September 12, 2019 – Sunmola David & CO

Higher VAT From Infrastructure Investment

The Federal Inland Revenue Service (FIRS) and other African countries’ tax agencies are strategising to ensure owners of infrastructure investments in the continent are properly taxed, especially in the aspect of Value Added Tax (VAT). Over a trillion dollars is slated for investment towards infrastructure development over the next 10 years in the continent. Speaking at African Tax Administration Forum (ATAF) technical workshop on VAT yesterday in Abuja, executive secretary of the forum, Mr. Logan Wort said the current digital economy around the globe presents new opportunities for revenue administration to feature innovation in system design for the collection. 2018 edition of Deloitte’s Africa Construction Trends report had indicated that as of June 2018, Africa had 482 projects, each valued at $50 million or above. In total these construction projects were valued at $471 billion. This was an increase of 53 per cent of the total value of $307 billion recorded in 2017. In 2018, the top three countries in terms of construction projects were Egypt, South Africa and Nigeria. Egypt had the highest recorded number of projects, totalling 46 and accounting for 9.5 per cent of African projects. In terms of value, Egypt also topped Africa, recording projects worth US79.2 billion. This accounted for 17 per cent of the continent’s value of projects. Despite the opportunities of digital economy, Wort noted that e-commerce changes the distribution of taxable activities; it poses challenges to the jurisdiction to tax income and alters the balance of taxing authority, and results in the erosion of countries’ tax bases. “E-commerce creates difficulties in the identification and location of taxpayers, the identification and verification of taxable transactions and the ability to establish a link between taxpayers and their taxable transactions, thus creating opportunities for tax avoidance,” he remarked at the 3-day event. As a solution, Wort said the Forum has commenced work on guidelines on VAT issues that will enable individual country collect all due VAT. “The taxation of cross-border digital transactions should preferably be done electronically and with minimal human intervention. A withholding tax mechanism by financial institutions through the implementation of a real-time (RT)-VAT system, offers this possibility,” he added. In his opening remarks, FIRS chairman, Babatunde Fowler said the use of technology is pivotal to the effective monitoring of Value Added Tax (VAT) collection in Africa. Fowler stated this yesterday at the African Tax Administration Forum (ATAF) technical workshop on VAT in Abuja . According to the tax administrator, many Africans now utilise various online platforms as their preferred means of shopping. He, therefore, urged African tax revenue agencies to begin to understand the digital system, adopt technology and begin to map out plans for the collection of VAT for online transactions. He also called on African tax revenue agencies to synergise their manual and digital operations to facilitate the collection of VAT on cross-border digital trade “We need to closely look at the taxation of digital goods and services. Increasingly, consumers are looking for products, services and goods online. “This forms part of the 4th Industrial Revolution, where our civilisation is moving towards digital platforms as a means of facilitating the day-to-day running of businesses and households. “It is imperative to understand how this will affect VAT as a tax and how best to mitigate any challenges,” he said. The Organisation for Economic Co-operation and Development (OECD) BEPS Action 1 points out the challenges the digital economy poses to international taxation and the OECD has made recommendations in this regard. These include: the need to develop rules to address the tax challenges of the digital economy; identification of the main challenges of the digital economy; holistic approach is required, which covers both direct and indirect taxation and specific challenges include the ability of a company to have a significant digital. Others are: presence in the economy of another country without being liable to taxation due to the lack of nexus under current international rules and the attribution of value created from the generation of marketable location-relevant data through the use of digital products and services Source: leadership

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VAT fetches N312bn in three months

