September 23, 2019

Tax credits

Nigeria is using a system of tax credits to encourage private companies to share the cost of infrastructure projects as part of a drive to diversify Africa’s biggest economy away from its reliance on oil sales, the country’s tax chief said. Executive Chairman of Nigeria’s Federal Inland Revenue Service (FIRS), Mr Tunde Fowler speaks during an exclusive interview with Reuters in Abuja, Nigeria, September 21, 2016. Tunde Fowler, executive chairman of the Federal Inland Revenue Service (FIRS), said in an interview on Wednesday that more than 10 local companies had applied for the scheme to receive 50% of expenditure in tax credits. He also said Nigeria had a target to nearly double tax revenues this year from 2018 due to a surge of new payers following the end of an amnesty and the introduction of a new database that uses biometric data. Africa’s biggest oil producing country has sought to diversify its economy away from crude sales, but has struggled to improve non-oil revenues as debt servicing costs rise. And after Nigeria signed up to a new continent-wide free trade agreement in July, manufacturers have called for improvements to road, rail and power networks to compete with firms from across Africa. Fowler said two companies had successfully applied to receive tax credits for infrastructure projects so far. One was part of the Dangote Group conglomerate, owned by the continent’s richest man Aliko Dangote, which will build a road under the scheme. He did not name the other company. “It may reduce the amount of my collections initially, but … as I expand my tax net, I would make up for that reduction,” said Fowler. “We believe we would generate more revenues from the additional infrastructure that would be created.” The tax credit scheme was signed into law, under an executive order, by President Muhammadu Buhari in January. Buhari was elected for a second term in February, in part due to his vow to develop the country’s poor infrastructure that has stymied development for decades. But he faces a challenge amid rising debt servicing costs. Nigeria spent 35% of government revenues servicing debt in 2016, when its economy entered a recession that it left the following year. Since then, it has taken on more local and foreign debt. Economic growth slowed to an annual rate of 1.94% in the second quarter of this year, the statistics office said on Tuesday. The non-oil sector grew 1.64% and the oil sector 5.15%, though crude prices have fallen since then. Fowler said 5.32 trillion naira ($17.39 billion) was collected in taxes in 2018 and his office was targeting 8.9 trillion naira this year. He said the increase was possible because the number of tax payers was expected to jump to around 45 million this year from 20 million in 2018. That was largely due to the inclusion of people identified in a tax amnesty that ended this year. Fowler said that change, coupled with a new database drawing on biometric data tied to bank accounts, had led to an improvement in compliance and collections in the first eight months of this year. But Fowler’s targets, which he described as “ambitious”, may be hard to meet in a country of 190 million people where around 80% of the workforce is employed in the informal sector. That has hindered tax collection in the past. Fowler, speaking at his office in the capital, Abuja, said a move to include value added tax (VAT) on all online transactions was expected to come into force in January 2020. He said e-commerce was, at present, a tax loophole. “There are a lot of areas that are not yet captured,” he said. Fowler added the current VAT rate of 5%, one of the lowest in the world, should be raised. “I believe that Nigeria should review the VAT rate to 7.5%,” he said, though any such change would have to be implemented by the government.   Source: Punch

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Extend tax credit on alternative fuels

Many fleets, businesses, transit agencies and school districts eagerly await the beginning of the September congressional work period, the next opportunity for Congress to extend the expired Alternative Fuels Tax Credit. Preserving our environment must be a national priority, and investment in proven on-road technology depends on maintaining cost efficiency. The credit on the sale of certain alternative transportation fuels is key to ensuring fleets, delivery trucks, waste-hauling vehicles, school and transit buses operate on clean alternative fuels. It allows businesses, large and small, to invest in cleaner but more expensive vehicles. The credit has lapsed for over 20 months, even though it has bipartisan support in both chambers. Congressional action is crucial. We ask that these tax credits be extended as soon as possible to restore consistency, clarity and parity in the federal tax code — so that fleets have added incentive to switch to clean, abundant domestic fuels such as propane autogas and natural gas.   Source: Autonews

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Airbnb wants to extend capital gains tax breaks

