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Nigeria’s corporate affairs commission reduces cost business registration.

CAC SERVICES /

The cost for the registration of business names in Nigeria has been reduced from N10,000 to N5,000. This was announced by the Corporate Affairs Commission on Wednesday, March 6 – According to CAC, the reduced cost of business name registration will end on Sunday, March 31. The Corporate Affairs Commission (CAC) has announced a reduction in the cost of business names’ registration. The commission on Wednesday, March 6, said the registration fee for business names in Nigeria has been reduced from N10,000 to N5,000. However, the CAC said the reduction in cost for business name registration will end on Sunday, March 31. The commission also advised the general public to take advantage of the Business Incentive Strategy (BIS) window to formalize their businesses before the deadline. Meanwhile, Legit.ng previously reported that the CAC had earlier promised to register business names within six hours of successful application. The commission said it will ensure an effective deployment of information technology for registration of business names. During the annual conference of the Nigerian Bar Association, the acting registrar of the commission, Azuka Azinge, said the move is part of efforts aimed at addressing some of the bottlenecks usually encountered during the registration of business names.   Source: Legit

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Seplat Petroleum‘s Profit After Tax Falls to N45 Billion

Tax news /

The shares of Seplat Petroleum Development Company Plc fell 3.5 per cent yesterday as investors reacted negatively to the audited results of the company for the year ended December 31, 2018. The shares fell from N619.00 to N596.90 per share. The firm, which is listed on the Nigerian Stock Exchange (NSE) and London Stock Exchange (LSE) yesterday released its audited results. Although the company recorded higher revenue, profit after tax (PAT) fell by 44.6 per cent. Specifically, Seplat posted revenue of N228.4 billion in 2018, up by 65.2 per cent from N138.3 billion recorded in 2017. Cost of sales rose 48 per cent from N73.4 billion to N108.6 billion, while gross profit jumped by 84.6 per cent to N119.8 billion from N64.9 billion in 2017. Net finance cost fell by 31.8 per cent to N14.3 billion, from N20.9 billion in 2017. Profit before tax (PBT) increased by 499 per cent from N13.5 billion to N80.6 billion. However, PAT fell from N81.1 billion to N44.9 billion due to debt of N35.7 billion in 2018, compared with a tax credit of N67.7 billion in 2017. The board of directors has recommended a dividend of N18 per share. The Chairman of Seplat, ABC Orjiako had disclosed plan of the company to invest more in its gas business in last year so as to boost revenue and deliver more returns to investors. “Our strategy to diversify and grow our sources of income through the expansion of our gas business continues to gain momentum. Since the government launched various initiatives to stimulate investment in the gas sector, including opening the Domestic Supply Obligation (‘DSO’) price to commercial market forces, Seplat has been at the forefront of gas commercialisation and made substantial investments in support of the government’s energy agenda,” he said. The Chief Executive Officer of Seplat, Austin Avuru had said the company registered strong cash flow performance and significantly strengthened the balance sheet the previous year. “Our proactive and decisive management coupled with the strong underlying fundamentals of the business have seen us emerge from an exceptionally challenging period a much fitter and stronger business that is well equipped to deliver long-term value for our shareholders,” he said. Meanwhile, the the three-day bullish run in the domestic equities market was halted yesterday as the NSE All-Share Index declined 0.16 per cent to close at 32,121.74.   Source: Thisday

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GTBank Posts N434bn Earnings, Profit after Tax of N185bn

