The Nation Newspaper

Category: Taxation

  • Standard Integrated Government Tax Administration System (SIGTAS)

    Standard Integrated Government Tax Administration System (SIGTAS)

    Impact and Benefits for Taxpayers

    Following the implementation if SIGTAS solution, below are some of the impacts and benefits for taxpayers:

     

    • Single and unique TIN for taxpayers

    Prior to the deployment of Integrated Tax Administration System (ITAS), FIRS taxpayers were being registered and assigned FIRS Tax Identification Number (TIN) different from the TIN assigned by Joint Tax Board (JTB) resulting in taxpayers having more than one TIN.With the ITAS deployment, both federal and state taxpayers will be assigned one unique TIN from the JTB system, being the organization with the mandate to enroll taxpayers.

     

    • Centralized taxpayer registration

    JTB being the organization with the mandate to enroll taxpayers centrally for all tax authorities in the land serves as the centralized taxpayer registration point. The enrolment capabilities are extended technologically to the systems of the different tax authorities.

     

    • Integrated taxpayer’s tax account status across all tax types

    InITAS, tax accounts are created for the different tax types for all tax transactions, payments, interest, penalties and other related transactions that affect the balance of taxpayers. The status of the taxpayer’s performance in terms of tax liabilities across the different tax types can easily be viewed from the system. These tax accounts can be compared to the soft form of k-cards and it provides an integrated view of all tax transactions.

     

    • Redesigned tax forms

    The redesigned tax formsare the output of the Business Process Reengineering (BPR) project which is a sub-project in the ITAS Implementation project. One of the objectives was to redesign the ‘As Is’ (before the commencement of ITAS) form so that it will be simple both for automation,taxpayer’s usage and also to bring the forms in line with internationalbest practices.

     

    • Redesigned tax processes

    The introduction of the ITAS system will definitely affect FIRS’ tax processes positively. The adjustments made to the old process to conform to the system requirements gave rise to the redesigned processes. Tax processes were redesigned to stream-line redundant and non-value adding processes.

    • Automation of tax processes

    This is the transformation of the simplified and updated manual process into a system based process devoid of redundancies. The machine is made to carry out some standard tasks thereby, increasing process efficiency.

     

    • Increased automation of payment/refund administration

    The Project FACT introduced payment automation. The ITAS project is to leverage on that and introduce more payment platforms into the system. Tax refund is a complex process in FIRS marred by a number of manual interventions across different functions and departments of FIRS. The ITAS seeks to simplify the refund process by removing many of the manual interventions as is evident in the redesigned processes.

     

    • Interfaces (NCS, Interswitch, CBN,OAGF, IPA, JTB)

    These are third party systems/agencies that will interface with the ITAS for exchange of certain taxpayer information. ITAS will interface with NCS for import duty related transactions, Interswitch for payments, CBN for foreign tax payments and exchange rates, OAGF for MDAs tax remittance and JTB for centralized taxpayer registration.

     

    Benefits of SIGTAS

    • Automatic calculation of tax and penalty

    Tax calculations will be done by the system and it includes actual tax, penalties, interests etc.

     

    • Identifies taxpayer errors or omissions through tax declaration processing

    FIRS is currently running a Self-Assessment Regime which requires taxpayers to assess themselves, file and then make payments. However, the system will raise exceptions to mathematical errors and omissions at a certain stage of the declaration process. This helps to eliminate declaration errors.

     

    • Generate assessment notices, payment reminders and other taxpayer correspondence automatically.

    The system has the capacity to generate assessment notices, reminders and other correspondence automatically.

    Other Benefits include:

    • Automated payment posting and receipt generation

    • Provides an integrated view of taxpayer affairs across all tax types

    • Reduced cost of compliance

    Cost of compliance is reduced by the system in a number of ways:

    1.          It will reduce declaration errors to the minimum thereby reducing audit and investigation intervention.

    2.          The system can automatically send letters and reminders to taxpayers thereby requiring no human effort to remind the taxpayers of their tax obligation.

    3.          The system can automatically compute compliance gaps and communicate to taxpayers

     

    For more information on ITAS implementation, please contact Itas.changemanagement@firs.gov.ng

  • Integrated Tax Administration System (ITAS)

    Integrated Tax Administration System (ITAS)

    What is ITAS?

    • ITAS is an acronym for “Integrated Tax Administration System”

    What is SIGTAS?

    • SIGTAS is an acronym for “Standard Integrated Government Tax Administration System”

     

    What task is the ITAS Project set out to achieve?

    • To simplify and automate all Tax Administration processes

    Where is ITAS taking us?

     

    Who was contracted to supply and implement SIGTAS?

    • Telnet/CRC Sogema Consortium. CRC Sogema in collaboration with Telnet Nigeria Limited works as the Lead Solution Provider, core information system providers, and direct local support in the short term and project managers.

    • Telnet on the other hand, provides system integration and infrastructure, 3rd party system interface and BUS, and local maintenance and support in the medium to long term.

    Can you list expected benefits of the ITAS Project when completed?

    • Streamlined, efficient processes that make it easier for taxpayers and other stakeholders to interact with the Service

    • Reduced administrative costs to the service

    • Provision of a comprehensive repository of taxpayer information that makes it easier for FIRS to support and monitor the taxpayer base throughout the lifecycle of each taxpayer

    • Improved case management for audit, investigation and appeals

    • Increased voluntary compliance by taxpayers

    • Reduction in turnaround time for tax administration processes

     

    Can you list at least 5 tax administration processes identified for automation by the ITAS Project?

  • How to obtain, update and validate your Taxpayer Identification Number

    How to obtain, update and validate your Taxpayer Identification Number

    The Taxpayer Identification Number (TIN) is a  unique number allocated and issued to identify a person (individual or company) as a duly registered taxpayer in Nigeria.  It is for use by that taxpayer ALONE.  Registration for tax purposes is a legal obligation of every person who is required to pay tax in Nigeria.

    The following necessary details for obtaining and updating TIN should be presented to the tax office nearest to the address of the taxpayer.

     

    Obtaining TIN

    For a Company, Enterprise or Business registered with the Corporate Affairs Commission (CAC)

    1. Duly completed Application form for TIN;

    2. EITHER Certificate of Incorporation (for a company) OR Business Name Registration Certificate (for an Enterprise and Business) showing clearly the Registration Number in each case;

    3. Documents containing the following information:

    i. Address of Company, Enterprise or Business;

    ii. Principal location of business;

    iii. Date of Commencement of business.

     

    For an Individual who (or whose business) is not registered with the CAC

    1. Duly completed application form for TIN

    2. Any of the following valid (current) identification documents:

    • International passport;

    • National Identity Card;

    • Staff Identity Card (employed persons);

    • National Driver’s License.

    The following RULES are important:

    (i)         All information marked * on the application form MUST be provided;

    (Ii)        The characters of the NAME i.e. letters and other symbols constituting the name MUST NOT exceed two hundred (200);

    (iii)      The characters of the ADDRESS also MUST NOT exceed 200;

    (iv)       Email address must be UNIQUE and ACTIVE;

    (v)        Mobile Telephone Number MUST be 11 digits e.g. (08763201210).

