Moves to widen tax net amid alarming revenue shrinkage
Bank account holders to supply TIN for tax remittance
President Mohammadu Buhari and Zainab Ahmed, his minister of finance, budget and national planning, appear set to go out all guns blazing in search of revenues in every available space for the federal treasury from the very first day of 2022 with a new Finance Bill 2021set to be passed into law this month.
Buhari and Ahmed will be seeking to squeeze revenues in the form of taxes that will be imposed on such things as bets, lottery, app stores, foreign digital coys, among others, in a desperate bid to generate funds to boost dwindling revenues and finance the huge N5.62 trillion estimated budget deficits for fiscal 2022.
Nigeria’s fiscal performance has been poor for more than six years and Buhari’s finance minister, Ahmed, has not particularly provided appropriate fiscal policy leadership for the economy, with a lot of the push seen to be provided by the monetary authorities, who have led on many occasions in place of the fiscal authorities. Even Ahmed’s predecessor, Kemi Adeosun, did not fare better either.
Between 2016 and 2019 Nigeria recorded a 59.1 percent increase in its tax revenues to N5.3 trillion but, over time, the country has witnessed weak foreign direct investment (FDI) inflows, weak tax base and weak policy implementation, resulting in low revenue output for Nigeria, a country with recognition as one of few countries in Africa attracting huge investments from international bodies and consortiums into its tech ecosystem.
On the flip side, the need for Nigeria to widen its tax net has become imperative in order to accommodate more tax-paying individuals and in turn, mobilise revenues.
Effective January 1 2022, a new policy on tax will take effect in Nigeria through the implementation of the amended 2021 Finance Bill which stipulates the mandatory submission of Tax Identification Number (TIN) by an individual bank account holder to the bank to enable easy tax remittance from bank accounts to the government. The finance bill also calls for non-resident digital firms involved in transmitting, emitting, or receiving signals, sounds, messages, images or data of any kind, including e-commerce, app stores, and online adverts to now begin tax remittances to the federal government through the FIRS.
This mandate is in consonance with the federal government’s drive for domestic revenue mobilisation and in support of funding the N5.62 trillion deficits in the 2022 proposed budget resulting from the government’s declining revenues.
The demand on international technology companies such as Twitter, Facebook, Google, including e-Commerce sites, to pay tax to the federal government through the Federal Inland Revenue Services could see these charges transferred to Nigerians who use these services to promote their businesses, keep acquaintances with relatives, business partners, among others.
President Muhammadu Buhari, last week, transmitted the 2021 Finance Bill through a letter titled ‘Transmission of Finance Bill 2021 to the National Assembly for consideration and passage into law in support of the 2022 Budget’ to the Nigerian Senate for consideration and passage, in which he noted that the bill specifically provides for better domestic revenue mobilisation efforts to increase tax and non-tax revenues as he also sought to accelerate international taxation reforms to enhance the taxation of non-resident individuals and companies that derive profits from Nigeria.
“Pursuant to Sections 58 and 59 of the Constitution of the Federal Republic of Nigeria as amended, I formally request that the Finance Bill 2021 be considered by the Senate for passage into law. The Finance Bill 2021 seeks to support the implementation of the 2022 Federal Budget of Economic Growth and Sustainability by proposing key reforms to specific taxation, customs, excise, fiscal and other relevant laws. We seek tax administration and legislative drafting reforms particularly to support the ongoing automation reforms by the Federal Inland Revenue Service (FIRS).
“The Bill also seeks to prioritise critical public financial management reforms regarding the FIRS vital role in coordinating tax administration. the enforcement of key fiscal rules under the 1999 Constitution, Finance, Control and Management Act and other relevant laws,” Buhari noted in his letter.
Vice President Yemi Osinbajo had also before now made public the intention of the federal government to introduce a new mechanism to widen the tax net. He said the mechanism involves the collection of taxes from global technology giants not based in the country, but with significant economic presence.