Tax news /

Guaranty Trust Bank (GTBank) Plc has announced improved performance for the year ended December 31, 2018 and recommended a final dividend payment of 245 kobo per share. The bank recorded gross earnings for the year grew by 3.7 per cent to N434.7billion, from N419.2billion reported in 2017. Its net interest income fell from N246.663 billion to N222.433 billion, while net fee and commission income improved from N40.732 billion to N50.470 billion in 2018. Impairment charges reduced significantly from N12.169 billion to N4.906 billion,. GTBank ended the year with profit before tax of N215.6 billion, representing a growth of 9.1 per cent over N197.7billion recorded the previous year, while profit after tax (PAT) stood at N184.639 billion compared with N167.913 billion posted in 2017. The bank’s customer deposits increased by 10.3 per cent to N2.274trillion from N2.062trillion in December 2017, while loan book dipped by 12.9 per cent from N1.449 trillion in 2017 to N1.262trillion in 2018. The bank is proposing final dividend of N2.45 per share in addition to interim dividend of 30 kobo bringing total dividend for 2018 financial year to N2.75. Commenting on the results, the Managing Director/CEO of GTBank Plc, Mr. Segun Agbaje, said: “In 2018, our focus on staying nimble, strengthening customer relationships and driving our digital-first strategy paid off. We successfully navigated the pressures of our challenging and radically changing business environment, recorded growth across key financial indices and reaffirmed our position as one of the best performing and well managed financial institutions in Africa.” According to him, the performance reflects, not just the fundamental strength of the brand, but also its commitment to its values of excellence, creating value for all stakeholders and putting its customers first in everything that it does. “Driven by these values, we are building the bank of the future by pairing the best of our business with the massive potential of digital technologies to create Africa’s first integrated and trusted platform; Habari,” Agbaje said. In recognition of the bank’s bias for world class corporate governance standards, excellent service delivery and innovation, GTBank has been a recipient of numerous awards over the years. Some of the bank’s awards in 2018 included: Bank of the Year – Nigeria from the Banker Magazine, Best Banking Group and Best Retail Bank Nigeria from World Finance Magazine, Most Innovative Bank from the African Investor, and Best Digital Banking Brand in Nigeria from the Global Brands Magazine.   Source: Thisday

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Telcos Cry Out over Multiple Taxes, Seek Tariff Review

Tax news, TAX SERVICES /

Telecommunication companies (Telcos) have expressed concerns over recent move by various states ministry of environment to impose environmental impact assessment (EIA) levy on their operations across the country. They described the development as another form of multiple taxation that would impede the growth of the sector. To this end, the operators under the aegis of the Association of Licensed Telecoms Operators of Nigeria (ALTON), have written to the Federal Ministry of Environment, explaining the economic implication of allowing States’ Ministry of Environment to collect environmental impact assessment levy directly from the operators across the country, after they have paid same levy to the federal government through the Federal Ministry of Environment and the National Environmental Standards and Regulations Enforcement Agency (NESREA). The operators want the Federal Ministry of Environment to review the existing telecoms tariff in order to address every anomaly with telecoms tariff and taxes. According to the operators, they obtained EIA from the Federal Ministry of Environment through NESREA in collaboration with each state ministry of environment, but wondered why the states are now coming up with fresh demands for EIA levy, which they said, amounted to multiple taxation and charges. “We have received complaints from our members that they have been receiving demand notices for environmental impact assessment payment from some states government ministries of environment, which we considered as an aberration of the existing law,” ALTON said in the letter, which was signed by its Chairman, Gbenga Adebayo. The letter dated February 21, 2019, sought clarification on issues such as: “That the Federal Ministry of Environment has ceded the EIA oversight functions to some states ministry of environment to issue EIA certification to its members and that some states ministry of environment as the case may be can conduct EIA process in its members without recourse to the Federal Ministry of Environment and National Environmental Standards and Regulations Enforcement Agency (NESREA).” Others include: “That the statutory responsibility on environmental issues of the Federal Ministry of Environment has been transferred to the states government; That the states now have power to collect ecological fund from private sector after payment has been made to them by the federal government.” In the letter, Adebayo requested from the Federal Ministry of Environment to clarify these positions, so as to guide ALTON in its dealing with the situation and to advise its members accordingly. Adebayo also called on the federal government to look into the issue of Tax and Levy Amended Order 2015, which he said, was hurriedly signed by the former Minister of Finance in the last administration, Mrs. Ngozi Okonjo-Iweala. The signed order according to him, had created confusion in the taxes and levies regime and making the telecoms environment hash for business, not minding the federal government policy on ‘Ease of Doing Business’ in Nigeria. Adebayo, had said since the order was signed in 2015, it has created a lot of confusion in the taxes and levies regime and made the telecoms environment hash for business, not minding the federal government executive order on ‘Ease of Doing Business in Nigeria.’ According to him, “The telecommunications industry has been the best customer centric sector, where issue pertaining to subscribers are taken very seriously by both the operators and the regulator, and despite all challenges there has not for once been an outage compare to other sectors, where you are put on estimated bills and inconsistence in flight schedules that have made several people missed appointments and valued meetings just to mention few. “There was no face-off between NCAA and ALTON and its members. Although we need clarification on the charges, this led to the agreement at the meeting to form an advisory committee which comprises NCAA and ALTON representatives. Our members are responsible corporate citizens of the country and natural partners in progress that follow due processes.”   Source: Thisday

