Background
The Minister of Finance recently modified the Fifth Schedule to the Companies Income Tax Act effective from 12 December 2011. In addition to the existing bodies eligible for tax deductible donations listed in the Act, more institutions, bodies or funds engaged in the following broad categories of activities are to enjoy tax deductible donations provided such organisations are not set up for the purpose of profits or gains to the individual members of the society, association or person.
- Promotion or defence of human rights
- Women empowerment and development
- Re-orientation, rehabilitation, welfare support service for orphans, widows, physically challenged, refugees and all categories of persons that may require social or economic rehabilitation and transformation
- Youth empowerment and development
- Leadership and Resource Development
- Promotion of National Unity and Patriotism
- Promotion of Social and Economic Development
- Accident prevention and control activities
- Information system development and Awareness
- Creation of awareness for transparency in governance and electoral processes
- Promotion of national unity and patriotism
- Museum development and promotion of sports, arts and culture
- Rendering assistance in the provision of safe water, electricity, infrastructure and agricultural development
- 14.Any professional body established under an Act of the National Assembly for the regulation and practice of the profession.
Further developments
In an extraordinary gazette recently published as a supplement to the Fifth Schedule amendment, the FIRS will have to certify the approved bodies. This requirement is effective from 12 December 2011 and therefore any tax deductions taken for donations after this date could be disallowed by the FIRS if the necessary certification has not been obtained.
Although the requirements for the FIRS to certify approved bodies for deductible donation has some merits, if not properly implemented it could lead to selective treatment thereby defeating the National Tax Policy objective of applying incentives to industries rather than individual organisations. This may also contradict the policy of the government to grant broad based tax incentives in a transparent manner without preferential treatments to specific companies and individuals.
Key provisions of the supplementary gazette
Requirement to qualify as a 5th Schedule fund, body or institution
- The entity must be of a public character;
- Activities must benefit Nigerians in general;
- Its profits must not be available for distribution to promoters;
- Promoters and Board of Trustees or governing body must be in compliance with tax laws;
- Other specific requirements under the schedule are to be completed in an application to the FIRS.
Certification
- Applicants are to pay a processing fee to be communicated;
- Completion of an application form issued by the FIRS;
- Approval is to be granted by the Board of the FIRS within 30 days of receiving the application and communicated to the Minister of Finance.
A certificate issued to any successful body will be valid only for 3 years subject to renewal every 3 years upon satisfactory performance and compliance with relevant legislation. Approved bodies are also required to file annual returns in line with relevant tax laws and submit a compliance report annually stating the activities of the body; and including a statement of affairs and auditor's report.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.