation of trade of business under Section 8 of this Act, is liable to pay (a) N50,000 for the first month in which the failure occurs; and
(b) N25.000 for each subsequent month in which the failure continues
(As against N5.000 in the erstwhile law)
(xi)
Section 32-Failure to register
Deleted in order to harmonize under Section 8 only the obligation and penalty with
respect to registration for VAT
(xii)
Section 35-Failure to submit Returns
Section 35 of the VAT Act is hereby amended as follows:

(xiii)
A taxable person who fails to submit returns to the Service, is liable to a fine of
N50,000 in the month of default and N25,000 for every month in which the default
continues." (As against N5,000 for every month the failure continues in the
erstwhile law)
Section 42-Signification
The VAT Act is amended by inserting the following new Section 42 immediately after the
existing Section 41 of the Act.
72

As in section 29 (9) of CITA: Where a trade or business carried on by a company
is sold or transferred to a Nigerian company for the purposes of better organisation
of that trade or business or the transfer of its management to Nigeria, and any
asset employed in such trade or business is sold or transferred, no tax shall apply
under this Act to the sale or transfer of the aforementioned assets to the extent
that one company has control over the other or both are controlled by some other
person or are members of a recognised group of companies and have been so
for a consecutive period of at least 365 days prior to the date of reorganization

Provided also that if the acquiring company were to make a subsequent disposal
of the assets thereby acquired within the succeeding 365 days after the date of
transaction, any concessions enjoyed under this subsection shall be rescinded and
the companies shall be treated as if they did not qualify for the concessions
stipulated in this subsection as at the date of initial reorganization."
*This provision is to extend the concession granted to companies with common control
wishing to restructure. It exempts from VAT assets transfer between related entities of
365 days old under a common control. However, if there is a further transfer within 365
days such concession shall be withdrawn and all transaction shall be liable to VAT.
(xiv)
Section 46-Interpretation
Section 46 of the VAT Act is hereby amended as follows:

Deleting the definition of "Board" and defining the term "Service" as follows:
*"Service" means the "Federal Inland Revenue Service as defined in the Federal
Inland Revenue Service (Establishment) Act, 2007"


Replacing all references to "the Board" in the VAT Act with "the Service".
Including the definition of "Goods" and "Services"' as follows:
"Goods" means:
(i) "all forms of tangible properties that are movable at the point of supply, but does
not include money or securities; and
(ii) Any intangible product, asset or property over which a person has ownership
or rights, or from which he derives benefits, and which can be transferred from one
person to another excluding interest in land".
"Services" means
*"anything other than goods, money or securities which is supplied excluding
services provided under a contract of employment"

Deleting the definition of "imported services"
73

Substituting the current provision on "exported service" with the following
provision:
“Exported service” means
“A service rendered within or outside Nigeria by a person resident in Nigeria, to a nonresident outside Nigeria” Provided, however, that a service provided to the fixed base or
permanent establishment of a non-resident person shall not qualify as exported services".

Including the definition of "commencement of business" as follows:
*"Business shall be deemed to commence in Nigeria on the date that an entity carries
out its first transaction which shall be the earliest of the date it begins to market or
first advertises its products or services for sale, or the date it obtains an operating
license from a regulatory authority in Nigeria, or the date of its first sale or purchase,
or the date it executes its first trading contract after incorporation, or the date it issues
or receives its first invoice, or the date it delivers or receives its first consignment of
goods, or the date it first renders services to its customers."

(xv)
Including a definition for "basic food items" as follows: (Please, see additions)
First Schedule of the VAT Act
The First Schedule of the VAT Act is hereby amended by:

Inserting the following items under Part I of the First Schedule to the VAT Act:
"Locally manufactured sanitary towels, pads or tampons."


Repealing 'Services rendered by Community Banks, People's Banks and
Mortgage Institutions' and replacing it with 'Services rendered by Microfinance
Banks, People's Banks and Mortgage Institutions'
Inserting immediately after item 4 under Part II of First Schedule to the VAT Act,
a new item (5) as follows:
*Tuition relating to nursery, primary, secondary and tertiary education
3.
PETROLEUM PROFIT TAX IMPLICATION
Section 60 of the Petroleum Profits Tax Act- Restrictions on Effect of the Personal
Income Tax Act and Other Acts is hereby repealed.