Tax news / Tobi Aminu

The Federal Government generated N311.94bn between April and June; statistics provided by the National Bureau of Statistics have shown. In the first quarter of the year, January to March, the country generated N289.04bn through VAT. NBS revealed that N269.79bn was generated in Q2 2018 representing 7.92 per cent increase Quarter-on-Quarter and 16.95 per cent increase Year-on-Year. The manufacturing sector generated the highest amount of VAT with N34.43bn. It was followed by professional services that generated N29.58bn; and commercial and trading, N16.27bn. Textile and garment generated a total of N316.91m in VAT; Pharmaceutical generated N250.09m while mining generated the least amount in VAT, N50.6m.Out of the total VAT value in Q2 2019, N151.56bn was generated as non-import VAT locally, while N94.90bn was generated as non-Import VAT for foreign. The balance of N65.48bn was generated as NCS-import VAT. As part of its tax revenue drive, the Federal Inland Revenue Service recently ordered companies to remit value-added tax and withholding tax by the 21st day of every month. It observed that some companies were fond of not deducting taxes at source. In another development, the Chartered Institute of Taxation of Nigeria has backed the plan by the Federal Government to introduce Value Added Tax on online transactions. The institute said it should have been introduced to the economy long ago as the same practice was obtainable in other climes because the nation was losing a significant amount of revenue by not taxing online transactions. It stated, “The amount of money we are losing because we are not tracking these online transactions is huge. Even if we are not getting it fully right at the beginning, let us talk about it; let us bring it into our conversation and let us put it into action. “In some climes, as you are transferring money, it is being taxed; even invisible trades are being tracked.” The institute said that when taxable incomes were earned, they must be taxed. Source: Punch

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FIRS sets date for start of online transaction VAT

Tax news / Tobi Aminu

The Federal Inland Revenue Service (FIRS) says it will begin to impose Value Added Tax (VAT) on online transactions, both domestic and international, from January 2020. The chairman of FIRS, Tunde Fowler, disclosed this at the African Tax Administration Forum (ATAF) Technical Workshop on VAT on Monday in Abuja. Mr Fowler said many countries had identified Nigeria as a big market and many of them were doing online businesses, adding that there was the need to tap the potentials to generate more revenue for the country. He, however, said that the date of commencement of the VAT on online transactions would be subject to the government’s approval. “We have thrown it out to Nigerians. Effective from January 2020, we will ask banks to charge VAT on online transactions, both domestic and international. “VAT remains the cash cow in most African countries, with an average VAT-to-total tax revenue rate of 31 percent. This is higher than the Organisation for Economic Cooperation and Development’s average of 20 percent. “This statistics, therefore, is a validation of the need for us to streamline the administration of this tax with the full knowledge of its potential contributions to national budgets. “It is, however, also bearing in mind the rights of our taxpayers,” he said. He said in Nigeria, VAT is critical to the development of projects at all levels of government. “VAT revenue is shared 15 percent to the Federal Government, 50 percent to state governments and 35 percent to local governments. “FIRS wrote to all commercial banks in May 2018, requesting for a list of companies, partnerships and enterprises with a banking turnover of N1 billion and above. “This activity is aimed at ascertaining those companies that are compliant with the tax laws and those that are not,” he said. Mr Fowler, who is also the chairman of ATAF, said the African tax outlook gave some starting points on the questions to ask regarding some aspects of VAT. “Why does VAT contribute 51 percent to total tax revenue in Senegal but only 17 percent in Nigeria? Why is the ratio on VAT refunds at 49 percent in Zambia but only one percent in The Gambia?” he queried. Mr Fowler charged participants at the workshop to find answers to the questions and address the gaps in some countries to improve VAT collection. The Executive Secretary of ATAF, Logan Wort, said the establishment of the ATAF VAT Technical Committee in 2017 had given rise to various debates aimed at giving better policy options for countries. Wort explained that this would enable member-states to share ideas and techniques on how best to administer, design and audit VAT. Source: Premium Times

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Multiple tax collectors, defaulters and auditors

