…TETFund to get 50 percent of development levy
Wages earned by military personnel, funds accruing to religious bodies, pension funds, profit-oriented schools, trade unions, and cooperative societies will be exempted from taxation once the newly passed tax reform bills take effect.
The Tertiary Education Trust Fund (TETFund) is set to receive 50% of revenues generated from the development levy contained in the tax reform bills recently approved by the House of Representatives.
Despite initial controversies surrounding the introduction of the four bills, the House, after a three-day public hearing and an eight-day retreat, unanimously adopted the recommendations of its Special Adhoc Committee on Finance during plenary on Thursday.
The Senate is expected to consider and pass its version of the bills this week, while the House is scheduled to conduct the third reading and final passage at plenary on Tuesday.
Sources close to the House leadership told The Nation that diplomatic efforts led by Speaker Abbas Tajudeen played a key role in securing smooth deliberations and approval of the bills.
To prioritise their passage, the House suspended all other scheduled items to focus on the tax reform bills, following the submission of the committee report by James Abiodun Faleke, Chairman of the Finance Committee, on Tuesday.
As part of effort at ensuring smooth passage of the bills, the Speaker had asked every member to return to their constituencies to collate the view of Nigerians, meet at state and zonal caucus levels to harmonise positions as well as hold strategic meetings with stakeholders before the bills were subjected to second reading.
After the second reading, the Speaker expanded the House Committee on Finance by adding all regional Leaders, zonal caucus leaders and one representative each from the 36 states as well as members of the House who are experts on tax matters.
The source said “the Speaker did not stop at that. He constantly engaged members and other Nigerians on the need to support the government reform plans as it will ensure that more money will be available for governance activities in the country.
“By the time the bills were read for the second time and public hearing conducted, the Speaker had gotten the buy in of all those who were opposed to the bills. While the committee was collating the report, the Speaker again met with members to prepare the ground for the submission and consideration.
“The outcome of those engagement was a reflection of what you saw on the floor of the House were there was no singe dissenting voice even though the session was well attended
The four bills made far reaching recommendations aimed at revolutionalising the nation’s tax system and improve revenue generation while repealing several tax laws in the country and amending others.
While establishing the Tax Appeal Tribunal, the Joint Tax Board bill provides for the funding of the agency from the Consolidated Revenue Fund, as may be appropriated by the National Assembly, with power to adjudicate on tax disputes, and controversies arising from Nigeria Tax Act and Nigeria Tax Administration Act or any other tax law made by the National Assembly or the House of Assembly of a State.
The bill which expands the Tribunal’s jurisdiction to cover all federal and state tax laws, with power to adjudicate only on tax disputes said “the Tribunal shall apply such provisions of the laws referred to in subsection (1) of this section as may be applicable in the determination or resolution of any dispute or controversy before it”.
Also, the office of the Tax Ombudman to be created is to be funded from the Consolidated Revenue Fund, as a way of ensuring an independent funding structure to guarantee the financial stability and operational autonomy of the Office.
Under the Nigeria Tax Administration Bill, the relevant tax authority is to issue a Tax ID to every taxable person in the country, both private and corporate, adding however that “where a relevant tax authority refuses to register or issue a Tax ID upon request, … the relevant tax authority shall, within five working days of the decision, notify that person of the refusal with reasons”.
Every company, whether granted exemption or not is expected to file a self assessment tax return with the Revenue service at least once a year with the return containing a duly completed self-assessment form, the audited financial statements, tax and capital allowances computation for the year of assessment in respect of the profit from each and every source computed, provided that the return of a small company may contain a statement of accounts attested to by the taxpayer in place of audited financial statements.
It is also be accompanies by an evidence of payment of the tax due; computation of the effective tax rate and additional tax payable, where applicable; and an attestation of the information contained in the tax returns signed by a Principal Officer of the company.
It also provides that where a company permanently ceases operation in Nigeria, the company shall file the returns for the year of cessation and any outstanding return within six months of cessation.
It said “Subject to this Act, any tax law or regulation, the time of filing returns shall be — (a) in the case of a company that has been in business for more than 18 months, not more than six months after the end of its accounting year; (b) in the case of a newly incorporated company, within 18 months from the date of its incorporation or not later than six months after the end of its first accounting period, whichever is earlier; or (c) in the case of a company that permanently ceases to carry on trade or business in Nigeria, not later than three months from the date the company permanently ceases to carry on the trade or business in Nigeria”.
The require every taxable person in the country to submit a VAT return to the Revenue Service every month whether or not an economic activity has taken place before 21st of the following month whether or not the service made a formal demand for it
It said further where the Service grants an extension of the period for filing the returns, such extension shall not imply the extension of time to pay the tax, adding that the returns shall contain the input tax paid, output tax collected and Value Added Tax payable in respect of all taxable supplies in the preceding month.
Also, a company that ceases to operate as a small business is also expected to file monthly VAT returns.
