Tag: VAT

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.

The following list shows the tax kinds of collectible by the Federal Internal Revenue Taxes (FIRS), addresses the enabling legislation, the taxpayer, how and where to pay the tax.

 

Companies Income Tax (CIT)

 

Applicable tax law for persons subject to the Companies Income Tax (CIT):

• All companies incorporated in Nigeria with the exception of companies engaged in petroleum operations.

• All non-resident (foreign) companies that earn or derive income from Nigeria.

• All organisations limited by guarantee (institutions of public character or charitable organisations) engaged in profit making activities other than the promotion of their primary objects.

• The liquidator, receiver, or agent of liquidator or receiver of any taxable company or organisation.

 

Where to pay CIT

 

Companies incorporated in Nigeria and organisations limited by guarantee pay Companies Income Tax through any of the designated banks. Once payment has been captured by the bank collecting system, an e-ticket is issued is issued the company, this e-ticket is proof of payment and when presented at the Integrated Tax Office with jurisdiction an e-receipt will be issued.

Non-resident companies make payment through remittance of tax deducted at source to the designated banks.

 

How to pay CIT

 

• Resident companies and organisations prepare and submit annual self-assessment tax returns as specified by FIRS accompanied by the evidence of the payment of the full amount or first installment of the tax due. Payment is made to designated banks

• Non-resident companies are subject to Withholding Tax (WHT) deductions on the income they earn from Nigeria. This becomes their tax upon filing returns.

Petroleum Profits Tax (PPT)

 

Applicable tax law for persons subject to the Petroleum Profits Tax (PPT):

• Companies engaged in petroleum exploration and production operations in Nigeria (up-stream operations)

• A person resident in Nigeria, employed in the management of the petroleum operations carried on by a non-resident company

• The liquidator, receiver, or agent of liquidator or receiver of any company carrying on petroleum operations in Nigeria.

 

Where to pay PPT

 

Companies carrying on petroleum operations in Nigeria make offshore payments to JP Morgan Chase Bank, the bank then advises the Central Bank of Nigeria to enable the bank credit FIRS accordingly.

 

How to pay PPT

 

Every company engaged in petroleum operations prepares and submits yearly returns as specified by the Petroleum Profits Tax Act within five months of the end of each assessment year. Payment is in two segments beginning with filing of estimated annual return not later than ending of February of each year. Payment for the tax due is then made in twelve monthly installments beginning from March of each year. Where the actual tax liability arising from the annual tax returns exceeds the cumulative estimated tax, a 13th month installment is payable and where the contrary is the case, a refund is due.

 

Value Added Tax (VAT)

 

Applicable tax law for persons subject to the Value Added Tax (VAT):

Any individual, corporation sole, group, body corporate or organisation that consumes buys, procures or imports taxable goods or services is liable to pay the tax. How to pay the VAT.

• During direct sales or open market transactions, the buyer or consumer shall pay the tax to the seller together with the cost of the goods or services bought. The seller then nets off the VAT paid at the time of purchase of the stocks sold from the VAT collected on the stocks sold and credit the balance to FIRS.

• Where the goods or services were supplied to a Ministry, Department or Agency (MDA) or a company engaged in oil operations, the VAT payable by the MDA or oil company is deducted or withheld at source (at the point of payment). It is then credited directly to FIRS on behalf of the supplier

• VAT payments are made monthly not later than 21days of every subsequent month. Tax payers prepare and submit monthly VAT returns accompanied by evidence of payment of the tax due at designated banks.

Where to pay the Value Added Tax

 

VAT remittances may be made at any designated bank, an e-ticket is immediately issued as evidence of payment. This e-ticket may be presented at the ITO and an e-receipt will be issued the taxpayer.

 

Personal Income Tax (PIT)

Applicable tax law for Personal Income Tax Act (PITA):

• Persons subject to the Personal Income Tax Individuals resident in the Federal Capital Territory, Abuja.

• Families, communities, trustees and estates resident in the Federal Capital Territory.

• Persons employed in the Nigerian Army, Nigerian Navy, Nigerian Air Force and Nigeria Police other than in civilian capacity.

• A person resident outside Nigeria who derives income or profit from Nigeria.

• Officers of the Nigerian foreign service.

 

Where to pay PIT

 

• Persons employed in the Nigerian Army, Nigerian Navy, Nigerian Air Force and Nigeria Police, other than in civilian capacity, pay income tax at the designated banks

• Individuals and enterprises in FCT pay at the designated banks obtain an e-ticket and may request an e-receipt at the Individual and Enterprise Tax Office, Abuja.

