TAX SERVICES

The Executive Chairman of the Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler, yesterday said the nation’s tax cash grew from N12, 190.52trillion between 2012 and 2014 to N16, 771.78 trillion from 2016 to 2018. He said the growth represented an increase of 37. 58 per cent. He also insisted that he had grown the tax returns from the Non-Oil Sector by N1, 304.20trillion (21 per cent) from 2016 and 2018. He said the strategies put in place by the FIRS boosted the Value Added Tax (VAT) during the period 2015-2017, which led to approximately 40 per cent increase over 2012-2014 collections. He said the poor shape of the economy accounted for a drop in the nation’s tax revenue. He insisted that he had performed well within the mandate given to him by the administration of President Muhammadu Buhari. It was learnt that there was disquiet in the Presidency over Chief of Staff to President Abba Kyari’s query to Fowler because he was allegedly not directed by the President to do so. Fowler made these clarifications in an August 19, 2019 response to the query. He said: “I refer to your letter dated 8‘” August, 2019 on the above subject matter and hereby submit a comprehensive variance analysis between budgeted and actual collections for each main tax item for the period 2012-2018 as requested (see appendix 1). “Your letter stated that actual collections for a 3-year period were significantly worse than what was collected between 2012 and 2014. Total actual collection for the said period was N14, 527.85 trillion, while total actual collection between 2016 and 2018 was N12, 656.30trillion. “The highlight of these collection figures was that during the period 2012 to 2014, out of the N14, 527.85 trillion, oil revenue accounted for N8, 321.64 trillion or 57.28% while non-oil accounted for N6, 206.22 trillion or 42.72% and during the later period of 2016 to 2018 out of the N12, 656.30 trillion, oil revenue accounted for N5, 145.87 trillion or 40.65% and non-oil revenue accounted N7, 510.42 trillion or 59.35%. “FIRS management has control of non-oil revenue collection figures while oil revenue collection figures are subject to more external forces as highlighted below. “From the above, the non-oil revenue collection grew by N1, 304 20 trillion or 21% within the period 2016 to 2018. Kindly note that the total budget collection figure during 2012 to 2014 stood at N12, 190 52 trillion compared to N16, 771.78 trillion for the period 2016 to 2018 which represent an increase of 37.58% “ Fowler gave the details of how the economic recession and drop in oil production accounted for the variance in the budgeted and actual revenue collection. He added: “Please note that the variance in the budgeted and actual revenue collection performance of the Service for the period 2016 to 2018 was mainly attributed to the following reasons: “The low inflow of oil revenues for the period especially Petroleum Profit Tax (PPT) was due to fall in price of crude oil and reduction of crude oil production. Notwithstanding government efforts to diversify the economy, oil revenues remains an important component of total revenues accruable to the Federation. “The price of crude oil fell from an average of $113.72, $110.98 and $100.40 per barrel in 2012, 2013 and 2014 to $52.65, $43.80 and $54.08 per barrel in 2015, 2016 and 2017. “There was also a reduction in crude oil production from 2.31mbpd, 2.18mbpd and 2.20mbpd in 2012, 2013 and 2014 to 2,12mbpd, 1.81mbpd and 1.88mbpd in 2015, 2016 and 2017 respectively.“The Nigerian economy also went into recession in the second quarter of 2016 which slowed down general economic activities. Tax revenue collection (CIT and VAT) being a function of economic activities were negatively affected but actual collection of the above two taxes were still higher in 2016 than in 2012 to 2014. “During the years 2012, 2013 and 2014, GDP grew by 4.3%, 5.4% and 6.3% while in 2015, 2016 and 2017, there was a decline in growth to 2.7%, -1.6% and 1.9% respectively. The tax revenue grew as the economy recovered in the second quarter of 2017.” The FIRS chairman said the agency had increased the revenue from Value Added Tax (VAT) from 2015 to 2017, which led to approximately 40% increase over 2012-2014 collections. He said: “It is worthy of note that strategies and initiatives adopted in collection of VAT during the period 2015-2017 led to approximately 40% increase over 2012-2014 collections “In 2014, the VAT collected was N802billion, compared to N1.1trillion in 2018. The increase is attributable to various initiatives such as ICT innovations, continuous taxpayer education, tax enlightenment, etc. embarked upon by the Service. “Furthermore, it is pertinent to note that when this administration came on board in August 2015, the target for the two major non-oil taxes were increased by 52% for VAT and 45% for CIT. Notwithstanding the increase, FIRS has in line with the Federal Government’s revenue base diversification strategy has grown the non-oil tax collection by over N1.304trillion (21%) when the total non-oil tax collection for 2016-2018 is compared to that of 2012-2014. “I am confident that our current strategies and initiatives will improve revenue collections and meet the expectations of government.” A source in government said: “The Chief of Staff acted on his own without any directive from the President. If you look at the tone of the query, there was nowhere he said ‘I am directed’. This was why the Presidency came out to clarify that Fowler is not under investigation. “The position of the government is that such observations on revenue are not within the purview of Kyari, whose portfolio is unconstitutional. It is the business of the National Assembly to raise such a query.”   Source: Sundiata Post

