On 9 May 2022, the Federal Inland Revenue Service (FIRS or "the Service") issued a Public Notice to all taxpayers, tax consultants and the general public requiring companies that enjoyed capital allowances on Qualifying Capital Expenditure (QCE) of ₦500,000 (and above), between 2016 and 2021 years of assessment, to submit a Certificate of Acceptance in respect of such QCE or face possible withdrawal of such capital allowance enjoyed. The Notice further requires all companies to provide Certificates of Acceptance in respect of QCE of ₦500,000 and above to the FIRS going forward.
Section 3 of the Industrial Inspectorate Act, Cap I8, LFN 2004 (as amended) (IIA) requires companies proposing to start a new undertaking or incur additional capital expenditure to notify the Industrial Inspectorate Department (IID) of the Federal Ministry of Industry, Trade and Investment of its intention to incur capital expenditure. The IID is to carry out a number of checks and upon being satisfied with the investment valuation, issue a Certificate of Acceptance to the company. This approval process is applicable to any asset that costs ₦500,000 or more. Section 5 of the IIA also requires the FIRS to take account of any fact contained in the Certificate of Acceptance in the discharge of its functions.
The Public Notice issued by the FIRS is pursuant to its powers to call for documents and records on notice under Section 26 of the Companies Income Tax Act. The Certificate(s) of Acceptance are to be submitted at the tax office where the company's tax file is domiciled not later than 31 October 2022.
The Notice also provides that the FIRS may withdraw the capital allowances enjoyed by any company that fails to submit its Certificate of Acceptance for the relevant years with consequential additional tax assessed.
The Notice further directs that every company is to provide its Certificate of Acceptance in respect of any QCE of ₦500,000 and above incurred in each year of assessment going forward.
The FIRS Circular has introduced additional administrative requirements for the claim of capital allowance on QCE in Nigeria. Previously, FIRS officials did not necessarily rely on the availability of Certificate of Acceptance as a support for the claim of capital allowance on QCE. The officials usually insisted on the provision of various documents such as purchase invoices, proof of payment, importation documents and confirmation of the physical existence of the assets.
However, with the issuance of this Circular, companies that have previously failed to obtain Certificate of Acceptance for QCE for the years 2016 to 2021 may be at risk of withdrawal of such capital allowance.
Notwithstanding the foregoing, there are still concerns among stakeholders on the relevance of the Certificate of Acceptance as it appears to create an additional bureaucratic bottleneck without any corresponding economic benefit. More so, the current threshold of ₦500,000 is rather low in view of the devaluation of the Naira. Hence, the requirement to obtain a Certificate of Acceptance would be applicable to almost all assets. The long delays in different stages of the processing of the Certificate(s) of Acceptance could also deter companies and investors. While we note the FIRS' consistent drive to increase its revenue, the issuance of the Circular may further increase the hardship of businesses in Nigeria if the process for obtaining the Certificate(s) of Acceptance is not first reviewed. In the meantime, companies should liaise with their tax and regulatory consultants to ensure compliance with the tax laws and processing of Certificates of Acceptance, where necessary. This is important to avoid possible liabilities and penalties due to non-compliance.
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