Stakeholders met Tuesday to fashion out a way to stop the practice of double taxation on Foreign Direct Investments.
The opening of the public hearing on the bill on ‘Agreements between United Kingdom of Sweden, Kingdom of Spain and the Republic of Korea with Federal Republic of Nigeria for avoidance of double taxation and prevention of tax evasion with respect to taxes on income and capital gains,” which was put together by the House Committee on Treaties, Protocols and Agreements provided a platform for them to proffer solutions to the problem.
The House of Representatives assured international community of its intention to honour various bilateral treaties, protocols and agreements including the ‘Avoidance of double taxation’
While addressing stakeholders during the opening of the public hearing on the bill Speaker of the House, Yakubu Dogara gave the assurance that the three Executive bills when passed into law will “lower the administration cost of taxation and encourage direct foreign investment (FDI) to the country.
Dogara who was represented by Chukwuka Onyema, Deputy Majority Leader said the legislative framework will “address complaints of a democratic deficit arising from the absence of consultation and in line with the legislative mandate of the House to ‘establish necessary legislative interventions that respond to national economic challenges.”
Double taxation avoidance agreements, he said, “are regular bilateral tax agreements between countries in this increasingly globalized world. Such an agreement tries to eliminate double taxation in the case of trans-national flow of income and is widely pursued to avoid a situation discouraging trans-national Economic activities.
“It also provides the fundamental guidelines for taxation of income that flow from one country to the other.”
Chairman, House Committee on Treaties, Protocols and Agreements, Yakub Balogun in an earlier speech noted that section 12(1) of the 1999 Constitution as amended provides that ‘No treaty between the Federation and any other country shall have force of law except to the extent to which any such treaty has been enacted into law by the National Assembly.’
The lawmaker explained the agreements seeks to “avoid double-taxing taxable items such as business profits, immovable property, dividends, fees, salaries, pensions and all forms of income accruing to resident individuals and corporate entities of the signatory country in the other contracting country.”
Babatunde Fowler, chairman, Federal Inland Revenue Services (FIRS) in his presentation said: “double taxation of income across borders could serve as barrier to the flow of goods, service, capital, technology, international traffic or other economic activities, hence the need for countries to come together to develop an agreement to eliminate double taxation, while double non-taxation or reduced taxation reduces potential government revenue.
“Avoidable of double taxation agreements do not impose new taxes” he said.
According to him, “the agreement seeks to allocate the taxing rights in the domestic tax laws of the two countries in accordance with international agreed tax rules, based on source and residency principles, in order to guide against double taxation, reduced taxation or non-taxation.”
Fowler said in Nigeria, the process leading to the conclusion of tax agreements include: negotiation of agreement; signing of agreement by the component Authority, ratification of agreement by Federal Executive Council; enactment of an Act by the National Assembly for domestication and enforcement of agreement in Nigeria, among others.
Dean for International Tax, Chartered Institute of Taxation of Nigeria (CITN) Moses Ibiloye, observed that the treaties are long overdue, adding that the treaties will facilitate exchange of information between revenue authorities of the two states and provide procedure for prompt resolution in time of conflict, disagreement or dispute.
His words: “Business making has changed the world over. For success to be recorded, it is important to place your market in the public domain so that investors can see and know the rules or laws. It gives them detailed information about the tax laws of your country and trade restriction”.
He said each of the treaties is fairly balanced, conducted in the spirit of give and take and that Nigeria’s interest have been properly taken care of. Incentives are given in line with the domestic tax laws to attract business investment from the contracting states, while not giving away Nigeria’s rights.
Ibiloye however lamented the number of treaties Nigeria has as well as the prolonged process of domestication of such treaties adding that bureaucratic process involved in the initiation and negotiation formed part of the delay.
He observed that Nigeria presently has 10 subsisting tax treaties compared to 50-100 in other countries of similar size with Nigeria.
“Some of the hurdles against procurement of tax treaty in Nigeria include bureaucratic process involved in the initiation, data gathering, correspondence and negotiation; constitutional requirements on treaty; legislative process as well as political structure as relating to taxation,” he said.
Ann Ameh, Senior Associate for PriceWater Chooper (PWC) on her part observed that previous ratified laws in Nigeria with respect to taxes covered residents and permanent establishment while rates of applicable WHT rates on interests, dividends and royalties. The reduced WHT rate of 7.5% is applicable to dividend, interest and royalties paid to members of both contracting States.
