May 3, 2019 – Sunmola David & CO

Tax: For want of payment of EEG rebate

Maybe, you know the poem, “For want of a nail, the shoe was lost; for want of a shoe, the horse was lost; for want of a horse, the rider was lost; for want of a rider, the battle was lost; for want of a battle, the freedom was lost; and all for the loss of a horse shoe nail.” If so, you might appreciate the disincentive that may be inflicted on the Federal Government’s export promotion drives if delays in the processing of the Export Expansion Grant available to a certain category of exporters continue. Qualified beneficiaries get a Debt Management Office promissory note of a maximum of 15 per cent of the value of their exports, which they can use “to pay all taxes, (including company tax, and value added tax, but excluding personal income tax), (and) offset government loans (from government agencies like Bank of Industry, Central Bank of Nigeria, and the Nigeria Export-Import Bank).” The EEG promissory note can also be applied “to buy government bonds; (and settle indebtedness to the Federal Government’s) Assets Management Company of Nigeria.” A beneficiary can take 100 per cent of the grant at a go. To qualify for this rebate, beneficiaries must have “registered with (both) the Corporate Affairs Commission and the Nigeria Export Promotion Council; exported Nigeria-originated products or services; and carried out formal exports with repatriation of proceeds into (a) Nigerian bank account with confirmation by the CBN.” The intention of this scheme is to cushion the effect of infrastructure deficits which tend to increase overall unit costs of manufactures in Nigeria. It is a non-cash scheme that is operated via the Negotiable Duty Credit Certificate, or promissory note. The advantage of non-cash promissory note that is acceptable to government agencies is that, whereas government will not have to pay cash, the promissory note can be used to offset payments, like tax, due to government. The note is negotiable because it is transferable to third parties. So, beneficiaries can assign the instrument to their creditors, who can also use it to offset statutory payments to government agencies. When used to offset tax, it becomes a fiscal policy. It is truly a win-win for government, the beneficiaries, and the economy. Another advantage of the scheme is increased foreign exchange earnings, which translate to conservation of Nigeria’s foreign reserves. The EEG was introduced in 1986, via the Export Incentives and Miscellaneous Act, to diversify Nigeria’s export base from crude oil, to non-oil products, especially in the agricultural and allied sub-sector of the economy. Maybe, as a result of abuse, the scheme was suspended by the President Goodluck Jonathan government in 2014. But the President Muhammadu Buhari Administration reinstated it to diversify the export base of Nigeria. There are allegations that there are challenges in granting rebates that the National Assembly has approved for qualified exporters and beneficiaries of the statutory EEG that is domiciled in the Nigeria Export Promotion Council. In the manner of a man finding the easiest way to take a bull round a china shop without breaking the wares, Segun Awolowo, Executive Director of NEPC, noted that the National Assembly approved the first batch of promissory notes for the export grant in January 2019. He then tippy-toed to find a nice, non-threatening, way to appeal to the DMO “to ensure the completion of the programme within the shortest possible time,” before the next batch of authorizations is processed for approval by the National Assembly. He revealed that the claims cover “backlogs of 10 years (2007 to 2016) for 270 companies, with a total value of… N195,089,234,808.64, (which he believes), will bring succor to the export sector in particular, and the economy in general.” The estimated amount outstanding is N1.3trn. Awolowo added that Pre-Shipment Inspection Agency and Nigerian Bureau of Statistics figures indicate that “there was a growth of 48.43% from $1.204billion in 2016 to $1.787billion in 2017, (in Nigeria’s export business, and) it further went up by 27.22% equivalent to $2.274billion in 2018.” He is hoping “that exports for 2019 will grow by about 40 per cent,” if promissory note settlements are done early enough. But it looks as if something or somebody is holding up the process. The DMO is allegedly shifting the goalpost of the EEG by introducing what it calls Reverse Auction, which simply means that the beneficiaries have to yield a discount on their accumulated promissory note rebates. Traditionally, Reverse Auction occurs when several sellers submit increasingly lower bids to one buyer, instead of the other way round, where several buyers submit increasingly higher bids to one seller. This was not originally on the cards, and the beneficiaries claim that the Reversed Auction will affect their cash flows, and compromise their capacity to service debts incurred in the export transactions. Some tax experts regard this as an indirect tax, and added to the multiple taxation suffered by Nigerian businesses. The beneficiaries had worked with the figures that the DMO now wants to fiddle with, and lament that it may discourage the export promotion drive of the Federal Government. The DMO doesn’t seem to have said much to clarify its position. As you already know, the EEG is the NEPC’s way of supporting “active exporters (in) expanding their international business… through exports of existing products in new and current markets. It is essentially a post-shipment incentive designed to expand the volume of export goods and commodities, other than crude oil, and improve global competitiveness of Nigerian products.” Even though the scheme is a programme of the Federal Government of Nigeria, it is also supported and co-funded by the European Union and the United Nations Industrial Development Organization. The scheme resonates with the Economic Growth and Recovery Plan of the President Buhari government, which is to “accelerate non-oil revenue generation (for the government and people of Nigeria).” The ERGP’s broad objective is “to tackle the obstacles hindering the competitiveness of Nigerian businesses, notably poor or non-existent infrastructural facilities and the difficult business environment. It

