Tobi Aminu – Page 63 – Sunmola David & CO

Implications of FGN’s Increase of VAT Rate to Pay for the New Minimum Wage

The Minister for Budget and National Planning, Udoma Udo Udoma and the Executive Chairman of the FIRS, Babatunde Fowler hinted during an interactive session with the National Assembly on Tuesday 19 March 2019 that VAT rate is likely to go up to enable government fund the new minimum wage of N30,000 per month approved by the National Assembly. FIRS subsequently clarified that the intention is to increase compliance rate and not tax rates but says Nigerians should be ready for a VAT rate increase by the end of 2019. Potentially this means an increase of about 50% will raise the current standard VAT rate of 5% to 7.5%. The question is, should government increase VAT rate? To put things in perspective, the average VAT collection in the past 6 years is about N900 billion. The revenue is shared 15% to the Federal Government, 50% to States and 35% to LGs net of 4% cost of collection to FIRS. If the rate is increased by 50% (all things being equal) we will generate on average an additional N450 billion annually. Less 4% cost of collection to FIRS, all 36 states will get 18 billion per month translating to an average of N500 million per state. Since Lagos, FCT, Rivers, Kano and Kaduna generate 87% of VAT revenue, they also share a big chunk of VAT revenue, meaning that the financially disadvantaged states will get much less than N500 million monthly. Unfortunately all things are never equal especially when it comes to tax. An increase in VAT rate will inevitably impact on consumption and VAT compliance. The combined effect will reduce the expected revenue. “Contemplating an increase in VAT rate now is bad timing and inconsistent with current economic reality. VAT increase will lead to higher inflation, interest rate hike, more unemployment and generally make people poorer. Any increase in VAT rate without a registration threshold and zero rating of basic consumption will increase burden on the poor and SMEs contrary to the 2017 National Tax Policy. Trying to expand the VAT net while also increasing VAT rate at the same time is a faulty tax strategy. Nigeria can make twice as much from VAT at current rate by reforming the law, expanding the net and ensuring robust administration rather than by increasing rate.” Beyond the revenue impact, there will be other unintended consequences including: higher inflation, interest rate hike, more unemployment and people will generally become poorer. without a VAT registration threshold and zero rating of basic consumption it will increase the burden on the poor and SMEs contrary to the 2017 National Tax Policy. seeking to expand the VAT net while also increasing VAT rate at the same time is a conflicting strategy. Rather than the seemingly easy way out of raising rates, what can Nigeria do? Nigeria can make twice as much from VAT at current rate by reforming the law, expanding the net and ensuring a robust administration rather than by increasing rate. This should include a review of VAT waivers, better policing of the border to improve import VAT collection, framework for VAT on imported services and digital economy. Contemplating an increase in VAT rate now is bad timing and inconsistent with current economic reality. In any case the likely increase in revenue will not be sufficient to pay the new minimum wage. Source: Investadvocate

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Fowler Calls For Increase In VAT Collection in Nigeria

Tax news / Tobi Aminu

Mr Tunde Fowler, the Executive Chairman, Federal Inland Revenue Service, FIRS on Tuesday called for an increase in the number of Nigerians and companies paying VAT and not a 50 per cent increase in VAT rate. The FIRS Executive Chairman called for a reduction in Companies Income Tax (CIT) rate for small businesses so as to improve compliance. Though he indicated that there should be an increase in VAT rate by the end of the year, he NEVER, for once suggested a 50 per cent hike of any percentage increase at all. Rather, he promised improved collection in CIT, Petroleum Profits Tax, PPT and VAT in 2019 relative to the collection performance of the Service in 2018. In 2018, FIRS collected the sum of N1.1 trillion in VAT N1,42 in Companies Income Tax (CIT) and N2.4 trillion in Petroleum Profits Tax (PPT). According to Fowler “One issue about taxation is that it should be fair to all. We have discovered after the VAIDS (Voluntary Assets and Income Declaration Scheme) that a high percentage of businesses are collecting VAT and not remitting. We’ve also tried to address this issue. We’ ve issued new VAT certificates. We have appealed to the public that if they are charged VAT and they are not sure it had been remitted they should contact us. We even gave a small promotion that for every 25 names, that they give to us, we give them a little gift either a power bank or something to show appreciation”. The Chairman of FIRS was entertaining questions yesterday from members of the Senate Finance Committee. Source: Proshare

