Tax news

About 55 life and non-life underwriting companies in the country have paid N36.5 billion as tax to the government through the Federal Inland Revenue Service (FIRS) in the last five years.The Guardian reliably gathered that between 2013 and 2017 financial years, these underwriters generated N100.4 billion as Profit Before Tax (PBT) and were left with Profit After Tax (PAT) of N63.9 billion, having paid N36.5 billion as tax to the government. The tax paid translates to about 35 per cent of the profit made within this period.  A data sourced from the Nigerian Insurers Association (NIA) showed that insurance companies made N9.8 billion as PBT, which was reduced to N4.9 billion after tax, having paid N4.8 billion as tax in 2013 financial year, while the industry recorded N6.3 billion PBT in 2014, which went into a negative of N691 million, after the operators paid about N7 billion as tax. In 2015, insurers made N11.3 billion profit, but the profit reduced to N6.1 billion, after paying N5.2 billion tax in that financial year. In 2016, the companies paid N11 billion as taxes from PBT of N29.4 billion declared and were left with PAT of N18.3 billion. Similarly, the insurers made a profit before tax of N43.8 billion in 2017 financial year and paid N8.3 billion tax to the government, leaving a profit after tax of N35.5 billion. Although, tax paid to government by insurance companies in 2018 financial year remains sketchy, as they are just releasing their financial accounts, there are indications that the tax could rise above N10 billion, given government’s plans to generate more revenue locally to finance the 2019 national budget Apart from paying tax on management expenses, short term lending, among others, insurers were also mandated to pay tax on claims, which is the core business of underwriting, meaning that the higher the claims paid by an underwriter, the higher the tax to be paid on such claims. The federal, state and local governments had embarked on aggressive revenue hunt, picking on corporate bodies like insurance companies, as a major part of the tax drive. Enforcement of these taxes reached an alarming rate last year with some insurance companies shut down by the Federal Inland Revenue Services (FIRS), until they were made to clear off their outstanding taxes. While the situation has a negative implication on the books of some struggling insurers, some had their little profit cut short by these taxes, while the big underwriters were not exempted from the impact of these taxes. NIA, under the leadership of its past Chairman, Eddie Efekoha, had complained that insurance industry is being subjected to  multiple taxation that is gradually eroding the profits of insurance companies, thereby, affecting their ability to give good returns on investment to shareholders as well as stakeholders. Efekoha, however, believes the permanent solution lies in amending the tax code, which takes some times to be amended, as it has to go through legislative processes at the National Assembly. “Giving returns on investment to shareholders and stakeholders has a lot to do with how much you make as profit, but in a scenario like ours, where we are subjected to multiple taxation, it becomes difficult to pay dividend to shareholders. “The more tax we pay, the more the returns to our stakeholders diminish. If you are to pay tax on claims and on management expenses, what this means is that you have little or nothing left to pay dividend to shareholders,” he said.  However, there was an ongoing discussion between NIA and FIRS to try to address this challenge. Last year, the General Manager, Retail Life, AIICO Insurance Plc, Sola Ajayi, said the tax code in Nigeria is too hard on both life and non-life insurance companies, as they were not allowed to take advantage of deferred tax, especially, for life business. “We cannot take advantage of those taxed assets because of Section 33 and Section 16 of the tax code. Section 33 is saying, we must pay minimum tax, while Section 16 is saying, even when you have a tax exempt income, you must pay something. “So, you cannot exempt paying tax on the life business where some are even incurring losses and you cannot fully take advantage of all your reliefs,” he said.  For non-life business, he said, the tax code does not recognise the whole claims paid as expense, noting that, no matter the claims you paid, you can only relief 25 per cent of it. According to him, “if you pay claims of any amount, the law does not allow claims as expenses, it only allow 25 per cent of it. So, why are we in operation? Is it not to pay claims?”   Source: Guardian

