The New Finance Act:Matters Arising About ADR Option

The acting Director General of Securities and Exchange Commission(SEC),Ms Mary Uduk has boasted that SEC made some meaningful contribution to the new finance Act of the federal government  in order to make life better for the public ,private sectors and all other stakeholders of the economy.

She said changes to the Act ‘’was to ensure fiscal equity,reforming domestic tax laws to align with global best practice,introduce tax incentives for investment in infrastructure and capital markets,supporting SME’s and raising revenue for government’’

Mrs Uduk who disclosed this at the 2nd Symposium of issuers and Investors Alter native Dispute Resolution Initiative(IIADRI)2020 tagged :”Nigerian Tax Laws :Matters Arising ”which was graced by Vice Presedent Lagos Chambers of Commerce and Industry,Gabriel Idahosa, Chidy Martins Lasbrey, Vice President Marketing and membership Drive Institute of  Mediators and Conciliators,Institute of Chartered Accountants of Nigeria(ICAN), President, MaziI Nnamdi A. Okwuadigbo and etc said a new Act will further improve the ease of doing business in Nigeria.

The SEC DG who was represented by its Deputy Director Lagos,,Hafsat Rufai revealed that the commission is working on a guideline to strengthen corporate governance of public companies and urged operators of the capital market to work in consonance with the set down rules and regulations of the market.

In his welcome address IIADRI’s helmsman,Moses Igbrude said IIADRI’s core objective is to promote and encourage stakeholders in the Nigerian capital market to embrace voluntary regulatory compliance and good corporate governance practice within the Nigerian Investment environment

He stated that this year event was themed to address the numerous complaints raised by corporate organizations on the administration of taxes in Nigeria such as Multiple Taxation, Enforcement Procedures, Dispute Resolution Mechanisms, endless audit cycle etc

The Institute of Chartered Accountants of Nigeria( ICAN) President, MaziI Nnamdi A. Okwuadigbo stated in his paper the good wishes of the Governing Council and the entire membership of The Institute of Chartered Accountants of Nigeria (ICAN) to the Issuers and Investors Alternative Dispute Resolution Initiative (IIADRI).Saying as an ‘’Institute, we commend the passion of this Initiative to entrench harmony and engender growth in the Nigerian Stock Market through enlightenment of the various stakeholders and application of Alternative Dispute Resolution’’.

According to him‘’Unarguably, this Symposium with the theme Nigerian Tax Laws: Matters Arising is introducing a new dimension to a topic one would have assumed is over discussed. The Nigerian tax laws have undergone various experts’ critique in recent weeks, enjoying both commendations and criticisms of almost equal measure. The debate on the country’s tax system became more intense after the signing of the then Finance Bill 2019 which has now been christened Finance Act 2019. This leaves one to wonder if there are new things to be discussed on the subject of taxation in the country currently. 

However,he maintained that  ‘’IIADRI has innovatively introduced an interesting dimension to the current debate which perhaps has eluded the attention of analysts and social commentators. A discussion of this nature that emphasises the need to address issues surrounding Nigerian tax laws through the lens of Alternative Dispute Resolution (ADR) is both timely and somewhat novel. Over the years, tax compliance and enforcement procedures have generated legal issues between tax authorities and taxpayers. This has led to protracted litigation processes hampering tax collection and business growth generally.

‘’As noted by PricewaterhouseCoopers UK, ADR is suitable for a wide range of disputes across different taxes, particularly those which relate to transfer pricing, capital versus revenue or valuation issues. It may be particularly useful for use in long-running disputes where positions on both sides have become entrenched, with litigation or one party conceding appearing to be the only options. 

‘’As an Initiative that focuses on Alternative Dispute Resolution, this second Symposium of IIADRI is coming against the backdrop of varied concerns on the new Public Finance Act. One of the primary objectives of the Finance Act is to promote fiscal equity. As we are all aware, fiscal equity can only be achieved when there are efficient reporting and adjudication channels on tax-related issues. This would not only aid business growth but it facilitates Foreign Direct Investments into the country,he noted.