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ANAN inaugurates Mainoma as 11th president

Accountancy Services / Tobi Aminu

Prof Muhammad Mainoma has been inaugurated as the 11th president of the Association of National Accountants of Nigeria. During his inauguration as the association’s president and unveiling of new logos of ANAN and its training arm, the Nigerian College of Accountancy, Jos, Mainoma said he was determined to consolidate on the attainments by making accountancy in Nigeria more attractive. In a statement, he commended the founding fathers, past presidents, fellows and members of the association for their commitment and resilience in building a strong professional accounting organisation in the country. The new president said that the membership of ANAN as individuals must build professionalism comprising proficiency, respect, objectivity, fairness, education, selflessness, service and integrity. He also mentioned the relevance of organisation, networking, ability, learning, image, and standardisation. He said, “Under my leadership as the 11th president and chairman of council, the association shall work on ‘accounting,’ advancing the profession, college development, capacity building, opportunity creation and unity of purpose. “It will focus on networking globally, technical support, innovation and consolidation, new knowledge and technology and global brand building. “Greater collaboration is required among professional accounting organisations in Nigeria on national issues. “The council shall be working with other PAOs to form a joint accounting body as formidable platform for advancing government.” He said that the Federal Government’s national Anti-Corruption Strategy needed the support of PAOs in Nigeria. “PAOs must work alongside government, regulators, law enforcement and international bodies to combat corruption, tax evasion, money laundering and to strengthen transparency and accountability programmes,’’ Mainoma said. On the economy, Mainoma said the macroeconomic performance of the Nigerian economy had largely reflected the role of the global economy. Nigeria’s economic recovery from recession benefitted from Federal Government’s commitment to the implementation of the Economic Recovery and Growth Plan, he stated. Source: Punch

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THE VALUE ADDED TAX DEBATE

Tax news / Tobi Aminu

Luxury goods should be subjected to hefty tax, argues Babafemi Ojudu. On my page I posted a while ago a contribution by Prof Familoni to the debate on whether or not to increase Value Added Tax (VAT). I love and appreciate his contribution and the clarity he has brought to it, which is retain the five per cent being charged now for the essential consumer items while you increase to 15 per cent the value added tax for luxury items , which is otherwise known as vanity items. I will even go further to advocate more than 15 per cent for the vanity imported items. There are quite a lot of things we don’t need in this country for which quite lot of people expend money on. Of what use used is a gold toilet bath and bowl? Of what use are gold cutleries? If you must use that, it is all well and good. It is your right to buy whatever your means can purchase. These items consume our foreign exchange earnings and add no value to the growth and development of our country. The pressure of foreign exchange mean we all pay more in inflation and have lower quality of life. Recouping the funds by way of taxation will not only discourage the importation of these items but also create jobs locally, while providing funds to ameliorate short term downsides of inflation and decreased purchasing power occasioned by luxury item importation. You however must be ready to pay dearly for it so that those who could not access the means for bare existence could be provided for by the state. This is equity. This is how a just society is run. Progressive tax systems were how welfare societies in the West, which we envy today were built. The United States emerged as a world power from the World War and thereafter, building the interstate highways and funding the space programme by charging her wealthy citizens as high as 80 per cent tax rate! Indeed, “the highest marginal tax rate for individuals for U.S. federal income tax purposes for tax years 1952 and 1953 was 92%”. If we must build a fairer, and more equitable society where the rich and poor can thrive, and the rich especially can go to bed with their eyes closed then we must demand the fortunate pay more. Some years ago I went on a trip to China to visit a Chinese friend, a billionaire who manufactures keyboards and computer mouse. One evening he drove to the hotel to pick me and two of my friends to the rich peoples club for a night of heavenly SPA experience. As we drive in his luxury BMW, he told us he was not supposed to be driving that car if he were not vain. Yes, vain, he said. I asked him why. He said the amount he paid to acquire it was simply ridiculous. When he told me how much in Chinese currency I quickly whipped out my phone and went for the calculator. The car we drove in was worth, as at the time, a whopping sum of N250 million. The same car you could buy then for less than N30 million in Nigeria. Asked why it was so expensive he said that was Chinese government policy of discouraging imports and encouraging local manufacturing which will in return provide employment for the locals and good tax income for the government. He said that policy does two things. If you have a taste for foreign luxuries you have to cough out unusual amount to maintain and service your taste. If the manufacturers of such items believe there is a huge market for their products in China but it became unaffordable because of the huge tax put on it, it behaves on them to come and open a factory for same in China. This will ensure technology transfer, create employment for the locals as well as generate tax income for the government. Just imagine Toyota, Mazda, Mercedes and BMW have plants in Nigeria today. Do you know how many jobs that will generate? Can you imagine how much in tax that will bring to government coffers? Some years ago I and three other colleagues in the Senate visited a governor. He hosted us to lunch. As we were eating he called his Filipino chef to bring a particular champagne, the name of which I can’t remember now. As he unlocked it with relish and pride he told us gleefully how much it costs. One million, two hundred thousand naira. I almost fell off my seat! A bottle of champagne for that much? How many of that did he keep in his cellar to entertain his guest and massage his own ego? Each of us got a glass of it and you can imagine how much each glass we gulped in less than 30 minutes cost. Imagine that this was cost price, the poor child in this governor’s state that cannot afford three square meals was denied a bite at the pie, which may discourage such vain consumption by our governor! How I wish he or she got a VAT on that Champagne to even the playing field! Let’s be clear, the Value Added Tax is a unique revenue stream in Nigeria that is disproportionately allocated to states over the federal government. It funds education, basic healthcare and rural roads. It will make states more solvent to pay increased minimum wage, and also incentivize shift of consumption to locally produced goods and spur manufacturing. Local non-luxury goods should be exempted just to be clear, and enforcement should be strict and encompassing. The kind of luxury good consumption by the governor I referenced above is what we need to tax heavily. If he has to pay N10 million for this he will perhaps think twice before buying it or at least purchase less or seek local alternatives. If the manufacturers know there is a big market for this