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The taxation system in Nigeria

TAX SERVICES /

While competitive enough to bolster the country’s appeal to foreign investors and skilled expats, Nigeria’s tax system is also tasked with the responsibility of providing the government with enough resources to finance the country’s development – company tax and petroleum royalties in fact account for the primary source of government revenue. Here is an overview of the main taxes in Nigeria. Tax residency in Nigeria The Nigerian tax regulation defines a Nigerian resident as an individual who is living in Nigeria for more than 6 months a year. A foreigner holding a Nigerian residence permit (CERPAC) is also deemed to be a tax resident. Individual residents in Nigeria are taxable on their worldwide income, whereas a non-resident is only taxable on the income earned from business activities performed in Nigeria. Non-resident expatriate employees are therefore subject to income tax in Nigeria unless:     they work for an employer based in a country other than Nigeria,     their compensation is not paid by a “fixed base” (i.e. permanent implantation) of their employer in Nigeria, or     their compensation is taxed in another country (you should check in advance whether your home country has a tax agreement with Nigeria). Good to know: Taxes in Nigeria are all collected by the national Federal Inland Revenue Service (FIRS). Personal Income tax in Nigeria Employees simply pay their income tax through the Pay As You Earn (PAYE) system, whereby employers deduct the due tax at source from the salaries and transfer it directly to the FIRS on a monthly basis, while independent workers and beneficiaries of additional income are required to file their own tax returns. Income tax in Nigeria is levied at a progressive rates capped at 24%. Here are the applicable rates for personal income tax in Nigeria : Annual income (NGN):     First 300,000: personal income tax rate of 7%     Next 300,000: personal income tax rate of 11%     Next 500,000: personal income tax rate of 15%     Next 500,000: personal income tax rate of 19%     Next 1,600,000: personal income tax rate of 21%     Above 3,200,000: personal income tax rate of 24% Corporate tax in Nigeria Resident companies in Nigeria are subject to the Company Income Tax (CIT) on their worldwide income, while only the income from Nigerian source of non-residents companies is taxed under the CIT. The CIT is generally levied at a flat 30% rate, but is reduced to 20% for smaller companies (with a turnover not exceeding NGN 1m) operating in the manufacturing industry and wholly export-oriented. Resident companies are also charged a 2% tertiary education tax. Additionally, companies operating in the petroleum industry, whether resident or not, are required to pay the Nigerian government a special Petroleum Profit Tax (PPT) at rates varying from 50% to 85% according to the age of the company and its relationships with the Nigerian National Petroleum Corporation (NNPC). Other types of tax Nigeria Value Added Tax (VAT) in Nigeria is levied on all products and services traded within the country and payable to government at a 5% rate, one of the lowest in the world. The sale of real estate properties is subject to a 10% tax on the gains.   Source: Expat

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Nigeria: FIRS Seeks To Close Prolonged Tax Audits Using NORAs