Summary On 19 July 2019, the Organisation for Economic Cooperation and Development (OECD) released its report on harmful tax practices across various jurisdictions. The report indicates that Mauritius which had previously been identified as a jurisdiction with harmful tax practices no longer has such harmful tax practices. Specifically, the Mauritian “Partial Tax Exemption Regime”, which was introduced in 2018 to replace the harmful “Global Business Licence Regime” has now been declared not harmful. Details In 2015, the OECD introduced the Base Erosion and Profit Shifting (BEPS) framework, which aims, among other things, to tackle international tax avoidance, which is facilitated by the shifting of profits from high paying tax jurisdictions to low paying tax jurisdictions. As part of the BEPS Project, the OECD periodically identifies tax regimes, which have features that can facilitate BEPS, and have the potential to unfairly impact the tax base of other jurisdictions. Such features are referred to as “harmful tax practices”. Prior to now, the OECD ruled certain Mauritian tax regimes as harmful and recommended the abolishment of such regimes. These regimes included the Global Business Licence Category 1 (GBL 1) companies and Global Business Licence Category 2 (GBL 2) companies. GBL 1 granted Holding Companies certain treaty benefits such as an 80% deemed foreign tax credit, which reduced the effective tax rate of such companies from 15% to 3%. On the other hand, GBL 2 granted tax exemption to companies. A number of businesses had benefitted from the Mauritian tax regime by setting up Mauritian Holding Companies with little or no economic substance in Mauritius. Effectively, such companies were able to reduce their effective tax rates significantly because of the favourable tax regime in Mauritius. To address the OECD’s concerns, Mauritius abolished the GBL Regimes in 2018 and introduced a Partial Exemption Regime, which provides for an 80% tax exemption on specified passive income of Global Business Corporations (GBCs) in Mauritius. A tax credit is generally preferred to an exemption as this gives dollar for dollar savings in tax rather than tax savings at the effective tax rate. Thus, the new regime is less favourable and ensures that the GBCs paid some tax in Mauritius on their global income. Upon a review of the Mauritian Partial Exemption Regime, the OECD has now declared the Mauritian Partial Exemption Regime as not harmful as the regime complies with the OECD’s standards. Mauritius also introduced substance requirements for companies seeking to enjoy the 80% exemption. These requirements include that a GBC must, at all times, carry out its core income generating activities in, or from Mauritius by employing (either directly or indirectly) a reasonable number of suitably qualified persons to carry out the core activities and the GBC is expected to have a minimum level of expenditure proportionate to its level of activities. However, despite the positive reviews of the OECD, the European Union Code of Conduct Group (EU COCG) had flagged the Mauritian Partial Exemption Regime as harmful in February 2019. According to the EU COCG, the Mauritian Partial Exemption Regime does not have adequate substance requirements in terms of treatment of outsourcing activities. In response to the EU, the Mauritian Prime Minister, recently announced that the Mauritian tax laws would be amended to stipulate conditions that must be satisfied where a company seeking to enjoy the Partial Exemption Regime outsources its core income generating activities. These conditions include that the Company must demonstrate adequate monitoring of the outsourced activities, the outsourced activities must be conducted in Mauritius; and the economic substance of service providers must not be counted multiple times by different companies when evidencing their own substance in Mauritius. However, these changes have not been passed into law yet. Implication With the recent report, Mauritius is no longer on the list of jurisdictions with harmful tax practices. However, given the EU’s reservations on the Mauritian tax regime, Mauritius is still making amends to its legislation to eliminate harmful tax practices. Thus, companies with EU investments need to monitor the changes in the Mauritian tax and regulatory space to enable them make informed business decisions. In addition to this, businesses that have traditionally used Mauritian companies for tax planning purposes should seek relevant professional advice, as there may be an urgent need to restructure their Mauritian entities to ensure that they meet up with the new substance requirements.   Source: Mondaq