     

    Updating TIN

    Updating TIN under the ‘National Single Window’ System is a requirement for taxpayers with incomplete records with Federal Inland Revenue Service (FIRS).

    TIN may be updated at the Tax Office where it was initially generated by providing the following additional information:

    1. Email Address;

    2. Phone Number.

    After updating, the system indicates that “The TIN has been successfully updated”.

    The Joint Tax Board TIN (JTB TIN)

    It is important for one to note the following information about the JTB TIN:

    (i)         The JTB TIN is designed to replace the TIN and is already in use within FIRS and several other states of Nigeria;

    (ii)        The major difference is that the JTB TIN has ten (10) digits, it is uniform and general across Nigeria. It is UNIQUE for every registered taxpayer in Nigeria and not limited to FIRS taxpayers alone;

    (iii)      The JTB TIN is being issued out at the point of registration and also updated by FIRS and the States which have so far adopted it;

    (iv)       Every taxpayer in Nigeria will, ultimately, be required to possess and use ONLY the JTB TIN.

     

    Validating TIN

    TIN validation is the process of confirming that the updated TIN meets the necessary conditions for transacting business with other Organisations such as Nigerian Customs Service (NCS), Central Bank of Nigeria (CBN), National Agency for Food and Drug Administration and Control (NAFDAC), etc.

    A taxpayer can validate his/her TIN directly on the FIRS Trade Portal; that is, www.trade.gov.ng/firs by following the simple procedure and rules below:

    (i)         Enter the TIN and the same email address that was provided to the tax office when updating;

    (ii)        NEXT, enter the security word (captcha) and click on “Validate”;

    (iii)      If the validation is successful, the following confirmation notice shall be displayed:

    “Register with NCS – Done”

    (iv)       THEN, an automatic email notification from “Nigeria single window” with a log-in password and instruction on how to complete the registration process would be sent to the taxpayer’s email address;

    (v)        Upon completing the validation exercise, an email will automatically be sent to the email address provided confirming successful validation. A taxpayer should therefore check the email, including spam folder.

     

    Authenticating TIN

    This is for the taxpayer to re-confirm his/her updated and validated TIN.

    A taxpayer experiencing difficulty in validating TIN (receiving Error Messages) should seek professional assistance from the Tax Office or send email to: tspd@firs.gov.ng or taxpayer.service@firs.gov.ng

  • Taxation of contract and direct labour procurement of Ministries, Departments and Agencies of government in Nigeria. (3)

    Taxation of contract and direct labour procurement of Ministries, Departments and Agencies of government in Nigeria. (3)

    Opadiran (1987) defined Direct Labour Procurement as a process by which a project is executed by the workers of an organization instead of the project being contracted out. It can simply be described as a ‘do it yourself’ approach to project procurement.

    Direct Labour could also be defined as a method of procurement whereby a client otherwise known as “the owner” uses his or her own in-house resources for the design and execution of a project. The in-house resources here will include both supervisory staff, skilled and unskilled labour force besides Equipment. Worthy of note in this system is the elimination of the contractor, which makes the direct labour method distinct from other procurement methods.

    According to Iyagba and Idoro (1995), Direct Labour method of procurement can take various forms among which are;

    Fully In-House Direct Labour

    Here the organization has the human resources in place for all the phases of the project. The organization pays the monthly wages or otherwise of the Human resources.

    Partially In-House Direct Labour

    Here the design and production information could be prepared by practicing consultants, while construction is handled by permanent personnel.

    Hire-Labour Direct Labour

    Here the project owners do hire of labour, machinery, purchase material and coordinate the construction work, possibly engaging a qualified professional for the management of the construction process.

    Self-help Type of Direct Labour

    Self-help construction where the inhabitants of a community are organized and mobilized with the direct labour establishments of a Government Ministry.

    Others are:-

    –            The developer provides the necessary recources, buys the necessary materials, hires the men and the machinery required, and mobilizes the resources on his own.

    –            Communal construction with the use of voluntary labour drawn from family members and friends.

    –            A self-help construction whereby the inhabitants of a community organize and mobilize themselves to execute a project.

    These arrangements were seen to originally represent the true context of direct labour construction. Based on the definition, the following comments are made on the different forms of Direct Labour presented above:-

     

    Contract can be inferred from the basis for payment by the project owner.

     

    a.          Cash advance to staff to be retired after the procurement – No contract

    b.          Payments for staff invoices – Contract (staff should not invoice his/her employer)

    c.          Payment to staff for third party invoices – Contract

    d.         Payment based on certificate of job completed – Contract

    Any Direct Labour Procurement must possess these characteristics to qualify as non contract procurement-

    a.          Ownership of procurement facilities – The Ministries, Department and Agencies of Government must use only the in-house resources for the design and execution of the project.

    b.          Absence of contractual relationship with both staff and non staff, in the procurement.

    c.          Payment should be through cash advance to staff. The cash advance must be retired at the end of the procurement and within approved limit.

     

    DIRECT LABOUR PROCUREMENT AND THE NIGERIAN TAX LAWS

     

    The schedule to the Companies Income Tax {Rate, etc of Tax deducted at source (Withholding Tax)} Regulations 1995 exempts those transactions which are, and indeed constitute “Outright sale or purchase of Goods and Property” and which take place “in the ordinary course of that particular kind of business”, from Tax deduction at source. Where a sale or purchase transaction becomes repetitive or habitual, it will not qualify for exemption. The sale of goods on a once-for –all basis will qualify for the exemption in so far as it meets the second condition. A sale takes place in the ordinary course of business when it takes place in the course of that particular business. Where, for instance, a trader sells goods directly to third parties, he will be seen as acting in the ordinary course of his business, that is, trading. However, where the trader enters into contract for the sale of the goods, he is no longer acting within his ordinary course of business, that is, trading, but has made an adventure into another business, that is, contracts. Further, a manufacturer who makes contractual sale or purchase is no longer acting within his ordinary course of business that is manufacturing, but has gone into another business, that is, contract. Although the manufacturer may use the items purchased or sold in his manufacturing business, the contractual arrangement for the sale or purchase will be subject to 5% withholding tax.

     

     Conclusion

    It is the Public Procurement Bureau’s Policy that Procuring Entities outsource those services that are either not part of their core business activity or for which there is a fluctuation requirement in the terms of specialist skills or equipment , or where the open market provides a more efficient and commercial alternative. It is also its policy that Services, Materials and Equipment shall be acquired by Procuring Entities at the most favourable terms compatible with the desired quality and delivery requirements, taking account of total life cycle costs and in a manner that safeguards and preserves the reputation of the procuring entity; and to support the development of an indigenous contractor base in Nigeria and particularly in the area in which the various Procuring Entities operate. Despite these comprehensive provisions in the Procurement Act and the Financial Regulations, many Government Agencies deliberately set aside contract award procedures in favour of Direct Labour Procurement option.