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Experts’ assessment, recipe for Nigeria’s tax system

Tax news / Tobi Aminu

The nation’s tax system has been agog, at least in the last three years, than it has ever been in more than 10 years past. Riding on the back of the country’s fiscal crisis, the present administration, like “hunting without barriers,” raved up the campaign for honour to civil obligations. Granted, the campaign is yielding more positive results, according to experts, but they said there are cases of regulatory flip-flop, need for review of laws, leakages, lack of transparency in governance and fiscal indiscipline. The Chartered Institute of Taxation of Nigeria (CITN), at its just concluded yearly tax forum, outlined series of outstanding issues in the country’s tax system to be resolved in the week-long brainstorming sessions. Prominent among them were the unending dependence on oil and raging controversies over tax increase, expansion of tax net and introduction of new ones. The President and Chairman of Council, CITN, Chief Cyril Ede, in his welcome address, said the institute’s yearly conference was part of its contributions to resolving topical tax issues in the country, advance taxation as an essential tool for promoting macroeconomic goals of achieving full employment, income redistribution and competitive environment for businesses. “The role of taxation in the development and sustenance discourse cannot be emphasized enough. We are happy to engage this subject every time an opportunity presents itself, more so as we believe in its vast potential to deliver economic prosperity for our great country. “It is imperative to establish the fact that Nigeria still relies principally on oil revenue, which also accounts for a substantial part of our foreign exchange earnings. We owe it ourselves and generations unborn, to break away from this un-dimensional approach, which comes with its harvest of false affluence…” he said. Earlier in the conference, the Pioneer Chairperson of the Society of Women in Taxation (SWIT), Justina Okoror, had raised concerns over the lopsided developments in the pursuit of tax revenue, which put 70 per cent of the N5.2 trillion of the taxes collected in 2018 to Lagos State alone. The development, which is not only an indication that the four-year tax reforms and campaign have less impact in the remaining 35 states, with huge untapped potential, but a clear assessment that most of the states are not in tune with the message of taxation. “For instance, out of the trillions of naira generated by the Federal Inland Revenue Service (FIRS), 70 per cent came from Lagos, which means that 35 states and the Federal Capital Territory contributed only 30 per cent. “That also means that there are so many states with nearly no productive activities happening in them and by implications, are not paying tax. So, if Lagos decides to become a sovereign state, Nigeria will not be able to generate any revenue from tax,” she said. Stressing the need to expand tax base, she said that with some states mining gold, diamond and other natural resources, there is an urgent need for government to go into the hinterland and increase their revenue base, especially from private companies. “Government must take seriously tax revenue generation just like what is being done with crude oil. They should go into these places with natural resources and make it another revenue base,” she said. But the incoming National Chairperson of SWIT, Kudiirat Abdulhamid, queried government’s increased borrowing, when potential revenue generation is lying idly, saying the increasing obligations is tying the nation’s resources to payment and servicing of the loan that is being taken. She maintained that revenue generation through taxation is more sustainable, especially when such resources are judiciously tailored towards development projects that would benefit the people. “I agree with people complaining over government borrowing, but if citizens pay taxes and it is judiciously utilized for provision of this services, people will be eager to pay more. But when government borrows money without providing infrastructures, citizens would become angry,” she said. But transparency and governance issues were resonated, as President Muhammadu Buhari, admitted that government was aware that the challenges faced in achieving voluntary tax compliance was due to alleged lack of transparency and accountability in the management of revenue. Represented by the Permanent Secretary, Ministry of Finance, Mahmood Isa-Dutse, he said his government was committed to changing the narrative by ensuring judicious use of funds through the strict enforcement of Treasury Single Account policy and zero tolerance for corruption. He stressed that for Nigeria’s tax system to be dynamic and respond to the ever-evolving commercial landscape and increased technology-driven business model, he called for the support of the institute and other major stakeholders in widening the tax base for improved revenue collection and voluntary compliance. He also expressed concern over abysmal low level of tax to the Gross Domestic Product (GDP), reiterating government’s stance in setting aggressive target for increased tax collection in the country. According to him, tax collection supposed to grow in line with growth in the economy but that has not been the case in the country, attributing it to low-level compliance and in some cases, underpayment of the effective tax rate paid by those that are complaint. But the Chairman of United Bank of Africa, Tony Elumelu, asked government to expand its double taxation treaties with foreign missions, as part of efforts to increase its revenue base. Nigeria, according to him, has only 14 double taxation treaties despite the numerous foreign missions, embassies, high commissions in almost all the countries of the world, when South Africa has 80 taxation treaties. Elumelu said that government does not understand the benefit and implications of the treaties for national development, pointing out that to achieve a progressive, efficient and effective tax regime, there was need for government to take a second look into the double taxation treaties with other countries. But he lamented that most multinational companies are relocating from Nigeria to Ghana and companies that want to move into the country are discouraged because an average business in Nigeria provides for itself water, electricity, handles waste disposals, security,

