From tax policies, administrative reforms, and tax cases to new regulations, amendments to existing legislation and so on, there was not a dull moment in 2012 across all levels of government locally and across the globe.
The year started on a rather shaky note in Nigeria with the unpopular proposal to remove fuel subsidy. The total removal was later changed to a reduction in subsidy following protest by various groups and stakeholders. In tax parlance, subsidy is in principle a “negative tax” which means government pays you rather than the other way round. If and when the subsidy on all fuel products is completely removed, then other secondary taxes are likely to kick in such as VAT, import duties and levies on fuel products. These taxes are currently not being imposed as a result of the subsidy regime.
Also in January, the amended Personal Income Tax Act was published with a commencement date of 14 June 2011. The key changes include introduction of consolidated tax free allowance of N200,000 or 1% of gross income, whichever is higher, plus 20% of the gross income. The tax bands and rates were also modified with the highest tax band and rate changed from N160,000 at 25% to N3.2 million at 24%. Unfortunately the minimum tax payable by the poorest of the poor, such as individuals earning N300,000 per annum or less, was doubled from 0.5% to 1%.
There was an amendment to the Industrial Training Fund (ITF) Act. Although the changes were effective from 3 June 2011, it gained more publicity in 2012. The amendment reduced the registration threshold from 25 to 5 employees or a turnover of N50m. The Act defines “employee” to include non-Nigerians and temporary staff employed for a period of not less than 3 months. It reduced the maximum refund any employer can get from 60% to 50% of contribution made. Proof of compliance with the Act is required by companies when bidding or soliciting contracts from government, applying for expatriate quota or when utilising custom services in matters of export and import.
In the aspect of new regulations, a self assessment regulation was published for efficient administration of income taxes. The regulation requires tax filings to be done by taxpayers or accredited agents who must be certified by ANAN, CITN or ICAN. The maximum installmental payment over 6 months was reduced to 3 months.
Still on amendments to existing laws, the 5th Schedule of the Companies Income Tax Act was amended to cover more bodies to which tax deductible donations can be made. A supplementary regulation to the amended Schedule was subsequently released outlining the criteria for registration of eligible bodies and institutions. To qualify for deductible donation, an institution must be a non profit organisation whose activities are for the benefit of the public and whose promoters are tax compliant.
In keeping up with the ongoing tax reform, the Federal Government re-launched the National Tax Policy initially approved by the Federal Executive Council and the National Economic Council both in 2010. The Policy aims to achieve a better and improved tax administration, create the right environment for businesses to thrive and make Nigeria competitive in the comity of nations. Also, the Policy aims to reduce direct taxes and increase indirect taxes especially VAT.
The FIRS during the year introduced the Medium Taxpayer Offices (MTOs). This is to complement the existing Large Taxpayer Offices (LTOs) and Integrated Taxpayer Offices (ITOs) established for better tax administration of companies along revenue lines. The turnover threshold for categorising companies are ITOs - not more than N200 million, MTOs - above N200m but less than N1 billion and LTOs - N1 billion and above.
And there were tax incentives ...
The Companies Income Tax (Exemption of Profits) Order 2012 issued by the President confers three categories of tax reliefs on companies doing business in Nigeria. These are (1) Employment Tax Relief (ETR) which exempts a company from income tax on 5% of its assessable profits in an assessment period provided 60% of the net employment (minimum of 10) are employees without any form of work experience. (2) Work Experience Acquisition Programme Relief (WEAPR) which grants exemption from income tax on 5% of assessable profits provided the company retains 5 new employees for a minimum of 2 years from the year they were employed. (3) Infrastructure Tax Relief (ITR) which grants income tax exemption on 30% of cost incurred in providing infrastructure or facilities such as roads, water and electricity of a public nature.
Earlier in the year, tax exemption was granted for income on debt securities via the Companies Income Tax (Exemption) Order and the Value Added Tax (Modification) Order 2012 both with commencement dates of 2 January 2012. The Orders exempt income and proceeds from the disposal of debt securities including corporate bonds from income tax and VAT. The exemptions granted to corporate investors by the Orders are limited to a 10-year period except Federal Government bonds which are not time restricted.