• Organisations, companies and MDAs pay at designated banks, obtain their e-tickets and may request for the e-receipts at the Large Tax Office (LTO), Abuja.

 

How to pay PIT

 

• Persons on paid employment pay their personal income tax through the Pay As You Earn (PAYE) system. Under the system, employers deduct the prescribed tax from workers’ salaries and pay directly to the FIRS through the designated banks on behalf of the employees on a monthly basis

Any individual, corporation sole, group, body corporate or organisation self-employed individuals and enterprises prepare and submit annual self-assessment tax returns as specified by FIRS accompanied with evidence of payment of the full amount or first installment of the tax due. All payments are made at the designated banks.

 

Withholding Tax (WHT)

Applicable tax law

Withholding Tax (WHT) is not a distinct tax type and therefore has no legislation of its own. It is only a mechanism for the collection of other taxes. Consequently, its application is provided for in the enabling law of other tax types i.e. Section 81 of Company Income Tax Act, Section 54 of Petroleum Profit Tax Act, Section 73 of Personal Income Tax Act and Section 13 of Value Added Tax (VAT) Act.

 

Persons subject to the Withholding Tax (WHT)

 

Persons subject to the various tax types may be subject to Withholding Tax deductions for the purpose of offsetting their tax liabilities. WHT deductions are regarded as advance payments (or payments on account) of the relevant tax liability that will arise from the tax returns of the period concerned.

 

Where to pay the WHT:

 

Where the person benefiting from the payment and the income are taxable, Withholding Tax (WHT) is paid (deducted) at the point of making payment. It is withheld by the payee and the net amount is then paid to the beneficiary through the designated bank(s).

 

How to pay WHT

The amount deducted at the point of payment is remitted directly to FIRS through a designated bank in a prescribed format in the name of the person subject to the deduction.

 

Education Tax (EDT)

Applicable tax law for persons subject to the Education Tax

 

All companies liable to Companies Income Tax are also liable to Education Tax. In other words, all companies registered or resident in Nigeria are liable to pay Education Tax.

 

Where to pay the Education Tax:

 

Education Tax is paid at the point of payment of Companies Income Tax or Petroleum Profits Tax.

 

How to pay Education Tax

As part of the annual Companies Income Tax self-assessment returns, taxable persons also compute and submit their Education Tax liabilities and make payment at the designated bank.

 

Stamp Duties (STD)

 

Applicable tax laws for persons subject to Stamp Duties

The items and persons subject to stamp duties are instruments (written documents) relating to matters executed between a company and an individual, group or body of individuals. Instruments which may be subject to stamp duties include financial instruments/transactions, company memorandums and articles of association, statements of share capital ownership, bonds, conveyances on sale, depositions, lease agreements, mortgage bonds, debentures, etc.

 

Where to pay Stamp Duties

 

Stamp duties on eligible instruments can be paid through designated banks.

 

How to pay Stamp Duties

 

Companies and persons issuing or dealing with all chargeable instruments shall submit such instruments to the Stamp Duties Office for stamping. The Commissioner of Stamp Duties shall then assess the instruments submitted in line with the provisions of the Stamp Duties Act and specify the duties payable. The duties are then paid to FIRS at the designated bank.

 

Capital Gains Tax (CGT)

 

Applicable tax laws to persons and properties subject to  Capital Gains Tax (CGT)

All companies incorporated in Nigeria which earns any capital gains or gains on the disposal of all forms of assets. All forms of property (whether situated in Nigeria or not) that are liable to capital gains tax include:

• Options, debts and incorporeal property generally;

• Any currency other than Nigerian currency; and

• Any form of property created by the person disposing of it, or otherwise coming to be owned without being created

 

Where to pay CGT

 

Capital Gains Tax is paid at the designated at which the company making the chargeable capital gain pays its Companies Income Tax.

 

How to pay CGT

 

In line with the provisions of the Capital Gains Tax Act and the self-assessment regulations presently in operation, a company shall compute the gains on the disposal of all forms of assets in each year of assessment and submit same together with its Companies Income Tax returns. The returns shall also be accompanied by evidence of the payment of the full amount or first installment of the tax due. Payment is made to the designated bank.

 

National Information Technology Development Fund (NITDF) levy

National Information Technology Development Agency Act, 2007 for persons subject to NITDF levy

Companies and enterprises with an annual turnover of N100 million and above operating as:

• GSM Service Providers or telecommunications companies:

• Cyber companies and internet providers;

• Pensions managers and pension related companies;

• Banks and other financial institutions;

• Insurance companies.