Hence,the position of  Asiata Agboluaje,Int.Tax/ Regulatory, Deloitte Nigeria that  ‘’As government seeks to raise revenue principally through taxes, the question as to whether it has built sufficient ‘trust capital’ whereby the taxpayers can see their tax in action becomes relevant.

‘’Also, the social contract between the government and the taxpayer should be cordial. An unusually aggressive tax collection process may provide more revenue in the short run but may cause long term damage for businesses’’.

No wonder Mr Chidy Martins Lasbrey, Vice President Marketing and membership Drive, Institute of  Chartered Mediators and Conciliators(ICMC) called on stakeholders of the economy to avail the power of ADR in the resolution of tax matters in the overall interest of the economy,saying the disputes are a norm in business which should not be expensively resolved via the law courts.

As he stressed ADR should be applied before going to court in order to avoid long running business disputes from killing more business,saying that ADR is more timely and cost effective .And he even asked the government that even before going ahead to make laws that concerned stakeholders should be reached for their own views and interests.

Mr Ademola Idowu of KPMG in his contribution praised the federal government for reaching out to stakeholders, but said not every one was consulted and some like the oil and gas people who were consulted made serious representation and imputs as regards to plans to add withholding tax to their tax burden;but the government brought out the Act without the required changes.

Mr. Daniel  Asapokhai, The  Executive  Secretary/CEO, Financial  Reporting  Council of  Nigeria (FRC) in his goodwill message at the event said Taxation is the one great power upon which the national fabric is footed. It is a key factor in the business environment, and this could be an incentive or disincentive to businesses and entrepreneurship. Taxation is believed to be as necessary to the existence and prosperity of a nation as is the natural air to  human being. There is hardly any government in the world today that does not rely on tax measures to manage the much-needed socio-economic development and improvement of wealth distribution in the society. A report by Andersen Tax in 2019 showed that Nigerian tax-to-Gross Domestic Product (GDP) ratio continued to hover around an abysmal 6%which is not impressive especially when compared with other African countries.

‘’Moreover, the Debt Service-to GDP ratio is over 60% which is unsustainable and underscores the need to strengthen our Tax System to widen the tax base. This can only be achieved through a holistic reform of our Tax Laws.

As he stressed Tax administration in Nigeria is a shared responsibility amongst the three tiers of government: The Federal, state and local governments with each setting up its administrative machinery as provided for under enabling statutes. The Nigerian tax system was designed as a means of income generation based on the 1948 tax laws of the British during the pre-independence government .

President Muhammadu Buhari in July 2016 ,he said established the Presidential Enabling Business Environment Council (PEBEC) to implement reforms in the Nigerian business environment in order to make Nigeria a progressively easier place to establish and conduct business activities.

This initiative has recorded series of reforms among which is the improvement in Nigeria’s ease of doing business ranking from its 169th position in 2016 to 131st position in 2019 on the World Bank Ease of Business Index. In this direction, Financial Reporting Council recently modified its process registration of individual professional by deploying a new portal that enables prospective registrants to register at the comfort of their offices or home without visit to its office. The 2018 National Code of Corporate Governance (NCCG) issued by our Council is major step in the direction of ease of doing business. However, Nigeria has not done well on its ranking when it comes to the ease of paying taxes based on the following identified challenges:Multiple taxation;Obsolete provision in the Nigerian tax laws;Burdensome tax compliance processes; and Non-automation of core tax processes.

According to FRC CEO,a good Tax System in any economy is one with the ingredients to stimulate investment and create wealth, and by implication offers an atmosphere that is business friendly. The Nigerian government requires a lot of money to put the economy in a position that stimulates investment. For this to be achieved, tax policies need to attract potential investors, and the revenue from tax should be enough to meet the infrastructure expenditures of the government

In his view regulatory authorities charged with the sole responsibility of collecting tax should be strengthened to enforce compliance by taxpayers. Most of all, the tax revenues should also be properly channeled so that economic growth can be harnessed especially in providing basic social amenities as well as infrastructural developments in Nigeria,even as he  encouraged tax authorities and the Nigerian taxpayers, especially the corporate entities to embrace the concept of alternative dispute resolution to resolve any tax misunderstanding.