In 2017, the World Economic Forum (WEF) ranked Nigeria 125 out of 137 countries in its Global Competitiveness Report. The WEF survey found that Nigeria’s potential for structural change was impeded by inadequate investment in infrastructure, technology, higher education and innovation. Nigeria has long depended on oil as its economic mainstay with paltry attempts at diversification over the years. But a recent Bloomberg report finds that this one-source revenue base is unsustainable. Moreover, Nigeria is yet to regain its economic bearings following the 2014 crash in global oil prices. Experts find a viable alternative in the non-oil sector and available statistics from the Federal Inland Revenue Service (FIRS) justify this. At a tax-related interactive session with the Manufacturers Association of Nigeria (MAN) held in February, FIRS Chairman Babatunde Fowler disclosed that the non-oil sector outpaced the oil sector with a significant 54% contribution to the N5.32 trillion revenue generated in 2018. “Moving the government’s revenue away from oil dominated foreign earnings to more predictable sources have the potential to accelerate the country’s economic growth,” he said. But making the switch is not as easy as it sounds, thanks to Nigeria’s abysmal tax compliance levels. Fowler reinforced this when he argued that most businesses in the country charge customers Value Added Tax (VAT) for products supplied or services rendered but do not remit same to the government as statutorily required. As such, government lacks the incentive to deliver on capital projects that will fast-track the economic growth collectively envisaged. A Legacy of Tax Evasion In 2014, then Coordinating Minister of the Economy, Dr. Ngozi Okonjo-Iweala, disclosed that 65% of companies in Nigeria had declined to forward their tax returns and a whopping 75% were not in the FIRS tax net. During the FIRS Stakeholders Engagement Forum organised in Lagos at the time, she maintained that the much vaunted case for economic diversification would gain little traction without a steady pipeline of alternative income sources such as taxation: “We have engaged in a process of increasing our non-oil taxes. Every Nigerian wants to see us depend less on oil, and more on the other resources of the economy.” But by 2015, the situation was no different. Chairman of the Edo State Internal Revenue Service (EIRS) argued that 80% of taxable Nigerians had no Tax Identification Number (TIN) and were therefore out of the tax net. At the Annual Tax Conference (ATC) organised by the Chartered Institute of Taxation (CITN) in Abuja at the time, he reportedly said this state of affairs was denying Nigeria lots of revenue that could ordinarily be invested in economic development. “When you calculate the tax income revenues Nigeria ought to have made and deduct it from the amount realised, we will all understand Nigeria is missing much,” he said. Year 2017 saw only 214 people in populous Nigeria paying taxes above N20 million. During a parley focused on economic growth jointly organised by the Nigerian Stock Exchange (NSE) and Bloomberg, then Minister of Finance Kemi Adeosun emphasised that Nigeria’s infrastructural deficit could only be addressed through a national culture of consistent tax payment: “We have just 40 million active tax payers out of an estimated 69.9 million…and of that 40 million, majority are PAYE, those who have their taxes deducted at source.” She disclosed the government’s plans to recruit 7,500 community tax officers tasked with educating the citizenry about the significance of tax compliance. If statistics from 2018 are anything to go by, Ms Adeosun’s community engagement did little more than skim the surface. FIRS disclosed that over 6,772 billionaires do not pay tax. This category of individuals have between N1billion and N5 billion in their accounts, but no Tax Identification Number (TIN) with which they can file the statutory percentage of tax returns on their income.   Source: Vanguard

10 ways taxes come to your rescue that you probably take for granted: Shelter If you were raised or currently reside in public housing, you may have reason to thank the taxes you or others have generated for the relative freedom you enjoy from exorbitant rent. After all, you have no reason to contend with agency, caution or other fees that your peers understand as the price they must pay for a roof over their heads. But don’t be surprised if the government makes demands for a fraction of your income to make the same facility available to others in the short run. The National Assembly has just passed the National Housing Fund (NHF) Bill 2018 which seeks to impose a compulsory 2.5% deduction on your monthly income to secure funding for additional housing projects in the country. Healthcare Oftentimes, private hospitals lack the specialised skills or equipment to treat the ailments that strike when you least expect. In such cases, they refer patients to general hospitals across the federation for more specialised care. If you or yours have had occasion to receive healthcare at any public hospital to cut cost or for referral purposes, you should be a tax ambassador because some of those hospitals were built with revenue generated from taxes. Think what would have happened to you if none were just around the