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Court rules on the Tax indebtedness of NDDC to Rivers State Board of Internal Revenue

Tax news / Tobi Aminu

A Rivers State High Court has ruled that the Niger Delta Development Commission (NDDC) is indebted to the Rivers State Board of Internal Revenue to the tune of N50billion for refusing legal taxes between 2012 and 2017. Ruling on SUIT NO. OHC/23/2019, Justice Sobere Biambo of Rivers State High Court, Omoku approved the sealing of the NDDC Office and other legal actions that will lead to the recovery of the N50billion debt. The Court ruled: “The respondent is indebted to the applicant to the tune of N50,000,000,0000 (Fifty Billion Naira) only being outstanding tax liability owed the Government of Rivers State by the Respondent with respect to PAYE, Withholding Tax (WHT) and other taxes unpaid for the period, 2012 – 2017. ” A warrant be and is hereby issued authorizing the applicant to levy distress and distrain any land and or any other property howsoever described belonging to the respondent and to execute same in order to recover the said some of N50,000,000,000 (Fifty Billion Naira) only owed Government of Rivers State by the respondent”. In an interview on the ruling and sealing up of NDDC, Chairman of the Rivers State Board of Internal Revenue Service, Mr Adoage Norte explained that the Revenue Agency is following due process to recover the said funds. He argued that there is no political undertone in the move to recover the debts as all necessary actions were taken, while the NDDC has refused to respond. Norte said: “That tax we are talking about here is not profit tax, it is not that they made profit and they should pay tax, it is not that they are given allocation and they should pay tax,this is tax they already deducted from their own staff who are working and residing in Rivers State as well as tax they deducted from contractors and vendors. “These taxes they have collected on behalf of the Rivers state government is what we are asking for. NDDC has never opened their books, anytime you come there, they will tell you their auditor general of the federation is doing records, is doing book and all of that. Out of this frustration, we decided to send them a BOJ assessment, BOJ assessment means that since we are not able to get the assessment, I am now as a tax administrator saying I assume they are owing so much. If you know it is too much, open your record let us examine it . “And if you are also going to object to that N50b which the law also allows you to, your objection must meet a threshold. For example, we are not owing N50b , we owe only so much and here is how we arrived at that so much. You must back it up with evidence”. Source: Puoreports

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