The Federal Government of Nigeria has put a new tax obligation on the net profit of companies operating in the country.
This followed the passage of a law tagged, The Nigerian Police Trust Fund Act, which was passed by the National Assembly in April 2019, and signed into law by the President on 2 July 2019.
Intimating corporate citizens on the provision of the Act, PricewaterhouseCoopers (PwC) said the Act establishes a Fund; proceeds from which will be used to train police personnel and procure security machinery and equipment.
The PwC highlighted that the Act imposes a levy of 0.005% of the “net profit” of companies ‘operating business’ in Nigeria.
According to the accounting and auditing firm, the fund will also consist of 0.5% total revenue accruing to the Federation Account, in addition to proceeds from grants, intervention funds, aids, donations, investment income, among others.
Taiwo Oyedele, tax leader at PwC, explained that the Act establishes a board responsible for administering the fund, making investment decisions, and fulfilling other objectives of the Act.
Oyedele added that the fund will be wound up 6 years after its establishment. The assets and liabilities would be transferred to the Nigeria Police Force.
“0.005% levy (N5 per N100,000) of net profits may not be very significant, but it places additional administration on corporate taxpayers. Since it is imposed on companies ‘operating business’ in Nigeria, it is likely to also apply to permanent establishments of foreign companies.
“Although funding of the police and improving security is a priority issue, it could be funded through more allocations from already existing revenue streams. Introducing earmarked taxes could create concerns around the stability of the tax regime in Nigeria,” he said.
He also explained that although the Act refers to the contribution as a ‘levy’, it should be classified as an ‘income tax’ under IAS 12, as it is imposed on income/profits, adding that It is therefore not tax deductible based on CITA which specifically disallows taxes on income or profits of companies.
PwC also pointed out that ‘net profit’ for computing the levy is not defined in the Act, therefore, companies should be able to apply the ordinary meaning – which is profits after tax, but before the levy.
While the Act contains no provisions on the modality for collection and administration of the levy, PwC recommends further regulation if the Federal Inland Revenue Service (FIRS) is to be responsible for the administration, considering that any other approach would lead to high cost of administration.
“The Act provides for audit and presentation of an annual report to the President. The general public will be expecting more accountability and transparency in managing the Fund. Another level of accountability may be to ensure that the Board is composed of members from both the public service and the private sector.
“We envisage that any regulation or guidelines to be issued under the new law will spell out details regarding commencement and administration,” Oyedele said.