28 BUSINESS DAY C002D5556 Wednesday 11 April 2018 Tax Issues Tax amnesty: FIRS, Finance Ministry yet to disclose costs of generating N20bn IHEANYI NWACHUKWU In eight months to March, Nigeria is said to have generated not less than N20billion from 262 taxpayers who declared their assets under the Voluntary Assets and Income Declaration Scheme (VAIDS) by the Federal Government. Though the deadline for the Voluntary Assets and Income Declaration Scheme expired on March 31, 2018, and the overall success of the scheme cannot be measured yet, but analysts are asking questions on “how much” the Federal Government authorities spent in generating the said N20billion in eight month. While the Federal Government considers requests for an extension of the tax amnesty programme launched in July 2017; it is worth noting that President Muhammadu Buhari had empowered the taxman who now has the will and the data to go after tax evaders who failed to take advantage of the tax amnesty programme. Federal Government aimed to raise at least additional $1billion (N360billion) into its coffers as tax revenue while bringing in 4 million new tax payers into the tax net. “On the federal level, people have declared and paid N20billion; and one thing I will let you know is that based on the experiences of other countries, usually people wait till the last minute. In terms of applications received at the federal level, about 262 applications. “So far paid is N20billion and people are still in the process of putting together their facts and in the next two or three weeks, the figures will be different,” the Executive Chairman, Federal Inland Revenue Service, Babatunde Fowler said on a live television programme early last month. He added that the government had identified properties worth over N2trillion in Abuja whose owners were not paying taxes. Kemi Adeosun, Minister of Finance said that the Federal Government was reviewing the requests by the states and the private sector. “The Federal Government is reviewing the numerous extension requests by states and the private sector, which have cited some logistic challenges, such as non-availability of the declaration forms in some states and the declaration of public holidays to commemorate Easter,” the minister had said, adding that indicted individuals and groups still risk forfeiture of their assets and prosecution. While Nigeria’s tax amnesty targeted increased tax compliance and revenue, by deepening tax penetration and granted taxpayers a time-limited opportunity to regularise their tax status without penalty. “The importance of this scheme cannot be over-emphasised as Nigeria’s tax/GDP ratio stands as one of the lowest globally amid the need to shoreup non-oil revenue in the face of rising debt burden”, according to United Capital analysts in their recent commentary. “Earlier, the Ministry of Finance had insisted it will ‘name-and-shame’ defaulters that did not take advantage of the scheme. Recent indication, however, suggested authorities are considering an extension of the deadline, casting shadows on their next move. Overall, we encourage the government to consolidate efforts to deepen tax revenue by balancing the need to send the right signal to defaulters and addressing the technical challenges hampering compliance”, United Capital analysts noted. Beyond VAIDS: taxpayers want clear, fair tax systems for improved compliance STEPHEN ONYEKWELU I really have no problems paying taxes. It is the price we pay for living in a civilised society but I have problems when nothing is clear. Something as simple as knowing when I should file my taxes with clear procedures to be found online” Majiri Otobo, CEO Kui Care, an indigenous natural hair products company told BusinessDay in an exclusive interview. Faced with the challenge of raising its tax revenue to a level that is reflective of the economic activities in the Nigeria and fluctuating crude oil prices taxation has become a necessary source of government revenue. To attain this, on July 1 2017, the Federal Government of Nigeria introduced its second tax amnesty programme in two years – the Voluntary Assets and Income Declaration Scheme (VAIDS). This amnesty period ended in March 31, 2018. This was a time-bound opportunity for taxpayers to regularise their tax status relating to prior periods in exchange for clemency from overdue interests and penalties and the assurance that the will not face criminal prosecution for tax offences. According to a report from Andersen Tax Nigeria, a multinational tax consulting and advisory firm, “while the Scheme may not have achieved its revenue target of $1 billion, it succeeded in raising tax awareness in Nigeria to an all-time high. For the first time, many economically active people who were not bothered about taxation started seeking guidance on what they needed to do to improve their tax compliance level” the report stated. Experts say to sustain this momentum, it is important for tax administrators to continue with the tax awareness efforts and also create efficient tax systems to make tax compliance easier. It is not enough to urge taxpayers to be more compliant, certain inherent issues such as lack of fairness, certainty of tax treatments, transparency and accountability should be addressed as they contribute to non-compliance. Also, taxpayers should ensure their financial affairs are well structured and appropriate records are kept to easily ascertain their tax when required. On this they need to consult tax professionals. For potential taxpayers with incomplete records, especially those in the informal sector, the tax laws empower the tax authorities with other alternatives apart from the available records to determine tax payable. The turnover tax approach can be adopted where the turnover can be determined, otherwise, a presumptive tax approach can be employed. These are discretionary methods but must be applied fairly to encourage taxpayers to come forward. The administrators should also champion the resolution of grey areas and inconsistencies in the tax laws. Even where the tax officials discover areas of non-compliance