Tobi Aminu

Barring any last minute delay, the Technical Committee of the National Tax Policy Implementation Committee, NTPIC, will soon present a Finance Bill and Policy Note to the Minister of Finance and Budget Planning. Indication to this was disclosed at the second sitting of the committee on Tuesday, September 3, 2019 at the Federal Inland Revenue Service, FIRS, Headquarters in Abuja, by the Deputy Chairman of the technical committee, Dr. Bode Oyetude, who said that the sub-committee would finish its work in the next 10 to 15 days. “This is the second committee meeting we are having and we hope to bring it to a close in the next 10 to 15 days. We are working to put up a finance bill and policy note to the Minister of Finance, that would raise revenue and reduce the cost of doing business in Nigeria, deal with some areas of tax inequity, international taxation including profit shifting and base erosion”. At its inauguration, the executive chairman of FIRS, Tunde Fowler, charged the technical committee to work harmoniously to achieve the desired result. “I charge the Chairman and members of the Technical Committee with the responsibility of accelerating the drafting and submission of a draft Finance Bill (and if deemed necessary, any draft Executive Order (s), to harmonise the various tax and excise law reform efforts. It is our expectation that the Technical Committee will work assiduously over the next few weeks to produce a singular set of fiscal measures that will be considered and approved by the reconstituted NTPIC. Once agreed, these fiscal measures are to be submitted to the Economic Management Team and the Federal Executive Council for approval and ultimate transmission to the National Assembly, for passage into law as part of the efforts to support the 2020 Executive Budget Proposal.” The general committee is headed by Fowler with the comptroller-general of customs, Ahmadu Ali, as the deputy chairman, while Ambassador Adeolu Dipeolu who is also the special adviser to president Muhammadu Buhari on economic matters in the vice president’s office is the chairman of the technical-sub-committee.   Source: Punch

Introduction Arguably, the most basic principles in business are minimising cost and maximising profit. Thus, it is not unnatural that businesses would seek to reduce their expenses to the barest minimum. Conversely, the tax authorities have the responsibility of ensuring that businesses pay their taxes in accordance with the tax laws. Businesses sometimes incur punitive payments for default or violation of laws in the conduct of their businesses – commonly in the form of fines and penalties, and these punitive payments are sometimes substantial. It is likely that a business which has incurred substantial punitive payments would expect to treat such payments as deductible expenses in ascertaining its taxable profit. However, a pertinent issue is whether such punitive payments are tax-deductible. Are Punitive Payments Tax-deductible? The taxman recognises the need to allow room for businesses to thrive. As such, provisions are often made to allow the businesses pay taxes on only actual profits and not all incomes of the businesses. Thus, certain business expenses are deductible before the net income is taxed. These deductions are often referred to as “allowable deductions,” while the part of the income to be taxed thereafter is referred to as the “taxable profit” or “chargeable profit.” The expenses that are tax-deductible are spelt out in section 24 of the Companies’ Income Tax Act[1] (“CITA”), which is the primary statute on the taxation of companies doing business in Nigeria. The section lists tax-deductible expenses of a business to include expenses incurred during the applicable period wholly, exclusively, necessarily, and reasonably for the purposes of such business.[2] It would therefore appear that the tax authorities do not recognise such punitive payments as tax-deductible expenses and this is notwithstanding a general reluctance of businesses to pay tax on punitive payments like fines and penalties. The rationale for this may be that such expenses are avoidable in the realisation of the company’s profits for the relevant year of assessment. Furthermore, punitive payments are by nature incurred only because the company defaulted or violated some law and as such, can hardly be said to have been incurred “necessarily” for the realisation of the profits of the company. The deductibility of punitive payments in determining taxable profit, came up for determination in Federal Inland Revenue Service (FIRS) V. The Shell Petroleum Development Company of Nigeria Ltd (SPDC).[3] In that case, the Respondent (SPDC) had made tax deductions on amounts incurred for gas flaring in its tax returns. The Appellant (FIRS) contended that the deductions were penalties for gas flaring and therefore were not allowable deductions. Although the Court held that the payments were punitive payments, it decided that that such fees for gas flaring are not expenses wholly, exclusively and necessarily incurred for petroleum operations as envisaged under section 10 of the Petroleum Profits Tax Act.[4] Consequently, SPDC was not entitled to make tax deductions of the sums incurred. A more recent case is that between MTN Nigeria Plc (MTN) and the FIRS, arising out of a N330 billion fine paid by MTN Nigeria Plc for failing to deactivate more than 5 million unregistered SIM cards as required by the Nigerian Communications Commission. In filing its returns, MTN treated the N330 billion fine as an allowable deduction and therefore did not account for it as part of its taxable profit. However, the FIRS disagreed with MTN on the deductibility of the fines in arriving at the taxable profit, and imposed tax on the fine. Dissatisfied with the FIRS’ assessment, MTN has approached the Tax Appeal Tribunal (the “TAT”) to determine the treatment of the fine as a tax-deductible expense. The matter is still pending before the TAT as at the time of this article. Conclusion: It would be interesting to see how the TAT decides the MTN Nigeria appeal before it. At the moment, the decision of the Federal High Court (“the FHC”) in Federal Inland Revenue Service v. The Shell Petroleum Development Company of Nigeria Ltd[5] which disallowed the tax-deductibility of punitive payments, may be considered binding on the TAT being an inferior court to the FHC, unless the TAT is able to distinguish the two cases. Whichever direction the TAT takes in deciding the MTN Nigeria appeal, it would be important for the jurisprudence on deductibility of punitive payments as allowable expenses. Also, given the value of the sum in dispute – N330 billion, there is a good chance that any aggrieved party will appeal the decision until it gets to the Supreme Court.   Source: Mondaq

