The Nation Newspaper

Tag: Tax

  • ‘Tax awareness still low in Nigeria’

    ‘Tax awareness still low in Nigeria’

    Although tax revenue is a sustainable way of generating income for government, the irony, however, is that the level of tax awareness is still poor across the country.

    Chief Mark Dike, immediate past president of the Chartered Institute of Taxation of Nigeria (CITN) gave this insight in an exclusive interview with The Nation at the weekend.

    He lamented that efforts by various governments to evolve viable tax system in the country as a panacea for economic growth and development have failed to truly translate to better living conditions for majority of the citizenry.

    According to Dike, “Saying that tax awareness has increased in Nigeria is neither here nor there. The awareness depends on how you look at it. If you’re looking at it from the perspective of government or from the perspective of the citizenry, especially those who are supposed to pay tax, if you’re looking at it from the perspective of government, then I can say there is this realisation by government that tax is the only way for government to raise sustainable revenue that it can utilise to prosecute government business. And prosecuting government business is not just to pay salaries but more importantly, to provide public goods and services for all citizens, whether you’re in employment of government or not, whether you’re a paid employee or self-employed person.”

    Pressed further, he said: “If you now look at it from the point of the citizens, the awareness is not adequate. Yes, they know they have a duty to pay tax but people have this attitude that why do I need to pay tax. There is this maxim in taxation, if you talk about tax policy. Qui bono, for what purpose, why am I paying tax because as long as the quid pro quo, you give and you expect something in return, is not there, then there is a problem with such a system.”

    Dike who condemned what he termed bastardisation of tax holiday by the federal government which he partly blamed for the low tax-to- GDP ratio, described the current practice as means of enriching the pockets of friends of those in government rather than using it as an incentive to spur corporate organisations to do more public work, as part of their Corporate Social Responsibility (CSR).

    “Giving tax holiday is not free lunch; there are benefits and agreements at­tached to it. In fact, there must be quantifiable and verifiable evidence for tax holiday to happen. We feel statutorily obliged to initiate programmes and discussions that would not only help in critically addressing these issues, but would also find solutions to the numerous problems bedeviling our economy,” he added.

  • No plans to impose fresh taxes on Kwarans – Ahmed

    No plans to impose fresh taxes on Kwarans – Ahmed

    Kwara state Governor Abdulfatah Ahmed has said that his administration has no plans to impose fresh taxes on the people of the state.

    He added though, that his administration would make all efforts towards efficient revenue collection to raise funds for the execution of people-oriented projects.

    These projects, according to him, include a 100 megawatt Independent Power Projects (IPP), 2000 new classrooms, the remodeling of an additional five general hospitals and the implementation of new water projects across the state.

    The governor also has signed for four bills into law with a pledge to redouble efforts to improve the welfare of the people despite the downturn in the national economy.

    The new laws are: A law to amend the Environmental Sanitation; law to Repeal the Kwara State Transport Corporation; law to Amend the Cooperative Societies, and a law to Amend The Kwara State Debt Securities Issuance.

    The governor in a statement by his Senior Special Assistant on Media and Communications, Dr Muideen Akorede promised to initiate and implement new initiatives aimed at ensuring good governance and making life better for all residents in the state.

    Ahmed acknowledged the challenges confronting the state as a result of dwindling allocation from the federal government and assured that he will work harder to cushion the population from the impact of the economic downturn as much as possible.

    He urged the people to support his administration to rapidly develop the state, stressing that that all hands must be on deck to create a prosperous Kwara State for the benefit of all.

     

  • Tax on the go, anywhere, anytime

    Tax on the go, anywhere, anytime

    The tax system since medieval times has undergone reforms, these reforms focused on taxpayers are meant to increase service delivery and customer satisfaction. The FIRS is not left behind as reforms have been undertaken with a view to make our operations friendlier, convenient and conform toglobal best practices. In order to simplify the payment method, FIRS has designed a new payment platform called e-taxPay.

     

    What is e-tax Pay?