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FIRS Resumes “Freezing” of Taxpayers’ Bank Accounts

Tax news / Tobi Aminu

Summary Following the suspension of lien placed on the bank accounts of alleged non-compliant taxpayers in February 2019, the Federal Inland Revenue Service (FIRS) has directed banks in Nigeria to resume restriction of bank accounts of a number of taxpayers for alleged non-payment of taxes effective 15 March 2019. Details Earlier in the year, the FIRS had directed a number of commercial banks to place a lien on the bank accounts of a number of taxpayers for alleged non-payment of taxes. However, on 15 February 2019, the FIRS, in a letter, directed banks in Nigeria to suspend the lien placed on the bank accounts for a period of 30 days. (Read our tax alert on the suspension of lien here). Following these events, the FIRS has issued a Public Notice (PN) stating that the restriction on the bank accounts of alleged non-compliant taxpayers would continue effective 15 March 2019. In addition, the PN specifically requires companies that have a minimum annual banking turnover of ₦100 million and have failed to remit Withholding Tax and Value Added Tax to the government to register for tax before the 15th of March to avoid restriction of their bank accounts. Implication The powers of the FIRS to direct the freezing of taxpayers accounts still generates a number of controversies as there are concerns that this FIRS’ approach to recover unpaid taxes may not be consistent with the relevant provisions of the legislative framework in Nigeria. (Read our article on the powers of FIRS to freeze taxpayer’s accounts here). Notwithstanding the above, taxpayers whose accounts have been frozen are advised to liaise with their tax consultants to resolve any issues with the FIRS amicably. Andersen Tax has a hands-on Tax Dispute Resolution Desk that is available to provide information to taxpayers regarding tax reconciliation and assist with tax dispute resolution. Source: Andersontax

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Anderson Tax Unveils Report on Transfer Pricing

Tax news / Tobi Aminu

Anderson Tax Wednesday launched its review on Transfer Pricing (TP) Development in Africa, in Lagos. The 45-page report was aimed at providing tax payers and investors with the required insight into TP in Sub-Sahara African countries, particularly Nigeria. Addressing journalists, the Chairman, Anderson Tax Africa, Mr. Seyi Bickersteth, said the “report presents our findings from our survey of Nigerian taxpayers.” “The survey was administered to persons in various positions including tax managers/directors, chief financial officers and heads of finance in leading organizations across major industry sectors. He said: “Prior to the release of the revised TP regulations, the survey was administered on 24 participants while after release of the regulations, 100 people participated in the survey. The survey elicited responses in respect of TP compliance, TP risk assessment, TP audit, dispute resolution as well as APA.” In his address, the Partner and Head, Transfer Pricing Group, Anderson Tax Nigeria, Dr. Joshua Bamfo said: “What we have tried to do is to do an in-depth review and research, that we would be able to present to multinational enterprises and other foreign direct investors, as to; what are the requirement when it comes to transfer pricing of the agency across the sub-regions, what are some of the compliance issues, what are some of the challenges be it audit as pertaining within the sub-region? “With these information, we believe that they will be well equipped in factoring when they are making planning decisions in other to enter this market. “If you look at it from the above perspective, one of the objectives of this particular report is to help multinational enterprises to make informed decisions when they decide to make investments in the Sub- Saharan African sub-region. “In the same token, when we look at it from the perspective of the government of this same sub-region, this is very helpful to them. This is because most sub-Sahara countries wants foreign direct investments as a means of creating job opportunities for their citizenry, and to do that, you will want foreign direct investors to be comfortable and confident that when they come in, they are not going to face cynical obstacles. “So in the area of Transfer Pricing; in particular, the area of taxing, we want to be able to help government to ensure that there is clear ease of doing business, and there is clarity in terms of the challenges that foreign direct investors would face.” Source: Thisdays