TAX SERVICES / Tobi Aminu

The people of Jericho held Zacchaeus, the corrupt chief tax collector, in low esteem. The biblical story had it that when Jesus was passing through Jericho, the very short Zacchaeus had to climb a tree to catch a glimpse of him. People grumbled and looked at him with scorn. If they had their way, they would have pulled him down from that tree. Many Nigerians still see Zacchaeus in our modern-day tax collectors. Be they agents of the Federal Inland Revenue Service (FIRS), state Inland Revenue Service or even local government thugs, these tax collectors have a way of harassing corporate and private individuals over tax issues. Last week, for instance, the FIRS released a list of 19,901 companies that allegedly defaulted in tax payment. Some of the defaulters include Obasanjo Farms, owned by former President Olusegun Obasanjo; Davido Music Worldwide Ltd, owned by popular musician, David Adeleke; God is Good Motors; Slot Enterprises; and popular supermarket chain, Addide. The FIRS placed the accounts of these companies under lien. It threatened that, should they fail, refuse or neglect to pay the tax due within 30 days of the notice, it would proceed and enforce the payment against all the directors, managers, secretaries and every other person concerned in the management of the companies. For many of these companies, part of the problem is that they are confronted with up to 50 different taxes and levies in Nigeria. The Federal Government collects such taxes as companies’ income tax, education tax, and value added tax. States collect such taxes and levies as personal income tax, withholding tax (individuals only), capital gains tax (individuals only), and stamp duties on instruments executed by individuals. There are also pools betting and lotteries, gaming and casino taxes, road taxes, business premises registration fees in respect of urban and rural areas, land use charge, consumption tax (hotels, restaurants and event centres) and many others. The local governments, on their part, collect such taxes and levies as tenement rate, right of occupancy, market taxes and levies, merriment and road closure levy, marriage, birth and death registration fees and many others. Multiple taxes have crippled operations of a lot of companies in Nigeria. In some cases, tax collectors reportedly compel companies that recorded losses to pay taxes from their turnover. Besides, the high rate of withholding tax charged on dividends reportedly scares many companies from listing their shares on the stock exchange. Fewer than 200 companies are listed on the Nigerian Stock Exchange, whereas the country can boast of over 2,000 registered public companies. Little wonder Nigeria ranks low on the world ease of doing business index. No doubt, tax is a good source of revenue for government. Hence, some people saddled with the responsibility of collecting it, like the executive chairman of the FIRS, Mr. Babatunde Fowler, will not agree that there is anything like multiple taxes in Nigeria. They think more on how to generate better income from taxation and less on accountability and proper utilisation of the tax proceeds. That is why the recent action of the Chief of Staff to the President, Abba Kyari, is commendable. Kyari queried Fowler over alleged discrepancies in tax collections from 2015 to 2018. In 2015, for instance, the budgeted target was N4.5 trillion, while the actual amount collected was N3.7 trillion. In 2016, the actual collection was N3.307 trillion, whereas what was budgeted was N4.95 trillion. In 2017 and 2018, the FIRS collected N4.027 trillion and N5.32 trillion, respectively. However, the budgeted targets for the two years were N4.89 trillion and N6.7 trillion, respectively. Kyari’s query raised suspicions in some quarters. The opposition Peoples Democratic Party, for instance, urged the National Assembly “to come to the rescue by holding a public inquest into the handling of taxes collected by the FIRS in the last four years, take urgent steps to recover the stolen funds and channel such to projects that have direct bearing on the welfare of Nigerians.” To clarify issues, the Presidency quickly issued a statement. Fowler, it said, was not under any probe. The letter from Kyari, it explained, merely raised concerns over the negative run of the tax revenue collection in recent times. Nevertheless, the Federal Government announced plans to audit FIRS and Customs’ revenues. These two agencies are money-spinners. Perhaps, the government suspects that to whom much is given, much could also be stolen. In Abuja, Lagos and some other places, people talk in hushed tones about how money realised from taxes is allegedly diverted. It is expected that the Office of the Auditor-General of the Federation, which will likely conduct this audit, will do a good job of it. My only fear is that nothing much would come out of it. Recently, the Auditor-General of the Federation (AuGF), Anthony Ayine, indicted many government agencies for not submitting their audited accounts to his office. Ayine also accused the Nigerian National Petroleum Corporation (NNPC) and Solid Minerals Ministry of poor/non-disclosure of receipts. In an audit report, the AuGF said, as at April 2018, 109 agencies had not submitted beyond 2013; 76 agencies last submitted for the 2010 financial year, while 65 agencies have never submitted any account since inception. Besides, the AuGF reported errors in the amounts included as the Federal Government’s share of VAT for 2016. The sum of N108,997,999,612.48 was recorded as Federal Government’s share of VAT without the full picture of the VAT earnings to the federation. From the auditor’s account, what was due the Federal Government from January to December 2016 was N116,783,571,013.35. This posted a difference of N7,785,571,400.87. The Accountant-General of the Federation could not provide explanations for this difference at the time of the audit report. Despite concerns raised by the AuGF, nothing much was done to sanction defaulting agencies and parastatals. Source: Sun News