    E-tax Pay is an online self-service tax payment system whereby the taxpayers are given an opportunity to pay their taxes through their banks’ online payment portal. It is an initiative put in place by FIRS in collaboration with Nigerian Interbank Settlement System (NIBSS) and approved collecting banks. This isto assist taxpayers pay their taxes with maximum ease. Taxpayers can do it themselves using the electronic service channels provided by their bankers.(These service channels will include the banks internet banking, ATM and other mobile banking platforms.)

     

    Conditions to meet before using e-tax pay platform

    • You must have registered and obtained Taxpayer Identification Number (TIN)

    • You must have an account with the bank

    • You must have sufficient funds in the account to cover the tax liability/transaction

     

    Steps to take to make payment through e-tax pay platform

    Having satisfied the condition of obtaining a registered TIN, an existing account and sufficient funds, then;

    • Select the service (e-tax Pay) from the list of services displayed on the bank self-service channel or request for this service from the bank branch

    • Provide all the required information including the taxpayer‘s TIN.

    • Select the tax type (e.g. Company Income Tax, Pre-operation Levy, Value Added Tax, etc.)

    • Enter the amount to be debited from the account provided

    • Confirm that all the information provided are correct and valid

    • Submit the request.

    When this process is completed the platform will notify FIRS online real time. Also FIRS has online access to the tax portal to view transactions real time to know taxpayers that have made tax payments.

    Taxes that can be paid using the e-taxpay channel

    You can use the e-taxpay channel to pay all taxes/levies collected by the FIRS. They include:

     

    • Petroleum Profit Tax

    • Education Tax

    • Companies Income Tax

    • VAT

    • Personal Income Tax/PAYE (Residents of FCT and non-Residents)

    • Withholding Tax

    • National Information Technology Levy

    • Capital Gains Tax

    • Pre-operation Levy

    • Late filing penalty.

    • Stamp duties

     

    Documentation required when you want to pay tax.

    • Prepare the relevant tax returns

    • Compute tax payable or prepare remittance schedule (CIT/PAYE/WHT/VAT)

    • Fill the relevant self-assessment forms

     

    Benefits of using e-tax Pay

    • Promotes transparency and boost the taxpayer’s confidence and trust in the tax system

    • Promotes voluntary compliance

    • It is convenient, saves time and compliance cost;as taxpayers can do it themselves within the confine of their offices without going to the banking hall.

    • E-taxpay solution streamlines the process flow in tax remittance, with all banks collecting for FIRS using their various channels.

    • Banks integration to the NIBSS e-taxpay is a veritable avenue for enabling all forms of tax payments/collections particularly from the bank accounts of payers to the designated bank accounts of FIRS.

    • This solution harmonizes online tax assessment with e-taxpay platform; which gives convenience of assessment and remittance.

    • NIBSS collection platform has been integrated to the system(s) of FIRS for data acquisition and online real-time notification of transactions.

    • The security of payment is intact as the platform leverages on the robust security infrastructure of banks.

    • It makes account reconciliation easy for FIRS.

    • It enhances effective budgeting and forecasting due to the availability of adequate information on details of tax revenue realized over a period of time.

     

    Security of the e-tax Pay Platform

    The e-tax pay service is safe and secure. Theplatform leverages on the security measures provided by the service channels of the banks. The system through NIBSS validates taxpayer’s information against FIRS records and automatically notifies FIRS.

    … fast track your tax payment, use the e-tax Pay.

     

  • Tax appeal tribunal reaffirms commitment to speedy resolution of tax disputes

    Tax appeal tribunal reaffirms commitment to speedy resolution of tax disputes

    The Tax Appeal Tribunal ( TAT) South West Zone has reaffirmed its commitment to speedy resolution of Tax disputes within the zone. The Tax Appeal Tribunal (TAT) is a tax dispute resolution centre established by the Federal Government of Nigeria in 2010 as part of her reform of the Nigerian Tax System.