Online rental giant Airbnb has renewed calls for capital gains tax reform to better promote a “fair go”, in an appeal to the Morrison government’s commitment to aspiration. Airbnb said expats living overseas are allowed to rent out properties full time for years, but Airbnb hosts risked losing the capital gains tax exemption that applies to family homes for sharing a room for a single night. “The ‘fair go’ is the Morrison government’s north star, and it should consider redressing this tax on aspiration,” said Airbnb Asia Pacific regional policy director Brent Thomas. In 2017, a Board of Taxation report on tax and the sharing economy recommended the government consult on simplifying tax rules for the sale of properties used “to produce small amounts of income”. Owners could rent out their primary home for “a designated proportion of time” without losing the tax exemption under the plan. “Across the country scores of everyday Australians and families are having a go and becoming hospitality entrepreneurs,” Mr Thomas said. “Hosting on Airbnb helps local families earn extra income to ease the cost-of-living or pay the mortgage but at present parts of the tax system penalise – rather than promote – aspiration.” The Institute of Public Accountants’ Tony Greco said the problem was a common occurrence as the popularity of online sharing grew. “Most people plead ignorance when it comes to acknowledging that the usually exempt family home may be subject to capital gains tax if they have rented it out, especially if it is just one room in the house. “The treatment seems harsh when you can rent your home out for up to six years and not lose the main residence exemption.” He said a minor exemption wouldn’t cost the government much due to low levels of compliance. TaxBanter senior trainer Robyn Jacobson said it was a common misconception that if someone rented their home on Airbnb for a few days or weeks they can utilise the six-year absence rule and pay no tax when they sell their home. “The absence rule is available only if the dwelling ceases to be the main residence of the taxpayer; this means they have to cease living there, move out, remove their personal belongings, change their details on the electoral role, change address for utility notices,” she said. “In the case of someone who only vacates for a few weeks but leaves all their belongings there, and doesn’t change driver’s licence, electoral role, utilities, the six-year absence rule is not available. Instead, the taxpayer has to prorate the days it was rented and treat these days as taxable when they calculate the capital gain. Accordingly, only a partial main residence exemption will be available.” She said for tax assessment and deductions, Airbnb was no different to renting through a real estate agent.   Source: punch

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HMRC Investigates A Quarter Of All Taxable Estates

HMRC opened investigations into almost one in four of the 22,000 estates on which IHT was due in the 2018-2019 tax year, according to a freedom of information request submitted by wealth advisors Quilter. Some 5,537 IHT returns were investigated in the tax year. The number of investigations has grown by 7.8% following the introduction of the (far from simple) Residence Nil Rate Band. Gordon Andrews, tax and financial planning expert at Quilter, said that “Over the past number of years politicians have been keen to show they are cracking down on tax-dodgers and IHT is one of the departments that HMRC has been throwing its resources at”. He added “More often than not, people aren’t deliberately trying to defraud HMRC and given the current complexity of the IHT system it’s really no surprise if things go awry … this is absurd at best and perverse at worst as it is essentially penalising people for appropriate tax planning.” This shows how important it is to seek advice from a specialist who will know what HMRC are likely to see as triggers and how to pre-empt questions as far as possible to avoid, or mitigate, the costs involved in any investigation.   Source: Mondaq

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Dangote Group, others to get 50% tax credits from FIRS – Fowler

Dangote and other private companies are set to access 50% of expenditure in tax credit from the Federal Inland Revenue Service (FIRS). According to FIRS executive chairman, Tunde Fowler, the plan is to solve infrastructural deficit in the country by reducing the actual amount of tax to be paid by private companies, while these companies also share the cost of infrastructural projects with the Government. The details: While speaking in Abuja, Fowler stated that more than 10 local companies had applied for the scheme to receive 50% of expenditure in tax credits. He said the plan was to make sure that those companies get 50% of expenditure in tax credit.   Providing further details on the biggest benefactors from this arrangement, Fowler stated that only two companies have benefitted from the partnership of receiving tax credits for infrastructure projects thus far, Dangote Group was mentioned and another anonymous company. Alluding that the arrangement may reduce the amounts he collects,  “It may reduce the amount of my collections initially, but … as I expand my tax net, I would make up for that reduction, we believe we would generate more revenues from the additional infrastructure that would be created,” he stated.   Improving Revenue: Basically, oil revenue has been depleting in recent times with high cost of debt servicing, and the government has been making moves to explore other sources to boost revenue away from crude sales.   Fowler, speaking further said a move to include value added tax (VAT) on all online transactions was expected to come into force in January 2020. He said e-commerce was, at present, a tax loophole.   “There are a lot of areas that are not yet captured, I believe that Nigeria should review the VAT rate to 7.5%,” he said, though any such change would have to be implemented by the government.”  What this means: The tax credit scheme was signed into law, under an executive order, by President Muhammadu Buhari in January. With the arrangement, companies who agree to share the cost of infrastructural projects with the Government will not have to worry about paying 50% of cost incurred on road construction and related public goods.   Source: Nairametric

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