Chairman of the Federal Inland Revenue Service, Mr Babatunde Fowler, has blamed the drop in the price of crude oil and recession for the shortfall recorded in actual tax collections from 2015 to 2018.  The FIRS chairman gave the explanation in his response to a query issued to him by the Chief of Staff to President Muhammadu Buhari, Mr. Abba Kyari. A copy of the response was obtained by our correspondent in Abuja on Monday. In a swift response, the Presidency on Monday said the FIRS boss was not under investigation but added that urgent action needed to be taken to avoid financial crisis. Kyari had, in a letter dated August 8, 2019, which he personally signed, asked Fowler to explain reasons for ‘significant’ variances in budgeted collections and actual collections of tax in 2015, 2016, 2017 and 2018, when the actual amount collected as tax fell below the budgeted target. The FIRS chairman was directed to submit a comprehensive variance analysis, which should also state the reasons for poor tax collections between 2015 and 2017, a period when the actual collections turned out to be ‘significantly worse’ than what was recorded from 2012 and 2014. Fowler was given Monday, August 19, as deadline to respond to the query. In a letter entitled ‘Re: Budgeted FIRS collections and actual collections’, which was dated Monday August 19, 2019, Fowler explained that the variance in the budgeted and actual revenue performance from 2016 to 2018 was due to fall in price of crude oil and reduction of crude oil production. The FIRS chairman noted that within the period, the price of crude oil fell from an average of $113.72, $110.98 and $100.40 per barrel in 2012, 2013 and 2014 to $52.65, $43.80 and $54.08 per barrel in 2015, 2016 and 2017. He also pointed to a reduction in crude oil production from 2.31mbpd, 2.18mbpd and 2.20mbpd in 2012, 2013 and 2014 to 2.12mbpd, 1.81mbpd and 1.88mbpd in 2015, 2016 and 2017. “The Nigerian economy also went into recession in the second quarter of 2016 which slowed down general economic activities. He added, “Tax revenue collection (CIT and VAT) being a function of economic activities was negatively affected but actual collection of CIT and VAT was still higher in 2016 to 2018 than in 2012 to 2014.”  According to him, in 2012, 2013 and 2014, GDP grew by 4.3 per cent, 5.4 per cent and 6.3 per cent while in 2015, 2016 and 2017, there was a decline in growth to 2.7 per cent, -1.6 per cent and 1.9 per cent respectively. Noting that tax revenue grew as the economy recovered in the second quarter of 2017, Fowler said strategies and initiatives adopted in the collection of VAT from 2015 to 2017 led to approximately 40 per cent increase over 2012 to 2014 collections. “In 2014, the VAT collected was N802bn compared to N1.1tn in 2018,” he said. He listed some initiatives undertaken by the FIRS, such as ICT innovations, continuous taxpayer education and enlightenment as reasons for the increment. He added that when he assumed the leadership of the FIRS in August 2015, the target for the two major non-oil taxes – VAT and CIT – was increased by 52 per cent and 42 per cent, respectively. He said the FIRS had grown the non-oil tax collection by over N1.31tn (21 per cent) when the total non-oil tax collection for 2016 – 2018 is compared to 2012 – 2014. Fowler further explained that the management of the FIRS had no control over oil revenue collection figures, which according to him, were subject to external forces. “Your letter stated that actual collections for a three-year period were significantly worse than what was collected between 2012 and 2014. “Total actual collection for that period was N14.53tn while total actual collection between 2016 and 2018 was N12.66tn. “The highlight of these collection figures was that during the period 2012 to 2014, out of the N14.53tn, oil revenue accounted for N8.32tn or 57.28 per cent while non-oil accounted for N6.21tn or 42.72 per cent and during the later period of 2016 to 2018 out of the N12.66tn, oil revenue accounted for N5.15tn or 40.65 per cent and non-oil revenue accounted for N7.51tn or 59.35 per cent.” He added that the total budget collection figure during 2012 to 2014 stood at N12.19tn compared to N16.77tn for the period 2016 to 2018, representing an increase of 37.58 per cent. Fowler also pointed out that the various types of non-oil tax, including stamp duty, capital gains tax, personal income tax, education tax, NITDEF, VAT (non-import and import), gas income, and CIT had increased during his tenure. The Presidency said the drop was in spite of records indicating that the number of taxable adults in the country had risen from 10million to 20million under the President Muhammadu Buhari administration, with more expected to be included. In a statement by the Senior Special Assistant to the President on Media and Publicity, Mr Garba Shehu, the Presidency explained that the August 8 letter the Chief of Staff to the President, Mr Abba Kyari, sent to Fowler was to express concerns over the tax collection drop. It added that already, the government was facing challenges in meeting recurrent spending budget items, though capital projects had yet to be factored into the equation. The Presidency recalled that even the Vice-President, Prof Yemi Osinbajo, raised the same concerns at the opening of Monday’s retreat for ministers designate in Abuja. The statement read further, “Following reports making the rounds in some media outlets, it is necessary to state categorically that the Chairman of the Federal Inland Revenue Service, Babatunde Fowler, is not under any investigation. “The letter from the Chief of Staff to the President, Abba Kyari, on which the purported rumour of an investigation is based, merely raises concerns over the negative run of the tax revenue collection in recent times. “It would appear that the country might be heading for a fiscal crisis

