The 2018 fiscal year witnessed an increased tax activism by the revenue authorities and the Ministry of Finance. These events clearly demonstrated the government's intention to widen the tax net and raise additional revenue.
The high tax revenue drive in the year 2018 was evidenced by the extension of the Voluntary Assets and Income Declaration Scheme (VAIDS), the introduction of the Voluntary Offshore Assets Regularization Scheme (VOARS), the release of the revised Income Tax (Transfer Pricing) Regulations 2018 (the Regulations), amongst other major activities in the year.
As part of the Federal Inland Revenue Service's (FIRS) collection efforts in the year, banks were appointed as agents for collection of tax from taxpayers that were considered to be in default of tax payments and their bank accounts were frozen for this purpose. These developments were mainly due to the dip in global oil prices and the revenue shortages, which encouraged the government to push towards diversification of the economy and improvement of Nigeria's tax to Gross Domestic Product (GDP) ratio.
This document seeks to review the key highlights for 2018 and comment on the expected developments in the Nigerian tax and fiscal space in 2019.
B. KEY TAX AND REVENUE HIGHLIGHTS IN 2018
1. Tax Administration
In the year 2018, the FIRS recorded a total tax revenue collection of about ₦5.32 trillion. The oil component of the ₦5.32 trillion is ₦2.467 trillion (46.38%), while the non-oil component is ₦2.852 trillion (53.62%). The FIRS has a revenue target of ₦8 trillion for 2019.1
The World Bank Group, which tracks the ease of doing business in different countries, published its 2019 Doing Business Report (the Report) in October 2018. The Report ranks Nigeria at 146 out of 190 countries on the ease of doing business index, a drop from 145 ranking for the year 2018. However, on the ease of paying taxes, Nigeria recorded an improvement from 171 in 2018 to 157 in 2019.2 This growth may be attributed to regulatory reforms such as the introduction of ICT initiatives geared at improving the tax system and making the payment of taxes easier and simplified.
As mentioned earlier, the VAIDS, which was originally introduced in July 2017, was extended till 30 June 2018. According to the Chairman of the FIRS, the Scheme generated about ₦54 billion in paid taxes. Upon conclusion of the VAIDS, the FIRS undertook an exercise to track non-compliant taxpayers with annual banking turnover of ₦1 billion and above. This exercise accounted for about ₦21 billion additional taxes.3
The Federal Government also launched the VOARS in October 2018 offering a 12-month window allowing taxpayers with undisclosed offshore assets and incomes within the past 30 years to voluntarily declare the assets and pay the corresponding taxes on such assets/incomes. However, since the introduction of the Scheme in October 2018, there has been little or no evidence of enforcement on the part of the government nor eagerness on the part of taxpayers to participate in the Scheme. It would appear that the Scheme seems to be have been targeted at clamping down on corrupt practices rather than tax compliance. Moreover, those targeted under the VOARS should have already been covered under the concluded VAIDS.
2. Tax Legislation and Policy
- The House of Representatives in January 2018 passed the Petroleum Industry Governance Bill (PIGB); almost 8 months after the Senate passed the Bill on 25 May 2017. The Bill was subsequently forwarded to the President for assent within the course of the year. However, the President withheld his assent for constitutional and legal reasons.4
- The Federal Government of Nigeria
also released the Income Tax (Country by Country Reporting)
Regulations, 2018 (the CbC Regulations) giving effect to the
Country-by-Country Multilateral Competent Authority Agreement
signed on 27 January 2016 and ratified on 3 August, 2016.
The CbC Regulations which was published in an official gazette dated 8 January 2018 requires Multinational Enterprises (MNEs) headquartered in Nigeria that meet the specified threshold of global revenue to provide tax authorities with information about the MNEs' global activities, profits, and taxes. This is to better assess international tax avoidance risks; improve transparency in the tax practices of the MNEs; and prevent tax evasion or avoidance through base erosion and profit shifting.
- Similarly, the FIRS released the
revised Income Tax (Transfer Pricing) Regulations 2018 (the TP
Regulations) which ushered in a Transfer Pricing (TP) specific
penalty regime. The TP Regulations repeals the Income Tax (Transfer
Pricing) Regulations No. 1 2012 (the 2012 Regulations) and has an
effective date of 12 March 2018.
However, the TP Regulations will be applied to the basis period commencing after 12 March 2018. The revised TP Regulations introduces a stiffer TP Regime in Nigeria. Although the exemption of certain categories of companies from contemporaneous TP documentation requirement will reduce the compliance burden on such companies, the introduction of stiff administrative penalties for TP offences is a material change that will affect taxpayers.
- The Federal Government approved an increase in the excise rates on tobacco and alcoholic beverages effective 4 June 2018, via circular: 17642/II/172 of 5 March 2018. The revision introduces additional specific rates to the pre-existing ad-valorem rate for Tobacco (Cigarettes) and replaces the old ad-valorem rates for alcoholic beverages with specific excise rates. It is expected that there will be a surge in the Federal Government's revenue from these products.
- On 26 March 2018, the President assented to Nigeria's Double Tax Agreement (DTA) with Singapore and a Memorandum of Understanding (MoU) with Switzerland and the International Development Association, following the approval by the Federal Executive Council. There was no formal ratification of the agreements by the National Assembly. The DTA clarifies the taxing rights of both countries on income arising from cross-border transactions between Nigeria and Singapore and also reduces the incidence of double taxation on such income while the MoU is in line with Switzerland's policy on returning illegally acquired assets and provides for the disbursement of returned funds in tranches.
- In another development, the FIRS issued a Public Notice (PN) on 24 July 2018 which was addressed to taxpayers with annual turnover of ₦1 billion and above. Based on the PN, the FIRS is to prosecute taxpayers (falling within the income bracket of ₦1 billion and above) who failed to remit their taxes. The PN also stated that the FIRS intends to explore all legal means to recover all tax liabilities without further recourse to taxpayers, in the event of non-compliance.
3. Tax Adjudication
The TAT, which was dissolved in 2016, was reconstituted by the Federal Government across the six geopolitical zones as well as Lagos State and the Federal Capital Territory, Abuja. The reconstitution was announced by the then Honourable Minister of Finance, Kemi Adeosun, in Abuja on 12 July 2018.
The reconstitution of the TAT will expectedly foster speedy resolution of existing and fresh tax disputes. With the increased budgetary target of the FIRS and the increased disputes between the tax authorities and taxpayers, the reconstitution of the TAT is rather timely.
1. https://www.firs.gov.ng/Press-Release-15102018_23.html accesed 17/1/2019 at 5pm
2. http://www.doingbusiness.org/content/dam/doingBusiness/country/n/nigeria/NGA.pdf accessed 17/1/19 at 1pm
3. Supra 1
4. https://www.vanguardngr.com/2018/08/why-buhari-withheld-assent-to-pigb-enang/ accessed 17/1/2019 at 4pm
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.