‘’This is because in Alternative Dispute Resolution, the needs of both parties will be taken into consideration while the outcome is more likely to suit the needs of everyone involved. This will therefore help to preserve the existing cordial relationships between the tax authorities and the Nigerian taxpayers and reduce the pressure on our currently overcrowded courts’’.He posited.

The guest Speaker,Gabriel Idahosa,Mr James Idoho who gave a goodwill message and Mr Ademola Idowu of KPMG as well as Mrs Asiata Atinuke Agboluaje of Deloitte stressed the following as it concerns the new finance act but in their own different perspectives .According to them the new Act: Introduces tax incentives for investments in infrastructure and capital markets;Supports small businesses in line with the Federal Government’s ongoing Ease of Doing Business Reforms; and Promotes fiscal equity by mitigating instances of regressive taxation; Reforms domestic tax laws to align with global best practices; and raises required revenue for government, by various fiscal measures, including increase in the rate of Value Added Tax (“VAT”) from 5% to 7.5%.

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© 2020. For information, contact Deloitte & Touche. All rights reserved

LLM (Cantab), ACTI

Lead, International Tax &

Regulatory, Deloitte Nigeria 

Asiata Atinuke

Agboluaje

Asiata Atinuke Agboluaje is legal and tax practitioner with over 10 years of experience in Nigeria and United Kingdom.

She holds an LLB from the University of Ilorin, BL. with the Nigeria Law School and is an alumnus of University of Cambridge

where she obtained her LLM in Corporate and Commercial Law.

Asiata started her career with Templars & Associates, one of the leading law firms in Lagos. She had a stint with Olswang

LLP, a prestigious law firm in United Kingdom, under the International Lawyers for Africa Programme.

She was the legal and compliance officer for an investment bank in Lagos, before joining Deloitte in 2012.

As a member of the Nigerian Bar Association and Chartered Institute of Taxation, Nigeria (CITN),  Asiata is experienced in

tax and corporate law advisory on various aspects of cross border investments from inception to conclusion.

She has provided tax and regulatory services to several companies in Nigeria across different industries ranging from

deciding the most optimal investment structure to investment location, options for repatriation of profits an

17

© 2020. For information, contact Deloitte & Touche. All rights reserved

LLM (Cantab), ACTI

Lead, International Tax &

Regulatory, Deloitte Nigeria 

Asiata Atinuke

Agboluaje

Asiata Atinuke Agboluaje is legal and tax practitioner with over 10 years of experience in Nigeria and United Kingdom.

She holds an LLB from the University of Ilorin, BL. with the Nigeria Law School and is an alumnus of University of Cambridge

where she obtained her LLM in Corporate and Commercial Law.

Asiata started her career with Templars & Associates, one of the leading law firms in Lagos. She had a stint with Olswang

LLP, a prestigious law firm in United Kingdom, under the International Lawyers for Africa Programme.

She was the legal and compliance officer for an investment bank in Lagos, before joining Deloitte in 2012.

As a member of the Nigerian Bar Association and Chartered Institute of Taxation, Nigeria (CITN),  Asiata is experienced in

tax and corporate law advisory on various aspects of cross border investments from inception to conclusion.

She has provided tax and regulatory services to several companies in Nigeria across different industries ranging from

deciding the most optimal investment structure to investment location, options for repatriation of profits anIntroduces tax incentives for investments in infrastructure and capital markets;Supports small businesses in line with the Federal Government’s ongoing Ease of Doing Business Reforms; andPromotes fiscal equity by mitigating instances of regressive taxation;

Company Income Tax Act  Aspect.

The following are the new changes: Exempt from Excess Dividend Tax (“EDT”) – dividends paid out of exempted profits or retained earnings previously subjected to tax; dividend incomes received on behalf of shareholders, and franked investment incomes; to tax pay twice on profits for which taxes has been paid under CITA.

Amended the commencement and cessation of business rules in order to eliminate incidences of double taxation; 

Any foreign company engaged in the digital economy is subjected to tax even without a physical presence, as far they have economic presence and their profits are traceable to such activities which have significant economic presence in Nigeria without maintaining any identifiable physical presence in the country.  