    The pertinent questions would be: – why are the MDAs interested in Direct Labour Procurement method? Could it be for better quality delivery, availability of more competent In-house staff, cost saving, non availability of competent contractors or Tax planning etc? Whatever the reasons, their actions should be guided by relevant Laws. They should be sure and ready to prove a case for Direct Labour in the Public Procurement Act, that they have ascertained:- that a schedule of rates, cost – plus or target contract would not be feasible, as quantities of work to be carried out cannot be defined in advance; that works are small and scattered or in remote locations with no local contractors and demobilization costs for outside contractors would be too high; that works must be carried out without disrupting existing operations; that the risk of unavailable work interruptions is better borne by procuring entity than by a contractor; that no contractor is interested in conducting the work at a reasonable price; that it has been demonstrated that Force Account (Direct Labour) is the only practical method for constructing and maintaining works under special circumstances; or that national security would be compromised if any other method was used. Any Tax planning that violates the provisions of the Tax laws is illegal.

    Some Government Accounting Officers are quick to argue that the reason for Direct Labour Procurement option is the absence of budgetary provision for the payment of VAT which are invoiced to them by the contractors. It is advisable that Accounting Officers of Ministries, Departments and Agencies of Government should include the VAT payable in the budget estimate for approval instead of violating the provisions of the relevant laws. From the content of the Financial Regulations and the Accountant General Circular of 2009, it is instructive to note that any payment for public procurement above Two Hundred Thousand Naira may not be accepted as a payment for Direct Labour, and could be deemed as Taxable Government Expenditure.

     

  • Taxation of contract and direct labour procurement of Ministries, Departments and Agencies of government in Nigeria. (1)

    The Nigerian Tax Laws have provisions for the
    Taxation of contract Expenditure including
    those of Government, Ministry, Department and Agencies. The withholding tax (WHT) provision was introduced into the tax system in 1997 with limited coverage to rent, dividends and directors fees. Tax deduction at source has since been expanded to include:
    – All aspects of building, construction and related services.
    – All types of contract and agency arrangement, other than outright sale and purchase of goods and property in the ordinary course of business.
    – Consultancy, technical and professional services.
    – Management services.
    – Commissions
    – Interest and Royalty.
    The introduction of WHT regime came about in order to address the problem of tax evasion although, there is the overriding objective of full disclosure, transparency, predictability and fairness.
    Despite the huge Tax Revenue from award of contract and related source deductions, there is a growing interest in the usage of direct labour system in project procurement in Nigeria especially in the public sector. Direct Labour system is one of the several options of procurement used for project delivery process. This type of system is regarded as in-house because procuring entity, as different from contractor’s staff carry out the project delivery process and activities. One of the reasons for the preference for direct labour procurement is the Tax effect. Government Ministries, Department and Agency consume the services of contractors and hence are to be charged VAT by contractors who execute contract for them.
    This paper is intended to highlight how Government Expenditures are taxed in Nigeria and the extent to which direct labour procurement can be a Tax evasion scheme. This paper will not in any way address Tax issues relating to Corporate and Individual Expenditures.

    THE PUBLIC PROCUREMENT ACT 2007 AND AWARD OF CONTRACT

    By the provisions of the Public Procurement Act 2007, the following should be noted about award of contract and Public Procurement:-
    i. Procuring Entities should outsource those services that are either not part of their core business activity or for which there is a fluctuating requirement in terms of specialist skills or Equipment, or where the open market provides a more efficient and commercial alternative.
    ii. The approval and maintenance of monetary and prior review thresholds is important for the faithful implementation of the PPA. The thresholds establish relevant approving authorities and methodologies. “Monetary Thresholds” is defined in the interpretative section of the Act to mean the value limit in Naira set by the Bureau outside of which an approving authority may not award a procurement contract.
    iii. Procurement to be executed:-
    a. by open competitive bidding, except as otherwise exempted;
    b. In a manner which is transparent, timely, and equitable for ensuring accountability and conformity with the Public Procurement Act and regulations deriving therefrom;
    c. With the aim of achieving value for money and fitness for purpose;
    d. In a manner which promotes competition, economy and efficiency; and
    e. In accordance with the laid down procedures and timelines.
    iv. Where the Bureau has set prior review thresholds, no funds shall be disbursed from the Treasury/federation Account/ or any bank account of any procuring entity for any procurement falling above the set thresholds unless the cheque, warrant or other form of request for payment is accompanied by a “Certificate of ‘No Objection’ to Award of Contract” duly issued by the Bureau.
    v. Subject to the monetary and prior review thresholds for procurements, the Parastatal Tenders’ Board of a government agency, Parastatal, or corporation or in the case of a ministry or extra-ministerial entity, the Ministerial Tenders’ Board shall be the Approving Authority for the conduct of public procurement.
    vi. The following procedure shall be observed by ministries, extra ministerial offices, and other arms of government in implementing their procurement plans, viz;
    a. Advertise and solicit for bids in accordance with guidelines prescribed by the Bureau from time to time;
    b. Invite two (2) credible persons as observers in every procurement process, one from a private sector professional organization relevant to the procurement and the other from non-government organization working in transparency, accountability and/or anti-corruption areas;
    c. Receive, evaluate and make a selection of the bids in accordance with prescribed guidelines;
    d. Obtain the approval of the tenders board for the award of contract to successful bidder.
    e. Obtain “certificate of ‘No objection’ to award contract” from the Bureau where contract is outside the threshold.
    vii.All bidders in addition to requirements contained in any solicitation documents shall:
    a.Possess the necessary:
    -Professional and technical qualifications to carry out particular procurement
    -Financial capability;
    -Equipment and other relevant infrastructure;
    -Shall have adequate personnel to perform the obligations of the procurement contracts.
    b. Possess the legal capacity to enter into the procurement contract
    c. Not be in receivership, the subject of any form of insolvency or bankruptcy proceedings or the subject of any form of winding up petition or proceedings
    d. Must have fulfilled all its obligations to pay taxes, pensions and social security contributions.
    viii. Procurement Approval Threshold (2012)

    ix. Reduction or Contract splitting is an offence in the Public Procurement Act.

    x. The Accounting Officer of every procuring entity shall be the person charged with the line supervision of the conduct of all procurement process; in the case of Ministries, the Permanent Secretary and in the case of Extra Ministerial Departments and Corporations, the Director General or Officer of Coordinate responsibility.

    xi. Procurement by Accounting Officers must be on the basis of approved quotation or Tender. Selection must be made from at least three quotations.

    xii. Section 19 of the Public Procurement Act 2007 specifies conditions for “Force Account” i.e Direct Labour, which should be executed within three months, to include

    -The procuring entity has ascertained that a schedule of rates, cost – plus or target contract would not be feasible, as quantities of work to be carried out cannot be defined in advance;

    -Works are small and scattered or in remote locations with no local contractors and demobilization costs for outside contractors would be too high;

    -Works must be carried out without disrupting existing operations;

    -The risk of unavailable work interruptions is better borne by procuring entity than by a contractor;

    -No contractor is interested in conducting the work at a reasonable price;

    -It has been demonstrated that Force Account (Direct Labour) is the only practical method for constructing and maintaining works under special circumstances; or

    -Where national security would be compromised if any other method was used.

