The 2019 Tax Newsflash

As far as taxation in Nigeria is concerned, 2019 was the most eventful year. On the back of VAIDS and a record revenue collection in 2018, the Federal Inland Revenue Service (FIRS) set a revenue target of N8.3 trillion. Then they tried to meet this target but ultimately fell short. Dramatic highlights include the freezing of bank accounts, a published list of defaulters and the proposed introduction of Value Added Tax on online transactions. Even the most uninterested people learnt a little about tax in 2019. Everyone knows a little about the Finance Bill. Everyone read something David Akindolire wrote. Smiley face.

Well, this newsflash affords you a look at the top tax news of the year in an orderly manner. The sources of the news are referenced websites run by credible professionals. Excerpts from notable publications have been lifted exactly. You can click on the hyperlinks to access the full versions. My newsflash is divided into three – laws and policies (of the legislature and executive), decided court cases and activities of the tax authorities. I have compiled the top 7 headlines for each category. Then these are further arranged in chronological order to give the best browsing experience. Enjoy!

Laws and Policies

• Executive Order 007

January, Deloitte

The President of Nigeria approved the Executive Order 007 (the Order) on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme (the Scheme). The Scheme is a public-private partnership, which enables private companies fund the construction and repair of eligible roads. In exchange, the participants in the Scheme are entitled to recover the project funds by way of tax credits, claimable against Companies Income Tax (CIT) payable.

The Scheme will be implemented and administered by a special management committee (the Committee), consisting of representatives from relevant Ministries and agencies, including Federal Inland Revenue Service (FIRS) and chaired by the Minister of Finance.

• FCCPC Act

February, Odujinrin & Adefulu

On the 5th of February 2019, President Muhammadu Buhari assented to the Federal Competition and Consumer Protection Act (“FCCPA” or “The Act”). The Act establishes the Federal Competition and Consumer Protection Commission as well as the Competition and Consumer Protection Tribunal.

The Act through the establishment of the Commission and Tribunal seeks to promote competition in Nigerian markets at all levels, by eliminating monopolies, prohibiting the abuse of a dominant market position and penalizing other restrictive trade and business practices. This means that the Commission is focused on prohibiting commercial agreements or practices that restrict free trading and competition between businesses and ensuring that goods and services made available in the Nigerian market are of a certain standard and quality similar to international best practices.

• Police Fund Levy

April, PwC

The Nigerian Police Trust Fund Act (the “Act”) was passed by the National Assembly in April 2019, and signed into law by the President on 24 June 2019. The Act establishes a Fund; proceeds from which will be used to train police personnel and procure security machinery and equipment. The Act imposes a levy of 0.005% of the “net profit” of companies ‘operating business’ in Nigeria. The Fund will be wound up 6 years after its establishment. The assets and liabilities will be transferred to the Nigeria Police Force.

• Cashless policy

September, TheGuardian

The Central Bank of Nigeria (CBN) re-introduced charges on the deposit and withdrawals of sums above N500,000 to promote a cashless economy. All deposit money banks in the country were directed to charge 3% processing fees for withdrawals and 2% for deposits of amounts above N500, 000 for individual accounts.

In the same vein, corporate account holders were to be charged 5% processing fees for withdrawals and 3% for deposits of amounts above N3 million. The directive was effective from Wednesday, September 18, 2019. The CBN authorities said the directive is a pilot scheme, as it only applies only to banks in Lagos, Ogun, Kano, Abia, Anambra, Rivers, and Abuja. Accordingly, it would apply to other states from March 31, 2020.

• Communication Service Bill

October, Deloitte

The Bill seeks to impose and collect communication services tax (CST or levy) on charges payable by consumers of electronic communication services in Nigeria (excluding private electronic communication services) at the rate of 9%. Electronic communication services subject to the levy include: voice calls, SMS, MMS, data usage (both from Telecommunication Services Providers and Internet Service Providers), Pay per View TV Stations etc. The tax is to be paid together with the electronic communication service charge payable to the service provider by the user of the service.