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CAC’s Cost-friendly Business Registration Exercise Ends This Month

CAC SERVICES / Tobi Aminu

The cost-friendly Business Incentive Strategy (BIS) rolled out in October last year by the Corporate Affairs Commission (CAC), would end this month. The BIS is primarily to ensure formalization of businesses by MSMEs for the overall benefit of the economy. The Commission has so far registered over 73,000 companies in the last three months under the BIS. Acting registrar-general of the Commission, Lady Azuka Azinge, who disclosed this yesterday in Abuja, said when compared to the corresponding year of 2017, when about 30,000 companies were registered, the BIS had been very successful. The BIS involves the reduction in fees from N10,000 to N5,000 initially for 3 months starting from October 1, to December 31, 2018, but Azinge said based on popular demand, the period was extended by another three months beginning from January 31 to March, 2019. She said the BIS is Commission’s contribution to the development and growth of the MSMEs in Nigeria. Azinge also hinted that as at today, business names certificates were yet to be collected by their owners in the Commission’s offices nationwide. She therefore implored those concerned to come forward and collect them. Source: Leadership

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MAN Cautions FG Against VAT Increment

Tax news / Tobi Aminu

The Manufacturers Association of Nigeria (MAN) on Thursday said the proposed VAT rate incremement was unfriendly to the manufacturing sector. The Director-General of the association, Mr Segun Ajayi-Kadir, made the remarks in Lagos, in spite of the rebuttal from the Federal Inland Revenue Service (FIRS) on the issue. Ajayi-Kadir also said the proposed VAT increment did not take into cognisance the prevailing times and ongoing government efforts to re-invigorate the economy. The director-general said that as plausible as the recommendation to increase VAT looked, implementing it at this time would boomerang. According to him, the timing is inappropriate, especially at a time when the minimum wage of N30,000 was just agreed upon. “This can send the wrong signals that the government is insensitive to the plights of the low- and middle-income earners, who are clearly in the majority. “MAN still wishes to state the implication of carrying out such policy, if the alleged proposed increase in VAT is anything to go by. “It will be seen as a typical case of government simply taking back what was given with the right hand through the National Minimum Wage with the left hand, through increase in VAT,” he said. Ajayi-Kadir urged the Federal Government not to increase VAT at this point in time, but to consider the implementation of the other tax specific recommendations. He also advised the government to continue to ramp-up support for the manufacturing sector in the best interest of the over 200 million Nigerians. The director-general said that Nigerian economy would be in a more vulnerable state, if VAT should be increased now. He said that the burden of the tax would be shifted to the Nigerian consumers that were already struggling. In addition, Ajayi-Kadir said the economy would certainly experience demand crunch, inventory of unsold items would soar, profitability of manufacturing concerns would be negatively impacted, many factories would witness serious downturn or wound down operations. This would also worsen the already high unemployment position in the country. According to him, this is above 23 per cent, as