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Outrage as government makes N60b from new equity tax regime

TAX SERVICES / Tobi Aminu

With the resumption of Value Added Tax (VAT) collection from stock market transactions, investors will return at least N60.11 billion into government coffers in one year. The move, however, has drawn criticism from some stakeholders who said it would amount to double taxation. The Federal Government had in 2014 granted a tax holiday on all stock market transactions, a deliberate attempt at reducing the high cost of transaction in the market and making it more attractive to investors.On the expiration of the tax exemption on July 24, 2019, dealing members were mandated to charge VAT on all commissions applicable to capital market transactions with effect from July 25, 2019. The estimate, based on the N1.20 trillion total equity turnover of 2018, is in addition to the Withholding Tax (WHT) of 10 per cent applicable to dividend payments in Nigeria. The tax is deducted by the investee company before remittance of dividends to shareholders in line with Section 80 of the Companies Income Tax Act (CITA). Analysts, operators and investors however argued that the development is equivalent to multiple taxation; citing the withholding tax on dividend being collected by government and other charges paid to regulators. The stakeholders estimated that investors might lose about N2.47 billion yearly, especially with the listing of high cap stocks like MTN Communications and Airtel Africa, both of which have increased the capitalisation of the stock market.VAT is a tax on consumption especially of luxury items. Essentials like basic foodstuffs, healthcare and education are exempted. The Federal Government, meanwhile, has assured that it is tackling the issues of stamp duties collection and the extension of VAT exemption on capital market transactions. Vice President Yemi Osinbajo, at the Awards Night of the Association of Issuing Houses of Nigeria (AIHN) in Lagos recently, said these and other problems were being addressed and a resolution would be announced very soon. But the stakeholders insisted that urgent measures must be taken to forestall further loss of investment especially at a time investors’ confidence in the market has been eroded due to macroeconomic headwinds and other external factors.They said the return of VAT would further dampen investors’ appetite for stocks, trigger migration of investment to money market instruments, and deter foreign participation in stock market. They noted further that transaction cost in the Nigerian capital market is one of the highest in the world, saying this has made it difficult to attract global investors to the equity market, thus reducing its capacity to contribute meaningfully to capital formation in Nigeria.The managing director of Highcap Securities, Imafidon Adonri, said the elimination of VAT in 2014 was a deliberate action to reduce the high cost of transaction in the market, which was one of the major disincentives to investing. According to him, at the time government took the action, the capital market was already showing signs of fragility arising from economic distress. He posited that the return of VAT and contract stamp would continue to put equities at a competitive disadvantage. “At the twilight of the President Goodluck Jonathan administration, when the Nigerian economy was threatened with stagflation, the Federal Government suspended charging of VAT and contract stamp for transactions in the secondary market of the capital market. “The policy was a fiscal measure enunciated to reduce the cost of transaction, prevent capital flight, and make the Nigeria capital market attractive. It was to secure the capital market against the adverse consequences of a falling economy,” Adonri said.He continued: “Transaction cost in the Nigerian capital market is one of the highest in the world. Strangely, the capital market in Nigeria is an arena for fees to government, regulators and various operators, all loaded on the investors. “As a result, it is overcharged and globally uncompetitive. Huge transaction cost has made it difficult to attract global investors to the equities market, thus reducing its capacity to contribute meaningfully to capital formation in Nigeria.”He added: “For the equities market to flourish and contribute meaningfully to capital formation, withholding tax, VAT and contract stamp should be abolished from the capital market. Nigeria should stop subsidising consumption and also stop penalising investment through counter-productive taxation.” The head of research, FSL Securities, Victor Chiazor, said the reintroduction of the tax charge on market transactions was expected to cause some form of lethargy towards the already bearish market.“The tax exemption granted to the NSE in 2014 was done towards improving market participation and encouraging interest from the investing public, especially given that the market performance prior to that period had been largely bearish. “Going forward, the reintroduction of the tax charge on the market is expected to cause some form of lethargy towards the already bearish market as a few investors already complain of the high transaction charge on their stock market transaction. If this cost is added, it will further drive the cost of each transaction higher. Source: Guardian

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