 

Where to pay NITDF levy

The levy is paid through the designated bank at which the chargeable companies pay their Companies Income Tax

 

How to pay NITDF Levy

As part of its Companies Income Tax returns, a company shall compute one per cent of the profit before tax of each year of assessment. The tax due shall then be paid to FIRS through the designated bank.

 

The tax system has undergone several reforms geared at enhancing tax collection and administration with minimal enforcement cost. The reforms include the introduction of TIN (unique Taxpayer’s Identification Number which became effective since February 2008), automated tax system that facilities tracking of tax positions and issues by individual taxpayers, e-payment system which enhances smooth payment procedure and reduces the incidence of tax touts, enforcement scheme (Special Purpose Tax officers), these are special tax officers in collaboration with other security agencies to ensure strict compliance in payment of taxes. The tax authority has autonomy to assess, collect and record tax. This enabling environment which came into being on the basis of (Section 8(q) of FIRS Establishment Act 2007) has led to an improvement in tax administration in the country.

The tax system has undergone significant changes in recent times. The tax laws are consistently being reviewed with the aim of repealing obsolete provisions and simplifying the main ones. Under the law, taxation is enforced by the three tiers of government, i.e. federal, state, and local governments, with each having its sphere clearly spelt out in the Taxes and Levies (approved list for Collection) Decree, 1998.

Despite this improvement, there are still a number of contentious issues that require urgent attention and among them is the issue of the appropriate tax authority to administer several taxes. The crisis between Lagos State and the Federal Government on the tax jurisdiction of Value Added Tax (VAT) in the state is still a contentious issue that has been taken to the courts.

Other states, such as Ogun, Oyo and Benue have joined Lagos, while states like Abia, have gone against this. Also, there is the issue of multiple taxes administered by all the three tiers of government which sometimes imposes welfare cost. Furthermore, the issue of the paucity of a data base, which contributes to tax avoidance in the country. The issue of corruption is still a perennial issue in the country; this reduces the confidence and trust of the taxpayers in discharging their civic duty. The issue of infrastructural development is also a crucial issue, in Nigeria, the level of infrastructural facilities is in a deplorable state, most of the facilities are often privately sourced, thus a number of people wonder what the taxes collected are used for, hence the tendency to evade tax payment. Furthermore, the problem of the tax language that is legally codified makes it difficult for an average Nigerian to understand.

 

Policy recommendations

Disclosure and sharing of information

There is a need for mutual cooperation among different government agencies and parastatals, this collaboration should enhance exchange of information, and reduce the incidence of tax evasion as well as fraudulent tax practices.

Beneficial /welfare schemes.

To elicit voluntary compliance, the government should be more responsive to the welfare needs of the citizens. The Nigerian tax system can effectively generate more revenue when the citizens have trust and confidence in the authority. Lagos state in recent times is generating huge revenue due to the fact that many corporate bodies and individuals feel that they can visibly feel the development impact of their contributions

Patriotism and positive tax culture

There is a need to enhance a positive tax culture; this can be done through the re-branding efforts of the ministry of information. In most developed countries, tax payment is considered a moral and civic responsibility, thus tax avoidance is frowned upon. This implies that our leaders should demonstrate patriotism through leadership that is worthy of emulation by timely payment of their taxes and discharging other civic duties.

 

Religious education /responsibility:

In Nigeria, most of the citizens are religious and faithful people. Thus, with religious provisions that explicitly support fulfilling religious obligations, tax payment could be enhanced. Therefore, tax education can be encouraged to be part of religious education among the adherents.

Evoking religious injunctions could elicit more voluntary compliance and reduce tax evasion and avoidance. For instance, the Biblical saying of “Give unto Caesar, what is for Caesar and to God what is for God” is apt and relevant to the Christians while the Qur’an calls on the Muslims thus: “O you who believe, fulfil all obligations” (Q5:1).

 

Civic education

Civic education was part of the educational curriculum in the early 1960s and 1970s; however, this was stopped in the mid-1980s and 90s. A re-introduction of this into the school curriculum would not only improve civic responsibility but also infuse a sense of patriotism and commitment to national ideals and interests. There should be vigorous enlightenment and public awareness about tax payment and its importance in the economy.

Hot lines

There can be dedicated lines or emails, where issues, observations and queries can conveniently reach the authority; this will contribute to the reduction of tax fraud and avoidance.

