The Tax Appeal Tribunal (TAT) last week ruled on a matter between MTN Nigeria Communications Plc (“MTN”) and the Federal Inland Revenue Service (“FIRS”).
Government’s objectives for the Act are:
▪ Reformation of Nigeria’s tax law to align with global best practices;
▪ To support MSMEs through the ease of doing business initiative;
▪ Encouraging investments in infrastructure and capital markets; and
▪ Raising government revenues.
President Muhammadu Buhari, GCFR has signed into law the Finance Act 2020 (“the Act”). It would be recalled that the draft law was submitted to the National Assembly on 8th October 2019 for consideration, alongside the budget for 2020 fiscal year…
2019 Partners Cup & end of the year Field Party
It would be recalled that President Muhammadu Buhari GCFR presented the budget estimates for 2020 to the joint session of the National Assembly on October 8 2019. The budget proposal includes a total expenditure of over N10 trillion to be funded with revenues of N8.1 trillion, with non-oil tax revenue contributing about 22% of the total revenue.
The Deep Offshore and Inland Basin Production Sharing Contract Act 2004, (Amendment) Bill was signed on the 4th of November, 2019 by the President. Since its primary enactment, the act aimed at giving certain fiscal incentives to the oil and gas companies operating in the Deep Offshore and Inland Basin areas under production sharing contracts between the Nigerian National Petroleum Corporation (the ‘Corporation’) and other companies holding oil prospecting licenses or oil mining leases and various petroleum exploration and production companies.
In Nigeria, auditors are required to lend credibility to the annual accounts through independent examination of the books and records of the company. The audit function is part of the mechanism for enhancing conﬁdence in corporate annual reports. Prior to 1990, there was no direct regulation of the market for auditing services in Nigeria and no professional code and standard of auditing practice.
SMEs account for between 50% and 60% of value creation in any economy according to the OECD, this can be linked to the impact of the combination of digitalization and globalization which has acted as major channels to enhancing the performance of SMEs.
Digitalization has opened new opportunities for SMEs to innovate and flourish, as they acquire capacity to use and combine emerging digital technologies to transform their business models and work practices. The potential implications for their overall productivity and inclusive growth abound in the marketplace.
Over the years, SMEs have leveraged on digitization to create effective mechanisms to reduce size disadvantages in both local and international trade, for example by reducing the absolute costs associated with office space, transport, high staff cost and border operations.
However, recent economic slowdown and reduction in foreign direct investment will hit SMEs most. These challenges call for innovative and multi-level policy solutions for SMEs by the government that will enable SMEs and entrepreneurs reach their full potential and to build a more resilient, sustainable and inclusive society.
There are a range of views on how to unleash and preserve SMEs and Entrepreneurs’ potentials in developing countries, some of which are:
Enhancing access to diverse financing instruments: Governments should improve their regulatory frameworks and introduce targeted policies to support FinTechs, such as equity crowdfunding and peer-to-peer lending. The government should also awaken the venture capital industry, mainly through public funds and co-investing with private actors.
Infrastructure development: Emphasis should be placed on digital networks, large-scale research and computing infrastructure platforms for technology transfer that contribute to make SMEs’ business environment more innovation oriented.
Smart regulation and simplified business processes: The government should embark on reforms in taxation aiming to lower administrative requirements and delays which will reduce the burden on SMEs and start-ups.
Building a supportive environment for SMEs’ capacity: Scaling up the network between Multi-National enterprises (MNEs) and SMEs beyond financial packages to simplified procedures aiming to attract foreign direct investment into the country.
Improving strong and diverse skills set: The government should create an avenue to consolidate vocational education and training systems while encouraging higher participation. Many SMEs use apprenticeships for cost efficiency, and more than 50% of apprentices work in firms with less than 50 employees.
Finally, developing countries or emerging markets to which Nigeria can be classified are categorized by population, market share and purchasing power parity amongst others. These parameters for the Nigerian market have the potential to attract foreign direct investment if the business climate is conducive in terms of ease of doing business, policy stability, return on investment with regards returns on capital importation, and security. These form some of the significant areas where the government should be seen to focus, and the expectation is that several of the other important parameters (such as infrastructural development) will start to align with the ultimate objective of nation building by attracting its own investments.
The Federal Inland Revenue Service (“FIRS” or “the Service”) recently issued the Income Tax (Common Reporting Standard) Regulations, 2019 (“The Regulations”) in accordance with the provisions of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters and the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (AEOI), signed by the Federal Republic of Nigeria in 2017; Common Reporting Standard (“CRS”) and its Commentaries (“CRS Commentaries).
The Federal Executive Council on Wednesday, 11th September 2019, approved that the Value Added Tax (VAT) rate be increased from the current rate of 5% to 7.2%. This proposed increase was announced by the Honorable Minister of Finance, Budget and National Planning…
The President of the Federal Republic of Nigeria recently signed into law the new Nigeria Police Trust Fund (Establishment) Act, 2019 (“the Act”). This Act establishes the Nigeria Police Trust Fund (“the Fund”) in favour of the Nigerian Police Force (“the Police”). The main objective of the Act is to provide a legal framework to govern the Fund to be utilized for training the Police, providing state-of-the-art security equipment and other related facilities to aid in the enhancement of the discharge of the dues of the Police.
