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Taxation

Finance Bill 2021: “Our Tax System Must Work For Every Nigerian” – Muhammad Nami

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Muhammad Nami

“We must build a tax system that is not only robust but that will outlive our respective services to this nation” – Nami

Olushola Okunlade Writes

The 2021 Finance Bill must be tailored towards enabling an efficient tax system that works for every Nigerian.

This was the position of the Federal Inland Revenue Service (FIRS) disclosed by its Executive Chairman, Muhammad Nami to journalists after a stakeholder engagement on the Finance Bill 2021, today at the House of Representatives, Abuja.

“Our laws and policies must first and foremost work for the Nigerian people who we have either been elected or appointed to serve,” Nami stated.

“Whatever proposals that have been submitted for consideration should be looked at critically vis-a-vis what works for Nigeria, the business community, the taxpayers, tax consultants, and the Nigerian system altogether. It will help us more if we realise that our collective effort and service are not about us. It is about our country.

“We must build a tax system that is not only robust but that will outlive our respective services to this nation; whether as members of the executive, the judiciary, or the legislature. In other words, these laws must be made in a manner that reflects not just what we feel is right, but what is indeed right -yesterday, today, and continues to be right tomorrow.”

Muhammad Nami further appealed that the Fiscal Policy Reform Committee and the House Committee on Finance should continue to make laws that stand the test of time and reflect economic realities. He further called for laws that will not only assist the government at the three levels in mobilising revenue but that will also assist small and medium scale enterprises to grow, and become taxpayers in the future.

The FIRS Executive Chairman also commended the leadership of the National Assembly and members of the Executive for the annual review of the Finance Act which he said has afforded the Federal Government the opportunity to deploy new ways of enhancing domestic revenue mobilisation and improving tax administration in the country.

“The Finance Bills have accorded the Federal Government and the Fiscal Policy Reform Committee the opportunity to annually review and identify gaps in our tax system, to fix them and ensure that government can earn the much-needed revenue for the execution of its mandate. Without the commitment of the National Assembly leadership and members of the Executive, from day one to the fiscal reforms that the Finance Bills were aimed to achieve, we would not have been able to attain the resounding successes we have recorded since 2020.” Nami stated.

Describing the annual review as a “clear demonstration of political will for the actualisation of good governance,” Nami highlighted that it was the enablement provided by the Finance Act 2020 that gave the FIRS the powers to deploy its own digital tax administration solution, TaxPro Max with its attendant results.

“That single revolutionary amendment to the FIRS Establishment Act gave us the power to deploy our homegrown digital Tax Administration Solution called the TaxPro-Max. This platform allows for seamless electronic registration of taxpayers, electronic filing of returns, and payment of taxes.

“Consequently, it is not surprising that the FIRS was able to collect over N5 trillion between January this year to date while we are confident that we will achieve our total VAT target for the year,” Nami stated.

Taxation

FIRS To Commence Nationwide Monitoring On Tax Compliance

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…Visits to include MDAs, NGOs, and other corporate bodies

Olushola Okunlade Writes

The Federal Inland Revenue Service (FIRS) has stated that it would embark on a nationwide Value Added Tax (VAT) and Withholding Tax (WHT) compliance exercise from July 2022.

This information is contained in a public notice announcing the compliance monitoring exercise and signed by the FIRS Executive Chairman, Muhammad Nami.

The exercise is coming on the heels of an earlier notice by the Service to commence the enforcement and recovery of unremitted tax deductions owed to the Federation by some States and Local Governments.

The VAT and Withholding Tax Compliance Monitoring exercise will involve teams of FIRS officers visiting selected taxpayers and taxable persons to review their VAT and Withholding Tax records.

“The Federal Inland Revenue Service (FIRS) shall embark on a nationwide VAT and WHT compliance monitoring exercise with effect from July 1, 2022,” the notice reads.

“As a result, teams of officers from the Service shall visit selected taxpayers, taxable persons (including companies, NGOs or MDAs) to review their VAT and WHT records.”

In the notice, Mr. Muhammad Nami also highlighted that the exercise will cover the 2016 to 2020 accounting years for taxable persons whose records have been audited by the Service up to the 2015 accounting year.

He however noted that for taxpayers whose records have not been audited by the Service up to 2015, the exercise will be extended to include the prior years that have not been tax audited.