    TAT is established in accordance with section 59 (1) of the Federal Inland Revenue Service (FIRS) Establishment Act 2007 to adjudicate on all disputes arising from operations of the under various tax laws as stipulated in the First schedule to the Act, namely:

    1. Companies Income Tax Act (CITA);

    2. Petroleum Profit Tax (PPTA);

    3.          Personal Income Tax Act (PITA);

    4. Stamp Duties Act (SDA);

    5. Value Added Tax Act (VATA);

    6. Taxes and Levies (Approved list for collection) Act; and

    7. Other laws, regulations, proclamations, government notices or rules related to those Acts which are expressly spelt out in the fifth schedule to the FIRS Establishment Act.

    Specifically, the core or broad objectives for the establishment of TAT are:

    1. To adjudicate on all tax disputes arising from operations of the various Tax Laws as spelt out in the First Schedule to the FIRS (Establishment) Act, 2007.

    2. To be an important component of the tax system which offers the Appellant a step by step objection and appeal process and the opportunity to explore other alternative dispute resolution mechanism before gaining access to the court system.

    3. To reduce the incidence of tax evasion and ensure fairness and transparency of the tax system.

    4. To minimize the delays and bottlenecks in adjudication of tax matters as presently experienced.

    5. To improve the tax payers’ confidence in our tax system.

    6. To provide opportunity for expertise in tax dispute resolution and an avenue for effective involvement of parties.

    7. To focus on facts rather than legal technicalities and promote early and speedy determination of matters without compromising the principles of fairness and equity.

    The TAT is located in eight zones across the country namely: Lagos Zone, Abuja Zone, Southwest Zone (Ibadan), South-South Zone (Benin), Southeast Zone (Enugu), North-Central Zone (Jos), North-East Zone (Bauchi), and North-West Zone (Kaduna); with a Co-ordinating Secretariat to coordinate, render support services and facilitate the operations of the respective zones.

    In a media chat in Ibadan, , Secretary TAT   Southwest Zone,  Mr. Hillary T Onwe stated that this is in line with the mandate of the Tribunal.

    Mr. Onwe said: “In line with the strategic vision and culture that emphasizes professionalism, integrity, equity, efficiency, excellence and service, the Tax Appeal Tribunal has developed a robust case flow management procedure manual, the first by any judicial or quasi-judicial body in Nigeria.

    “The manual specifies compliance with the stipulated timelines for processing of filed matters, disposition of matters, performance measurement and reports presentation so as to positively impact on the performance of the Tribunals.

    The Tribunal anchors its case flow system on the legal maxim that “Justice delayed is justice denied” and similar rights which are meant to expedite the fair hearing process of the Tribunal.

    Mr. Onwe stated that one key performance indicator in the manual is the case cycle time which specifies that the timeline of an Appeal from filing to disposition shall not exceed 180 days or six months.

    He informed  members of the  public that the South-West Zone of the Tax Appeal Tribunal is located at No. 5, Ibrahim Taiwo Avenue, Off U/I Secretariat Road, New Bodija Estate, Ibadan, Oyo State. This Tribunal has jurisdiction over  tax disputes emanating from Five states in the South West Zone of the Federation, except Lagos State namely; Oyo, Ekiti, Ogun, Osun and Ondo States.

    According to him, the procedure for commencement of Tax Appeals at the Tribunal is simple and stripped of complexities. An aggrieved party – either the revenue authority or any tax payer (individual, group or organization) may file an appeal at any of the tribunals located in the geo-political zones where the case emanated.

    The appeal should be filed within a period of 30 days from the date on which the action, decision, assessment or demand notice was made or received.

    However, the Tribunal may entertain an appeal after the expiration of the stipulated period of 30 days upon satisfactory proof of the cause of such delay. The beauty of the process is that anybody can file an appeal and represent him/herself without engaging the services of a legal practitioner. The filing and sundry fees payable for Tax Appeals at the registry of the Tribunal are very pocket-friendly.

    The “Judges” of the Tribunal are called “Tax Appeal Commissioners” and are seasoned tax administrators and practitioners, legal practitioners versed in tax laws or Retired Judges. There are five members in the panel, in each zone, including the Chairman who shall be a Legal Practitioner of over 15 years post call, or a retired judge.

