Tax news

Key Aspects of Company Income Tax (CIT) in Nigeria.

Introduction: Companies operating in Nigeria, earning legitimate income, fall under the purview of the Company Income Tax Act (CITA), Cap C21, LFN 2004 (as amended). While CITA mandates the payment of taxes on revenue from various sources, there are exemptions outlined in the Act. Taxable Income Sources: The following income sources are subject to CIT in Nigeria: Finance Act 2021 Amendments: The Finance Act 2021 introduced amendments, making profits earned by educational institutes chargeable under CIT, reversing their previous exemption. Entities Exempt from CIT: The following entities enjoy exemption from CIT: For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

Accessing Retirement Savings for Residential Mortgages: New Guidelines.

Introduction: The National Pension Commission (PenCom) has recently approved and implemented guidelines allowing Retirement Savings Account (RSA) holders in the Contributory Pension Scheme (CPS) to access part of their RSA balance for equity contributions towards residential mortgages. This development follows the amendments introduced by the Finance Act of 2020, enabling Pension Fund Administrators (PFAs) to apply a percentage of pension assets for mortgage equity contributions. Eligibility and Benefits: To qualify, RSA holders must be actively employed or self-employed, with at least three years before retirement. The Guidelines stipulate a requirement of 60 months of contributions to the RSA, reflecting both employer and employee contributions. Key Benefits Under the Guidelines: Procedure for Application: Potential Impact: Prior to these Guidelines, RSA holders could not withdraw from their mandatory RSA before the age of 50, except in specific circumstances. The new era introduced by the Guidelines allows individuals to access funds for residential mortgages before retirement, providing an additional avenue for financial flexibility. This initiative is a commendable step by the government, encouraging eligible individuals to make the most of this opportunity. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

Proposed Suspension of Telecom Excise Duty Implementation.

Introduction: The Finance Act, 2020, introduced a 5% excise duty on telecommunication services in Nigeria, scheduled for implementation in 2023. Recently, the Minister of Communications and Digital Economy, Isa Pantami, declared a purported suspension of this excise duty during the inaugural meeting of the Presidential Committee on Excise Duty for the Digital Economy Sector. Pantami justified the suspension, citing concerns that the additional tax would strain the already heavily taxed telecom industry, highlighting the existence of 41 categories of state and federal taxes in the sector. Purported Suspension and Differing Views: While the Communications Minister, relying on his executive responsibilities under Section 148 of the Constitution, vowed to repeal the telco tax to protect the digital economy sector, the Director General of the Budget Office, Ben Akabueze, contradicted this announcement. Akabueze stated that the Finance Ministry had not been officially advised on the suspension, emphasizing the crucial role of the Telecom tax in addressing Nigeria’s revenue challenges. He pointed out that Nigeria has the lowest tax-to-GDP ratio in Africa, and the Average Effective Tax Rate on Telecom in Nigeria is below the African average. The DG Budget Office highlighted those projections in the medium-term expenditure framework for 2023-2025, recently approved by the federal executive council, include the Telecom tax. Cancelling the implementation would require reworking the framework, impacting projected revenues and potentially increasing the deficit, necessitating expenditure cuts or increased debt. Presidential Directive and Conclusion: The Communications Minister announced that President Muhammadu Buhari directed the constitution of a committee to thoroughly examine the Telecom excise matter and provide recommendations. In the absence of an official confirmation on the suspension, the situation remains uncertain. Stakeholders across sectors await the committee’s findings, anticipating an outcome that considers the interests of both private and public entities. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

Procedures for FIRS Consent and Tax Considerations in Mergers.

Introduction: In accordance with the Federal Competition and Consumer Protection Act of 2018, mergers in Nigeria involve one or more undertakings gaining control over the business of another. This can be achieved through share purchase, amalgamation, or joint ventures. The Federal Inland Revenue Service (FIRS) plays a crucial role in the merger process, requiring its consent for tax-related considerations. Approval of the Federal Inland Revenue Service (FIRS): Section 29(12) of the Companies Income Tax Act (CITA) makes it mandatory to obtain the FIRS’s direction and clearance concerning taxes payable under the CITA or Capital Gains Tax Act before executing any merger, take-over, transfer, or business restructuring. The FIRS approval is a prerequisite for the successful completion of a merger transaction. Merging entities must submit the scheme of merger, scheme of arrangement, and a due diligence report covering tax aspects to the FIRS Board for review. In certain cases, additional guarantees or security may be requested to ensure the payment of all taxes owed by the transferring entity. Tax Implications of Mergers: Upon securing approvals and concluding the merger process, various tax implications arise, depending on the outcome of the merger. Key considerations include: Conclusion: Before engaging in a merger, understanding the required steps and documentation for FIRS consent is crucial, as failure to comply can jeopardize the merger’s completion. Additionally, being aware of the tax implications associated with various merger options helps make informed decisions about the most suitable approach. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

Application of Value-Added Tax (VAT) on Financial Institutions’ Services.