Nigerians currently employed by manufacturing concerns and other businesses may join the reserved army of unemployed and further bloat the unemployment rate. “MAN as a strategic stakeholder in the nation’s development agenda, appreciates the need for government to generate more revenue to fund its developmental initiatives amidst declining revenue from oil. “However, government should thread with caution in the drive for improved revenue for the following reasons. “The economy just recently exited recession with the fragile growth rate of less than two per cent recorded in 2018 and should be delicately managed. “The precarious macroeconomic condition of the country requires palliatives that will improve investment and not higher tax burden. “The prevailing high lending rate, double digit inflation, low per capita income, high unemployment rate and a low 1.91 per cent growth rate, amidst 2.6 per cent population growth rate that are already cumulatively limiting competitiveness, can be further worsened. “Any increase at this time will not be in sync with the standard practice that expects the administration and implementation of VAT to be effected in a manner that distortion and possible adverse effect on the economy are minimised or avoided. “An increased VAT will spur spontaneous increase in inflation rate occasioned by increased prices of goods and services, ” he said. Ajayi-Kadir decried the unfair comparison of VAT rate in Nigeria with other countries in Africa, stating that the macroeconomic dynamics and the level of competitiveness in these countries were not the same with the country. In addition, he said the fact that many states of the federation also had other consumption taxes like VAT currently being levied on businesses should call for circumspection. “There is no doubt that VAT is an important revenue source to the government for running the affairs of the country. “However, the principle of a good tax system is predicated on payment convenience, otherwise it could boomerang, leading to crowding out of businesses; more misery to the citizens and even lesser revenue to the government. “The high PCI and National Minimum Wage countries like South Africa, China and the likes are able to adequately offset the impact of high VAT on growth and wellbeing of the populace,” he said. Ajayi-Kadir proposed that an ideal tax policy should be such that took into cognisance, the status of the economy. “An ideal VAT policy for Nigeria should take into account, the current profiles of Nigeria’s Per Capita Income (PCI), National Minimum Wage (NMW); and Global Competitiveness. “PCI and NMW will help highlight what will be the implication of upward review of VAT on the already depleted wellbeing of majority of Nigerians. “While Global Competitiveness will present insight on the impact of such review on the real sector, particularly the manufacturing sector. “Conversely, given the low Nigeria’s PCI, NMW and Global competitiveness, any increase in VAT at this time, will further depress consumption, industrial production and wellbeing of Nigerians. “In MAN’s previous position and recommendations, the association had advised government to widen the tax net rather than increasing the rate to meet the growing need for more revenue to address the development objective of the country. “There is also the need to harmonise taxes/levies/fees payable by businesses, so as to attract more investments that will translate to higher productivity, and more tax revenue for the government in the medium and long term,” he said. (NAN). Source: Leadership