    He concluded that it is pertinent to state that the South West Zone of the tribunal has shown core competence for speedy resolution of tax disputes as well as amicable settlement of quite a number of tax appeals filed at the Tribunal in addition to the fact that celebrated and locus classicus cases have emerged from the Tribunal operations.

    Examples are cases like FIRS vs. Agbara Estate, FIRS vs. Colodense (Nig) Plc, Spectrum Books vs FIRS to mention but a few, which were commenced and successfully, sometimes amicably settled at the Tribunal.

     

  • Fashola: It’s criminal to evade tax

    Fashola: It’s criminal to evade tax

    Lagos State Governor Babatunde Fashola, (SAN), has said that it is a criminal offence for anybody not to pay tax .

    He  berated  politicians who have been campaigning  against payment of tax in order to win votes during elections saying that  such politicians are  enemies of progress and development.

    This was at  the public presentation of a book, Nigerian Tax Law and Administration written  by the Lagos state Attorney-General,  Ade Ipaye at MUSON Centre, Onikan, Lagos.

    Fashola said tax payment cannot be taken for granted in any egalitarian society.

    He said it is criminal for anybody not to pay tax stressing that tax administration in the state is a vex issue.

    The governor chided the governorship candidate of the Peoples democratic Party (PDP) Jimi Agbaje who he alleged promised to cancel tax payment in the state.

    He said no state can develop without tax collection and good revenue drive.

    According to him, “ payment of tax, cannot be taken for granted. Any politician that says he will cancel payment of tax is telling you lie. There is no way government can achieve the implementation of laudable projects without revenue from taxes.”

    The governor  advised Lagosians to disregard such promises which he said was intended  to lure them into  voting for the wrong party.

    Fashola wondered  how they  would  run the government without revenue drive.

    He pointed out  that  several states have not been able to pay salaries of workers because of paucity of funds from the oil revenue from the federal government.

    He assured that Lagos State government would continue to fulfill its obligations of providing infrastructure and ensure regular payment of workers salaries from the tax collected from the people of the state.

    He recalled that  payment of tax  dated back to the pre-colonial days when the traditional rulers collected tax to run their domain adding that such tax collection  was not limited to money but also include farm produce.

    He urged Lagosians not to be discouraged from  paying  their taxes.

    He said they have a right to  challenge the government on the proper utilisation of the tax collected.

    “What you can do is to pay your tax. The payment of tax is a legal obligations. Failure to pay tax is criminal offence. What you can do is for you to withhold your votes for government or the candidate that fails to utilize your tax effectively.

    “What should be the discussion or the debate is who is to pay more and who is to pay less. We left tax for oil revenue, where are we today?  This state will continue to survive on tax receipt.”

    In his tribute,  Professor Itse Sagay saluted the author,’s courage for coming out with the book. According to him, Ipaye has been “extremely reliable, efficient, intelligent and proactive.  It has been a pleasure meeting him. I have benefited much from our relationship.”

    The author, Ipaye said he was inspired to write the book based on his experiences both at the classroom as a teacher as well as the tax special assistance to the former  Lagos state Governor, Asiwaju Bola Tinubu.

    He disclosed that his experiences had help in the expansion of his  horizon in tax laws and regulations.

     

     

  • Ambode promises tax relief, leave bonus

    Ambode promises tax relief, leave bonus

    The governorship candidate of the All Progressives Congress (APC) in Lagos State, Mr. Akinwunmi Ambode, has  explained further the issue of leave bonus for civil servants.

    Speaking at an event in Eko Club, Surulere,  Ambode said: “What existed prior to 2010 was the Harmonised Salary Scheme (HSS) where leave bonus was paid as a lump sum in July, September and December because salary items were broken down into Basic, Leave Bonus, Rent Allowance, Transport Allowance etc.

    “But under the Consolidated Salary Scheme (CSS), which is higher than the HSS by 25 per cent, no differentiation is made on items and leave bonus is monthly as part of the salary.

    “This explains why there is no leave bonus being paid separately to civil servants. However, since it seems that the people prefer the lump sum payment, the way to go is that the leave bonus component could be deducted  monthly and paid as a lump sum when it is desired.

