The 2019 Tax Diary And 2020 Tax Expectations In Nigeria

The 2019 Tax Diary And 2020 Tax Expectations In Nigeria

Not many people enjoy the burden of paying taxes; worse than paying taxes is the fact that the rules of taxation are constantly changing. The 2019 fiscal year witnessed a myriad of changes in the tax sphere, such that even the Federal Inland Revenue Service (FIRS) leadership was not left out.

This article reflects on some of the key developments that shaped the tax sphere in 2019 and documents the expectations for 2020 fiscal year. For clarity, this article summarizes the major tax developments in 2019 into four categories: International Tax issues, Tax Policy & Initiatives, Tax Laws & Rulings and Tax Administration.

1. INTERNATIONAL TAX ISSUES
International tax issues and cross-border transactions continued to gain relevance with better structure in 2019. Some of the key developments in this area are highlighted below:
  1. African Continental Free Trade Area (AfCFTA) Agreement: The AfCTFA agreement is meant to create a single continental market for goods and services by removing tariff and non-tariff barriers for transactions carried out within African member countries. While the AfCTFA opens up the Nigerian market for external penetration, Nigerian businesses would also benefit immensely from the larger single market.
  2. Common Reporting Standards (CRS): Banks, investment companies, custodian institutions and insurance companies may now have one more thing in common. These financial institutions are now required to collect and report to the FIRS, specified information regarding third party customers/investors resident in foreign jurisdictions. Under the CRS, similar information collected is shared between several tax authorities.
  3. Refined modalities for Double Tax Treaty (DTT) benefits: The FIRS clarified the criteria to be a beneficiary of a DTT and necessary conditions for claiming the DTT benefits. The FIRS Circular also introduced step-by-step instructions for claiming DTT benefits.
2. TAX POLICY AND INITIATIVES
Nigeria fell two points from 157th to 159th position in the ease of paying taxes, according to the World Bank Doing Business Report. Notwithstanding the above, the National Tax Policy in 2017 and the works of the Presidential Enabling Business Environment Council (PEBEC) continued to influence new tax initiatives. Some significant tax initiatives are highlighted below:
  1. Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme (RIDRITCS) - Executive Order 007: Under the RIDRITCS, companies can build or refurbish federal roads and recoup the costs as tax credits against future tax payable. As expected, the tax credits are granted after verification and approval of the project based on set criteria in the RIDRITCS. The scheme is a laudable initiative that would give taxpayers “value-for-taxes”, as taxpayers would see their money in action.
  2. Finance Bill 2019: This is arguably the biggest game-changer of the year. The Finance bill is an omnibus bill that seeks to amend seven(7) primary tax acts. The most discussed amendment is the proposed increase of the Value Added Tax (VAT) rate from the current 5% to 7.5%. Nonetheless, it is important to note that the Finance Bill made several generous concessions for small and medium enterprises. Altogether, the Finance Bill is a positive move, which is expected to strengthen the tax system and ease tax compliance in Nigeria.
3. TAX LAW AND RULINGS
While some bills, such as National Housing Fund (Establishment) Bill 2019, could not scale through to be passed into law, some of the key laws and rulings that scaled through are highlighted below:
  1. Nigeria Police Fund Levy (NPFL): Despite the multiplicity of taxes on companies, NPFL was introduced at 0.005% of companies’ net profit. The NPFL is earmarked to provide security equipment to and meet the other needs of security agencies in Nigeria. However, the NPFL Act was marred by shoddy drafting and did not introduce a penalty for non-compliance which suppresses its relevance.
  2. Amendment to the Deep Offshore and Inland Basin Production Sharing Contract Act 2004 (DOIBPSCA): The DOIBPSCA regulates the activities of oil and gas companies operating under production sharing contracts. In the amended act, royalty payable was reviewed to generate more revenue for the government and penalty was introduced for violation of the DOIBPSCA.
  3. Polaris Bank vs ASBIR and other court cases: While there were several court cases, the Tax Appeal Tribunal (TAT) case between Polaris and Abia State was a landmark case where the court ruled that taxes need to be backed up by primary tax acts despite being listed in the Taxes and Levies Act. Also, the TAT clarified that mere labelling of a notification letter as investigation exercise is not sufficient ground for establishing an investigation. Other significant court cases include: TAT - Actis v. FIRS, Infinity Bank v. FIRS, Nigerian Breweries Plc v. Abia State, Nexen v. LIRS, UAC v FIRS ; Court of Appeal - BCIS Ltd v FIRS, Vodacom v. FIRS, AEDC v. Kuje Area Council, GTB v Ekiti State.
4. TAX ADMINISTRATION
For both FIRS and State Internal Revenue Services, there was increase in possible e-tax services. Also, the tax administrators created closer links between your bank transactions/BVN and your tax remittances. Specific notable developments include:
  1. New FIRS Chairman: Babatunde Fowler finished his tenure and was replaced with Mohammed Nami as the FIRS Chairman. The change in leadership came at the back of a record-breaking tax revenue generated in 2018. While the change in leadership may create some uncertainty on FIRS’ directives and policy, the new Executive Chairman is expected to continue the tax drive and bring new strategies on board.
  2. Establishment of Non-Resident Persons’ Tax Office: FIRS created an office to cater for tax activities of non-resident individuals and companies. This is to enhance tax administration and promote tax compliance for non-resident taxpayers.
  3. Circulars and public notices: Among other circulars, FIRS released a circular which clarified applicability of VAT and Withholding Tax (WHT) on commissions and rebates. The Lagos Internal Revenue Service (LIRS) also issued a notable circular which appointed employers as agents for deduction at source of capital gains tax on compensation for loss of employment.
  4. Other developments: LIRS introduced Enterprise Tax Administration System (e-Tax) which included BVN requirements for registration of taxpayers in Lagos State. Rivers State also launched an e-platform for taxpayers to manage their tax affairs. Furthermore, the erstwhile exemption of VAT on commission applicable to capital market transactions expired in 2019.
2020 TAX EXPECTATIONS
The year 2019 witnessed a 100% implementation of the 2019 expectations as stated in the 2018 Tax Diary. The expectations for 2020 fiscal year are highlighted below:

1. Passage and implementation of Finance Bill 2019 into law

2. Further work on the implementation of taxation on the digital economy in Nigeria

3. Convergence of taxpayers’ records and bank details/BVN for both individuals and companies.

4. Increased alignment with OECD standards on international taxation issues.

5. Further clampdown of tax defaulters/tax evaders using novel methods.

6. Potential suspension or restructuring in FIRS' use of external consultants for tax audits.

CONCLUSION
According to John Dewey, we do not learn from experience, we learn from reflecting on experience. Taxpayers are advised to reflect on these tax experiences and make proactive plans for the future. The constantly changing landscape also requires taxpayers to get advice from consultants and stay proactive.

Meet the writers: Dotun Adedapo - dotunjay@gmail.com, 07033746752; 
Paul Ogundipe - ogundipep@gmail.com , 08142393499.

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