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Deadline For Filing Of Annual Employees’ Tax Returns (Form A)

TAX SERVICES / Tobi Aminu

Section 41 of the Personal Income Tax Act (PITA) Cap P8 LFN 2004 (as amended) requires all individuals to submit their individual tax returns (Form A) with the relevant tax authority. This return is for all income earned from all sources in the preceding year and it is due for submission by 31 March of every year. Individuals are by this notice, reminded of their statutory obligation to file their 2018 annual tax returns with the relevant tax authority, on or before the deadline of 31 March 2019. In the same manner as the employers’ tax returns (Form H1) were filed, Form A for Lagos State Internal Revenue Service (LIRS) and Rivers State Internal Revenue Service (RIRS) should be filed online. Source: Mondaq

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Supreme Audit Institutions not appreciated – Ayine, Auditor-General of the Federation

Accountancy Services / Tobi Aminu

The Auditor-General for the Federation, Mr. Anthony M. Ayine, has identified years of weak auditing, especially in developing countries, as the root cause of poor appreciation by citizens of the value and importance of Supreme Audit Institutions for their central role in the accountability cycle across the world. Ayine spoke when he presented a paper as one of the lead speakers at the just concluded 9th International Public Sector Conference organised by the Association of Chartered Certified Accountants (ACCA), in Prague, Czech Republic. “Years of weak auditing cause the average citizen to be unaware of the value and importance of the SAI as an institution that is central to the accountability cycle,” he declared. In his words, “there is a need for the citizens to participate more and become better aware of the role of the SAI.” Speaking on the principal challenges facing Supreme Audit Institutions (SAIs) globally, Mr. Ayine said it was regrettable that “the INTOSAI Lima Declaration of 1977 on the prerequisites for the independent and effective functioning of SAI is yet to be well applied across many developing countries.” The Declaration of Lima, adopted by the IX International Congress of INTOSAI in Lima, Peru, in 1977, is considered to be the Magna Carta of government audit and defines the prerequisites for its independent and effective functioning. The International Organisation of Supreme Audit Institutions is the worldwide affiliation of governmental entities whose members comprise of Chief Financial Controller, Comptroller-General, Auditor-General Offices of nations and it was founded in 1953 in Havana, Cuba, but with headquarters in Vienna, Austria. While recognising social media as “a key channel” for information dissemination, Mr. Ayine however advised Supreme Audit Institutions to be careful so as “not to get the institution involved in public debates,” says the key question remains ‘how vocal should SAI be on social media?’ Mr. Ayine also gave some pieces of advice on how SAIs can support the implementation of Sustainable Development Goals. According to him, “SAIs can baseline, benchmark and track progress across the various institutions responsible for delivery of the government’s commitment under each SDG.” Similarly, he told his audience that SAIs “can also invest in their capacity to give expert recommendations to these key institutions,” while SAI reports “should be timely and the possible efficiency savings or gains should be clear.” Speaking further on the role SAIs can play in supporting SDGs implementation, Mr. Ayine, who was recently appointed onto the African Union (AU) Board of External Auditors, said: “Year-on-year audits by the SAIs will help maintain the focus on achieving the SGDs, and will help ensure that improvements that are achieved are sustained.” Speaking from his vantage position, Mr. Ayine advised SAIs on how they can take advantage of professional accountancy organisations to support the sustainable public sector. He stated: “There are significant competency gaps within the public sector finance professional cadre, especially in developing countries. IPSAS (International Public Sector Accounting Standards) implementation is a case in point. Professional accountancy organisations should continue to reach out to public institutions with these competency gaps and offer their support, especially with training and certification. “Professional accountancy organisations can also look more closely at various disciplines that intersect with accountancy, and perhaps provide more support for cross-disciplinary expertise,” he said, adding: “This will be of great value for accountants and other financial professionals working in the SDG space.” The flagship global event for finance professionals in the public sector featured leading public sector speakers at the top of the profession and brought together hundreds of public-sector finance professionals from across the globe. The stellar line-up of speakers among whom was Nigeria’s Auditor-General, Mr. Ayine, included Mr. Tomáš Vyhnánek, Deputy Minister, Ministry of Finance of the Czech Republic; Pamela Monroe-Ellis, Auditor-General, Jamaica; Stephen Walker, President, Chartered Accountants Australia New Zealand; Mike Driver, Head of the Government Finance Function, UK Civil Service and Thomas Müller-Marqués Berger, Chair, Accountancy Europe Public Sector Panel. Helen Brand, chief executive at ACCA said of the “fantastic line-up of speakers” from across the world: “The public sector faces increasing financial constraints at a time when expectations about the quality of public services are growing,” and pointed out that the conference aimed to show “how professional accountants can be at the heart of driving change and improving accountability, in order to ensure the public sector can meet the demands of the future.” Iain Mansfield, Head of Public Sector at ACCA said: “ACCA creates professional accountants who build successful careers within the public sector – that’s why we have over 64,000 public-sector members and students across the globe. “I’m delighted that at this conference ACCA is continuing to set the agenda in public- financial management, to help build the public sector accountancy profession the world needs.” ACCA’s International Public Sector Conference 2019 brought together senior decision-makers from ministries of finance, national audit offices and national accounting bodies, leaders in the local government sector, representatives from the global development community and international bodies and senior private sector accountants who work with the public sector in audit, financing and consultancy. Source: Sunnewsonline

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Improve fiscal policies, expand tax base, Economic Commission for Africa ES urges nations