TAX SERVICES /

Federal Inland Revenue Service (FIRS) has recently been issuing Notice of Refusal to Amend (NORA) assessments issued in respect of on-going tax audit exercises. This is notwithstanding that taxpayers have objected such assessment notices or that some of the issues raised by FIRS have been resolved/documented at reconciliation meetings. In letters issued to some taxpayers, FIRS demanded settlement of the alleged additional tax liabilities within 30 days of issuance of the NORA, irrespective of the level of progress made during the tax audit reconciliation process. FIRS also expressed its intention to commence enforcement actions to recover the alleged tax liabilities where these are not paid within the said timeline. While Section 69(5) of the Companies Income Tax Act (CITA) empowers FIRS to issue NORA, it only allows FIRS to do so in the event of a stalemate during the reconciliation process. This is distinguishable from FIRS’ recent practice of issuing NORA solely on the basis that tax issues have remained unresolved for at least 6 months despite reconciliation. Furthermore, there is no provision in CITA or any other relevant legislation that empowers FIRS to issue NORA only on the basis that reconciliatory processes have spanned more than a defined period. By this development, FIRS has disregarded all the time and resources invested by itself and taxpayers in resolving such pending tax disputes. Aggrieved taxpayers may consider proceeding to the Tax Appeal Tribunal (TAT) to challenge FIRS’ action/decision; thereby increasing the cost of dispute resolution, regulatory compliance and ultimately, inhibiting the ease of doing business in Nigeria. In enforcing tax compliance, it is essential that tax authorities’ actions should not deter voluntary tax compliance. We therefore expect FIRS to revisit its approach and avail taxpayers more time to close out ongoing tax disputes/audit exercises. Also, where FIRS insists on issuing NORA, it should consider issues that have already been resolved during the reconciliation phase and focus only on unresolved tax issues. In the meantime, we advise taxpayers with ongoing tax audit cases to engage FIRS to reconcile their tax positions in order to prevent any adverse decision of FIRS.   Source: Mondaq

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ICAN seeks collaboration with finance ministry on training

Accountancy Services /

The Institute of Chartered Accountants of Nigeria (ICAN) on Tuesday commended the laudable achievements of the Federal Government under the Federal Ministry of Finance in the last three and half years, saying it has blocked leakages and set the tone for improved revenue generation to finance government’s economic development agenda. ICAN President, Alhaji Razak Adeleke Jaiyeola, who stated this when executive members of the organisation visited the Minister of Finance, Mrs Zainab Ahmed in Abuja, solicited the Ministry’s collaboration in organizing in-house training for staff and ICAN members in the Ministry. According to a statement by her Special Adviser on Media and Communications, Paul Abechi, the minister assured ICAN of the readiness of the ministry to collaborate with it. Ahmed who welcomed ICAN’s recently released Accountability Index, noted that the country was often measured by external index which did not take local peculiarities into consideration and that it will encourage both the federal and state governments to ensure good public governance. Speaking earlier, the ICAN President particularly noted the giant strides of the Federal Inland Revenue Service (FIRS) under the President Muhammadu Buhari-led administration, which he said, has led to an all time high revenue generation of the sum of N5.3 trillion in 2018. While expressing worries over delays in national budget, Alhaji Jaiyeola, commended the implementation of the TSA, pointing out that many of the software that drive the process are not locally sourced. He called on the federal government to deploy more local content which he said will both preserve “our hard-earned foreign exchange and create more jobs for the citizenry”. According to him, “Let me seize this auspicious opportunity to warmly commend the laudable achievements recorded by the Federal Ministry of Finance in the last three and half years. The Treasury Single Account (TSA), the Voluntary Assets and Income Declaration Scheme (VAIDS), Whistle-blower Policy, the establishment of the Development Bank of Nigeria (DBN) and the Efficiency Unit, the Collateral Registry under the Central Bank of Nigeria, the laudable reforms in the FIRS, are all initiatives driven by your ministry not only to set a credible governance tone at the top and raise the bar of credibility.” He said the move of FIRS to recover N23 billion from 45,000 people who had more than N100 million in their accounts in 2018 through substitution of their bank account is highly commendable. On collaboration, the ICAN President said, “we are willing to collaborate with the Ministry of Finance at organizing in-house training for its staff and mandatory Professional Continuing Education (MCPE) for members of ICAN who work in the Ministry.” “As you are aware, ICAN released the first result of its Accountability Index during the 48th Annual Accountants’ Conference. This strategic initiative was jointly financed by ICAN and the Internal Federation of Accountants (IFAC). The ICAN-AI is an initiative for improving public sector finance management at the three tiers of government, he said. “The objectives of the ICAN AI among others include encouraging fiscal responsibility and good public financial management, tackling corruption by encouraging quality professionals in the public sector and providing a holistic, objective and evidenced-based framework for assessing performance of public sector entities, the ICAN boss added”.   Source: Today.ng