     

  • What constitutes ‘trade’ for tax purpose

    What constitutes ‘trade’ for tax purpose

    Company Income Tax Act (CITA) states that “any trade or business for whatever period of time such trade or business may have been carried on” shall be subject to Companies Income Tax (Sec.9 (1)(a)). The profits of certain institutions are exempt from tax under CITA, but only in so far as such profits are not derived from ‘trade or business’ (Sec. 19(1) (a, b, c, e)). This means that the profits of any organization that are derived from ‘trade’ shall be subject to Companies Income Tax. This raises the question, what exactly constitutes ‘trade’?

    A definition of the word ‘trade’ cannot be found in Nigerian tax legislation although an attempt was made in Personal Income Tax Act (PITA). The interpretation of a Section of the Fifth Schedule of PITA defines “trade or business” to mean “trade or business or that part of a trade or business the profits of which are assessable under this Act”.

    However, the issue has been addressed in several legal cases, the rulings of which provide some legal certainty regarding how the courts interpret the word (see Section 2). In line with these rulings, ‘trade’ can be regarded as “the business of buying and selling or bartering goods or services”. Furthermore, the one-off nature of an activity in no way invalidates that activity as constituting trade. This interpretation matches the approach in other jurisdictions, namely the UK and USA (see Section 3).

    Case Law in Nigeria

    Although no explicit definition of ‘trade’ exists in the law, the issue has been addressed in several legal cases, the rulings of which provide some legal certainty regarding how the courts interpret the word. The most important case is that of Arbico Ltd v. FBIR, {1996} 2 All NLR 303. The plaintiff in the dispute, Arbico, had acquired a plot of land, erected a building, and sold the property at a profit. The company was subsequently assessed for tax on the proceeds of the sale of property The Company objected to the assessment on the basis that the transaction was a one-off and therefore did not constitute ‘trade’. The case was ultimately settled in the Supreme Court. In the ruling the Court laid down two important axioms:

    • Firstly, that the word ‘trade’ should be interpreted in its widest sense, in accordance with its common everyday meaning;

    • Secondly, that an isolated one-off transaction can still constitute a “trade”.

    In line with the ruling of the Supreme Court, the following definition seems to capture the common meaning of the word ‘trade’. Trade is “the business of buying and selling or barter in goods or services”(taken from Black’s Law Dictionary, Eighth Ed. (2004)).

    Treatment in Other Tax Jurisdictions

    In considering what constitutes ‘trade’ for tax purposes it is useful to consider how the issue is addressed in other jurisdictions.

    In the UK, as in Nigeria, there is no statutory definition of the word ‘trade’. Her Majesty’s Revenue and Customs (HMRC) relies on case law to formulate a working definition. HMRC states that “Usually, trading involves the provision of goods or services to customers on a commercial basis”. As in Nigerian case law, “Simply because a venture is a one-off or occasional does not mean that it will not be treated as trading for tax purposes”. It is interesting to note that although the HMRC definition employs the notion of ‘commercial basis’, HMRC explicitly states that whether or not the profits of an activity are ultimately used for charitable purposes is not relevant for the determination of whether or not that activity constitutes a trade.

    In the USA, the Internal Revenue Service (IRS) employs a similar approach to HMRC. IRS regards ‘trade’ as including “any activity carried on for the production of income from selling goods or performing services”. It is interesting to note how IRS treats the trading activities of an organisation that also carries out tax exempt activities. IRS states that “an activity does not lose its identity as a trade or business merely because it is carried on within a larger group of similar activities that may, or may not be related to the exempt purposes of the organizations. In other words, a single organisation can undertake both exempt activities and trading activities. This implies that an organisation cannot argue that none of its activities constitute ‘trade’ just because it undertakes some exempt activities.

    Badges of Trade

    In 1955 in England, the Royal Commission on the Taxation of Profits and Income in reaction to whether a statutory definition of trade was necessary, said that “each case must be decided to its own circumstance (1955 Cmnd.9474 para.116) and suggested badges of trade” which they considered to be the major relevant considerations that will facilitate in determining whether any profit is a taxable trading profit or not. Badges of trade refer to certain indicators that may be used in determining the factual question as whether an activity is trade or not. Case law has expanded it to 9. The badges of trade are:

    1. Profit seeking motive. An intention to make a profit supports trading, but by itself is not conclusive.

    2. The number of transaction. Systematic and repeated transactions will support ‘trade’. An isolated transaction may also constitute a trade.

    3. The nature of the asset. Is the asset of such a type or  amount that

    it can only be turned to advantage by a sale? Or did it   yield an income or give ‘pride of possession’, for example, a Picture for Personal enjoyment?

    4.Existence of similar trading transactions or interests. Transactions that are similar to those of an existing trade may themselves be trading.

    5. Changes to the asset. Was the asset repaired, modified or improved to make it more easily saleable or saleable at a greater profit?

    6. The way the sale was carried out. Was the asset sold in a way that was typical of trading organisations? Alternatively, did it have to be sold to raise cash for an emergency?

    7.The source of finance. Was money borrowed to buy the asset? Could the funds only be repaid by selling the asset?

    8.Interval of time between purchase and sale. Assets that are the subject of trade will normally, but not always, be sold quickly. Therefore, an intention to resell an asset shortly after purchase will support trading. However, an asset, which is to be held indefinitely, is much less likely to be a subject of trade.

    9.Method of acquisition. An asset that is acquired by inheritance, or as gift, is less likely to be the subject of trade.

    These ‘badges’ will not be present in every case and of those that are, some may point one way and some the other. The presence or absence of a particular badge is unlikely, by itself, to provide a conclusive answer to the question of whether or not there is a trade. The weight to be attached to each badge will depend on the precise circumstances.

      FIRS Position

    A definition of the word ‘trade’ cannot be found in Nigerian tax law. However, the issue has been addressed in several legal cases, the rulings of which provide some legal certainty regarding how the courts interpret the word. In line with these rulings, ‘trade’ can be regarded as “the business of buying and selling or bartering goods or services”. Where one or more of the criteria on the badges of trade apply, FIRS will treat such transaction as trade. Furthermore, the one-off nature of an activity in no way invalidates that activity as constituting a trade. This interpretation matches the approach in other jurisdictions, namely the UK and USA. The following decided cases are relevant in this regard:

    i In the case of Marlin Vs Lowry (1955)3 All ER 48; 11 TC 297), a person without previous knowledge of linen trade bought a surplus stock of aeroplane linen from government which he sold to the public in small lots. He engaged employees for the re-packaging and embarked on sales” promotion through extensive adverts and campaigns. It was held that he was trading.

    ii In Murray Vs I.R. Comrs (1951, 32 TC 238), where a timber merchant who bought standing timbers in two plantations and could not cut them due to labour cost, sold the rights to cut the timbers to meet his indebtedness. He was assessed to tax on the profit from the transaction. He contended that the sale was a capital transaction since it was not in the normal course of his business but it was held that the transaction was part of his normal trading as a timber merchant.

    iii In Burge Vs Pyne (1969, All ER 467), a club proprietor providing facilities for bar, dancing, cabaret, fruit machines and gambling, appealed against the inclusion of his winnings in his assessment. The appeal was dismissed on the ground that the winnings formed part of his regular income from the trade of running the club.

