The experience of COVID-19, especially on developing countries that are dependent on oil, such as Nigeria, has further heightened the call for diversification of revenue sources.
Oil benchmark prices dropped below zero, forcing producers to pay off-takers because of the compounding demurrage from warehouses.
Nigeria has not hidden its desire to diversify its revenue sources, especially in the last couple of years, with the Finance Act opening up more channels to extract non oil revenue.
The 2019 Finance Act was described as the most far-reaching tax reform in 20 years, designed to facilitate corporate restructuring and ease the burden on small business.
President Muhammadu Buhari had said that providing incentives for infrastructure and capital market investment was a key aim of the 2019 Finance Act.
The 2021 Finance Act took it forward by stipulating that additional investment, re-organisation or other forms of corporate restructuring shall not qualify for further tax incentive under the gas investment programme.
Partial rollback of exemption of shares from capital gains tax
There’s a 10 per cent capital gains tax imposed on share disposal transactions, where the aggregate disposal proceeds exceed NGN100 million in any 12 consecutive calendar months, new ‘sugar tax’ excise duty on nonalcoholic, carbonated and sweetened beverages to discourage excessive consumption of sugary beverages, which contributes to diabetes, obesity, etc.
FIRS automation and ICT reforms to increase revenue generation
Among other things, the FIRS is empowered to sanction non-compliant taxpayers refusing access to information technology systems and allowed to deploy both proprietary and third-party tech applications to collect information from taxpayers.
VAT obligations of digital non-resident companies
The act restricts Value Added Tax (VAT) obligations mainly to digital non-resident companies that supply individuals who cannot self-account for it; reduce compliance burden on other non-resident taxpayers that are not required to register for VAT in Nigeria; clarify that the FIRS may appoint persons (including non-residents) for the purpose of tax collection; and clarify that such appointed persons may collect and remit taxes to relevant tax authorities.
Real Estate Investment Trusts (‘REITs’) reforms
It would clarify that withholding taxes deducted from Unit Trusts’ dividends are final taxes on Unit Trusts’ income; clarify that REITs’ special tax regime provisions apply to REITs set up as Unit Trust Schemes.
Amendments to clarify and improve administration of the levy to fund the National Agency for Science and Engineering Infrastructure (NASENI) fund, including that the levy comprises: 1 per cent from the Federation Account; and 0.25 per cent levy on profit before tax of major companies with turnover exceeding NGN100 million in the banking, mobile telecommunication, ICT, aviation, maritime, and oil and gas sectors, which is collected by the FIRS.
The FIRS also stated that taxpayers may pay tax due in installments, provided that the final installment shall be paid on or before the due date of payment.
Under the current regime, withholding tax deducted from payments to a unit trust shall be the final tax on such income, provided the said deduction is fully remitted to the FIRS.
Moreover, companies engaged in the business of banking, mobile telecommunication, information communication technology, aviation, maritime and oil and gas with a turnover of N100 million and above, are liable to pay NASENI levy at 0.25 per cent of their profits before tax. And the tax is to be administered by the FIRS.
The Finance Act also vested the FIRS with the duty to assess, collect, account and enforce the payment of the Nigeria Police Trust Fund levy.
The levy is 0.005 per cent of the net profit of companies operating business in Nigeria as provided under section 4 of the Nigeria Police Trust Fund (establishment) act.
While also strengthening the service, the act stipulated that any person who fails to grant FIRS access to its information processing systems to deploy its automated tax administration technology after a 30-day notice, or such extension granted by the service, is liable to a penalty of N25,000 for each day it continues to fail to grant the access.
Also, the FIRS is allowed to assess tax on the turnover of a foreign digital company involved in transmitting, emitting or receiving signals, sounds, messages, images or data of any kind, including e-commerce, app stores and online adverts. Such companies are also obliged to charge, collect and remit VAT to the FIRS.
Hike in education tax could raise N60bn yearly – Expert
A fiscal policy partner and Africa tax leader, PwC Nigeria, Mr Taiwo Oyedele, has noted that the Finance Act 2021, which has commenced, is expected to generate an estimate of N60billion in revenue yearly for the federal government, warning however, that the development would have impact of tuition fees and further degenerate human capital in Nigeria in the long run.