The Service also called on all taxable persons and tax agents to immediately remit deductions of VAT and Withholding Tax they have made on its behalf.

“All taxable persons or tax agents who have made deductions of VAT or WHT on behalf of the Service are required to immediately remit all such deductions to the FIRS within two weeks of this publication.”

The notice also stated that those who would be visited during the monitoring exercise will be notified and informed of the required documents for review beforehand.

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Taxation

FIRS To Commence Recovery Of Unremitted Tax Deductions By States, Local Governments

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FIRS Calls For Increased Collaboration Within African Countries To Effectively Tax Digital Businesses

Olushola Okunlade Writes

The Federal Inland Revenue Service (FIRS) has stated that it will commence the process of enforcement and recovery of unremitted tax deductions owed by some States and Local Governments in Nigeria.

This decision is contained in a Public Notice, signed by its Executive Chairman, Muhammad Nami, where the tax authority noted that most States and Local Governments have failed to remit the Service Withholding Tax (WHT) and Value Added Tax (VAT) deductions from payments made to contractors and service providers by them as required by law.

The Notice, highlighting relevant portions of the Companies Income Tax Act (CITA) and the Value Added Tax Act (VATA), stated that Ministries, Departments, and Agencies of Government, as well as Parastatals and other establishments, were mandated by law to deduct certain taxes while making payments to third parties and remit those deductions to the FIRS.

“The provisions of Sections 78(3), 79(3), 81 of the Companies Income Tax Act (CITA), and Sections 9(I), 13(1) of the Value Added Tax Act (VATA), mandate Ministries, Departments and Agencies of Government (MDAs), Parastatals and other establishments to deduct WHT and VAT while making payments to third parties and remit same to the Service.

“By the provisions of the relevant laws, States and Local Governments are statutorily mandated, as agents of collection, to deduct at source and remit to the Service, all taxes deducted, within twenty-one days,” the Notice read.

It further stated that most States and Local Governments have failed to comply with these provisions of the law, despite appeals from the FIRS.

“However, it is regrettable to note that most of the States and Local Governments have failed in their responsibilities of remitting WHT and VAT deducted from payments made to contractors and service providers as required by law.

“The implication is the huge tax debts owed by the States and Local Governments.

“All entreaties by the Service to ensure the remittance of the established unremitted tax deductions by the defaulting States and Local Governments have been unsuccessful as a result of lack of cooperation in adopting the e-payment platforms provided by the FIRS for a seamless deduction and remittance of these taxes.”

Following the failure to remit by defaulting States and Local Governments, the FIRS has stated that it will consequently advise the Federal Government and the Honourable Minister of Finance, to henceforth decline approval of any request for the issuance of state bonds or other securities in the capital market; as well as requests for external borrowing and approval for domestic loans from commercial banks or other financial institutions by any of the State and Local Governments with outstanding unremitted tax deductions.

The tax authority stated that it would also publicly name and shame the defaulting States and Local Governments while publishing the amounts owed in unremitted tax deductions.

It further stated that it would also invoke the provisions of Section 24 of its Establishment Act which empowers the Accountant General of the Federation to deduct at source, from the monthly FAAC allocations, un-remitted taxes due from any government agency and to thereafter transfer such deductions to the Federation Account and notify the Service.

The FIRS called on all defaulting States and Local Governments to promptly remit all unremitted tax deductions within 30 days of the publication of the Notice to avoid it taking these enforcement actions.

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Taxation

Nigeria Did Not Endorse The OECD Minimum Corporate Tax Agreement In The Country’s Best Interest – FIRS

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2021 Performance: “We Achieved Over 100 Percent Of Our Target” – FIRS

Nigeria Did Not Endorse The OECD Minimum Corporate Tax Agreement In The Country’s Best Interest – FIRS

Olushola Okunlade Writes

Nigeria’s cautious approach to the endorsement of the Organization for Economic Cooperation and Development (OECD)/ G20 Inclusive Framework’s two-pillar solution to the taxation of the digital economy is in the best interest of the country, and to ensure that Nigeria does not lose out on potential revenue from the digital economy.

This was explained in a statement issued to the press by the Executive Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami, on Monday.