    “Based on the agreement between the union and the government, the leave bonus that is paid monthly would be deducted and paid as a lump sum in the month that you want.

    “In essence, the salary would reflect a reduction to the tune of that amount. I am not against this and would support the workers in how they want their leave bonus paid.”

    On the controversy surrounding his resignation from the civil service at 43, the APC candidate said he is not surprised that people were finding it difficult to believe this because it’s an unprecedented gesture.

    He said he had enjoyed the grace of God to have been able to attain the peak of his career at an early age becoming a permanent secretary at 37, auditor-general of local government 12 years later and accountant general of the state at 43.

    “Having served as accountant-general for six years, the job became monotonous and was no longer challenging. And I felt that the only way I could break the record in the civil service was retire before 50. It was more or less like a record for me.

    “I gave the mandatory three-month notice before retirement and was never called back to answer any question on my tenure nor indicted for fraud. In fact, Governor Babatunde Fashola wrote me a commendation letter.”

    The APC candidate promised tax reliefs to all deserving Lagosians if elected.

     

  • FIRS begins online tax payment

    Taxpayers can now pay their tax online by logging into the internet banking platform of any commercial bank in Nigeria, choosing the FIRS link and following the prompting.
    A statement from the Federal Inland Revenue Services (FIRS) described this development as “the product of the electronic tax-pay solution, an ease of tax payment initiative of the Federal Inland Revenue Service (FIRS) in collaboration with the Nigeria Inter-Bank Settlement System (NIBSS) and Systemspecs Limited.”
    The statement signed by Emmanuel Obeta, Director, Communications and Liaison Department, of the FIRS said the Acting Executive Chairman of the FIRS, Alhaji Kabir Mashi explained that the e-Tax Pay Solution “is a self-service FIRS channel available on all commercial banks’s Internet banking platforms.”
    He said once a taxpayer logs into any bank’ s Internet banking platform, he can click the FIRS link to pay his taxes and or submit necessary documents, the same way he may choose to pay other bills.
    According to Mashi said, “It is that simple. It is that convenient. It is that accessible and it is very secure. Taxpayers do not have to go to any tax office before taxes are paid. Tax payment is just a click away”.
    “It is this quest for simplification of tax payment process and ease of access to tax services that led FIRS to recently roll out the electronic filing service under the Integrated Tax Administration System (ITAS). It serves as a means of reducing time and cost of compliance for the taxpayers and reducing interface between the taxpayers and tax authorities. It provides added convenience for taxpayers who will now sit at the comfort of their homes and offices and upload their tax returns on the e-Tax Pay Solution platform”, Mashi further explained.
    Mashi urged the taxpayers to cultivate the use of the e-Tax Pay Solution or e-filing platforms as those were created for their convenience and ultimately engender a transparent and efficient tax system that optimizes tax revenue collection and voluntary compliance.
    “We therefore hope that taxpayers will respond positively to these innovations and utilize them to a large scale. This will not only ease compliance for the taxpayers but also enable FIRS to ensure greater transparency in our operations as taxpayers will have full access to their records, which they upload and also to the payments which they make”, Mashi added.

     

  • Banks in Free Trade Zones get tax, duty waivers

    Banks in Free Trade Zones get tax, duty waivers

    The Central Bank of Nigeria (CBN) has said it would henceforth grant tax and duty waivers to banks operating in the Free Trade Zones (FTZs).

    CBN Director, Banking and Payment System, ‘Dipo Fatokun, who made this known in a circular, said the incentives will further the apex bank’s mandate for the development of banking operations in the country.

    The incentives, contained in the guidelines for banking operations in FTZ released yesterday, include freedom to move funds in and out of the zone on all eligible transactions, exemption from stamp duties on all its documents, exemption from withholding tax deductions on interest payable on deposits, dividends and royalties and exemption from corporate and capital gains taxes.

    The lenders, Fatokun said, will also be exempted from payment of duties on imports of furniture, office equipment and other facilities necessary for its operations; and any other incentives as may be approved by the CBN, from time to time.

    He said only banks or financial holding companies licensed under the Banks and Other Financial Institutions Act (BOFIA), or licensed foreign banks, shall qualify to apply to the authority for approval to establish presence to carry on banking business in Nigeria’s FTZs.