The Act is however silent on what is “significant economic presence”.It however require companies to produce their TINs before they can operate new or existing bank accounts in Nigeria;

Also ‘’Companies with turnover of less than Twenty-Five Million Naira (N25,000,000) are exempted from payment of minimum tax, deleted the current basis for computation of minimum tax, introduce minimum tax of 0.5% on the turnover of companies that are subject to minimum tax in Nigeria, and remove the exemption from minimum tax currently enjoyed by companies with minimum twenty-five percent (25%) imported equity capital;

‘’ Insurance companies are to have a more favorable tax regime in Nigeria because they are now allowed to carry their losses forward indefinitely.  The Act achieved this by deleting the four-year limitation on carry forward of losses by insurance companies in Nigeria. 

Other provisions in the Act impacting insurance companies include:(a) Restriction on deductions allowed for insurance companies on unexpired risks and other deductible gains and outgoings, and (b) For insurance companies tax payable for any year of assessment shall not be less than: i. 0.5% of  the gross  premium for non-life insurance businesses;  or  ii.0.5% of gross income for life assurance businesses.

Also, it Prevents base erosion and profit shifting by restricting (a) deductible dividends and mandatory contributions made by real estate investment companies to their shareholders, to those duly approved by the Securities and Exchange Commission, and (b) deductible compensating payments made by lenders to those that qualify as interest and are paid to their approved agents in RSL transactions;

Besides, it’’Reduce tax planning and management arbitrage practices by disallowing the following expenses for tax deduction purposes:

   (a) compensating payments which qualify as dividends, made by borrowers to their approved agents or lenders in regulated securities exchange transactions,

  (b) Federal statutory penalties and taxes or penalties paid by a company on behalf of another.

According to the lead Speaker the Act amended some sections and the First Schedule of the VAT Act, and proposes the following: Increase in the VAT rate from 5% to 7.5%;and Services will be deemed to have been provided in Nigeria and therefore subject to VAT where the recipient is in Nigeria, regardless of whether the services were rendered within or outside Nigeria. 

However, where the recipient of a service is outside Nigeria, such service shall be deemed “exported service” and hence not chargeable to VAT.On the other hand, he explained that the Act  clarifies that services rendered to the fixed base or permanent establishments of non-resident persons do not qualify as exported service and are therefore subject to VAT. 

As he further said the definition of “exported service” in the Act states that the service provided must flow directly from the Nigerian resident to the person resident outside Nigeria.  This means that exported service, as contemplated by the Act, does not include a transaction where the service in question flows from a Nigerian resident to another Nigerian resident third party on behalf of or for the benefit of non-resident persons in Nigeria.

It Introduced the Reverse Charge Principle, which charges the VAT due on imported supplies in Nigeria in the hands of the recipients of such taxable supplies.Two, Removal of the requirement for foreign entities carrying on business in Nigeria to register for VAT in Nigeria and include VAT charges in their invoices;

Three, Exemption of companies with annual turnover of less than Twenty-Five Million Naira (N25,000,000) from the requirement of filing VAT returns;as well as Specifically described what constitutes basic food items, within the meaning of the VAT Act, for VAT exemption purposes.

The definition of goods and services has been expanded to cover intangible items that a person has ownership interest in, or derives benefit from, and which can be transferred to another person, other than land; thus locally manufactured sanitary pads, tampons, and towels are exempted from VAT; and Education tuition levies, nursery, primary, secondary are exempted from VAT. 

Penalties for late filing of monthly VAT returns is now N50,000 in the month of default and N25,000 for every month in which the default continues. This is an increase of over 90% when compare with previous penalty of N5000 in the month of default and the same N5000 for every month in which the default continues. The same amount apply for failure to register for VAT and also failure to notify the Federal Inland Revenue Service of Change of address within 30days of such change of location

According to Asiata Agboluaje “The power of taxing people and their property is essential to the very existence of government.’‘ — James Madison, U.S. President”Of all debts, men are least willing to pay their taxes; what a satire this is on government.“But Nigerian public office holders has helped to disappoint the Nigerian people-there is no welfare, no adequate security,no light, no water. So why should people pay tax?This issue makes the application of ADR principle imperative. What do you think?