Under the erstwhile PPTA framework, dividends paid out of after-tax profits were
exempted from tax under any other taxing legislation. Consequently, investors in
upstream petroleum operations in Nigeria were allowed to enjoy tax free returns
74
on investment. The current amendment revokes this exemption and subjects such
investors to WHT, which is the final tax payable by the investors on those profits.
Thus, Dividend paid by companies operating in the upstream sector will now be liable to
WHT, which will improve tax revenue collection.
4.
PERSONAL INCOME TAX IMPLICATION
Sections 2 (2), 49(1),86 (2)(a) & (8), 102(1), 104 (3) (c) (ii) and 108 (f)" of the Personal
Income Tax Act, Cap. P8, Laws of the Federation of Nigeria 2004 as amended (in this
Act referred to as "the PIT Act") are amended by substituting the words "the Federal
Board of Inland Revenue" with "the Federal Inland Revenue Service" where they appear
This is to align CITA with FIRSEA
(i)
Section 20(1) (g)

(ii)
Section 33-Personal Relief and relief for children, dependants etc

(iii)
Amended to clarify that children allowance, dependants allowance and alimony
are already consolidated with personal allowance and no longer allowable for
deduction.
Section 49-Information to be delivered by Bankers

(vi)
Every person engaged in banking shall require that a person intending to open a
bank account for the purposes of its business operations must provide a tax
identification number (TIN as a precondition for opening such bank account or
continued operation of a bank account.
Section 58-Revision in case of Objection

(v)
Amended to the fact that JTB is no longer required to approve pension scheme to
qualify for deduction
Service of documents and other correspondence between the tax authorities and
taxpayers can now be done by electronic mail, delivered in person and by courier
service
Section 74-Penalty for failure to deduct tax
75

(vi)
Failure to deduct WHT specified in the WHT Regulations now liable to penalties in
similar manner as those specified in Sections 69-72 of PITA (Penalties for failure
to deduct WHT on rent, dividend, director’s fees)
Third Schedule-Income Exempted

(vii)

All gratuities payable in the private sector are now exempted from tax in similar
manner to that payable in the public sector
Section 108(1)-Interpretation
Joint Tax Board has been replaced with Federal Inland Revenue Service where
the word “Board” appeared in the Act.
5.
CAPITAL GAINS TAX ACT - IMPLICATION
(i)
Section 32-Exemption of tax on gains arising from take-overs, etc (Now
renamed Business Reorganization)

Section 32 of the CGT Act is hereby renamed "Business Reorganisation" and reenacted as follows:
* (In line with section 29 (9) "Where a trade or business carried on by a company is
sold or transferred to a Nigerian company for the purposes of better organisation of
that trade or business or the transfer of its management to Nigeria, and any asset
employed in such trade or business is sold or transferred, no tax shall apply under this
Act to the sale or transfer of the aforementioned assets to the extent that (the
companies are connected). That is one company has control over the other or both
are controlled by some other person or are members of a recognised group of
companies and have been so for a consecutive period of at least 365 days prior to
the date of reorganisation.
*Provided also that if the acquiring company were to make a subsequent disposal of
the assets thereby acquired within the succeeding 365 days after the date of
transaction, any concessions enjoyed under this subsection shall be rescinded and
the companies shall be treated as if they did not qualify for the concessions stipulated
in this subsection as at the date of initial reorganization."
Exemption: However, if the acquiring company makes any subsequent disposal of
the assets within one year (365 days) after the transaction, this will not qualify under
the above and will be liable to tax accordingly.
(ii)
Section 36(2) - Compensation for Personal Injury
76