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Wider tax net, not rate increase’ll raise government revenue –Olawale, NECA DG

TAX SERVICES /

The Federal Government’s intention to generate almost double of the amount realised last year in tax revenue may set it on collision path with the Organised Private Sector (OPS). The concern for a possible friction stems from the nation’s current economic situation, poor infrastructure, and difficulties in accessing funds among others, which members of the OPS are sounding a serious warning that the Federal Government would be making a mistake if it intends to generate the target revenue through tax increases. The new Director General of the Nigeria Employers Consultative Association (NECA), Mr. Timothy Olawale, lamented that businesses in Nigeria are presently encumbered with the payment of over 55 different taxes at the three levels of government. He also speaks on how banks have failed playing their role of ensuring small businesses thrive. Olawale, while expressing the readiness of the OPS to pay the new Minimum Wage of N30,000, said that anything below that is criminal. The NECA DG, among other issues, expressed worry over the nation’s rising debt profile, the Economic Recovery Growth Plan (ERGP) among other issues in the economy. Excerpts:  Support for new minimum wage We stuck out our neck on the issue of new minimum wage because it came out as a result of a process in which we are actively involved. We were actively part of the discussion, decision and we agreed and believed in the discussion of the tripartite committee with every sense of responsibility coupled with the fact that we believe in corporate responsibility. The second reason is that when you think about the welfare of workers, we believe N30,000 is ideal and that anything below that is inappropriate. Employers have the responsibility of taking care of their employees before they can increase productivity. You are not making life meaningful for them if you don’t pay them good salary. Is N30,000 really enough for workers? We all know the value and worth of money in the present economy. The question we should ask ourselves is how far will the N30,000 go in taking care of a worker and his or her entire family. By the time a worker goes to and from his/her workplace everyday, that N30,000 will substantially have gone. Don’t forget that there are also other basic needs like shelter, feeding, medicals, education for the children. So when you benchmark all these with the said amount, it can’t go far. And I want to say personally that anything below that is criminal. Effect of N30,000 minimum wage on the economy Yes, there is going to be a consequential effect, but it is going to be minimal and it is going to be controlled. One of the effects is that there is insufficient enlightenment to the general public to let them know that the fact that there is new minimum wage now, does not mean that everywhere will be awash with money.  Because based on that belief, there will be an increase in the prices of goods and services. Everyone, both market women and men, will want to benefit directly from the new minimum wage. And when that happens, the effect is that workers’ welfare will be totally lost. What it means is that the new minimum wage will not have any positive effect on the workers. The disadvantage of this is the prolonged process in arriving at the new minimum wage. Because everybody that doesn’t even know what minimum wage is all about before are aware now and are anticipating when it will take effect so that they will also benefit. It is so unfortunate, but that is Nigerians for you. OPS complying with new minimum wage There is no reason all members of the OPS should not be able to pay N30,000 minimum wage. This is because they all agreed after due consultation. So, we are saying authoritatively that all members of the OPS will implement N30,000. The simple truth is that 70 per cent of the organised labour is paying way above N30,000 as minimum wage. So, the consequential impact is very minimal, if not nil, because it is supposed to affect the chain or review, where your benchmark is below N30,000. So, if you are paying way above N30,000, you need not bother, except if you want to enter what we call a ‘sweetheart agreement’ with your workers and you decide to raise their salaries. As we speak, some sectors have started negotiating without waiting for government’s decision on the N30,000 proposal. My concern, however, is the informal sector – the Small and Medium Enterprises (SMEs), which are struggling and don’t have enough support from the government and its agencies to survive. The question is: are they well positioned to absorb the effect of N30,000? Can they implement it? We have encouraged them to embrace the plan of relevant bodies like the International Labour Organisation (ILO), which NECA is a part of, to help them transit from informal to formal sector. This will help their businesses and deepen their access to capital. Also, they need to engage their workers because the major problem that has reflected in the rate of unemployment is that what Nigerians are even looking for is to be able to leave their houses and have a means of survival in the first instance. Majority of our teeming population are out of jobs; well over 30 million Nigerians are said to be out of job. Abraham Maslow’s hierarchy of needs talks about subsistence level. In other words, the physiological need is: ‘Let me even have somewhere to go and have something to sustain myself and my family.’ It is after meeting that need that you start thinking of how to improve on it and then maybe the issue of minimum wage will arise. Our focus – and what we have always told the government – is for us to have a situation where majority are gainfully employed in the first instance. Then, we can talk about improving on it. We have also advised the

