Every year professional sport leagues in Nigeria remain undeveloped, the Federal Government lose over N200m in revenue.

When news broke that Kwara United would return to the NPFL after acquiring Delta Force’s slot, there were mixed reaction. As expected, the fans were happy that the NPFL would return to Ilorin, while football enthusiasts were concerned that such activity will adversely affect the stability of the league considering that Delta Force acquired the slot of Kada City less than 10 months ago.

I had a totally different reaction: taxes.

My first thought was the tax implication of the acquisition and if Delta Force understood that they have Capital Gains Tax obligation of 10% of the gain on the disposal of their NPFL slot. Capital Gains Tax is chargeable on the transfer of rights to a chargeable asset – corporeal or incorporeal. If the amount earned by Delta Force on the disposal of the slot exceeds the amount spent on acquisition, they’ve made a capital gain, and they owe the Federal Government taxes.

When we have discussion about sports development, we usually ignore the tax elements intentionally or ignorantly. And this is totally understandable as the primary responsibility to lead the conversation about taxes and drive tax compliance lies with the Federal and State Governments. The sport industry is rarely considered as a business, so it is easy for the Government to ignore the sector. But the earlier they realise the tax opportunities within the sector, the better for them. The better for all of us.

A closer look at any ideal professional sport organisation will reveal that all the major taxes – direct and indirect – are applicable to such organisations. Two major ways sport leagues and teams generate revenue include broadcast rights and ticket sales. Both revenue streams are liable to Value Added Tax in Nigeria.

Again, let us look at the NPFL.

In the report released by the League Management Commission (LMC) for the 2015-16 season, the league reported a cumulative match day attendance of 3,299,846 for the season. If we assume (Assumption 1) that this crowd paid N500 each for ticket, that would result in N1.65bn revenue from ticket sales. The league also generated N2.8bn from broadcast and corporate partnerships, making a total of N4.48bn from these two revenue streams. These two streams represent a sale of good and a provision of service respectively which are both vatable transactions. If we assume (Assumption 2) that the revenue is inclusive of VAT at 5%, a sum of N214m is payable to the Federal Government as VAT on the N4.48bn revenue.

This analysis does not include potential VAT from jersey and merchandise sale, and Corporate Income Tax if the individual clubs make profit at the end of the year. The analysis is also limited to the NPFL, as I have not considered other professional league such as basketball (the NBBF earned N70m in 2019 for naming rights of the women’s league), and other tournaments with the potential of generating gate revenue such as the ITTF Challenge and the Lagos Tennis Open.

The summary is simple; if properly developed and managed, the Federal Government can generate hundreds of millions in tax revenue from professional leagues and sports events.

It might seem counter intuitive to advise the Federal Government generate revenue from sport when many still look up to the same government for the development of sports. But, is that not the spirit behind taxation? The underlying principle of taxation is to generate enough revenue to provide essential amenities and infrastructure, and the tax should be spread across a wide section of population to ease the burden on individuals. The money needed to develop sports can be generated from sporting activities.

According to Cambridge Econometrics’ 2003 report, the UK Government generated ￡5.5bn tax revenue from sports related activities while spending only ￡660m. We do not want that to happen. To prevent this, what the Ministry of Sports and other advocacy groups can negotiate with the Federal Government is that a significant percentage (maybe 80%) of the sport related income should be invested in the development of sports.

Back to the NPFL scenario and the estimated N214m tax revenue. If 80% of this revenue is ploughed back into the development of football in Nigeria, N171m will be available for grassroots football development. Playfinder estimates that it will cost $35,400 – about N17m naira – to build a 3G 5-a-side pitch. This means the Football Federation can build 10 pitches every year from VAT revenue from the NPFL. Let us imagine if this was extended to other professional sports and outdoor multipurpose courts are built/renovated from tax revenue from basketball and tennis.

Now the crucial ; how can this be achieved?

There are different ways this can be achieved. First is for the Government to create a conducive environment for the sport industry to thrive starting with incentives to encourage private investment and corporate partnerships as highlighted in my article. These investments and partnership are vital to the development of a viable sports industry which is the bedrock of any tax generating opportunities. The Federal Government can also extend its tax compliance campaign to the sport industry.

The League Management Commission (LMC), who is licensed to organise and manage the NPFL, is a registered private limited liability company with the Corporate Affairs Commission (CAC). The LMC, therefore, has tax obligations including monthly VAT returns, and annual corporate tax filing. The Federal Inland Revenue Service (FIRS) can start with a tax audit from 2012 when the Commission was incorporated. The CAC can also work with the LMC and other relevant organisations to implement Paragraph 1.3 of the NPFL Framework and Rules which requires the member clubs to be duly incorporated and have a Certificate of Incorporation among other required documents. Beyond football, the Federal Government, through the Ministry of Sports and other relevant agencies can liaise with respective sport federations to attain the appropriate legal status – private limited liability, limited by guarantee etc. This itself is the first for transparency and subsequently, tax compliance.

If we are serious about having a proper sports business industry, we must understand the overall consequences and the corresponding obligations. And if the Federal Government did not have a reason to be a part of the drive for that industry, here is one.