National Assembly Joint Committee has raised concern over Federal Inland Revenue Service’s (FIRS) 2019 projected estimate of non oil revenue tax collection of N146.54 billion. The Co-chairman of the committee, Sen. John Enoh and other members of the committee raised the concern at FIRS’s budget defence in Abuja on Monday. The committee sought to know why the 2018 approved estimate was N153.85 while the 2019 projected cost stood at N146.54 amounting to 4.75 per cent decrease. On personnel cost, the committee asked why the service was proposing 14.6 per cent increase in number of staff from 7, 854 in 2018 to 9000 staff in 2019. It equally demanded explanation to the “proposed N160 million meant to sew drivers’ uniforms, N825 million for refreshment and security vote of N250 million among others. The Executive Chairman of FIRS, Mr Tunde Fowler while presenting the budget proposal, noted that the proposed increase in staff strength was due to recruitment of staff scheduled in 2019. He further explained that N160 million was earmarked to sew uniforms for the 850 drivers of the service as part of effort to make them fit properly into the structure. Also, he said the amount earmarked for security vote was meant to attend to some security issues, particularly those not receipted for. “The achievement of 2019 budget will be driven by increase oil and non-oil revenue tax collection. The service in realisation of this responsibility and challenges of doing manual collection will continue to implement automated tax collection for the critical sectors of the economy notably telecommunications, airlines and financial institutions. The deployment of these platforms is at no cost to the service and the consultants will only be rewarded on increased revenue generation. “There will be increased enforcement activities nationwide to bring more tax payers into the tax net and increase compliance level,’’ Fowler said.   Source: Business News

Mallam Nasir el-Rufai, Governor of Kaduna State, has continued to make very fundamental statements by words and actions that the most important legacy for any leader is to inspire confidence and trust in his appointees that they have the capacity to deliver services to the people. El -Rufai, is undoubtedly an apostle of C. Everett Koop, a key proponent of the school of thought that believes that “Life affords no greater responsibility, no greater privilege, than the raising of the next generation.” Precisely what El-Rufai in the last five years has been doing – imbibing in Kaduna State youths – male and female – the sense of responsibility and independence to excel in public service. It’s to El-Rufai’s credit that no young person from the state can hide behind the banner of “no opportunity” because the reality is that he has over patronized them. El- Rufai’s singular ambition is to internally generate annually a minimum of N70b that would cover wages and administrative costs without having to wait for the “miserable” allocation from the Federation Account which hardly covers salaries and leaving absolutely nothing for infrastructural development. All indications point to the realization of the objective as the Kaduna State Internal Service (KADIRS) has consistently been generating well over N2billion from the paltry N600 million a month that was standard during the Peoples Democratic Party (PDP) administrations. Key to the successes recorded in increasing the IGR are the reforms embarked by El-Rufai which frontally attacked leakages, made cash collection a crime and the revenue service the sole collecting and accounting authority, though all taxes and fees continue to be assessed by the relevant ministries and agencies. By December 2014 the Nigerian economy was already in decline and the revenue projections were not looking good. And because the oil revenues, the major foreign exchange earner, was projected to remain much lower than the 2011-2014 boom levels, there was the urgent need to tackle the looming crisis. The situation was further worsened by the lack of any significant increase in non-oil revenues. The implication was that the accruing revenue was grossly inadequate to provide essential public services and drive infrastructural development. The options included addressing recurrent expenditure, especially the high number of political appointees, issue of “ghost” workers – which Kaduna State implemented by reducing the number of ministries and an aggressive IGR drive. In 2015 when El – Rufai assumed office, he had two stark options – to either reform or perish, because government revenues were already beginning to decline due to low demand for crude oil, Nigeria’s major foreign exchange earner. Thankfully the governor chose the path of reforms, making Kaduna State the only state that wasn’t prodded by the federal government into embarking on long overdue reforms. The 22-point fiscal sustainability plan(FSP) put in place by the federal government was an added impetus, because by 2015 most state governments faced crunching fiscal crisis that compelled the federal government to offer them financial assistance (bailouts) and to introduce the FSP, which entailed the restructuring of existing short-term commercial bank loans into longer-term state bonds which it guaranteed soft loans from CBN and Excess Crude Account-backed loans. Working with Ifueko Omoigui, one-time Chairman of the Federal Inland Revenue Service (FIRS), El-Rufai embarked on a radical restructuring of the Kaduna State Revenue Board into a service capable of effectively raising the much needed finances for the myriads of projects he has on his table. To give legal backing to the reforms, the Kaduna State Tax (Codification & Consolidation) Law, 2016 was signed into law and ushered in a new era in tax administration in Kaduna State. The key highlights of the law include making Kaduna State Internal Revenue Service the sole revenue collection agency, harmonization and centralization of all revenue collection and the prohibition of cash collection. The blockage of leakages was the killer punch and in no time the desired results started rolling in, such that by 2017 the revenue had increased from N11.8billion in 2015 to N26.53billion and to N30billion by 2018.The half year results(January to June) for 2019 looks impressive. Mukhtar Ahmed, the pioneer chairman has no doubt laid a solid foundation but there are still some challenges that must be addressed for the service to attain the desired level. And the man on whose very lean shoulders El – Rufai has placed this huge responsibility on is 35 years old Zaid Abubakar, a 2008 graduate of Accounting from the Ahmadu Bello University, Zaria. Abubakar comes with impressive credentials that include a Ph.D. in Accounting from the Al-Madina International University (MEDIU) Malaysia. Nasir El – Rufai deserves huge commendation for his courageous decision to entrust the KADIRS to Abubakar whose work experience shows that he has the capacity to manage the service.   Source: daily trust