The Tax Appeal Tribunal sitting in Abuja, on Friday ordered counsel in a suit of alleged double taxation to draft terms of settlement to speed up the process of settlement. The suit which was instituted by a company, “M FIFTEEN” Consultants Limited against the Federal Inland Revenue Service (FIRS) and two others was slated on Friday for report of settlement. The company who dragged the FIRS, before the Tax Appeal Tribunal over alleged double taxation said it was dissatisfied with the FIRS assessments of it’s Tax Liability. Also joined in the suit are the Independent Electoral Commission ( INEC) and the Nigeria Police. At the last adjourned date, counsel informed the Tribunal that parties had started and were currently taking steps to settle out of court. At the resumed sitting of the Tribunal on Friday, the Chairman of the tribunal, Mrs Alice Iriogbe, ordered the appellant’s counsel, Mr Ifebunachi Onwe, the position of the settlement. Onwe in response said parties were still talking but had not reached a conclusion. When asked, the second respondent (INEC) counsel, Mr Nnamdi Nwaiwu, also said that was the position of things. Iriogbe then sought to know the number of times parties had met and the counsel said the parties met once. The Chairman further said the parties ought to have included counsel representing all them in the meeting. She therefore directed that the counsel needed to be involved in the negotiations to enable them draft terms of settlement to speed up the process. She concluded by giving parties September to finalize settlement and adjourned the matter until Oct. 10 for report of settlement. News Agency of Nigeria (NAN) reports that the company in its complaints said that it was dissatisfied with an intent letter by the FIRS imposing a tax liability of N14. 662 million on it without due consideration of all the material and available facts. The company further stated that the N7. 9 million captured as part of the tax liability have already been deducted at source by the FIRS and the police from the contract sum of the appellant. The company argued that it would amount to double taxation if FIRS expected the appellant to pay same again. It therefore sought the order of the tribunal to declare as null and void, the intent letter by FIRS dated April 7, 2014 . The company also sought an order of the tribunal directing INEC and the Police to show evidence of remittances to FIRS of the sums deducted from the payments made by the appellant in respect of contract executed. The appellant also asked the tribunal to direct that ,credit should be given to the appellant in respect of the tax deductions made on payments due to it from the INEC and the Police totaling N7. 9 million. The company further sought an order directing FIRS to issue it a tax clearance certificate which was withheld for the 2006 to 2011 year of assessment.   Source: Sundiata post

Increase budgetary allocation to education and improve the quality of the sector, government has been urged to sensitise all taxable adults on voluntary payment of Tax.   This was the submission of participants at the end of a two-day stakeholders Forum on Tax and Gender Responsive Schools in Lagos organised by Human Development Initiative (HDI), Norad and Action Aid. The participants also implored the government to adopt equity in tax administration, rather than tax equality, which does not guarantee fairness and Justice in tax administration. They called on the government to increase budgetary allocation to the education sector, as well as building a strong evidence base to raise awareness for adequate Education Tax payment.  The participants also demanded that public education system should be more responsive to all children, especially the girl-child and the marginalised, just as the government should upgrade public schools by providing adequate infrastructure and necessary resources for effective teaching and learning.   Source:  Guardian

President Muhammadu Buhari has given the Executive Chairman of the Federal Inland Revenue Service (FIRS) Babatunde Fowler till Monday to explain the gaps in tax collections between 2015 and 2018.  Fowler, whose top echelon of his FIRS has in recent times, been under the searchlight of the Economic and Financial Crime Commission (EFCC) for duty tour allowance (DTA) is expected to explain the discrepancies between the budgeted collections and the actual for the period under review. In a letter signed by Chief of staff to the president, Abba Kyari to Fowler whose tenure expires Saturday, the presidency noted significant variances between budgeted FIRS Collections and Actual Collections for Period 2015 to 2018. “Accordingly, you are kindly invited to submit a comprehensive variance analysis explaining the reasons for the discrepancies between budgeted and Actual collections for each main Tax item for each of the years 2015 to 2018. The FIRS Chairman was also queried over Actual Collections for Periods 2015 to 2017 as it was ‘Significantly Worse’ than what was collected between 2012 and 2014. “Furthermore, we observed that the actual collections for the period 2015 to 2017 were significantly worse than what was collected between 2012 and 2014. He was accordingly, invited to give detailed explanations on the reasons for the poor collections during the periods under consideration.   Source: Inside business