    From the foregoing and in accordance with the provisions of CITA, any friendly society, cooperative societies, charitable and ecclesiastical organizations or trade unions that carry out trade as defined and described above would be liable to tax on income derived from such trade.

  • VAT administration

    VAT administration

    Value Added Tax (VAT) is a form of consumption tax that has been embraced by many countries worldwide. Because it is a consumption tax, it is relatively easy to administer and difficult to evade. It is a tax only on value added to a product or service by its manufacturer or distribution. It is ultimately only the end consumer tax.

    The purpose of VAT is to generate revenue for the government.

     

    Key facts about VAT

    • The spending borne by the final consumer and it is invoice based

    • Chargeable at a flat rate of 5%.

    • Collected on behalf of the Government by registered persons

    • VAT is a tax on spending. The tax is borne by the final consumer of goods and services because it is included in the price paid.

    • The tax is at a flat rate of 5%.

    • The tax is collected on behalf of the Government by businesses and organisations which have registered with the Federal Inland Revenue Services (FIRS) for VAT purposes,

    • A business or organisation which has registered for VAT is classified as a “registered person”. Such persons will pay 5% VAT on goods and services purchases but can claim credit for this tax (called input tax) when sold.

    • Five per cent VAT (called output tax) is included in the price of all goods and services supplied by registered persons.

    • VAT returns (and payments) are normally made monthly to the FIRS Integrated Tax Office on or before 21st day of the month next following that in which the supply was made.

    No individual, business, organisation or government agency is exempted from the tax. Only some goods and services and specifically specified activities are exempted.

     

    Rational  and Nature of VAT:

    • It is a broader base tax.

    • It is also realised from imported goods.

    • VAT as a Consumption Tax is almost impossible to avoid by any consumer of a VATable products.

    • VAT is comparatively easy to administer and collect.

     

     Nature of VAT

    • VAT is a self-assessment tax, paid as the taxpayer renders returns. It has two parts:

    N’000

    i.     Output Tax                           xxx

    ii.    (Input Tax),                          (xxx)

    The net is VAT payable at due date for payment.                                                                                             xxx

     

    VATable Persons

    • A VATable person may be a trader, a professional, a group of professionals (Partnership), a corporate entity like a Public or Private Company, a duly registered Association, club or charity, so long as they are engaged in one form of Economic or Business activity.

    • Every VATable person has an obligation to register for VAT payment with the local tax office under whose jurisdiction it carries out its operations.

    • The registration covers all the business activities of the Vatable person or entity. A VATable person is expected to register with the FIRS for the purposes of the Tax, within six months of commencement of business operations.

    • Every contractor hoping to transact any business with any ministry, statutory body and other agencies of any of the three tiers of government, shall be expected to show evidence of VAT registration with the FIRS as a pre-condition for obtaining a contract.

     

    VAT Administration

    • VAT is administered and managed by the Federal Inland Revenue Service, while the Nigerian Customs Service (NCS) enforces the administration and collection of VAT on imports. The tax is collected on behalf of the government by businesses and organisations registered with the Federal Inland Revenue Service (FIRS) – Integrated Tax Offices for VAT purposes.

     

    VAT exempted goods

    • All medical and pharmaceutical products.

     

    • Basic food items

     

    • Baby Products

     

    • Educational materials: Book etc

     

    • Fertiliser, agricultural and veterinary medicine, agricultural machinery, including associated transportation equipment

     

    • All exports (Products), excluding non-oil exports, which enjoy zero-rated status.

     

    • Plant and machinery for use in the gas utilisation, Downstream operations in the petroleum Industry

     

    • Plants and machinery imported for use by cmpanies in the Export Processing Zone (EPZ) or Free Trade Zone, provided that 100% production of such companies are for export, otherwise tax shall accrue proportionately on the profits of the companies.

     

    • Commercial vehicles and associated spare parts.

     

    • Non-Oil exports

     

    • Goods purchased by diplomats

     

    • Goods purchased for use in Humanitarian Donor Funded Projects.

    “Humanitarian donor funded Projects” include projects undertaken by Non-Governmental Organisations (NGOs), religious and social clubs or societies recognised by law, whose activities are not for profit, and are in the public interest

     

    VAT Returns

    All registered VAT able entities have to make regular VAT returns and either pay to, or receive from the FIRS, the difference between the Input Tax and the Output tax. This effectively means that every registered business organisation is obliged to maintain records and accounts of all VAT able transactions. Records of supplies made and received include tax invoices, Cash Books, Sales and Purchase Day Books, Ledger Accounts, particularly VAT Accounts etc.

    Note

    To claim credit for Input tax, a registered person must produce a ‘Tax Invoice’. A Tax Invoice contains the following information:

    •Taxpayer’s name, address and VAT registration number and TIN number.

    •Customer’s name and address.

    •Nature and date of supply – description of goods or services supplied

    • Gross amount of transactions.

    •Rate of any cash discount offered.

    •Rate of VAT

    •Total Vat payable.

     

    Note

    A Tax Invoice shall be issued on supply, whether or not payment is made at the time of supply.

     

    Remittance  of VAT

    • All VAT able persons are to remit to their Local VAT Offices, the Net VAT payable (Excess of Output Tax over Input Tax) at the time of filing their VAT returns, which must be within 21 days of each transaction period.

     

    • Monthly remittances are to be made through the FIRS designated Banks to the Local VAT offices, which will thereafter issue receipts on confirmation of such payments.

     

    • With effect from May 25, 2007 however, all Vat able Persons Tax and other Tax collecting agents shall pay remittances direct into designated Federal Inland Revenue Service Accounts. All  Bank Account holders shall have a unique Tax Payer Identification Number (TIN) to be provided by the Federal Inland Revenue service.

     

    VAT sharing ratio

    In sharing the revenue derived from VAT to the three tiers of government, the Federal Government through its Revenue Allocation Commission applies the following sharing formula:

     

    • Federal Government                                   15%

     

    • State Governments & FCT Abuja           50%

     

    • Local Governments                                   35%

    100%

    Remittance of VAT and VAT Sharing ratio

    Offences and penalties

    • Failure to make attribution

    •Payment of N 5,000

    • Failure to notify change of address within a month of change

    •Payment of N 5,000

    • Failure to keep Records and Accounts

    •Payment of N2, 000 for every month the failure continues

    • Failure to collect tax

    •Payment of 150% of Tax not collected plus interest of 20% flat.

    • Failure to submit Returns

    •Payment of N5, 000 for every month the failure continues

    • Failure to issue Tax Invoice for goods sold/services rendered

    •Fine of 50% of cost of goods/services for which no Invoice was issued, on conviction

    • Evasion of VAT

    On conviction, a fine of N 30,000 or twice the amount of tax evaded- whichever is greater, or imprisonment for a term not exceeding three years.