corner when it mattered. Mass transit At federal, state or local government levels, you may have been lucky to catch a bus that only cost a fraction of what you usually expect from commercial transportation during your commute to work or business. Your child probably had cheery news to share about how a big neighbourhood bus took her to school for free. It is called a mass transit system provided by the government, and don’t be surprised if it was funded with proceeds from taxes paid by you or others. Free Education Taxes may have come to the rescue if you are the product of a public school or federal/state university. Remember how fulfilling it was to pay as little as N25, 000 as your tertiary school fee when the parents of your counterparts in private universities literally gave an arm and a leg to meet up with tuition? The government is sometimes able to achieve a measure of subsidised education because several upstanding citizens exercise their civic duty to pay taxes. It wouldn’t hurt to join them so others can have the same story to tell. Education is a basic right, after all. Brand Nigeria If you are a business person dealing in locally-made products with money in your pocket by month end, you probably have taxes to thank. Government often imposes high taxes on foreign goods to encourage patronage of local products by the citizenry. This might sometimes leave you smiling to the bank when it matters. Good Roads Roads riddled with potholes leave us frantic and furious because they do not only damage our vehicles but are often responsible for the auto accidents that claim innocent lives on a daily basis. This explains why good roads should not be taken for granted. They are products of the taxes/alternative revenue sources, and fall into the category of social amenities we expect when the government is financially buoyant. Job Creation In a country with unemployment figures pegged at 23.1%, it is a privilege to be part of the gainfully employed workforce. But what you may not know is that job creation sometimes depends a lot on taxation. Case in point, your organisation may have been priced out of the market without tax waivers or holidays granted by the government to encourage investments and business growth, depending on the industry that engages you. Thinking about this should encourage you to pay your taxes. Income Redistribution Tax helps ensure social justice in the sense that it is pegged at a particular percentage of income, not a specific fee. As such, it creates a level playing field for all because the higher your income, the higher the tax margin deducted and vice versa. Security Just about every one of us would prefer to live and work in secure neighbourhoods. In fact, we have reservations with the response time of the Nigerian police force because we want them available round the clock for crime-fighting and other purposes. But keep in mind that your tax is one source of remuneration for the cops. As such, prioritising tax payment is one sure way of keeping them motivated so they will be better placed to perform their statutory duties when situation calls for it.   Source: Vanguard

The Central Bank of Nigeria (CBN) and the Federal Inland Revenue Service (FIRS) have taken opposing positions on revenue remittances by the latter to the Federation Account domiciled with the apex bank. Their disagreement emanates from a shortfall in revenue generated from Petroleum Profit Tax (PPT), Value Added Tax (VAT) and Company Income Tax (CIT), amounting to N26.703billion which the FIRS claimed it remitted to the Federation Account between December 2018 and January 2019. While the FIRS reported that N321.23 billion as total PPT and CIT collections for December 2018 was remitted to the Federation Account with the CBN, the apex bank’s component statement showed that N294.62 billion was received from FIRS during the period. The CBN figure showed a shortfall of N26.61 billion of the amount the FIRS claimed it paid into the account. The document, revealed that FIRS allegedly posted N199.16 billion as total PPT and VAT collections in January 2019 while the CBN component statement to the Federation Account Allocation Committee (FAAC) post-mortem sub-committee indicated that FIRS paid N199.07 billion, which was a shortfall of N90.88 million. The post-mortem sub-committee of FAAC which extensively deliberated upon the reason for the differences between the two agencies could not resolve the matter at its last monthly meeting held at the Board Room of Revenue Mobilisation Allocation and Fiscal Committee (RMFAC) on April 24, 2019. The committee, therefore, directed the two agencies to meet and reconcile their accounts and report back at the next meeting. The meeting was attended by representatives of RMFAC, commissioners of finance and accountants-general from the six geopolitical zones as well as representatives of some revenue generating and accounting agencies.     Source: Leadership