Osinbajo supported his position with reference to Section 4 of the Finance Act 2019, which states that the finance minister, may by the order of the president, determine what constitutes the significant economic presence of a company other than a Nigerian company.
The federal government is now poised to utilize this legal provision by taxing profits made in the country by global technology and digital firms such as Google, Twitter, Facebook, Microsoft, Netflix, among others, having over the years experienced some shortcomings in its quest to meet its annual revenue targets from taxes.
A recent value-added tax (VAT) and company income tax (CIT) report by the National Bureau of Statistics shows that during the third quarter of 2021, Nigeria generated N500.49 billion in VAT while it recorded a significant increase to N475.52 billion in the total company income tax for the same period as the economy continues to recover from the pandemic, which has hampered revenue collection by government.
This is also on the back of the bold step taken by the federal government in the 2020 finance act to increase the VAT rate by 50 percent to 7.5 percent from the old five percent.
However, the amended 2021 Finance Bill, which will take effect from the start of 2022, will have several amendments to the 2020 Finance Act.
Taiwo Oyedele, a tax consultant and senior partner for West Africa at PriceWaterhouseCoopers (PWC), a leading global tax audit and advisory firm, in a breakdown on the various amendments to the new finance bill made available to Business A.M. highlights 21 points to note about the changes the new Finance Bill 2021 will throw up.
Some of the changes include that lottery and gaming business is to be specifically taxable under CITA, and that these would involve betting, game of chance, promotional competition, gambling, wagering, video poker, roulette, craps, bingo, slot or gaming machines and the likes. Also, that the capital allowance claimable on an asset is limited to the portion used for generating taxable profits. Assets partially used to generate taxable income will be eligible for pro-rata capital allowance except where the proportion of non-taxable income does not exceed 20 percent of the total income of the company.
A minimum tax rate of 0.25 percent of turnover (less franked investment income) will become applicable to any two accounting periods between 1 Jan 2019 and 31 Dec 2021 as may be chosen by the taxpayer. While disputed tax assessment is to be in abeyance until can be determined, the undisputed tax assessment is to be paid within 30 days after service of the notice of assessment on the company, except otherwise extended by the FIRS, adding that this calls for the recognition of a well-established self-assessment tax regime.
Furthermore, the newly amended finance bill notes that non-residents making taxable supplies to recipients in Nigeria have the primary obligation to charge, collect and remit VAT to FIRS. The VAT withholding responsibility of Nigerian recipients is now limited to where the non-resident or its appointed agent fails to collect the VAT.
Meanwhile, companies engaged in upstream petroleum operations, regardless of turnover, are now exempted from VAT registration and compliance obligation applicable to small companies with annual turnover less than N25 million.
Another point to note from the amended finance act stipulates that withholding tax on interest earned from a unit trust is to be treated as final tax, while only withholding tax on dividends is currently treated as a final tax for local companies. Also, there is an exemption of contract for deferred annuity on deductible life assurance premium for personal income tax purposes.
Oyedele also draws attention to the fact that the finance minister, subject to the approval of the National Assembly, shall make regulations for the imposition, administration, collection, remittance, including distribution of arrears of stamp duty and Electronic Money Transfer levies collected between 2015 and 2019 fiscal years.
Also, the amended bill as transmitted to the lawmakers by the president, noted the mandatory payment of gross revenue collected by federal ministries, departments or agencies to the federation account or consolidated revenue fund as the case may be, except otherwise authorized by law. It states that any officer flouting this requirement may be liable on conviction to imprisonment of up to five years or a fine of N5 million or both.
Also, capital gains tax at the rate of five percent is to be applicable on disposal of shares in a Nigerian company worth N500 million or more in any 12 consecutive months, except where the proceeds are reinvested in the shares of any Nigerian company within the same year of assessment. Partial reinvestment will attract tax proportionately. Transfer of shares under the regulated Security Lending Transaction is exempted.