(iii)
“Sums obtained by way of compensation for loss of office shall not, however be
chargeable gains, except where the amount of such compensation or damages
exceeds N10,000,000 Instead of N10,000 as stated in the erstwhile Act.
Section 46(1)-Interpretation and other supplementary provisions
* The amendment replaced the word “Board” with “Service” and re-define "Service" to
means the "Federal Inland Revenue Service as defined in the Federal Inland Revenue
Service (Establishment) Act, 2007"
To align CGTA with FIRSEA
* Introducing a definition for "Recognised group of companies" to mean: "Recognised
group of companies" means a group of companies as prescribed under the relevant
accounting standard"
6.
STAMP DUTIES ACT - IMPLICATION
(i)
Section 2 of the Stamp Duties Act is hereby amended by replacing the
interpretation of the words, "stamp", "stamped" and "Instrument" as follows:
"Stamp": means an impressed pattern or mark by means of an engraved or inked block
die as an adhesive stamp or an electronic stamp or an electronic acknowledgement for
denoting any duty or fee.
Purpose: The essence is to extend mode of stamping to electronic means
"Stamped":



This is to extend mode of stamping to electronic means material,
To apply to instruments and material impressed with stamps by means of an
engraved or inked block die,
To apply adhesive stamps affixed thereto as well as to instruments and material
digitally tagged with electronic stamp or notional stamp on an electronic receipt.
Purpose: To expand the instruments for stamping to include electronic documents
"Instrument": Includes every written document including electronic documents.
(ii)
Section 4-Stamping and collection of duties on corporate Instruments
Section 4: This was amended to specifically authenticate “The Federal Inland Revenue
Service” and “The relevant tax authority in a State” as the tax authorities to collect stamp
duties for corporate and individuals respectively.
77
Purpose: To authenticate the fact that it is only FIRS and the States Internal Revenue
Service that are mandated to collect stamp duties for the Federal Government and
State Governments respectively.
(iii)
Section 89-Provision as to duty upon receipt
Section 89 of the Stamp Duties Act is repealed and substituted with a new Section 89 as
follows(1) Definition of receipt: For the purpose of this Act, the expression "receipt" includes
any note, memorandum, writing or electronic inscription whereby any money, or any bill
of exchange or promissory note for monies is acknowledged or expressed to have been
received or deposited or paid, or whereby any debt or demand, or any part of a debt or
demand is acknowledged to have been settled, satisfied, or discharged, or which signifies
or imports any such acknowledgement, and whether the same is or is not signed with the
name of any person.
(2) Denotation of receipt: The duty upon a receipt may be denoted by an adhesive
stamp which is to be cancelled by the person by whom the receipt is given before he
delivers it out of his hands or by a digital tag with electronic stamp or any
acknowledgement of duty charged on an electronic transaction.
(3) Electronic receipt of transfer of money: from Ten Thousand Naira (N10,000.00)
upwards shall attract a singular and one-off duty of the sum of Fifty Naira (N50.00);
This will not however apply to money paid into one's own account or transferred
electronically between accounts of the same owner by the owner within the same bank.
(iv)
Section 90-Certain form of receipts not dutiable
Section 90 of the Stamp Duties Act is hereby repealed.
(v)
The Schedule to the Stamp Duties Act
The Schedule to the Stamp Duties is hereby amended by:
(a) Including under the category of exempt receipts, a new item as follows:
"Receipts given by any person in a Regulated Securities Lending Transaction carried out
pursuant to regulation issued by the Securities and Exchange Commission"
(b) Including under the category of general exemption from stamp duty new items (14),
(15), (16)
"Shares, stocks or securities transferred by a Lender to its approved agent or a
Borrower in furtherance of a Regulated Securities Lending Transaction";
"Shares, stocks or securities returned to a Lender or its approved agent by a Borrower in
pursuant to a Regulated Securities Lending Transaction"
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"All document relating to a Regulated Securities Lending Transaction carried out pursuant
to regulations issued by the Securities and Exchange Commission"
7.
Customs and Excise Tariff etc (consolidated) Act.
A new subsection 1 was inserted which says:
“Goods imported and those manufactured in Nigeria and specified in the 5 th Schedule to
this Act shall be charged with duties of excise at the rates specified under the duty column
in the schedule:
This section shall not however apply to:
i
Goods that are not locally produced in Nigeria; and
ii
Raw materials that are not locally available in Nigeria.
CONCLUSION
In can be seen from the above analysis that the effect of the amendment on companies
and individuals cannot be overemphasised. Apart from being seen as introducing
incentives to taxpayers as well as investment in infrastructure and capital markets, the
Act, without any iota of doubt is aimed at promoting fiscal equity by mitigating instances
of regressive taxation and support small businesses in line with the ease of doing
business reform.
79