  • VAT Administration

    VAT Administration

    Value Added Tax (VAT) is a form of consumption tax that has been embraced by many countries worldwide. Because it is a consumption tax, it is relatively easy to administer and difficult to evade. It is a tax only on value added to a product or service by its manufacturer or distribution. It is ultimately only the end consumer tax.

    The purpose of VAT is to generate revenue for the government.

     

    Key facts about VAT

    • The spending borne by the final consumer and it is invoice based

    • Chargeable at a flat rate of 5%.

    • Collected on behalf of the Government by registered persons

    • VAT is a tax on spending. The tax is borne by the final consumer of goods and services because it is included in the price paid.

    • The tax is at a flat rate of 5%.

    • The tax is collected on behalf of the Government by businesses and organisations which have registered with the Federal Inland Revenue Services (FIRS) for VAT purposes,

    • A business or organisation which has registered for VAT is classified as a “registered person”. Such persons will pay 5% VAT on goods and services purchases but can claim credit for this tax (called input tax) when sold.

    • Five per cent VAT (called output tax) is included in the price of all goods and services supplied by registered persons.

    • VAT returns (and payments) are normally made monthly to the FIRS Integrated Tax Office on or before 21st day of the month next following that in which the supply was made.

    No individual, business, organisation or government agency is exempted from the tax. Only some goods and services and specifically specified activities are exempted.

     

    Rational  and Nature of VAT:

    • It is a broader base tax.

    • It is also realised from imported goods.

    • VAT as a Consumption Tax is almost impossible to avoid by any consumer of a VATable products.

    • VAT is comparatively easy to administer and collect.

     

     Nature of VAT

    • VAT is a self-assessment tax, paid as the taxpayer renders returns. It has two parts:

    N’000

    i.     Output Tax                           xxx

    ii.    (Input Tax),                          (xxx)

    The net is VAT payable at due date for payment.                                                                                             xxx

     

    VATable Persons

    • A VATable person may be a trader, a professional, a group of professionals (Partnership), a corporate entity like a Public or Private Company, a duly registered Association, club or charity, so long as they are engaged in one form of Economic or Business activity.

    • Every VATable person has an obligation to register for VAT payment with the local tax office under whose jurisdiction it carries out its operations.

    • The registration covers all the business activities of the Vatable person or entity. A VATable person is expected to register with the FIRS for the purposes of the Tax, within six months of commencement of business operations.

    • Every contractor hoping to transact any business with any ministry, statutory body and other agencies of any of the three tiers of government, shall be expected to show evidence of VAT registration with the FIRS as a pre-condition for obtaining a contract.

     

    VAT Administration

    • VAT is administered and managed by the Federal Inland Revenue Service, while the Nigerian Customs Service (NCS) enforces the administration and collection of VAT on imports. The tax is collected on behalf of the government by businesses and organisations registered with the Federal Inland Revenue Service (FIRS) – Integrated Tax Offices for VAT purposes.

     

    VAT exempted goods

    • All medical and pharmaceutical products.

     

    • Basic food items

     

    • Baby Products

     

    • Educational materials: Book etc

     

    • Fertiliser, agricultural and veterinary medicine, agricultural machinery, including associated transportation equipment

     

    • All exports (Products), excluding non-oil exports, which enjoy zero-rated status.

     

    • Plant and machinery for use in the gas utilisation, Downstream operations in the petroleum Industry

     

    • Plants and machinery imported for use by cmpanies in the Export Processing Zone (EPZ) or Free Trade Zone, provided that 100% production of such companies are for export, otherwise tax shall accrue proportionately on the profits of the companies.

     

    • Commercial vehicles and associated spare parts.

     

    • Non-Oil exports

     

    • Goods purchased by diplomats

     

    • Goods purchased for use in Humanitarian Donor Funded Projects.

    “Humanitarian donor funded Projects” include projects undertaken by Non-Governmental Organisations (NGOs), religious and social clubs or societies recognised by law, whose activities are not for profit, and are in the public interest

     

    VAT Returns

    All registered VAT able entities have to make regular VAT returns and either pay to, or receive from the FIRS, the difference between the Input Tax and the Output tax. This effectively means that every registered business organisation is obliged to maintain records and accounts of all VAT able transactions. Records of supplies made and received include tax invoices, Cash Books, Sales and Purchase Day Books, Ledger Accounts, particularly VAT Accounts etc.

    Note

    To claim credit for Input tax, a registered person must produce a ‘Tax Invoice’. A Tax Invoice contains the following information:

    •Taxpayer’s name, address and VAT registration number and TIN number.

    •Customer’s name and address.

    •Nature and date of supply – description of goods or services supplied

    • Gross amount of transactions.

    •Rate of any cash discount offered.

    •Rate of VAT

    •Total Vat payable.

     

    Note

    A Tax Invoice shall be issued on supply, whether or not payment is made at the time of supply.

     

    Remittance  of VAT

    • All VAT able persons are to remit to their Local VAT Offices, the Net VAT payable (Excess of Output Tax over Input Tax) at the time of filing their VAT returns, which must be within 21 days of each transaction period.

     

    • Monthly remittances are to be made through the FIRS designated Banks to the Local VAT offices, which will thereafter issue receipts on confirmation of such payments.

     

    • With effect from May 25, 2007 however, all Vat able Persons Tax and other Tax collecting agents shall pay remittances direct into designated Federal Inland Revenue Service Accounts. All  Bank Account holders shall have a unique Tax Payer Identification Number (TIN) to be provided by the Federal Inland Revenue service.

     

    VAT sharing ratio

    In sharing the revenue derived from VAT to the three tiers of government, the Federal Government through its Revenue Allocation Commission applies the following sharing formula:

     

    • Federal Government                                   15%

     

    • State Governments & FCT Abuja           50%

     

    • Local Governments                                   35%

    100%

    Remittance of VAT and VAT Sharing ratio

    Offences and penalties

    • Failure to make attribution

    •Payment of N 5,000

    • Failure to notify change of address within a month of change

    •Payment of N 5,000

    • Failure to keep Records and Accounts

    •Payment of N2, 000 for every month the failure continues

    • Failure to collect tax

    •Payment of 150% of Tax not collected plus interest of 20% flat.

    • Failure to submit Returns

    •Payment of N5, 000 for every month the failure continues

    • Failure to issue Tax Invoice for goods sold/services rendered

    •Fine of 50% of cost of goods/services for which no Invoice was issued, on conviction

    • Evasion of VAT

    On conviction, a fine of N 30,000 or twice the amount of tax evaded- whichever is greater, or imprisonment for a term not exceeding three years.

  • Taxation of contracts and direct labour procurement of MDAs (3)

    Opadiran (1987) defined Direct Labour Procurement as a process by which a project is executed by the workers of an organisation instead of the project being contracted out. It can simply be described as a ‘do it yourself’ approach to project procurement.

    Direct Labour could also be defined as a method of procurement whereby a client otherwise known as “the owner” uses his or her own in-house resources for the design and execution of a project. The in-house resources here will include both supervisory staff, skilled and unskilled labour force besides equipment. Worthy of note in this system is the elimination of the contractor, which makes the direct labour method distinct from other procurement methods.