 

Harmonisation of taxes to reduce double/ multiple taxation on a single taxpayer

There is a need to harmonise the different taxes that are being levied by the different tiers of government so as to reduce the negative impact on the taxpayer. A situation where an individual pays rates and licenses to local government, pays sales tax and personal income to the state government and at the same time pays VAT is not one that will encourage voluntary compliance.

 

Improving our record or database, to be able to track all potential taxpayers

In Nigeria, an improvement in our tax revenue can be enhanced through a regularly updated, comprehensive database. This would enable the country to be able to track all potential taxpayers as well as to reduce incidences of tax avoidance.

Elongated tax operation (Twilight shift)

To maximise the revenue accruing from tax collection and especially to fulfil the principles of convenience and economy on the part of taxpayers, collectors of tax should be made to operate on shift throughout the day.

Tax laws should be codified in simple, non-technical language, if possible in the three major languages: Hausa, Ibo and Yoruba.

Need for an effective judicial process to adjudicate on tax issue

List of approved taxes and levies for the three tiers of govt

A list of approved taxes and levies for collection by the three tiers of government:

(A) Taxes collectible by the Federal Government

(1) Companies income tax;

(2) Withholding tax on companies;

(3) Petroleum Profit Tax;

(4) Value-added tax (VAT);

(5) Education tax;

(6) Capital gains tax – Abuja residents and corporate bodies;

(7) Stamp duties involving a corporate entity;

(8) Personal income tax for:

– Armed forces personnel;

– Police personnel;

– Residents of Abuja FCT;

– External Affairs officers; and

– Non-residents.

(B) Taxes/levies collectible by state governments

(1) Personal income tax:

– Pay As You-Earn (PAYE);

– Direct (self and government) assessment;

– Withholding tax (individuals only);

(2) Capital gains tax;

(3) Stamp duties (instruments executed by individuals);

(4) Pools betting, lotteries, gaming and casino taxes;

(5) Road taxes;

(6) Business premises registration and renewal levy;

-urban areas (as defined by each state):

§maximum of N 10, 000 for registration and N5, 000 for the renewal per year.

-rural areas

-registration N2,000 per annum

-renewal N 1,000 per annum

(7) Development levy (individuals only) not more than N100 per year on all taxable individuals;

(8) Naming of street registration fee in state capitals

(9) Right of occupancy fees in state capitals;

(10) Rates in markets where state finances are involved.

 

(C) Taxes/levies collectible by local governments

(1) Shops and kiosks rates;

(2) Tenement rates;

(3) On and off liquor licence;

(4) Slaughter slab fees;

(5) Marriage, birth and death registration fees;

(6) Naming of street registration fee (excluding state capitals):

(7) Right of occupancy fees (excluding state capitals);

(8) Market/motor park fees (excluding market where state finance  are involved);

(9) Domestic animal licence;

(10) Bicycle, truck, canoe, wheelbarrow and cart fees;

(11) Cattle tax;

(12) Merriment and road closure fees;

(13) Radio/television (other than radio/tv transmitter) licences and vehicle radio licence (to be imposed by the local government in which the car is registered);

(14) Wrong parking charges;

(15) Public convenience, sewage and refuse disposal fees;

(16) Customary, burial ground and religious places permits; and

(17) Signboard/advertisement permit.

 

There is a need to draw attention to the fundamental difference between Withholding Tax (WHT) and Value Added Tax (VAT) so as to facilitate clear understanding of the mechanics of the tax concepts.

WHT is an advance payment of income tax and the purpose is to bring the prospective taxpayer into the tax-net, thereby widening the income tax base. In other words, the WHT system is aimed at tracking down taxpayers and the incomes which may otherwise not be reported by them.

When the income on which WHT is deducted at source is finally brought to the notice of the tax authority and the appropriate tax computed, due credit is given for the WHT deducted at source on the presentation of the original WHT receipts through the issuance of credit notes. The taxpayer will be required to pay only the balance due after matching the actual tax liability against the credit for the WHT suffered at source. WHT is therefore nothing more than a collection machinery to curb tax evasion. It is not a separate tax on its own. It is a part of the income tax – whether personal or corporate income tax.

In contrast, VAT is a different type of tax. VAT is a consumption tax payable on the goods and services consumed by any person, whether government agencies, business organisations or individuals. The target of VAT is the final consumer of goods and services and unless an item is specifically exempted by law, the consumer is liable to the tax. Exemption from this is not aimed at agencies, companies or individuals but rather at the goods and services.