Introduction: Under the amended Value Added Tax Act (VATA), a tax is imposed on all goods and services supplied in Nigeria. While an exemption exists for goods and services listed in the First Schedule to the VATA, financial institutions are generally obligated to charge VAT on their services, as clarified by recent legislative modifications. Imposition of VAT on Financial Services: Section 66 of the Banks and Other Financial Institutions Act broadly defines “other financial institutions” to include various entities engaged in financial activities, such as discount houses, finance companies, and more. This encompasses a range of institutions like banks, insurance companies, pension funds administrators, discount houses, and brokerage firms. In a circular issued by the Federal Inland Revenue Service (FIRS), titled “Value Added Tax (VAT) on Services of Financial Institutions” (Circular No.: 2021/04), the FIRS outlines the financial services charges that attract VAT. These include, but are not limited to: However, certain financial transactions, such as interest on loans and advances, interest on savings accounts, interest on bank deposits, premium on insurance policies, dividends, and gains on disposal of securities, do not attract VAT. This exemption is due to their nature as returns on investment rather than charges for services provided by financial institutions. Conclusion: With specific exemptions for Unit Micro-Finance Banks and Mortgage Institutions, financial institutions in Nigeria are generally required to apply VAT to their services. The distinction between returns on investment and charges for services is crucial in determining VAT applicability, ensuring that only applicable financial service charges are subject to VAT. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

FIRS Initiates Automation of Taxation for Online Gaming in Nigeria.

Introduction: In a Public Notice released in October 2022 titled “Real Time Direct Collection of Taxes from Online Gaming Transactions,” the Federal Inland Revenue Service (FIRS) announced the commencement of the automation process for administering taxes on online gaming activities in Nigeria. The primary aim of this automation is to streamline tax compliance for companies involved in online gaming by implementing tax deductions at transaction points and facilitating direct remittance to the Government’s Treasury. The automation process will utilize the Sentinal Payment Gateway and Electronic Solutions (Sentinal Gateway), as stated in the Public Notice. FIRS has mandated all operators providing online gaming services in Nigeria to connect to Sentinal Gateway by December 31, 2022. Non-compliance will result in sanctions for companies failing to adhere to this requirement. Similarly, foreign companies offering online gaming services in Nigeria are obligated to connect to Sentinal Gateway for tax collection and remittance purposes. Our Comments: Despite the presence of multiple gaming legislations at both federal and state levels, there remains an ongoing dispute over whether it is the state or federal government that holds the authority to collect gaming taxes. While some argue that gaming falls under the purview of state legislatures, the Federal Government has been in conflict with state governments over tax collection. To enhance the efficiency of the tax automation process and ensure transparency, an Application Program Interface (API) enabling real-time monitoring of qualifying companies’ activities by FIRS is recommended. Curiously, the government has chosen to implement the automation of online gaming activities using the Sentinal Gateway, a creation of a foreign fintech company (e-Technologies Global Limited), despite the presence of capable indigenous fintech companies in Nigeria. The rationale behind this decision remains unclear and raises questions about the selection process. Conclusion: In a bid to boost revenue from the gaming industry, which has historically contributed minimally to the Federal Government’s revenue target, the government aims to increase its share through the automation of taxation for online gaming activities. This centralized control system aims to tax gaming operators at the initiation of transactions, ensuring immediate remittance to the Government’s treasury. The objective is to eliminate revenue leakages and ensure the imposition of appropriate taxes on every online gaming transaction. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

FIRS Designates Telecom and Banks as VAT Withholding Agents.

In a Public Notice titled ‘Value Added Tax Act (CAP V1, LFN 2004) (as amended): Appointment of Certain Companies to Withhold VAT,’ the Federal Inland Revenue Service (FIRS) has officially designated MTN, Airtel, and all Deposit Money Banks (as defined by CBN Guidelines) as appointed agents responsible for withholding Value Added Tax (VAT) on taxable supplies made to them, effective from January 1, 2023. The appointed entities are mandated to remit the withheld VAT in the currency of the transaction to the FIRS on or before the 21st day of the month following the month in which the taxes were withheld. It is important to emphasize that the filing and remittance process for the withheld VAT should be conducted separately from the filing and remittance of VAT owed on the taxable supplies by the appointed companies. Suppliers whose output VAT is withheld have the opportunity to offset the input VAT paid on the goods they have purchased or imported. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

LIRS Tax Audit Initiative: Ensuring Compliance and Book Accuracy.