Explaining in his statement, why the agreement is unfair to Nigeria and the developing countries in general, Muhammad Nami stated that the country, having reviewed the conditions of the agreement had concerns over the impact that the signing of the agreement would have on the country’s tax system and tax revenue generation.

“There are serious concerns on how the rules would compound the issues in our tax system. For instance, to be able to tax any digital sale or any multinational enterprise (MNEs), that company or enterprise must have an annual global turnover of €20 billion and global profitability of 10%. That is a concern. This is because most MNEs that operate in our country do not meet such criteria and we would not be able to tax them.

“Secondly, the €20 billion global annual turnovers in question is not just for one accounting year, but it is that the enterprise must make €20 billion revenue and 10% profitability on average for four consecutive years, otherwise that enterprise will never pay tax in our country, but in the country where the enterprise comes from, or its country of residence,” the statement read.

Thirdly he noted that for Nigeria to subject a Multinational Enterprise to tax under the rule, the entity must have generated at least €1 million in turnovers from Nigeria within a year.

Mr. Muhammad Nami stated that this is an unfair position, especially for domestic companies which, with a minimum of above N25 million (that is about €57,000) turnover, are subject to companies’ income tax in Nigeria. He added that this rule will take off so many Multinational Enterprises from the scope of those that are currently paying taxes to Nigeria. In other words, even the MNEs that are currently paying taxes in Nigeria would cease to pay taxes to us because of this rule.

Fourthly, on the issue of dispute resolutions under the Two-Pillar Solution, the FIRS Executive Chairman explained that the rules were such that in the event of a dispute between Nigeria and a Multinational Enterprise, Nigeria would be subject to an international arbitration panel against Nigeria’s own justice system.

“It would be subject to international arbitration and not Nigeria’s judicial system and laws—even where the income is directly related to a Nigerian member of an MNE group, which is ordinarily subject to tax in Nigeria on its worldwide income and subject to the laws of Nigeria. We are concerned about getting a fair deal from such a process. More so, such a dispute resolution process with a Multinational Enterprise, in an international arbitration panel outside the country, would lead to heavy expenses on legal services, traveling, and other incidental costs.

“Nigeria would spend more; even beyond the tax yield from such cases,” the statement read.

On the issue of Nigeria losing significant revenue if it fails to sign in to the OECD Inclusive Framework rules for the taxation of the digital economy, the FIRS Executive Chairman noted that this was not a problem as the country had already put forward four ongoing solutions to the challenge of taxation of the digital economy.

“One, we have made it a point of practice to annually amend our tax laws to reflect the current global realities, it was courtesy of these reviews that we developed the Significant Economic Presence (SEP) rule, through the Finance Act of 2019 and 2020. The SEP rules set a threshold for Multinational Enterprises, without a physical presence in Nigeria, for registration and payment of taxes to the country.

“Two, we have deployed technology in order for us to bring digital transactions to the tax net. Coupled with the Significant Economic Presence rule, we have started seeing the impact of the technology we have deployed; companies like Twitter, Facebook, Netflix, and LinkedIn, among others who have no physical presence in Nigeria and that were hitherto not paying taxes, have now registered for tax purposes and are paying taxes accordingly. A positive to this is that we surpassed our target in the year 2021, despite the challenge posed to the global economy, including our own economy, by the Covid-19 pandemic.

“The third initiative is the Data-4-Tax Initiative, a blockchain technology which FIRS is jointly developing with the Internal Revenue Service of the 36 states and that of the FCT, under the auspices of the Joint Tax Board. With this project, we are confident that we are going to have a seamless view and access to all economic activities of individuals and corporate bodies in Nigeria going forward, including money spent on digital commerce.

“The fourth is that we have set up a specialized office, the Non-Resident Persons Tax Office, to manage the taxation of non-resident persons and cross-border transactions, including all tax treaty operational issues and the income derived from Nigeria by non-resident individuals and companies,” the statement read.

The Executive Chairman, FIRS appreciated members of the Nigerian public who had raised concerns on various occasions over Nigeria’s decision not to endorse the Two-Pillar solution, stating that their concerns came from a place of genuine passion and patriotism, anchored on seeking a better Nigeria.

“The concerns over Nigeria’s decision not to endorse the agreement are well-understood by us. We know that these questions come from a place of genuine concern and passion for a better Nigeria. We appreciate your patriotism,” Mr. Nami said.

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