He said this over the weekend at “The Nigerian Economic Outlook 2022,” webinar organised by the Redeemed Christian Church of God’s The Kings Court Parish.
The tax expert noted that the Finance Act, 2021 amended tax on Tertiary Education Trust Fund from 2 per cent to 2.5 per cent, adding that with human capital being a major deficit to Nigeria, tax increase towards education shouldn’t have occurred.
He said, “I struggle to understand why we are trying to tax educational institutions when every plan we have speaks to the fact that we need more education, not just in terms of the quantity, but the quality and depth of education for us to lead in this new age.
“The implication would be that you have increased funds. My estimation is that educational tax will go up by about N60billion in a year, so that what we agree is significant. But it means higher burden for companies.
“Tuitions are likely to go up because if I have a school and have to pay tax now. I have to do my calculations as I need to still pay salaries of staff members. I need to do so many other things like infrastructure, which you need to maintain. I will just adjust my tuition. “
‘Tax will ensure growth in all sectors’
The special adviser to the president on finance and economy, Dr. Sarah Alade, also at the webinar said the federal government was committed to ensuring growth across all sectors.
She said, “We want to see prioritisation and implementation of critical infrastructure, physical, digital, financial infrastructure. We are deficient in infrastructures.
“There must be measures to diversify our revenue base. We are hoping in this plan that by 2025, the present revenue to gross domestic product, which is less than 8 per cent, we would be able to grow it to 15 per cent. Then there must be continuous support and interventions for manufacturing, agriculture and MSME as well.
“We are also looking at a market-driven economy movement to a unified liberalised foreign exchange market, which will guide what we do in the next four years. We want to enhance non-oil forex earnings, such that there’s institutional reforms in public sector, law enforcement, judiciary, secure property rights and many other things which we also have in human development, as we are prioritising quality education, health research and skills generally for our people.
“The philosophy of government for this plan (national development) is the highest priority of government, and we are hoping that government would unlock all constraints to ensure that economic growth is enhanced, inclusive, sustainable over the plan period and beyond to generate employment and reduce poverty.
“So, government will go beyond the normal provision of an enabling environment to also participate in vital sectors of the economy, for instance, transport. We expect that government would be able to do some of these things to encourage the private sector to be able to come in and invest in these areas,” she added.
The president of the Institute of Chartered Accountants of Nigeria (ICAN), Mrs Comfort Olajumoke Eyitayo, said the current revenue challenge facing the country made it imperative that all stakeholders should work with the government to address the recurring issue.
Eyitayo said, “The Finance Act, introduced with the budget process in the country over two years ago, is aimed at developing strategies to shore up capital (public revenue) for the economy.
“This is a step that had to be taken by the government to enhance the income-generating potentials of the country.”
She, however, added, “As we focus on modalities for revenue generation, the country must not lose sight of the expenditure side, develop strategies to guide against wasteful and unjustifiable spending.
“In essence, all stakeholders must continue to advocate a public sector where value for money needs to be entrenched.
How FIRS has fared with reforms
The FIRS said it raked N6.4 trillion as revenue in 2021. The executive chairman of the organisation, Muhammad Nami, said that despite the limitations faced in 2020/2021, the agency achieved over 100 per cent of its collection target.
“The FIRS, in 2021 collected a total of N6.405trillion in both oil (N2.008 trillion) and non-oil (N4.396 trillion) revenues as against a target of N6.401trillion,” Nami said.
Companies income tax amounted to N1.896 trn; petroleum profit tax amounted to N2 trn; Value Added Tax amounted to N2.07 trn; electronic money transfer levy amounted to N114 billion; earmarked taxes amounted to N208.8bn; among others.
“Non-oil sector contributed 69 per cent of the total collection in the year, while oil sector’s contribution was 31 per cent of the total collection.
“The Service issued certificates for the sum of N147.8bn tax credit to private investors and the Nigerian National Petroleum Company (NNPC) Limited for road infrastructure under the Road Infrastructure Development Refurbishment Investment Tax Credit Scheme created by Executive Order No. 007 of 2019.”
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