On the Value Added Tax Fiscalisation System, the law provides that “Where the Service deploys an Electronic Fiscal System (EFS), any person making a taxable supply shall use the EFS for recording and reporting all supplies. Taxable persons shall be responsible for maintaining accurate records of all transactions passing through the EFS. The Service shall specify the fiscalisation system to be adopted and a transition arrangement for its implementation”.
It will now be mandatory for every bank, insurance company, stockbroking firm, or any other financial institution to submit to the Revenue Service annual returns specifying the names, customer location and transactions of new and existing customers in the case of — individual, where the cumulative transactions in a month amount to N50,000,000.00 or more, or (ii) a body corporate, where the cumulative transactions in a month amount to N250,000,000.00 or more.
The law also said that “Every bank, insurance company, stock-broking firm, other financial institution, or any other legal arrangement shall, as may be prescribed by way of notice, rules, regulations, guidelines, or circulars issued by the relevant tax authority prepare and submit returns of — (a) transactions involving the specified sum; (b) names, addresses, including foreign addresses, or any other information of its customers connected with those transactions;
It however said that notwithstanding the provision of subsection (3) of this section a person engaged in banking business in Nigeria, shall not be required to disclose any additional information about his customer or his bank under this section unless such additional disclosure is required by a notice signed by the Chief Executive Officer of the relevant tax authorities
It makes provision for the revocation of petroleum or mining licence or lease saying “where any petroleum or mineral royalty or tax due and payable by any company engaged in petroleum or mining operations under this Act, is unpaid after a demand notice has been issued to the company, the Service shall notify the Commission or the relevant ministry or agency of such default for the revocation of the licence or lease under the relevant Act.”
The law recommend that the President seeks the approval of the National Assembly to exempt any company from payment of income tax, provided that the order is published in the official Gazette stating the grounds upon which the exemption is granted to the company or the class of companies, while granting the President the power to amend or repeal the exemption.
It states that sufficient ground for such a waiver must however be provided, a provision which the Chairman of the House Committee on Finance, James Abiodun Faleke said is aimed at preventing unnecessary lose of revenue to such waivers and exemptions.
The law also mandates the Accountant-General of the Federation to deduct all unremitted revenue due from any Ministry, Department, Agency or Government from its budgetary allocation or such other money accruing to it, and immediately remit such deductions to the relevant tax authority not later than 30 days of receiving a resolution of the National Assembly, and in accordance with the Fourth Schedule to this Act.
It also said that any taxable person who fails to process a taxable supply through the fiscalisation system is liable to an administrative penalty of N200,000.00 plus 100% of the tax due and an interest at the prevailing Central Bank of Nigeria Monetary Policy rate per annum.
Tax deduction without remittance as and when due is now an offence under the Nigeria Tax Administration Bill and shall, on conviction be liable to an imprisonment of three years or a fine of not less than the principal amount due, plus a penalty of not more than 50% of the sum with held.
The proposed law states that “a person, that deducts, collects or withholds any tax under this Act, and fails to remit the amount deducted, collected or withheld by the 21st day of the month immediately succeeding the month in which the amount was deducted, collected or withheld, is liable to pay (a) the amount deducted, collected or withheld but not remitted; (b) an administrative penalty of 10% per annum of the tax deducted, collected or withheld but not remitted; and (c) interest at the prevailing Central Bank of Nigeria monetary policy rate.
“A person required to self-account under this Act and fails to self-account within the time prescribed by this Act, is liable to pay — (a) the tax not self-accounted for; (b) an administrative penalty of 10% per annum of the amount not self – accounted for; and (c) interest at the prevailing Central Bank of Nigeria monetary policy rate.
“A person convicted of any of the offences under this section, shall be liable to a term of imprisonment not exceeding 3 years, or a fine of not less than the principal amount due plus penalty of not more than 50% of the sum, or both”.
In addition, defaulting in the payment of mineral royalties 30 days after the due date attracts a penalty of (a) of 10% of the amount of the royalty payable which shall be added to the royalty due; (b) in the case of foreign currency transactions, the royalty due shall incur interest at the prevailing SOFR or any other successor rate plus 10%; and (c) in case of Naira transactions, the royalty due shall incur interest at the prevailing Central Bank of Nigeria Monetary Policy Rate.
It also imposes a general penalty of N1 million on those who contravenes any of provisions of this Act for which no specific penalty was provided.
The lawmakers however deleted from the draft, provisions which states that “a person with knowledge of the foreign exchange transaction contained in section 160 (2) of the Nigeria Tax Act, including the buyer, broker, agent, exchange platform provider or a third party who, in any way, enabled, facilitated recorded or holds the record of same, shall report the transaction to the Service and the Nigerian Financial Intelligence Unit within seven days of the transaction or becoming aware of the transaction.
The deleted provision also states that “a person who fails to comply with the provisions of this section commits an offence and shall on conviction be liable to — (a) in the case of the seller, a fine equal to 200% of the amount of the foreign exchange transaction or 6 months imprisonment or both; or (b) in any other case, a fine of not less than N10,000,000.00 or 6 months imprisonment or both.”