Poor corporate governance has been the Achilles’ heel of many corporations worldwide. Nigeria is not immune to this fact, especially as corruption is prevalent in the nation. The attention of the world was drawn to major corporate governance issues in Nigeria in 2007 when material misstatements were discovered in Cadbury Nigeria Plc’s financial statements. Since then, many more corporate scandals have followed and effectively posed as obstacles against attracting foreign investments into Nigeria.
The Financial Reporting Council of Nigeria (FRCN) has issued a Public Notice (the “Notice”) revoking its Rule 4 (“the Rule”) titled “Transactions requiring registration from statutory bodies such as the National Office for Technology Acquisition and Promotion”. The revocation which is to be applied prospectively became effective on 11 July 2019.
The Federal Inland Revenue Service (FIRS) has issued a public notice on the deductibility of withholding tax (WHT) and value added tax (VAT) on compensation and/or commission due to distributors, dealers and/or agents.
Question: Do you want your business to grow into a bigger business which is viable for investors to fund?
Yes, indeed! Then you have to be accountable.
Question: Do you want your business to leave its footprints in the sands of time?
If yes, then set your priorities right from the inception!
Question: Is it difficult to manage your accounting and tax records because you run a small business?
Absolutely NOT! You need to start doing the right things.
It is quite easy to say that with the advent of a number of initiatives to make funds available for small businesses and encourage SMEs to grow, there have been series of programs launched to make this impact measurable to small businesses, including; the Youth Empowerment Scheme of the Bank of Industry, Tony Elumelu Entrepreneurship Program, GroFin Fund, Lagos State Entrepreneurs Trust Fund for startups, Small and Medium scale Enterprises (SMEs) etc. So far, they have all been great initiatives, and their number is increasing by the day. The contribution of these initiatives to the growth of SME business activities and development of the Nigerian economy cannot be over emphasized.
The long-run goals of businesses are profitability and sustainability. Many at times people start up businesses having a deep foresight and understanding of the goals they intend to achieve which is quite paramount in determining the success or otherwise of the business. Once business development goals are set beforehand, actions necessary to actualize them should be mapped out and acted upon.
There is a need for SMEs to have basic knowledge of the fundamentals of accounting and tax related issues, as this will go a long way in shaping the business and ensuring it achieves its founding goals while growing without falling victim of paying huge fines and penalties for not doing things right by complying with the provisions of the regulatory laws and reporting standards.
What books of accounts do SMEs need to keep?
Keeping the right books of account and records from the onset is very essential to the success and expansion of every business aspiring to grow and outlive its owners. The following are key;
• Open a separate bank account for your business that is different from your personal bank account. This would help account for your actual turnover and avoid personal funds from being recognized and taxed as business income by the relevant tax authorities.
• Track your expenses effectively. Make sure you get invoices and receipts for every purchase; this will help to prove claims of allowable deductions on taxable income.
• Maintain proper bookkeeping. This is the process of recording, categorizing transactions and reconciling bank statements which can be done using an accounting software like QuickBooks or manually with Excel spreadsheets. Major books of accounts to be kept are cashbook, sales day book and purchases day book.
• Keep an effective payroll system which should preclude the business owners from dipping their hands into the business account at intervals for personal use. Regardless of how few the number of your staff is, get it right from the beginning because this will save you from the hassle of having to reconcile records when they get muddled up.
Registration with tax authorities
• Income tax registration: Within six months of registration with the Corporate Affairs Commission or commencement of business, every business including an SME is expected to register with the Federal Inland Revenue Service (FIRS) if it is a Limited Liability Company (LTD), or with the respective State Internal Revenue Service (SIRS) of the state where the company intends to operate if it is a Business Name, for income tax purposes.
• VAT registration: All businesses should be registered with the FIRS for VAT purposes irrespective of its company type.
• Tax Identification Number (TIN): A TIN which is a unique number for a taxpayer’s identity will be given after registration. This number will be used for opening a business bank account and doing other business transactions. The employees are also expected to have their unique Taxpayer ID/TIN depending on the state in which the employees reside as this is necessary for staff tax clearance certificates processing.
• Pay As You Earn (PAYE) registration: If you are not running a one-man business, you need to register your staff with the SIRS for PAYE purposes.
All these registrations are simply done by visiting a tax office close to where your business is domicile, filling the necessary forms provided and attaching all necessary documents required.
• Value Added Tax (VAT) returns: Every business once registered is expected to start filing VAT returns on or before the 21st day of the month for the VATable transactions of the previous month. The FIRS VAT Form 002 should be filled correctly and the e-ticket evidencing payment of the VAT payable attached. A NIL VAT returns is filed when, but not only if, no sales was recorded in the previous month and a bank statement should be attached to prove that.