    The CBN Director said the provisions of the Nigerian Export Processing Zone Authority (NEPZA) Act, Oil and Gas Free Trade Zone Act, BOFIA, CBN Act, and Nigeria Deposit Insurance Corporation  Act and all guidelines and regulations issued pursuant to these Acts shall apply to banks operating in the FTZs.

    “Without prejudice to the powers of NEPZA to grant Licenses, no enterprise shall carry on banking business in any FTZ in Nigeria without a prior approval granted to the parent bank and banking license granted to the subsidiary by the CBN. The required minimum paid-up capital to operate in FTZ of Nigeria shall be $10 million, or such other amount as the CBN may from time to time prescribe. In addition, a bank in the FTZ shall meet all the prudential requirements as may be specified from time to time by the CBN,” he said.

    Fatokun said a bank in the FTZs shall disclose to the CBN, the equity interests of its directors and key officers in any enterprise in the zones within 14 days of acquisition of such interest.

    He said a licensed bank in the FTZ may accept deposits; grant to any person, advance, loans, or credit facility, or give any financial guarantee, or incur any other liability on behalf of any person; make remittances of funds abroad or to Nigeria Customs Territory on behalf of any non-resident; undertake any other foreign exchange transaction as may be prescribed by the CBN, from time to time; and carry out any other activity that may be approved by the CBN.

    However, the CBN stopped such lenders from sourcing foreign exchange from the official foreign exchange market of the Nigeria Customs Territory; opening an account for a customer in contravention of the Know-Your-Customer (KYC) principles; undertaking any other transactions which are inimical to the interest of the FTZ; and any other activity that may be specified by the CBN or other relevant authorities, from time to time.

    Also, banks within the FTZs are required to ensure strict adherence to the provisions of the Money Laundering (Prohibition) Act, 2011 (as amended), Terrorism (Prevention) Act, 2011 (as amended) and the Central Bank of Nigeria AML/CFT Regulations for Banks and Other Financial Institutions in Nigeria, 2013.

    The sources of funds for the lenders include deposits from non-bank customers such as Multinational Corporations, International Corporations, Non-resident or resident persons or entities, approved Enterprises in the FTZs, Regional Financial Agencies or Institutions and Euro-Money Markets; Inter-bank borrowing within the FTZs or with foreign banks; Export Proceeds; Equity Capital; and Such other sources of funds as may be approved by the CBN from time to time in consultation with the Authority.

  • Obama plans tax on US firms overseas to fix roads

    UNITED States President Barack Obama plans to close a tax loophole that allows US firms to avoid paying taxes on overseas profits, the White House says.

    His 2016 budget would impose a one-off 14per cent tax on US profits stashed overseas, as well as a 19per cent tax on any future profits as they are earned.

    The $238billion (£158billion) raised would be used to fund road projects in the US.

    But analysts say it is unlikely the Republican-controlled Congress will approve the proposals.

    Mr Obama told broadcaster NBC that despite several years of economic improvement, wages and incomes for middle class families were “just now ticking up”.

    “They haven’t been keeping pace over the last 30 years compared to, you know, corporate profits and what’s happening to folks in the very top,” he said.

    Printed copies of U.S. President Barack Obama’s proposed 2016 budget that will be handed out on Capitol Hill in Washington, 2 February 2015.

    Research firm Audit Analytics calculated last April that US firms in total had $2.1trillion-worth of profits stashed abroad.

    It found US conglomerate General Electric had the most profit stored overseas at $110billion. Tech giants Microsoft and Apple and drugs companies Pfizer and Merck all featured in the top five.

    No tax is currently due on foreign profits as long as they are not brought into the US.

    As a result some companies put their earnings in low tax jurisdictions and simply leave them there.

    The White House said its plans for an immediate 14per cent tax would raise $238billion, which would be used to fund a wider $478billion public works programme of road, bridge and public transport upgrades.

    “This transition tax would mean that companies have to pay US tax right now on the $2trillion they already have overseas, rather than being able to delay paying any US tax indefinitely,” a White House official said.