    According to Iyagba and Idoro (1995), Direct Labour method of procurement can take various forms among which are;

     

    Fully in-house direct labour

    Here the organisation has the human resources in place for all the phases of the project. The organisation pays the monthly wages or otherwise of the human resources.

     

    Partially in-house direct labour

    Here the design and production information could be prepared by practicing consultants, while construction is handled by permanent personnel.

     

    Hire-labour direct labour

    Here the project owners do hire oflabour, machinery, purchase material and coordinate the construction work, possibly engaging a qualified professional for the management of the construction process.

     

    Self-help type of direct labour

    Self-help construction where the inhabitants of a community are organised and mobilised with the direct labour establishments of a ministry.

    Others are:

    – The developer provides the necessary recources, buys the necessary materials, hires the men and the machinery required, and mobilises the resources on his own.

    – Communal construction with the use of voluntary labour drawn from family members and friends.

    – A self-help construction whereby the inhabitants of a community organise and mobilise themselves to execute a project.

    These arrangements were seen to originally represent the true context of direct labour construction. Based on the definition, the following comments are made on the different forms of Direct Labour presented above:

     

    Forms contract implication

    Fully in-house direct labour. No contract Partially In-house Direct Labour Design and production of information by third parties are contracts.

    Hire-Labour Direct Labour Hire of labour,machinery, qualified professionals and contract purchase of materials will not qualify as direct labour. Cash purchase of materials may qualify.

    Self-help type of Direct Labour Direct Labour of the Direct Labour Establishment of the Ministry.  Others may qualify as direct labour when executed through cash advance to a staff of the MDA within approval limit. They may not qualify when managed by a third party.

    Contract can be inferred from the basis for payment by the project owner.

    a. Cash advance to staff to be retired after the procurement: No contract

    b. Payments for staff invoices: Contract (staff should not invoice his/her employer)

    c. Payment to staff for third party invoices: Contract

    d. Payment based on certificate of job completed: Contract

    Any Direct Labour Procurement must possess these characteristics to qualify as non contract procurement.

    a. Ownership of procurement facilities: The ministries, Department and agencies of government must use only the in-house resources for the design and execution of the project.

    b. Absence of contractual relationship with both staff and non staff, in the procurement.

    c. Payment should be through cash advance to staff. The cash advance must be retired at the end of the procurement and within approved limit.

     

    Direct labour procurement and the nigerian tax laws

    The schedule to the Companies Income Tax {Rate, etc of Tax deducted at source (Withholding Tax)} Regulations 1995 exempts those transactions which are, and indeed constitute “Outright sale or purchase of goods and property” and which take place “in the ordinary course of that particular kind of business”, from Tax deduction at source. Where a sale or purchase transaction becomes repetitive or habitual, it will not qualify for exemption. The sale of goods on a once-for – all basis will qualify for the exemption in so far as it meets the second condition. A sale takes place in the ordinary course of business when it takes place in the course of that particular business. Where, for instance, a trader sells goods directly to third parties, he will be seen as acting in the ordinary course of his business, that is, trading. However, where the trader enters into contract for the sale of the goods, he is no longer acting within his ordinary course of business, that is, trading, but has made an adventure into another business, that is, contracts. Further, a manufacturer who makes contractual sale or purchase is no longer acting within his ordinary course of business that is manufacturing, but has gone into another business, that is, contract. Although the manufacturer may use the items purchased or sold in his manufacturing business, the contractual arrangement for the sale or purchase will be subject to five per cent withholding tax.

     Conclusion

    It is the Public Procurement Bureau’s Policy that procuring entities outsource those services that are either not part of their core business activity or for which there is a fluctuation requirement in the terms of specialist skills or equipment , or where the open market provides a more efficient and commercial alternative. It is also its policy that services, materials and equipment shall be acquired by procuring entities at the most favourable terms compatible with the desired quality and delivery requirements, taking account of total life cycle costs and in a manner that safeguards and preserves the reputation of the procuring entity; and to support the development of an indigenous contractor base in Nigeria and particularly in the area in which the various procuring entities operate. Despite these comprehensive provisions in the Procurement Act and the Financial Regulations, many Government Agencies deliberately set aside contract award procedures in favour of direct labour procurement option.

    The pertinent questions would be:  why are the MDAs interested in direct labour procurement method? Could it be for better quality delivery, availability of more competent In-house staff, cost saving, non availability of competent contractors or Tax planning etc? Whatever the reasons, their actions should be guided by relevant Laws. They should be sure and ready to prove a case for direct labour in the Public Procurement Act, that they have ascertained:- that a schedule of rates, cost – plus or target contract would not be feasible, as quantities of work to be carried out cannot be defined in advance; that works are small and scattered or in remote locations with no local contractors and demobilization costs for outside contractors would be too high; that works must be carried out without disrupting existing operations; that the risk of unavailable work interruptions is better borne by procuring entity than by a contractor; that no contractor is interested in conducting the work at a reasonable price; that it has been demonstrated that Force Account (Direct Labour) is the only practical method for constructing and maintaining works under special circumstances; or that national security would be compromised if any method was used. Any tax planning that violates the provisions of the tax laws is illegal.

    Some government accounting officers are quick to argue that the reason for Direct Labour Procurement option is the absence of budgetary provision for the payment of VAT which are invoiced to them by the contractors. It is advisable that Accounting Officers of Ministries, Departments and Agencies of Government should include the VAT payable in the budget estimate for approval instead of violating the provisions of the relevant laws. From the content of the Financial Regulations and the Accountant-General Circular of 2009, it is instructive to note that any payment for public procurement above N200,000 may not be accepted as a payment for Direct Labour, and could be deemed as Taxable Government Expenditure.

     

  • Taxation of contract and direct labour procurement of Mdas (2)

    Taxation of contract and direct labour procurement of Mdas (2)

    The Financial Regulations, 2009, stipulates:

    i. The government contracts are made in accordance with the ordinary law of contract through offer by one party and acceptance by the other.

    ii. The Public Procurement Act, 2007(PPA) provides detailed requirements and guidelines for procurement contracts in respect of goods and services in the public sector i.e. Ministries, extra-Ministerial offices, other arms of Government

    iii. (A) The Public Procurement Act applies to all procurements made by the following Federal Government Agencies, viz:-

    (a) All Ministries, extra-Ministerial offices, other arms of Government; and

    (b) All agencies of government that derive at least 35% of their operational funds through appropriation from the Consolidated Revenue Fund.

