Preface
We are pleased to publish the first edition of our West Africa Tax Journal. This edition outlines the events that shaped the tax and regulatory landscape in Nigeria and Ghana in 2024 fiscal year. It features tax rulings delivered by courts of competent jurisdiction, pronouncements from tax administrators and regulatory agencies, KPMG thought leadership publications on key sectors of the economy, and a compilation of articles authored by KPMG subject matter experts, in 2024.
Overall, the West African tax space continued to evolve in 2024 and witnessed notable developments such as the release of the Guidelines on Advance Pricing Agreements by Nigeria's Federal tax authority, the issuance of the Deduction of Tax at Source (Withholding) Regulations 2024 – which introduced significant amendments to the WHT regime and brought clarity to many grey areas in WHT administration in Nigeria – and the implementation of new tax laws and amendments in Ghana. Following the recommendation of Nigeria's Presidential Fiscal Policy and Tax Reforms Committee, President Bola Ahmed Tinubu GCFR submitted four (4) tax bills to the Nigerian legislature. The bills seek to provide a unified framework for the taxation of income, transactions and instruments, amongst other objectives. The passage of the bills is expected to revamp Nigeria's tax system and administration.
Expectedly, the tax authorities in both Nigeria and Ghana sustained the tempo of enforcing compliance among taxpayers and increasing tax collection through desk queries/reviews, tax audit and investigation exercises. In Nigeria, the Federal Government introduced a windfall tax on the realised profits from all foreign exchange transactions of banks within the 2023 to 2025 financial years. This aggressive pursuit of revenue was not surprising considering that the country has had significant recurring budget deficits over the years and is keen on mobilising tax revenues.
While the Ghanaian Parliament approved the country's mini-budget of GH¢68.13 billion for Q1 2025 on 3 January 2025, Nigeria's Appropriation Bill for 2025 with a budgeted expenditure of NGN54.99 trillion, was only recently approved by the country's National Assembly. This is a deviation from the January-December budget cycle which was restored and sustained by the previous administration. The expectation, therefore, is that the Bill would be signed into law by the Nigerian President in Q1 2025.
We hope that you find the insights in this publication relevant, and that it will serve as a reference material on important tax issues to aid businesses' voluntary tax compliance. We also welcome and encourage you to provide us with feedback on the publication via e-mail at NG FMTaxEnquiries@ng.kpmg.com.
2024 in Review – Significant Tax Rulings
Petroleum Industry Act
- IHS Nigeria Limited (IHS) and INT Towers Limited (INT) vs NMDPRA
Background
IHS Nigeria Limited and INT Towers Limited ("the Plaintiffs") are affiliate companies licensed by the NCC to provide infrastructure services to telecommunications companies. The nature of their business requires near 100% reliability on power supply, and they currently rely on AGO as the primary source of energy to power their extensive BTS and other sites across Nigeria. Consequently, the Plaintiffs obtained petroleum products import permits from the NMDPRA ("the Defendant") to facilitate the importation of petroleum products into Nigeria for their use.
The NMDPRA levied the Plaintiffs to statutory charges of 0.5% of the value of their petroleum imports, which they objected to and subsequently filed a lawsuit against the NMDPRA. The Plaintiffs argued that the products are not sold but consumed solely for commercial purposes. They therefore opined that the product does not qualify as 'sold in Nigeria' and is, thus, not liable to charges under the 2021 PIA.
Summary of decision
The FHC ruled that the NMDPRA possesses broad authority, as stipulated in Sections 125(3) and 174(3) of the PIA, to enact regulations governing the administration of midstream and downstream petroleum liquids operations, as well as mandate additional activities contingent on holding a license or permit. Accordingly, the court held that the Plaintiffs are liable to the levy, as they implicitly consented to the terms and conditions of the licenses or permits when they obtained them and commenced business activities.
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Companies Income Tax
- TAT rules that the discretionary powers of the FIRS on declaration of deemed dividend cannot be challenged
The Lagos zone of the TAT has ruled, in the case involving Rand Merchant Bank Nigeria Limited ("the Company" or "the Appellant") and FIRS ("the Respondent"), that the FIRS's discretionary powers under Section 21 of the Companies Income Tax Act (as amended) cannot be challenged.