    The official said that after this one-off tax, the 19per cent permanent tax firms would have to pay on overseas profits “would level the playing field, and encourage firms to create jobs here at home.”

    Customers queue to wait for the opening of a new Apple Store in Chongqing municipality 31 January 2015 Apple would be among the American firms most affected by the tax rise

    The tax rate is far lower than the current US top corporate tax rate of 35per cent.

     

    Also expected in Mr Obama’s budget proposal is a tax cut on earned incomes, including tax credits for child care and “second earners”.

    Mr Obama will also seek to ease restrictions on military and domestic spending in place since a budget deal in 2011.

    Republicans in Congress have largely rejected many of Mr Obama’s proposals for increased domestic spending and tax rises on corporations but support increased military spending.Representative Paul Ryan, the Republican’s top budget official, accused Mr Obama of exploiting “envy economics” in his proposal.

    “This top down redistribution doesn’t work,” Mr Ryan told NBC.

  • Tax implication of mergers and acquisitions

    Tax implication of mergers and acquisitions

    Simply put, a merger is a combination or integration of existing companies to form a single company while acquisition is known as take-over. It is the take-over of by one company of sufficient share in another company to give the acquiring company control over that other company.

     

    Statutory Requirement under Companies Income Tax Act (CITA)

    The CITA in Section 29(12) Cap (21, LFN, 2004) provides that ‘‘no merger, take-over, transfer or restructuring of the trade or business carried on by a company shall take place without having obtained the Service’s direction under sub-section 9 of this section and clearance with respect to any tax that may be due and payable under the Capital Gains Tax Act’’. The implication of this provision is that the approval of the Federal Inland Revenue Service is a necessary condition for the completion of the process in a merger or acquisition bid. Therefore, no merger or acquisition bids would be fully consummated without the companies involved having obtained consent from the FIRS.

     

    Procedure for Obtaining the Service’s Approval

    From the start, the merging companies are required to submit to the FIRS, copies of the scheme of merger and scheme of arrangement on the consolidation request for its study and proper evaluation in order to ensure that taxes which may result from the companies’ transactions are correctly assessed and collected. Herein lies the relevance of the Service’s powers under section 29(9) (i) to require either of the companies directly affected by any direction which is under the consideration of the Service to guarantee or give security to its satisfaction for payment in full of all tax due or to become due by the company which is selling or transferring such asset or business.

     

    Tax Issues in Mergers and Acquisitions

    A merger may result in any of the following situations:

    • Formation of a new company.

    • Continuation of the consolidated business by one of the merging parties, in its name or under a new name.

    • Cessation of business by the other merging parties.

    In acquisition, there is only an acquiring company (ies) and the company being acquired.

     

    Emergence of a New Company

    Rendition of Annual Returns

    Where a new company emerges from a merger process, then, the new company is expected to file its returns, in line with the provisions of Section 55(3)(b) of CITA. The section provides that “every new company shall file with the Service, its audited accounts and returns within eighteen (18) months from the date of its incorporation or not later than six (6) months after the end of its first accounting period as defined in section 29(3) of this Act, whichever is earlier’’.

    It should however be understood that a mere change of name does not make an existing business entity a new company. Such companies will continue to be treated as old businesses on an on-going concern basis.

     

    Basis of Assessment

    Commencement rule as provided under Section 29(3) will apply to the new company, except where any of the under-listed circumstances arise:

    (I) Where the merging parties are connected parties, the Service may direct that commencement rule be set aside, in which case, the new company will file its returns as an on-going concern and its assessment will be determined on preceding year basis.

    (II) Where the new business is a reconstituted company, taking over the trade or business formerly run by its foreign parent company.

    Claim of Allowances

    Companies Income Tax Act (CITA) did not categorically address the value at which assets may be transferred for the purpose of capital allowances claims. However, International Accounting Standard 22 prescribes that in merger accounting, the assets, liabilities and reserves must be recorded at their carrying balances, implying that merger process does not permit the recording of assets at their fair value in the event of consolidation. The new company will therefore not be entitled to any investment allowance claim or initial allowance on the transferred assets; it will only be entitled to claim annual allowance on the Tax Written Down Values (TWDV) of the transferred assets.