Tax news, TAX SERVICES / Tobi Aminu

The Executive Secretary of the Economic Commission for Africa, Vera Songwe, has called on countries on the continent to improve their fiscal policies, as well as expand their tax base, so they have resources to fund their development projects. Songwe made this call at the 38th meeting of the Committee of Experts of the Conference of African Ministers of Finance, Planning and Economic Development, which opened in Marrakesh, Morocco, on Wednesday. A statement issued by the Communications Section of ECA revealed that Songwe made the call during her opening remarks to the meeting. Songwe said the ability to increase revenue collection was key to the continent’s capacity to finance its development, in particular Agenda 2030 for sustainable development and Africa’s Agenda 2063. “The potential of Africa is, and has always been, promising. With a growing working-age population; abundant arable land and a multitude of other resources, the continent has all the pre-requisites for rapid economic transformation in the next decade,” she said. “However, ensuring the availability of adequate public resources and quality investments to drive structural change requires responsive policies that promote fiscal sustainability, optimize returns from economic activity, and enable economies to fully participate in an increasingly interconnected and globalised world.” She said the meeting of experts will discuss possible solutions. “We are looking for how we can finance better, faster and more equitably our growth and how we can ensure that our young populations can participate in this growth that we are talking about. We can do that by ensuring that we have good fiscal policy. We would want to be like Morocco at 25 per cent so we can actually power growth.” Speaking on tax collection, Songwe said, “Africa could boost revenues by per cent of GDP by addressing its capacity tax constraints. In addition, by better aligning tax rates and revenues with business cycles, countries can boost government revenue by five per cent.” “With just over a decade remaining to achieve the sustainable development goals, it is imperative that the scope and mechanisms of domestic resource mobilization be revolutionized to bridge the financing gap, promote macroeconomic stability and limit external borrowing,” she said. Ms. Songwe also spoke on the importance of digitalization and the digital economy in driving growth as well as optimizing fiscal performance on the continent. She added that the continent would need to re-skill its youth to ensure the digital age is used to Africa’s full advantage. For his part, the outgoing chair of the bureau of the committee of experts, Elsadig Bakheit Ilfaki Adballa of Sudan, also urged the continent to embrace the digital age to expand its revenue base, create employment for the youth and deal with most of its challenges. “With the advent of the digital age, Africa can use the new technologies to push for sustainable development on the continent,” he said. Incoming Chair, Zouhair Chorfi, Morocco’s Economic and Finance Ministry’s Secretary General, said digitization was a great opportunity for Africa. “Our continent is ripe for transformation and Morocco is ready to play its part in making sure we optimize digital tools,” he said. The Conference of Ministers is focusing on the theme; “Fiscal policy, trade and the private sector in the digital era: A strategy for Africa”. Source: Punch

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Experts Harp On Digitisation of Tax Process

Tax news / Tobi Aminu

Tax experts at PwC Nigeria have said digitising the processes of tax payment in the country will increase compliance level, among other benefits. The Head of Tax, PwC Nigeria, Mr Taiwo Oyedele, said this on the sidelines at the PWC Tax academy held in Lagos recently. He lamented the stress and some of the issues associated with the paper tax filing and its proneness to several losses of documents or mix-ups, adding that the earlier “we sort full digital alternatives in tax filing processes, the better.” Oyedele said: “I think it is no longer a question of tax; everything we do today is impacted by technology and technology is making things better and faster and more cost-efficient and cost-effective. “So, it is no longer acceptable for authorities to live in the past. Even though Nigeria is starting late, they say better late than never. “So the idea now is to make technology the platform, not an option, for tax compliance in terms of calculating your taxes, making your payments, and filing your returns, such that even when you need, say for example, your tax clearance certificate, in the past, this used to be like rocket science. “With technology now, one should be able to get that immediately. We know that these platforms are not perfect yet, so our role as PwC, helping so many people to pay their taxes and also paying taxes ourselves, it is to say once we identify what the problems are, we get the stakeholders to come together to see how we can fix it. It is not enough to criticise, we must find the solution together.” He further added: “With our experience dealing with other countries, we know things that work in other places. So, it is very good that we have the Federal Inland Revenue Service, the Lagos State Internal Revenue Service and PEBEC. It is the beginning of the process, and we hope that by this time next year, all these processes will be much better such that the experience of the taxpayer will be a lot better.” He further pointed out that technology would increase tax compliance and in turn increase contribution to the Gross Domestic Product. He added: “Nigeria doesn’t rank very well on the ease of paying taxes. So, Nigeria’s tax revenue to GDP ratio is one of the lowest in the world, yet it is one of the most difficult places to pay tax. “So, it is a contradiction: you need tax money but you make the process very difficult. So, if you simplify it by using technology, what that does is you encourage more people to pay. There is something about compliance cost; it is something that does not benefit government and the taxpayer. “It is actually the money the taxpayer pay that doesn’t get to the government. So, both the taxpayer and the government have an objective to reduce that cost. That is something that technology does for you. It reduces your cost of compliance, and therefore you can get more people into the tax net.” Source: Thisdays

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