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N12.6tn generated as tax under Buhari, FIRS says

Tax news /

The Federal Inland Revenue Service (FIRS) has disclosed that a total of N12.62 trillion was generated as revenue from  2016 to 2018. This was revealed in a document made available to newsmen by the Head of Communications and Servicom Department of the agency, Wahab Gbadamosi. N3.3 trillion was generated in 2016, N4.02 trillion in 2017 and N5.32 trillion was realised in 2018, making it the highest revenue generated in the last three years. The document stated that this was made possible as a result of several initiatives designed by the agency to ensure a robust tax administration that is beneficial to all stakeholders. It explained that non-oil tax revenue increased to N2.149 trillion in 2016, N2.5 trillion in 2017 and N2.852 trillion in 2018. The document quoted the Executive Chairman of the agency, Babatunde Fowler saying the achievement was a reflection of the diversification of the Nigerian economy by the Federal Government.  “This does not mean that we have left behind the oil tax revenues. It grew from N1.15 trillion in 2016 to N1.52 trillion in 2017 and N2.52trillion in 2018. Non-oil tax revenue is still over in excess of the oil tax revenue. “We also do collect four per cent in terms of cost of collection but only for non-oil revenue collected. On oil revenue collection, we do not get any commission and we have been able to make sure that our services are more efficient and convenient to taxpayers. “This has brought about a considerable reduction in the cost of collection of actual taxes. “In 2016, it was 2.6 per cent, 2017, 2.49 per cent and 2018, 2.14 per cent, meaning that our actual cost of collection is heading downwards based on the efficiency and technology that we are deploying to tax collection. “Some of the ICT initiatives that we have continued to build on are the e-payment channels which make it convenient and easy to pay taxes anywhere in the world and to also download receipts of payment from any point one so desires,” he said.   Source: RipplesNigeria

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Nigeria: Has The New Lease Rule Come To Change The Tax Space?