     

    Unabsorbed Losses and Un-Utilized Capital Allowances Brought Forward

    The new company may also not be permitted to inherit the unabsorbed losses and capital allowances of the absorbed companies, except under the following circumstance:

    (i) where a reconstituted company is carrying on the same business previously carried on by this company and it is proved that the losses have not been allowed against any assessable profits or income of that company for any such year; in that case the amount of unabsorbed losses shall be deemed to be a loss incurred by the re-constituted company in its trade or business during the year of assessment in which the business commenced.

     

    Taxes and Deductibility of Related Expenses

    (i) Stamp Duties

    Duty payment will arise on the share capital of the new company, subject to the provisions of Section 104 of the Stamp Duties Act, in relation to capital and duty relief.

    (ii) Consolidated Expenses

    Fees paid to statutory bodies such as SEC, NSE, CBN, Land Authorities etc, including professionals like accountants, stockbrokers, issuing houses, and solicitors are regarded as capital in nature and will therefore not be allowed as deductible expenses by virtue of Section 27(a) of CITA.

    (iii) Taxation of Consolidation Fees:

    Fees paid to professionals for services rendered in connection with consolidation will be subject to VAT and WHT at the rates of 5% and 10% respectively.

     

    4.3.1 Tax Indemnification

    Section 29(9)(i) of CITA provides that the Service may require the new company to guarantee or give security for payment in full, for any tax due or that may become due by any of the ceased companies.

     

    4.3.2 Approval for Pension Scheme

    The new company will need to obtain a Joint Tax Board (JTB) approval for its staff pension scheme.

     

    Status of a Surviving Company in Relation to Taxation

    It is a possibility that one of the merging companies survives and its old name or a new name to inherit the assets, liabilities, reserves and entire operations of the merging parties. Where this happens, the following points must be noted:

    (i) The surviving company must file its returns in line with the provisions of section 55(3)(a) of CITA.

    (ii) Commencement rules under section 29(3) of CITA will not apply to the surviving company, as it will be regarded as an existing company.

    (iii) The surviving company will not be allowed to claim investment allowance on the assets which were transferred to it and will also not claim initial allowance on such assets.

    (iv) The surviving company may however claim annual allowance only on the tax Written down Values (TWDV) of the assets transferred to it.

    (v) The surviving company may not inherit the unabsorbed losses and capital allowances of the merging companies, except it is proved that the new business is a reconstituted company.

    (vi) All fees payable on merger bids or consolidation will be liable to VAT and WHT just like it is applicable on the emergence of a new company. Stamp duties will be paid on the increase in share capital and the company will have to obtain its own staff pension scheme approval from the JTB.

     

    Ceased Businesses

    The merger or consolidation exercise may also result in cessation of business for any of the merging parties. In this case, cessation rule as applicable under section 29(4) of CITA will apply to any of the merging companies which have now ceased business permanently, except if any of the following circumstances occur:

     

    (i) Where the merging companies are connected. Here, the Service may direct, in line with its discretionary powers, under section 29(9) of CITA that the cessation rule may not apply.

    (ii) Where a reconstituted company is formed to take over the trade or business formerly run by its foreign parent company. (See Section 29(10) of CITA.

     

    Capital Gains Tax Shares or Cash Received

    Section 32A of Capital Gains Tax Act (CGTA) Cap 121LFN 2004 provides that a person shall not be chargeable to tax under the Act, in respect of any gains arising from the acquisition of the shares of a company, either merged with, or taken over or absorbed by another company, as a result of which the acquired company has lost its identity. However, where shareholders are either wholly or partly paid in cash for surrendering their shares in the ceased business, the gains arising from the cash payment will be subject to CGT.

     

    Effect of Taxations on Consolidation Acquiring/Acquired Companies

    The tax implications of consolidation on an acquiring company or acquired companies are similar to those of mergers. Acquisition expenses are non-deductible while fees paid to professional bodies are equally subject to WHT and VAT.