• PSC Act, 2019

 November, PwC

President Muhammadu Buhari signed into law, a Bill to amend the Deep Offshore (and Inland Basin Production Sharing Contract) Act (the PSC Act). The new amendment now introduces the following key changes:

1. Field based royalty rates of 10% for deep offshore (>200m water depth) and 7.5% for frontier/inland basin operation 

2. Introduction of incremental royalty rate based on the price of oil

3. Periodic review of the PSC arrangement every 8 years

4. Significant penalty for offences including imprisonment

Section 16 of the PSC Act provides for incentives to be reviewed where the price of oil exceeds US$20 per barrel or in any event after 15 years from inception and every 5 years thereafter.

• Finance Bill

November, KPMG

The objectives of the Bill, as outlined by the President, are to:

1.      promote fiscal equity;

2.     reform domestic tax laws;

3.     introduce tax incentives for investments in infrastructure and capital markets;

4.     support small businesses; and

5.     raise revenues for the Government.

The Bill contains vast changes to the Companies Income Tax Act, Value Added Tax (VAT) Act, Petroleum Profits Tax Act (PPTA), Personal Income Tax Act, Capital Gains Tax Act (CGTA), Customs and Excise Tariff Etc. (Consolidation) Act and Stamp Duties Act.

Court Decisions

• SNEPCO v. LIRS

May, Olaniwun Ajayi LP

The Tax Appeal Tribunal (TAT) on 14 May 2019, delivered a judgement in the case of Shell Nigeria Exploration and Production Company Limited v. Lagos State Internal Revenue Service (LIRS) with suit numbers TAT/LZ/PIT/085/2014 & TAT/LZ/PIT/085/2014, holding that penalties and interest will accrue from the date of the failure by the taxpayer to remit outstanding taxes and will become payable when the tax assessments become final and conclusive.

• Vodacom v. FIRS

June, EY

Nigeria’s Court of Appeal (COA or the Court), sitting in Lagos delivered a judgment on 27 June 2019 upholding the judgment of the Federal High Court (FHC) in the case of Vodacom Business Nigeria Limited (VBNL) vs. Federal Inland Revenue Service (FIRS) on the imposition of value added tax (VAT) on services rendered by a nonresident company (NRC).

The Court, deciding in favor of the FIRS, ruled that where goods and services were exchanged for consideration in line with Section 2 of the VAT Act, and where such goods and services do not fall within the list of exempt goods and services as specified in the First Schedule to the Act, such transactions should be liable to VAT.

• Nexen v. LSBIR 

June, Adebiyi Tax & Legal

On 18th June 2019, the Tax Appeal Tribunal (TAT), Lagos (in Appeal Number: TAT/LZ/PIT/031/2018 between Nexen Petroleum Nigeria Limited v. Lagos State Board of Internal Revenue) held that apart from the deduction and remittance of PAYE tax arising from an employee’s emoluments, the employer has no obligation to account for any other tax that may be due from such employee.

• Actis Africa v. FIRS

July, KPMG

The case specifically concerned Section 19 of the Companies Income Tax Act and its application to dividends paid from retained earnings. The company recorded no profits for 2014, but declared and paid dividends from its 2013 post-tax profits.

The appellate tribunal held that the “excess dividend tax” is applicable when the dividend paid in a year of assessment exceeds the total profits declared in that year. The tribunal also found that Section 19 only considers the year of assessment when the dividend is paid and the total profits of the company in that year. Therefore, when the dividend paid is more than the total profits in a year, the excess of that dividend over the total profit becomes liable to (subject to) additional income tax.\

• Nigerian Breweries v. ASBIR

July, KPMG

The Tax Appeal Tribunal (TAT or “the Tribunal”) sitting in Enugu recently delivered judgement in the case of Nigerian Breweries Plc (“the Appellant”) and Abia State Board of Internal Revenue (“the Respondent”) to the effect that gratuities are wholly tax-exempt under the Personal Income Tax (PIT) Act 2004 (as amended).