Tax news /

On 13 January, 2016, the International Accounting Standard Board (IASB) announced the issuance of a new accounting standard: International Financial Reporting Standard (IFRS) 16, on leases, which took effect on 1 January 2019. The new standard has changed the basis of accounting for leases which was in force for more than thirty years. While IFRS 16 completely replaces the old rule under International Accounting Standard (IAS) 17, the major impact is on the recognition, measurement and disclosure requirements for lessees. The new standard eliminates the classification of leases as either operating or finance for lessees and, instead, introduces a single lessee accounting model. According to an IASB survey conducted in 2016, listed companies around the world had around US$3.3 trillion worth of leases. Based on IAS 17 requirements, over 85% of the leases are labelled as operating leases and are not recorded on the balance sheet of these companies. This amounts to about $2.8 trillion worth of leases off the balance sheet of such entities. Given the effective date of 1 January 2019 for the adoption of the new standard, most companies had about three years to evaluate the legal, commercial and financial reporting impact of the new standard on their financial positions and transactions. In this article, we have discussed the extent to which the new rule disrupts the Nigerian tax space, and the options available to companies and businesses moving forward. The Old Wine Explained In line with the Federal Inland Revenue Service (FIRS) information Circular No.2010/01 on Guidelines on the tax implication of Leases , a lease can be broadly defined as a contractual agreement between an owner (the lessor) and another party (the lessee) which conveys to the lessee the right to use the leased-asset for consideration usually periodic payments called rents. With the adoption of International Financial Reporting Standards (IFRS) in 2012, recognition of leases have been based on IAS 17 (the old rule). Under the old rule, a lease arrangement is classified as either an operating lease or a finance lease. Finance leases are arrangements that transfer risk and rewards relating to the use of an asset from the lessor to the lessee. This means that in a finance lease arrangement, the lessee is deemed the economic owner of the asset since he is able to apply the asset to generate economic benefits from continuous usage. All other types of lease arrangements are classified as operating lease. Accounting by Lessee and Lessor under the Old Rule – Finance Lease Under the old rule, lessees were required to recognize a finance lease arrangement as both an asset and a liability at an amount equal to the fair value (sale price agreed upon by a willing buyer and seller, assuming both parties enter the transaction freely and knowledgeably) of leased asset. Where this value is lower than the fair value, recognition should be based on the present value of the minimum lease payments to be made by the lessee. Finance (interest) charge is also accrued on the liability over the term of the lease. Subsequently, the annual lease payment made by the lessee is applied towards settling the liability and finance charge that has accrued in relation to the arrangement. Thus, by the end of the lease term, the lessee would have paid for the fair value of the asset plus the finance charge on the leased assets. The lessee depreciates (it may fair value or revalue alternatively) the leased assets annually and charges the annual finance (interest) cost to its income statement. Since risk and rewards are transferred in a finance lease, lessors are not allowed to recognize the leased asset in their books. Rather, they recognize a receivable (from the lessee) equal to the fair value of the leased asset. Additionally, lessors recognize annual finance income receivable from lessee over the term of the lease. Accounting by Lessee and Lessor under the Old Rule – Operating Lease Under operating lease, lessors retain the risk and rewards. Hence, lessees are not allowed to recognize any asset. Lessees recognize operating lease payment as periodic expense on a straight-line basis over the term of the lease. Lessors however continue to carry the asset in its books, depreciating them on annual basis. Additionally, they recognize the operating lease rental receivable from lessee over the term of the lease from lessees as periodic income in the income statements. Tax Implications of the Old Rule The Companies Income Tax Act provides for the tax treatments of leases. The tax treatments are also explained in the Federal Inland Revenue Service (FIRS) Circular on the Tax Implication of the Adoption of the IFRS. It should be noted that the prescribed tax treatment aligns with the old rule under IAS 17. Under a finance lease arrangement, lessees have the responsibility to deduct withholding tax on the annual finance/interest charge while they claim capital allowance on the leased asset. The interest charge constitutes a deductible expense when computing their income tax liability. For lessors, the finance income constitutes a taxable income and they are not allowed to claim capital allowance on the leased assets. For operating lease arrangement, the lessee deducts withholding tax on the annual operating lease rental while the lessor accounts for the VAT on the amount. The lease rental constitute deductible expense and taxable income in the books of the lessee and lessor respectively. Additionally, the lessor continues to claim capital allowance on the asset. What has Changed? The new rule retains the two categories of leases, operating and finance, for the lessor, as well as the recognition under the old rule. However, it prescribes a single accounting treatment for lessees. The new rule requires lessees to recognize a “right-of-use asset” and a lease liability at the inception of the lease. The lease liability is measured at the present value of outstanding lease payment. The recognized liability accrues finance (interest) charges over the term of the lease and any payment made by the lessee is used to settle the original

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