• Annual PAYE returns: This returns is expected to be filed on or before the 31st of January of every year in respect of the PAYE tax deducted and remitted in the previous financial year. The returns include the employer’s declaration of the gross income of employees and PAYE taxes paid for the immediate preceding year on a schedule referred to as Form H1 including the receipts for the PAYE remittances and a projected payroll of the current year but in some states apart from Lagos there has to be attached another schedule showing the income, deductions and tax paid relevant for the three preceding years referred to as form H2.
• Company Income Tax (CIT) returns: Limited liability Companies have a duty to file CIT returns on or before six months after the company’s accounting year end on an annual basis with the current year being referred to as the Year of Assessment in which the returns are due for submission and taxes are due for payment.
• Withholding Tax (WHT): This returns should be filed on or before the 21st day of the month following the month in which the deductions were made or when the transactions occurred depending on the nature of transaction and the provisions of the law as regards such.
Taxes to be paid
• Personal Income Tax (PIT)/Company Income Tax (CIT): Companies are to pay 30% of their chargeable income to the FIRS while enterprises/business names are to pay PIT using the tax graduation table.
• Value Added Tax (VAT): VAT is a consumption tax levied at every level of production and ultimately borne by the final consumer. Businesses add VAT at the rate of 5% to the sales price of the goods or services they offer in Nigeria. They also pay VAT, just like consumers, on goods and services that they consume.
• Pay as You Earn (PAYE): Businesses are expected to deduct PAYE tax correctly from the salaries paid to their employees/staff. They are to remit same to the relevant SIRS on or before the 10th day of the month following the month of deduction.
• Withholding Tax (WHT): This is an advance payment of income tax. Every business is required to make deductions from every taxable person with whom the company has business dealings (Vendors/suppliers, Investors) etc. using the rates as listed in provisions of the tax laws and remit same to the relevant tax authority when payments are being made or when it becomes due depending on the provisions of the law as regards such. e.g. WHT on Rent, Dividend and Interest are paid when it becomes due but WHT on Contract/supply is due when payments are being made in line with the provisions of the law.
Conclusively, we understand that in the pursuit for companies to survive and seal business deals, there may be no adequate time to coordinate the accounting and tax related issues so, engaging the services of a tax and accounting expert will save you the stress and time of having to manage all your tax matters while allowing you to focus on your core business activities avoiding penalties and sanctions at the same time.
Wishing you a Most Compliant and Productive start-up!
In 2013, Actis Africa (Nigeria) Limited (“the Appellant”) made profits and retained some of its earnings (after tax had been paid on the profits made). In contrast, no profits were made in the subsequent year, that is, 2014, as a result, no income tax was paid by the Appellant. In spite of this, the Board of Directors of the Appellant recommended that interim dividends of N49,095,020 (Forty-Nine Million, Ninety-Five Thousand and Twenty Naira) be declared to the shareholders of the company payable from the retained earnings of the company for the previous financial year.
The Tax Appeal Tribunal (TAT) of the South-East Zone on June 21, 2019, in its decision in Nigerian Breweries Plc v Abia State Board of Internal Revenue (TAT/SEZ/002/17) held that gratuities are exempted from income tax under the Personal Income Tax Act (PITA), 2011.
The matter was instituted in 2017 by the Nigerian Breweries Plc (“the Appellant”), where the Appellant contested the decision of the Abia State Board of Internal Revenue (“the Respondent”) on taxing of gratuities paid to its retirees. The main ground of objection raised by the Appellant was that the Respondent erred in law when it assessed the Appellant’s employees to tax on gratuities paid to them by the Appellant.
President Muhammadu Buhari has declined assent to the controversial National Housing Fund Bill which was passed by the National Assembly some weeks ago. The Bill attracted a lot of public criticism when it was transmitted to the President for his assent, with many stakeholders in the private sectors calling on the President not to grant assent to it.
The President in his letter to both Chambers of the National Assembly stated that “the various levies imposed by the Bill on Nigerians will not only be “disruptive and punitive” to industries and other sectors of the Nigerian economy but will have a negative impact on Nigerian workers”.
The news of the passage of the National Housing Fund (Establishment) Bill (“the proposed Act”), recently broke. The Bill is intended to largely replace the existing National Housing Fund Act Cap N45, Laws of the Federation of Nigeria 2004. The objective of the new law is to provide for additional sources of funding for effective financing of housing development in Nigeria. A quick review of the proposed law indicates that there are not many areas of differences with the existing laws, other than the attempt to jerk up the financial obligations of contributors.
On Friday 25 January 2019, the President of the Federal Republic of Nigeria signed the Executive Order 007 2019 on Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme (“The Scheme”).
The Scheme aims for a public-private partnership (PPP) by providing an opportunity to the private sector to commence the construction and refurbishment of eligible road infrastructure projects as a way of narrowing the road infrastructure gap in the country. As an incentive for these private companies, the Scheme assures a full and timely recovery of the project costs through a tax credit mechanism.