• Polaris Bank v. ASBIR

August, Andersen Tax

On 20 August 2019, the Tax Appeal Tribunal (TAT or Tribunal) sitting at Enugu, held that a taxpayer may not be liable to taxes (including interest and penalties) based on assessments arising after the expiration of the six years statutory period for tax audits. In addition, the Tribunal held that the Abia State Board of Internal Revenue cannot collect taxes/levies simply because they are listed under the Taxes and Levies (Approved List for Collection) Act (Taxes and Levies Act) if there are no primary legislation providing for the imposition and assessment of the tax or levy. 

• United Capital v. FIRS

September, Andersen Tax LP

On 24 September 2019, the Tax Appeal Tribunal ("TAT" or "the Tribunal"), sitting in Lagos, upheld the imposition of excess dividend tax under Section 19 of the Companies Income Tax (CIT) Act on income which is exempted from tax under the Companies Income Tax (Exemption of Bonds and Short Term Government Securities) Order, 2011 (CIT Exemption Order).

The TAT also held that United Capital Assets Management Limited (UCAM) and United Capital Trustees Limited (UCT) ("the companies") were entitled to a waiver of interest and penalty on their tax liabilities even though the Federal Inland Revenue Service (FIRS) wrongfully denied them participation in the erstwhile Voluntary Assets and Income Declaration Scheme (VAIDS or the Scheme). 

Tax Authorities

• FIRS issues MAP Guidelines

February, Udo Udoma & Belo-Osagie

As a show of its commitment to the OECD BEPS Action 14 on Making Dispute Resolution Mechanisms More Effective, Nigeria, through the Federal Inland Revenue Service (“FIRS”), recently released its domestic Mutual Agreement Procedure guidelines - the “Guidelines on Mutual Administrative Procedure (MAP) in Nigeria” dated 21st February, 2019 (“the FIRS MAP Guidelines”). The purpose of the FIRS MAP Guidelines is to provide guidance to all taxpayers along with their representatives, advisers and other stakeholders on the procedure for accessing Mutual Agreement Procedure (“MAP”) as a means of dispute resolutions pursuant to the Double Taxation Agreements (“DTA”) between Nigeria and other countries.

• VAT on online transactions

May, Andersen Tax LP

On 18 May 2019, the Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, disclosed that the FIRS would soon begin the collection of Value Added Tax (VAT) on online transactions. According to the Chairman, the FIRS plans to start directing banks in Nigeria to impose VAT on online transactions for purchase of goods and services. The Chairman has stated that the move by the FIRS to extend VAT collections to online transactions is part of the agency’s measures to meet its 2019 revenue target of N8 trillion.

• WHT/VAT on commissions and rebates

August, PwC

The FIRS has issued a Public Notice on the deduction of withholding tax and VAT on compensation paid to agents, dealers, distributors and retailers by principal companies. The Notice requires such principal companies, particularly those in the Fast Moving Consumer Goods (FMCG) that WHT and VAT are due on compensation, commission rebates and other means of incentives or rewards whether paid by cash, credit note, or goods-in-transit must be subjected to WHT and VAT at the appropriate rates and remit to the FIRS not later than the 21st of every month.

• Common Reporting Standard Regulations

August, PwC

The Federal Inland Revenue Service (FIRS) has issued the Income Tax (Common Reporting Standard) Regulations, 2019 (CRS Regulations). This follows Nigeria’s signing of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters (MAC) and the Multilateral Competent Authority Agreement (MCAA) on the Automatic Exchange of Financial Account Information, signed by Nigeria on 17 August 2017.

Fundamentally, the CRS Regulations and the various agreements signed by the FIRS will allow it to receive specified information on the bank accounts held by Nigerian tax residents in up to 105 countries. In exchange, the FIRS will be obligated to provide similar information to these other countries.  

• Tax office for non-resident persons

October, Olaniwun Ajayi LP

By a public notice (“the Notice”) issued by the Federal Inland Revenue Service (“the Service” or “FIRS”), a tax office-specific and peculiar to Non-Resident persons as defined under Nigerian law has been established. Non-Resident persons are now required to submit every return, inquiry or correspondence to the NonResident Persons Tax Office (“NRPTO”) located at 17B Awolowo Road, Ikoyi Lagos.

THE END.

Did I promise 7 headlines a category?

Oh well, this is all I could find.

I hope it was useful.

Happy New Year!