Online companies like Facebook, Google and Netflix  have managed to have an edge over how business is done and Africa has been getting the short end of the stick. Is it now time to create an even playing field that gives traditional businesses a chance? In November last year, South Africa broadened its value added tax (VAT)  base by including all electronic services that are supplied to the South African market. France has also just passed digital services tax targeted at Silicon Valley. Is it time that African governments consider revamping their tax systems to accommodate for the evolution in modern commerce? In Nigeria, companies such as Jumia, Flutterwave, Andela, and Cowrywise have pretty much grown and shaped the digital landscape away from the taxman’s radar. This is not for long though. The Chairman of Nigeria’s Federal Inland Revenue Service confirmed this in an interview with Premium Times Newspaper in which he revealed that the country is currently working on a solution for taxing the digital economy. As it stands today, most large technology companies have to pay tax in countries in which they operate due to lack of any physical presence. Therefore, companies such as Netflix do not pay tax the same way a company that offers a similar service physically such Multichoice’s DSTV does. In his maiden budget presentation in November last year, Zimbabwe’s Finance Minister brought up the issue. In his statement, he proposed to extend the scope of revenues deemed to be from a source in Zimbabwe for tax purposes to include amounts received by or on behalf of a radio or television broadcaster domiciled outside Zimbabwe or an electronic commerce operator domiciled outside Zimbabwe.” Such a move was seen as a direct target to companies such as Netflix and Youtube which are becoming increasingly popular alternatives to traditional broadcasters. Nigeria has tried in previous years to ask local partners to withhold tax on revenues that are paid to non-resident companies. However, they met resistance due to the lack of clarity within the legislation. Considering that most of the payments are paid electronically, the cost and means of administering such a tax will be relatively efficient. The tax authority may lay the burden on banks to withhold the portion of the tax that is owed to the government. This will not need foreign companies to then remit payments made from Zimbabwe as it has already been deducted the moment the transaction is effected. Whilst most European countries have seamlessly adjusted their tax systems to include VAT for sales made online, most if not all African countries are still lagging behind. Therefore, one can buy goods through a platform such as Ali-Express without having to pay the same VAT they would have been subjected to if it was from a local company. Is it an unfair tax or levy? Companies that also offer services such as advertising do also pay VAT which a local services company may have to pay in the country in which they are based. This then puts them at a disadvantage compared to their foreign counterparts selling the same product or service. It favours expanding a foreign economy more than local companies. See Also: Facebook Introduces Local Language Coverage to Combat Fake News in Africa Paul Martin, UK head of retail at KPMG, said: “The digital services tax . . . holds the greatest potential to rewrite how the retail game is played. Online marketplaces have often been able to rise above the problems faced by traditional legacy players or independents.” Do African countries have the muscle to enforce the tax against online companies? The Trump administration has responded to France’s introduction of the tax levy against online companies with its usual song of tariffs and retaliation. They have promised to make an investigation on whether the tax is discriminatory and restricts American commerce. Whilst it has every right to look at how the tax may harm American commerce, the Americans tend to look the other way about the effects of the actions of online companies on other economies. The small retailer in Harare is already at a disadvantage, the local company in Zimbabwe which is subject to taxes that the U.S. giants are not subject to is not able to compete at the same cost. Dave Lee, BBC North America technology reporter commented on the issue and agrees that the overhaul on the global tax system is now overdue. Whilst France has been left exposed, it is hoping that more countries can be rallied to its cause. EU-wide adoption failed as countries such as Ireland did not come on board as they have managed to lure tech companies to set up their European bases in the country. However, it is not every country that has had this advantage. A move by a powerhouse such as France offers hope for African countries who are looking to move in the same direction. It can be the opportunity to bring the issue for discussion on a global scale and allow both sides of the aisle to find a consensus.   Source: Dey there