Therefore, all agencies of government, religious and other organisations and similar persons that are normally exempted from income tax are expected to pay VAT on the goods and services consumed by them except where the goods and services are specifically exempted by law.

 

The Primary Market

 

(a) How to Impose WHT

 

It is usual for issuing companies to pay fees to issuing houses, stock brokerage firms, reporting accountants and solicitors in respect of new and rights issues, as well as debenture stocks. Such fees should be subject to withholding tax at source in accordance with Section 63 of the Companies Income Tax Cap 60 LFN 1990, and the relevant extra-ordinary Gazette. The issuing companies are hereby mandated to deduct theWHT tax there-from and pay over to the Federal Inland Revenue Service (FIRS) within 30 days as stipulated in the tax law. The net is then paid over to the issuing house that handled the issue. The applicable rate for commissions/fees is 10 per cent for limited liability companies, and five per cent for individuals and partnerships.

(b) How to Impose VAT

Every consumer pays VAT on services rendered to it. As consumers of the services rendered by both the issuing houses and other parties to the issue, the issuing companies are liable to the payment of VAT for the services rendered. The issuing houses and other parties to the issue should charge VAT at five per cent on their invoices for services rendered. Since the issuing houses handle the transactions connected with new and rights issues, they are to act as agents for the collection and remission of VAT to FIRS.

 

(c) Listing by the Nigeria Stock Exchange (NSE)

As a pre-requisite for listing new securities by the NSE, the evidence of settlement of WHT and VAT on the new and rights issues must be attached. The listing fees are themselves liable to WHT and VAT.

 

(d) Renewal of Operators’ Licences

Before an operator’s licence is renewed by a regulatory authority, evidence of WHT and VAT on issues handled in the previous year must be produced.

 

The secondary market

(a) How to Impose WHT

 

·In the case of a purchase, the stockbroker is expected to charge the investor for the following:-

•The cost of the shares purchased,

•The commission based on gross value of shares purchased on behalf of that investor, – the Securities and Exchange Commission (SEC) fee (which is currently one per cent of total consideration and is not subject to WHT and VAT being part of gross income earned by SEC)

•Deduct WHT on the commission at 10 per cent and pay over to the relevant tax authority, i.e. State Board of Internal Revenue (SBIR) or FIRS.

•In the case of a sale, the stockbroker is expected to deduct from the investor’s gross consideration the following:-

•His commission,

•the other fees payable to other third parties, as approved by the SEC.

 

•Thereafter, the net sale should be paid over to the investor.

•Both the stockbroker’s commission and other fees paid to other third parties are subject to WHT. The stockbroker is to pay over tax withheld from the commission and other fees to the relevant tax authority.

 

(b) How to impose VAT

In both purchase and sale transactions, the consumer of the services rendered is the investor. It is therefore the investor that is subject to this tax. The VAT on these transactions should be paid over to FIRS.

Collection arrangement

In respect of the collection of the taxes herewith discussed, the usual collection arrangement will prevail. Reference to the relevant FIRS information circular (9502 of February 20, 1995, 9501 of January 13, 1995) may be advisable.

However, in summary, the following collection arrangement should be observed:-

(a) WHT

•The rate at which tax is to be withheld on commission and fees is 10 per cent when these payments are made to limited liability companies; and five per cent for individuals and partnerships.

•The currency in which the tax is to be paid is the currency the transaction was carried out and in which the tax was deducted.

•payments of wht should be made in bank drafts and payable to:

•‘‘The Federal Government of Nigeria- FIRS – Withholding Tax Account’’

•Payments should be accompanied by the relevant forms (CMF1, CMF2, CMF3, CMF4, or CMF5).

•Any default in the implementation of the tax carries heavy penalties.

•Failure to deduct WHT and failure to remit taxes withheld are punishable on conviction by a fine of 200% of the tax not withheld or remitted.

(b) VAT

•The rate for VAT is five per cent.

•Payments of VAT should be made in bank draft and payable to:

•‘‘The Federal Government of Nigeria – FIRS – VAT Account’’

•The payments should be accompanied by the VAT FORM 022 which is readily available online and all FIRS offices throughout Nigeria.

 

Dual role of issuing houses

It is necessary to clarify that the new policy of government imposes dual roles on the issuing houses as agencies which handle new and rights issues:

ibas agent of government for the deduction and remittance of WHT and as agent of government for the collection and remittance of VAT even in respect of their own respective transactions which ordinarily should have been paid over to the operator who charged the VAT on his invoice. (For more details see pare. 4 of Information Circular no. 9502 of February 29, 1995).