Nigerian workers always posit that “their take-home pay does not take them home.” Such is the tale of the Nigerian worker – who lives miserly because he earns poorly. The Federal government of Nigeria has now remarkably increased workers’ minimum wage. The government has hinted that it will increase Value Added Tax (VAT) to fund the new wage. This suggests that government has no sufficient funding for national expenses which spurs certain necessary logical inquires: Given that citizens pay taxes to fund public utility, then, what exactly gulps government’s spending? Has Nigeria maximised revenue potentials and why so, if not? Also, should VAT increase? Some countries have revenue problem, some others, have spending problem only. Nigeria has both. Additionally, Nigeria undergoes another third problem of a dangerously accelerating debt profile. Public debt accrues to N24.4trillion, presently. In three years only, external debt soared by $11.77bn at a percentile rate of 114.05 while over 50% of Nigeria’s revenue goes to debt servicing. The reality of a nation having to badly survive on borrowed money speaks volume of an ailing economy. For a stretched epoch, the dominant source of Nigeria’s revenue has been the crude oil. Once, the country accrued significant revenue through agriculture but the crude oil soon displaced it. Inescapably, a need arose to diversify income due to the volatility of oil prices globally. Government implemented tax laws and tax reform policies intermittently. VAT was introduced, FIRS launched electronic tax remittance system, recently, government established the Voluntary Assets and Income Declaration Scheme (VAIDS) through which it purposed to generate USD1 billion by waiving criminal prosecution and other penalties for taxpayers who willingly report undeclared income. Despite the reforms, nothing really has changed. Tax remittance is yet enmeshed in long-drawn-out procedures, tax laws and tax policies are disjointed and cumbersome, there is low tax education as a result, also, multiplicity of taxes and ultimately, revenue is yet low. VAT is charged at 5% presently, a rate which government has argued is low. But given Nigeria’s economic condition, there are no justifications to increase the rate. According to Steve Hanke, Nigeria ranks sixth most miserable country in the world, world poverty clock says more than 91 million Nigerians, close to half of the country’s population, live in extreme poverty and every one minute, six Nigerians become poor. VAT is tax charged on the purchase price of a commodity. With VAT increase, prices of goods and services are bound to soar and such decision would be ill-intended and detrimental. The therapy to the dwindling Nigerian economy is for the country to urgently refashion itself to become a competitive producing economy. Any nation must solve three basic life problems: what to produce, how to produce and for whom to produce. Need for goods and services cannot end. Nations which meet these needs acquire economic strength. During the period of oil boom, Nigeria garnered massive wealth, because it met the oil demand, even though in crude form. Notably, industrialisation fuels production because earth-moving vessels will outdo easily, cheaply and quickly too, what a hundred people will do manually. To gain technical know-how into the workings of complex machines and to be able to build new ones, human capital is essential. This is why qualitative education is non-negotiable for Nigerians. Education should be accessible for all and schooling curriculums should tilt towards technical and technological brainstorming. That way, Nigeria’s vast population would become its fortune. Taxation can even turn in more. strategic coalesce of the numerous tax categories would enhance simplified tax procedures and tax education. The law should also fully have a free course against tax evaders. Much as Nigeria needs revenue boosting, the country needs to be circumspect with spending; and this is a problem with both government and citizens. Enough of depleting foreign reserve by importing $18 million toothpicks yearly or $400 million tomato pastes or ridiculously continuing to import Pizza from the UK. The country has to drop the inglorious notoriety of running an expensive government at the expense of a meteoric debt profile. There is a limit to which any government anywhere in the world may forge ahead with an adverse policy under the guise that implementing such policy is in the best interest of the people. When President Macron of France declared that a climatic policy would inform fuel tax increase, the president’s popularity quickly declined, with citizens finding the tax policy unfavourable. In no time, rowdy crowd wearing Yellow Vets littered France in protest. Raising VAT to fund wage increase is mixed blessing and whether yellow vests or a yellow card, it will elicit a thumbs down from the Nigerian masses that are already bearing the brunt of economic hardship and need rescue.   Source: The Sun