The Federal Inland Revenue Service (FIRS) has issued a Public Notice directing companies that purchased Qualifying Capital Expenditure (QCE) worth ₦500,000 and above between 2016 and 2021 years of assessment to submit the Certificates of Acceptance ("the Certificate") issued by the Industrial Inspectorate Division (IID) of the Federal Ministry of Industry, Trade and Investment to the tax office where their respective tax file is domiciled. This is pursuant to Section 5(1) of the Industrial Inspectorate Act, Cap. I8, LFN 2004 ("the Act").
The deadline for compliance by the affected companies is 31 October 2022, failing which the capital allowance claimed on such QCE will be withdrawn.
Citing the provisions of Section 26 of the FIRS (Establishment) Act and Section 60 of the Companies Income Tax Act, the FIRS emphasized its authority to request the submission of any document, record, or information from taxpayers. On this basis, the FIRS requires all the affected companies to submit the Certificates for past purchases and, henceforth, provide the Certificate on new fixed asset purchases worth ₦500,000 and above to the relevant FIRS tax office.
Commentary
While it is acknowledged that Industrial Inspectorate Act requires companies to obtain the Certificate for purchase of QCE worth ₦500,000 and above, there is no specific provision in the law enabling the FIRS to withdraw capital allowances claimed by taxpayers for failure to present the Certificate within a stipulated timeframe. It is hoped that the FIRS will revisit its position accordingly.
The primary purpose of the Certificate is to verify the cost of acquisition of fixed assets and ensure consistency in their values as reported by companies in their financial statements and tax returns for capital allowance purposes. On this basis, the FIRS has overtime accepted valid proofs of purchase and ownership of fixed assets, such as third-party receipts and invoices, in lieu of the Certificate. This is a good practice that should be sustained for the purpose of ease of doing business in the country.
Further, the timeframe provided by the FIRS for all the affected companies in Nigeria to obtain and submit Certificates for fixed asset purchases for a 6-year period appears unrealistic given the limited capacity of IID to process a deluge of applications and issue the Certificate for all applicants at the same time. The FIRS should bear this in mind before enforcing the deadline and sanctioning any company that is unable to obtain the Certificate before the deadline expires.
Lastly, the ₦500,000 threshold for compliance in the Act is long overdue for review to reflect the current economic realities. ₦500,000 is now an immaterial expense given inflation rates and depreciation of the value of the Naira since the amount was prescribed in the law. This is a matter for law reform by the appropriate authorities in Nigeria
Please click here to read the FIRS' Public Notice.
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