    (B) The Act does not apply to procurements of special goods, works and services involving national security unless the express approval of the President has been first sought and obtained.

    iv. All procurement contracts by all Ministries, extra-Ministerial offices, and other arms of government shall be executed in a manner that shall be prescribed and allowed by the Bureau for Public Procurements.

    v. All bidders in a contract for public procurement must show proof of eligibility for the award of the contract. They must prove the following amongst others, viz:

    (a) They possess the necessary technical qualification

    (b) They possess the machinery, equipment and manpower for the job;

    (c) They have the legal capacity to enter into the contract i.e. they are not under a receivership nor are they insolvent;

    (d) They are not tax evaders; and

    (e) None of their directors has been convicted in respect of any offence! Crime involving fraud, financial misappropriation or falsification of records.

    vi. Persons who have been involved in the preparation of procurement proceedings shall not qualify to bid for the procurement either as a main contractor or sub-contractor.

    vii. Advances of non-personal character shall be authorized by the Minister of Finance, except advances created under the authority of Financial Regulation 2524 or advances of up to N50,000 approved by the Accounting Officer. Applications for Non-Personal Advance must state the reason for the advance, the method of clearance and the person to be held responsible for clearing the advance.

    viii. In the disbursement of funds for Non-Personal Advance for project/Special Programmes, the leader of the project/Special programmes shall’ be the Accounting Officer and shall approve all payments, while an Accountant of an appropriate grade shall be attached to each project/special programmes and have responsibility for the disbursements as well as retirements of the Non-Personal Advances.

    By the content of Accountant General for the Federation’s circular on the operation of year 2009 General imprest warrant, the following became applicable:

    i. All Accounting officers in the three arms of government, including ministries, extra-ministerial offices and agencies, are authorised to approve funds to eligible imprest holders.

    ii. The limit of reimbursable imprests shall be as follows:

     

    Designation of imprest holder  limit of reimbursable imprest

    N

    Hon. Minister

    Permanent Secretary/Director General            – 300,000.00

    Director                                                 –                                  200,000.00

    Head of Unit or Branch in States                         – 100,000.00

    Or any other imprest Holder                                – 60,000.00

    iii. The frequency of reimbursement of any standing imprest shall normally be once in a quarter and shall not exceed twice in a quarter where the need arises.

    iv. All accounting officers and officers controlling expenditure are to ensure that all local procurement of stores and services costing above N200,000 shall be made only through award of contracts.

     

    Source deductions and the tax laws

    By the content of FIRS Circular No 9801 of 1998, it is explicit that all types of contract payment, whether on oral or written contract will attract Tax deduction. Where, for example, there is a written contractual sale of goods or materials by the government or a trading concern to another, the payment for the transaction will be subject to withholding tax at five per cent. Similarly, where there is no written contract but through an arrangement, a government or company places an order for purchase from another company, such a transaction must also attract withholding tax at five per cent. Therefore, on the whole, it must be understood that as long as a contract can be read into the actions of two or more persons or companies/enterprises, such transaction must attract withholding tax at five per cent.

    The Federal Inland Revenue Service Establishment Act 2007 in:

    i. Section 25 (2) states: The Service may, with the approval of the Minister by Instrument published in the Federal Gazette, appoint any Government Agency to collect revenue pursuant to the power of the Service under subsection (1) of this section.

    ii. Section 24 states that the Accountant-General of the Federation shall have power to deduct at source, from the budgetary allocation, un-remitted taxes due from any Ministry or Government Agency and shall not later than 30 days therefore transfer such deductions to the Service.

    iii. Section 40 of FIRS Establishment Act 2007 provides that; Any person who is being obliged to deduct any tax under this Act or the taxes listed in the First Schedule to this Act, but fails to deduct, or having deducted fails to pay to the Service within 30 days from the date the amount was deducted or duty to deduct arose, commits an offence and shall, upon conviction, be liable to pay the tax withheld or not remitted in addition to a penalty of 10 per cent of the tax not remitted per annum and interest at the prevailing Central Bank of Nigeria Re-discount rate and imprisonment for a period of not more than three years.

    By the provision of the Companies Income Tax [Rates etc, of Tax Deduction at Source (Withholding Tax)] Regulations of 1995

    i. Persons qualified to deduct tax at source include body, corporate, and unincorporated, a government Ministry, Department and Agency, a local Government, a Statutory body, a public authority and any other Institution, Organization, Establishment and Enterprises which operates Pay-As-You-Earn scheme.

    ii. A deduction made from any payment shall not be regarded as an additional cost of the contract to be in the contract price but as Tax due on the payment.

    iii. A person who deducts tax from a payment shall, when the payment is credited or paid, whichever is earlier, submit to the relevant officer of the Federal Inland Revenue Service, the evidence of remittance made to the designated branch of the collecting bank of the Tax deducted.

    iv. Payments from which tax is to be deducted and the rate as follows:-

     

    WHT Rate for CompaniesWHT Rate for Individual

    Dividend, interest & Rent        10%                                             10%

    Royalties                                            15%                                              15%

    Commissions, Consultancy, Technical &Mgt

    10%                                      5%

    Construction                                  5%                                               5%

    Contract of Supplies                   5%                                               5%

    Director’ Fees                                  10%                                              10%

     

    v. Withholding Tax deduction at source covers:-

    – All aspects of building, construction and related services.

    – All types of contract and agency arrangement, other than outright sale and purchase of goods and property in the ordinary course of business.

    – Consultancy, Technical and Professional services

    – Management services

    – Commissions

    – Interest and Royalty

    – Rent and Dividend

     

    The Value Added Tax Act, CAP VI LFN 2004 states:

    i. Every Government Ministry, Statutory body, or other Agency of Government shall register as agent of the Board for the purpose of collection of Tax under the VAT Act.

    ii. Every contractor transacting business with Government Ministry, Statutory body and other agency of the Federal, State and Local Government shall produce evidence of registration with the Board as a condition for obtaining contract.

    iii. Every Government Ministry, Statutory body, or other Agency of Government shall, at the time of making payment to the contractor remit the Tax charged on the contract to the nearest Tax Office. The remission shall be accompanied with a schedule showing the name and address of the contractor, invoice number, gross amount of invoice, amount of Tax and month of return.

    iv. Value Added Tax is a tax on consumption of VAT able good and services as consumers of goods and services, ministries, parastatals and other agencies of Government pay VAT on their consumption in addition to the contract price of the item consumed by them.

    v. Rate of Tax for VAT: 5% for all VAT able items of goods and services, except for Zero rated goods and services where they are specifically exempt by the VAT Decree.

    vi. Payment for contract of supply of Vat able goods and services will suffer deduction of VAT.

    vii. Payment for contract of supply of non VAT able goods or services will not suffer VAT deduction.

    viii. Goodsexempt are-

    a. All medical and pharmaceutical products.

    b. Basic food items

    c. Books and educational materials

    d. Baby products

    e. Plant, machinery and goods imported for use in the export processing zone or free trade zone. (provided that 100% production of such company is for export otherwise tax shall accrue proportionately on the profits of the company

    f. All exports

    g. Plant, machinery and equipment purchased for utilization of gas in downstream petroleum operations.

    h. Tractors, ploughs and agricultural implements purchased for agricultural purposes.

     

    ix. Services Exempt are:

    a. Medical services

    b. Services rendered by community Banks, People Banks and Mortgageinstitutions.

    c. Plays and performances conducted by educational institutions as part of learning

    d. All exported services

     

    x. Zero Rated Goods and Services are-

    a. Non-oil exports

    b. Goods and services purchased by diplomats

    c. Goods and services purchased for use in humanitarian donor funded projects. (Humanitarian donor funded projects undertaken by Non-Governmental Organizations and Religious and Social clubs or Societies recognized by law whose activity is not for profit and in the public interest.)