The Company had undistributed profits which the FIRS had deemed as distributed and therefore sought to levy WHT including penalty and interest charges on. The Company challenged the FIRS's position on the basis that the profits could only be deemed as distributed where it is proven by the FIRS that the lack of distribution was intended to avoid payment of the relevant WHT. The TAT, however, ruled in favour of the FIRS.
Please click here to read our newsletter on the judgement.
- TAT rules that insurance companies are subject to excess dividend tax rule in CITA
The Lagos zone of the TAT recently ruled in a case involving FBN Insurance Limited ("the Company" or "the Appellant") and FIRS ("the Respondent") that insurance companies are not only liable to tax under Section 16 of the CITA but also subject to other non-conflicting provisions of CITA.
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- The Court of Appeal has ruled that the concessionary income tax rate of 8% granted to exporters of non-traditional goods does not apply to companies registered as Free Zone Enterprises.
On 25 January 2024, the Court of Appeal decided the case between Blue Sky Products Ghana Ltd. ("Blue Sky" or "the Company" or "the Appellant") and the Commissioner-General ("the Respondent").
Facts of the case
Blue Sky, a company registered as a free zone entity, after its 10-year concessionary period, self assessed its taxes at a rate of 8%, a rate applicable to companies engaged in non-traditional export.
The GRA disagreed with the Appellant's position and assessed it to tax at a rate of 15%, which is the applicable rate for free zone entities after their 10-year concessionary period.
Summary of decision
The court agreed with the GRA assessment and ruled that Blue Sky cannot elect to be treated as an "ordinary" company exporting non-traditional export after enjoying a bouquet of tax benefits under the free zones regime.
This is because the company is still enjoying applicable incentives as a free zone entity and is required to pay tax at the 15% rate applicable to all free zone entities after their 10-year concessionary period.
Please click here for a copy of the judgement.
- TAT upholds third-party investigations and six-year limit for tax assessments
The TAT, Southwest Zone, has ruled in the case between Lafarge Africa Plc ("Lafarge" or "the Company" or "the Appellant") and the OGIRS ("the Respondent"), reinforcing the six-year limitation for tax assessments and upholding third party investigations.
Facts of the case
Following a tax investigation conducted by the OGIRS for the period 2010-2014, Lafarge received an initial assessment of ₦1,285,227,910.43 in November 2018. The Company appealed the assessment before the TAT, and both parties engaged in settlement discussions, which led to an out-of-tribunal resolution. Accordingly, the OGIRS issued a revised assessment of ₦191,723,626.08, which was settled by the Company in May 2020, along with an additional payment of ₦20,452,659.71 requested by the OGIRS in August 2020. However, instead of issuing a tax clearance certificate as requested by the Company, the Respondent issued an additional assessment of ₦347,738,894.24 in January 2021, citing untaxed expatriate income. Lafarge objected to the additional assessment, arguing that it breached the prior settlement agreement and exceeded the six-year limitation period under Section 55 of the PITA. The Appellant also challenged the validity of the assessment based on the alleged delegation of OGIRS's statutory duties to a private consultant.
Summary of decision
In its ruling, the TAT upheld the authority of the tax authority to revise assessments when necessary and found no evidence of improper delegation or procedural violations. However, the TAT affirmed the six-year limitation period under Section 55(2) of PITA, emphasizing that the burden of proof for fraud, willful default, or neglect lies with the tax authority, which in this case, was not met by the Respondent.
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- FHC rules that private companies incorporated before CAMA 2020 can have one shareholder
The FHC, Abuja Division has decided that the provisions of Section 18(2) of the CAMA 2020 apply to all private limited liability companies in Nigeria, including those incorporated before CAMA 2020.
The decision was handed down on 30 July 2024, in the case of Primetech Design and Engineering Nigeria Limited & Julius Berger Nigeria PLC v. Corporate Affairs Commission.
Please click here to read our newsletter on the judgement.
The opinion expressed in this article is solely personal and does not represent the views of any organization or association to which the authors belong.