Introduction: The consistent decline in annual government revenue has prompted a strategic shift towards diversifying revenue sources beyond crude oil. To achieve this, comprehensive measures are being implemented to identify and rectify revenue leakages. This includes tightening fiscal policies and scrutinizing non-compliant taxpayers through tax audits. State Tax Audit Exercise: Empowered by Sections 47(4) and 48(4) of the Personal Income Tax Act (PITA), the Lagos Internal Revenue Service (LIRS) regularly conducts tax audit exercises. These audits involve the examination of individual incomes and organizational accounts, aiming to ensure compliance and identify any irregularities. Failure to provide requested information within the specified time may result in sanctions. Various factors, such as unreported income, excessive charitable donations, losses, and deductible expenses, can trigger an audit. The LIRS initiates the process by sending an Audit Notification Letter to the organization, outlining the audit scope (covering Personal Income Tax, Withholding Tax, Levies, or fees) and listing required documents. Commonly requested documents include Audited Financial Statements, Management Accounts, Bank Statements, Payroll records, and evidence of statutory contributions. The audit primarily serves as an information-gathering exercise, with potential tax assessments based on the gathered information. Any raised assessments can be contested and appealed according to the provisions of the PITA. Concealing information or attempting bribery during an audit is considered a criminal offense, punishable by law. An Additional Assessment may be issued if the initial assessment was based on incomplete or falsified information. Conclusion: To mitigate the risk of interest, penalties, and additional taxes resulting from a surprise audit, organizations are encouraged to engage external auditors to ensure the accuracy and completeness of their books and accounts. Proactive measures will not only enhance compliance but also contribute to a smoother audit process, ultimately avoiding unnecessary financial implications. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

Anticipating the Impacts of the Finance Act 2022 on Nigeria’s Fiscal Landscape.

Introduction: Each year, the Fiscal Policy Reforms Committee (FPRC), acting under the Minister of Finance’s directive, revises the Finance Act to adapt to evolving economic conditions. This aligns with the National Tax Policy’s 2017 objective of maintaining a flexible fiscal environment. The journey to enhance Nigeria’s fiscal regime began with the 2019 Finance Act, continuing annually. Currently in progress is the Finance Act 2022, slated for implementation in the 2023 financial year. Amendments and Scope: The Finance Act traditionally amends both tax and non-tax statutes related to taxation. Past acts have affected various laws, including the Companies Income Tax Act, Value Added Tax Act, and Customs and Excise Tariff Act. The upcoming Finance Act, 2022, is expected to impact diverse legislations. Policy Focus Areas of FA22: The FPRC and the Ministry of Finance have outlined five policy focus areas for FA22. First, healthcare investments take precedence, intending to attract domestic and international investments in healthcare infrastructure. The Act may retain taxes such as the Sugar Tax to address health challenges. FA22 also aims to complement non-fiscal reforms for reducing Greenhouse Gas emissions, encouraging climate adaptation and mitigation investments, and fostering Green Growth economies. Another pivotal focus is reforming tax incentives to phase out outdated incentives for matured industries. FA22 aims to reduce tax expenditure, support economic reforms, and stimulate job creation and growth, particularly for SMEs, youth, and women-owned businesses. Additionally, the Act plans to deploy the NYSC Diaspora Scheme to create jobs and attract capital and IP investments in domestic SMEs. Alignment with National Developmental Plan: The Finance Act, 2022, aligns with the National Development Plan 2021-2025 (NDP). The NDP addresses challenges in healthcare financing, climate change, and gender equity. FA22’s focus on healthcare investments resonates with the NDP’s strategies to optimize healthcare. Similarly, FA22 aims to introduce reforms to reduce Greenhouse Gas emissions, aligning with the NDP’s global solutions approach to climate change. Lastly, the Act is expected to contain fiscal policy reforms supporting women-owned businesses, aligning with the NDP’s gender equity goals. Conclusion: Building on the transformative reforms introduced by previous Finance Acts, the Finance Act 2022 is anticipated to play a crucial role in promoting fiscal equity and aligning local tax legislation with global best practices. The Act is expected to address contemporary challenges, making significant contributions to Nigeria’s economic development and stability. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

Key Information for 2022 PAYE Returns Filing.

Filing PAYE returns for employers is a routine task, occurring annually in the initial month. According to Section 81 of the Personal Income Tax Act (PITA), employers are obligated to submit yearly returns that encompass the income disbursed to their employees, along with the PAYE deductions remitted to the relevant tax authorities on behalf of the employees in a given assessment year. This article delves into the crucial aspects of the PAYE returns filing process, a prerequisite before filing Personal Income Tax (PIT) returns. For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.

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