Towards the end of the year, the Federal Government removed stamp duty and VAT on stock market transaction fees as part of efforts to resuscitate the capital market.
In line with the trend around the world, the FIRS released the Income Tax (Transfer Pricing) Regulations No 1, 2012. The Transfer Pricing (TP) rules have a commencement date of 2 August 2012 and effective for basis periods beginning afterward. The regulations require all transactions between related parties to comply with the Organisation for Economic Cooperation and Development (OECD) or United Nations TP methodologies. Affected companies must file an annual declaration form regarding their inter-company transactions with tax returns and documentation to be in place prior to filing of annual tax returns.
Perhaps the single most ambitious piece of proposed legislation is the Petroleum Industry Bill (PIB) which has been in the pipeline for over 12 years. The Federal Government through the Ministry of Petroleum Resources redrafted and sent the PIB to the National Assembly for deliberation in July 2012. Some of the fiscal provisions include streamlining of tax incentives, dual tax regime for oil and gas companies in the upstream sector to pay companies income tax at 30% and Hydrocarbon Tax of either 25% or 50% among others. Each upstream petroleum company will be required to remit 10% of its net profit for the benefit of its host community.
Still on petroleum matters, a new regulation to tax non oil activities in the Nigeria Sao Tome Joint Development Zone was recently released. The regulation imposes tax on non oil activities in the Zone at 30% and grants a tax credit of 15% for capital expenditure.
Other proposed amendments still undergoing legislative process include the Companies Income Tax Act (CITA) amendment Bill seeking to grant a 10-year tax holiday to any new company established in an area with no electricity, water or tarred road. If passed into law, the bill will also increase the tax holiday of a new company going into mining of solid minerals, or gas utilisation from the current 3 and 5 years to 5 and 7 years respectively.
Another one is the Federal Capital Territory Property Tax Bill seeking to introduce a property tax payable on all real property situated in designated areas within the FCT. The rate at which tax will become payable annually is 0.3% for recreational property, 0.4% for residential property, 0.6% for commercial property and 0.7% for others based on market values. If the Bill is passed in its current form, the tax payable on a property occupied for residential purposes in the FCT will exceed the rate applicable in Lagos by more than 10 folds.
Also a Bill to replace the existing Customs and Excise Management Act is being considered. The key provisions include the proposal to impose excise duties on the wholesale price instead of ex-factory price for excise duties. It provides for advance rulings regarding classification of goods, duty exemption, application of custom valuation methodology or other custom matters. The Bill however takes away most of the existing powers granted to the President and the Minister for Finance.
Some “Information Circulars” are in the process of being finalised after they have been exposed to stakeholders for comments. Notable among these are (1) the Tax Implications of IFRS adoption and (2) Proposed Circular on Taxation of non-interest financial products.
At the states level, Edo State signed its Land Rate Bill into Law to consolidate all land rates and charges in Edo State into a single charge. Many states became more aggressive with their tax drives in 2012 including Lagos State which closed many companies over alleged tax evasion.
On the international scene, Nigeria signed a Double Taxation Agreement (DTA) with Mauritius. The treaty is yet to be ratified in Nigeria.
Also, the African Tax Administration Forum (ATAF) member countries, including Nigeria, signed a Mutual Assistance Agreement aimed at fostering exchange of information on tax matters, the carrying out of tax examinations abroad, the carrying out of simultaneous tax examinations, and assisting in the collection of taxes.
In the UK the Parliament accused Starbucks, Facebook, Amazon and Google of not paying taxes in the UK as a result of Transfer Pricing despite their huge turnover. The companies were accused of stripping profits through various arrangements and the setting up of structures in countries with low tax rates and tax havens.
The year climaxed with the fiscal cliff debate in America meant to avoid higher tax burden on all income earners and automatic spending cut across board.
By whatever measure, 2012 will go down in history as the year of unprecedented tax activities especially in Nigeria. Without any doubt the taxing times are truly here so taxpayers must brace up for even more activities in the New Year and beyond.