They also deleted the provisions which states that “a taxable person who contravenes the provisions of section 24 of this Act is liable on conviction to a fine of not less than N5,000,000.00. Where a taxable person, upon request by the Service, fails to provide within the time specified in the request, any record required to be kept under section 24 of this Act, the person is liable to an administrative penalty of N2,000,000.00, in the first instance, and N10,000.00 for every day the default continues”.
The bills legalise the National Single Window Portal to enhance revenue assurance, streamline import and export processes, facilitate international transit operations, for the purpose of ensuring efficiency and transparency in trade and revenue administration and is expected to serve as a single-entry point and platform for any person involved in import, export, trade and transit processes to (a) lodge documents electronically, including import or export documents for licensing, processing and approval.
The portal will now serve as a platform for making payment of fees and levies due on goods imported or exported, and for other transactions, submitted through the Window; or provide relevant data or information in respect of the import, export, trade or transit. (3) The Service shall make regulations for the administration of this clause including administrative charges on all processes and payments made on the Portal.
The reform bills define small business as a business that earns gross turnover of ₦100,000,000.00 (increased from N50 million) or less per annum with total fixed assets not more than ₦250,000,000.00.
Property held in trust for a religious organisation charitable institutions, registered friendly society cooperative societies registered under the co-operative societies law of any State; trade unions are not to be taxed, except when such property ceases to be subject of such trust.
Aside the minimum wage which is exempted from tax, the ltheprovide a new tax regime stating that taxable income shall be taxed at the following rates: N800,000 at 0%; (b) Next N2,200,000 at 15%; (c) Next N9,000,000 at 18%; (d) Next N13,000,000 at 21%; (e) Next N25,000,000 at 23%; and (f) Above N50,000,000 at 25%.
Although there were calls during the public hearing for the abolition of development levy the Committee recommended the retention of the levy, imposing a levy of 4% on the assessable profits of all companies chargeable to tax other than small companies and non-resident companies.
It says “The Service shall collect the levy and pay it into a special account created for that purpose and the revenue accruing from the levy shall be distributed as follows — (a) Tertiary Education Trust Fund — 50%; (b) Nigerian Education Loan — 3%; (c)National Information Technology Development Fund — 5%; (d) National Agency for Science and Engineering Infrastructure — 10%; (e) Social Security Fund – 10% (f) Defence Infrastructure Fund – 10% (g) Nigeria Police Trust Fund – 5% (h) National Sports Development Fund – 3% (i) National Board for Technological Incubation – 3% (j) National Cybersecurity Fund – 1%.
“The tax imposed under this part shall not be levied on assessable profits computed for the purposes of hydrocarbon tax. (5) For the purpose of this section, every beneficiary Agency and Fund in subsection (3) shall be required to prepare and submit their income and expenditure to the National Assembly for appropriation.
The committee explained that the development levy is necessary consolidate of all other taxes and levies currently being paid by companies in Nigeria, with a proposal to phase out all, but the Student Education Loan Fund levy by 2030.
It also recommend full exemption of Export Processing and Free Trade Zone entities from tax provided that 100% of sales arise from the export of goods and services or serve as inputs into goods or services exclusively for export.
It also recommended a proportionate exemption of the profit of the zone entity if up to 75% of sales are from exports and the imposition of tax on the 100% of the profits if exported sales are less than 25% of total, adding that services enjoyed by a licensed entity from outside the zone are subject to transaction taxes (VAT & WHT).
They however introduced a new clause which states that “subject to section 233(1) of the Petroleum Industry Act, a licensee and lease shall deposit a minimum of 35% of the decommissioning and abandonment fund with a Nigerian Bank, in the form of an escrow account accessible by the Commission or Authority. (2) The Service shall in conjunction with the Central Bank of Nigeria, determine the criteria for accreditation of Nigerian banks to participation”.
The law allows the Federal, State, Local Government and their respective Ministries, Departments or Agencies or any other person appointed by the Service to collect or withhold VAT to collect or withhold VAT on taxable supplies made to them and remit it to the Service within the time prescribed.
Tax exemption
Bodies and items to be exempted from payment of tax include Schools, religious bodies, charity organisations, trade unions, dividends distributed by authorised collective investment scheme, dividend or rental, income received by a real estate investment company on behalf of its shareholders, dividend or rental income received by a real estate investment company on behalf of its shareholders, pension funds and assets, pension, gratuity or any retirement benefits, wound and disability pensions granted to members of the armed forces or of any recognised national defence organisation, or to a person injured as a result of enemy action.
Also to be exempted is money received by way of death gratuities or as consolidated compensation for death or injuries; gains accruing from the disposal of assets by an angel investor, venture capitalist, private equity fund, accelerators or incubators with respect to a labelled startup provided the assets have been held in Nigeria for a minimum of 24 months (n) income earned from bonds issued by a State or the Federal Government of Nigeria emoluments of any person serving as other rank and other personnel serving in combat zones, hazardous areas or in designated operations.
Income generated by companies engaged in agricultural activities, dividend received from investments in wholly export oriented businesses, profits of a company engaged in sporting activities, ividend, interest, rent or royalty derived from outside Nigeria and brought into Nigeria through approved channels, income of a person from an employment where such person earns gross income of