during an audit, the aim should be to correct and educate the taxpayers such that no further liability will arise on the same issue in subsequent tax audits. This will require a change in attitude of tax administrators. In advanced economies, taxation constitutes a major source of government revenue and is an acceptable practice among their citizens. Taxation is also employed in other ways such as tariffs that protect local industries from foreign competition, checking undesirable practices and fostering inclusive development through asymmetric application. These economies also show that taxation is a veritable source of funding for sustainable development, perhaps with its added advantage of empowering the citizens to demand more accountability from governments and as well constraining governments towards more transparency and efficient utilisation of funds. Apparently, making development everybody’s business fosters better growth. Tax to Gross Domestic Product (GDP) ratio (total tax collected as a percentage of the market value of all officially recognised final goods and services produced within a country in a given period), and the tax contribution to a country’s revenues are good indicators of efficient tax systems. In 2016, tax revenue in the European Union was 40 percent of GDP (France 47 percent, UK 35 percent) and accounted for around 90 percent of government revenues. Tax is usually about 26 percent of GDP in the US and accounts for about 85 percent of government revenue. Nigeria’s tax to GDP ratio of 6 percent depicts the poor state of taxation in the country while at the same offering the opportunity to significantly increase government revenues. Business structure and tax implications Introduction The fallacy that taxes are a one-way street for organizations engaged in for-profit activities often unravels before them, in practice, when they become inundated with demands by several relevant tax authorities for taxes and levies collectible. The implication of this for businesses is the discovery that they had not properly given their formal business structure due consideration at inception. A case in point is a subscriber to a newly established business, who makes a U-turn, shortly after formal registration, on realizing that the firm has obligations to both the State tax authorities and Federal authorities as well, much against the original intention of being obligated only to one tax authority, as far as possible. For such subscriber, who may have originally intended to keep things simple, being caught in the web of analyzing transactions for purpose of determining which relevant tax authorities should collect a particular tax type and its associated filing can be unnerving. This, therefore, provides scope for practical guidance and proper delineation of taxes according to business structure. Business Structures according to the Tax laws The Nigerian tax system recognizes the profits of a trade or business of an enterprise as taxable in the hands of the individual who is considered the sole proprietor of the business. This type of business structure usually require one subscriber for registration with the Corporate Affairs Commission. Partnerships also fall under this category as the individuals that make up the partnerships of the enterprise have their share of profits taxed in their hands, as individuals as well. The taxation of sole proprietors and partnership, therefore, lie with the State Internal Revenue Service, which is within the purview of the Personal Income Tax Act. Other taxes such individuals may also be liable to pay are Stamp duties, Capital gains, Hotel Consumption Tax etc. on relevant transactions chargeable to such tax under the law. On the other hand, a business with more than one Subscriber and Directors may be a Company limited by shares or a publicly quoted company. The relevant tax authority or authorities such business is obligated for tax purpose is the Federal Inland Revenue Service and the State Internal Revenue Service (as the case may be under the operations of the Pay-As-You-Earn Scheme). Other taxes to which the company is obligated include Stamp Duties, Capital Gains, Value Added Tax, National Information Technology Development levy, Petroleum Profits Tax, Tertiary Education Tax etc. Structuring for effectiveness The World Bank report on the ease of doing business read with the ease of paying taxes by PwC still has Nigeria a far cry away from the set of Countries with leading practices. To complicate this further through lack of sensitization of the types of formal business structures available and one that is fit-for-purpose even impacts on the ability of the business to effectively meet its primary goal. The following are recommended for purpose of enlightening potential business owners vis: At CAC/FIRS/ LIRS: At successful completion of name search at the Corporate Affairs Commission, make available information about key statutory obligations such newly established business is likely to meet upon successful registration. This has become necessary since the Commission has provided the option to Subscribers to register their businesses directly without the aid and advisory of accredited agents of the Commission. The information should include all the taxes the business type are likely to encounter and filing obligations along with its frequency. At FIRS/LIRS: Seamlessly notify the newly registered business, by email and through other cost effective means, of their registration as taxpayers together with downloadable forms for them to fill and submit at the relevant tax office closest to their business. Remind newly notified taxpayers of the various types of taxes they are liable to pay, due dates, filing and frequency as well as key points of offences and penalties. Practitioners/Consultants: Provide advisory on the tax obligations of the formal business structure the subscriber wishes to register; and Do all things that would enable the new business become and remain tax compliant as soon as the business is registered. Conclusion Provision of a conducive business environment for a successful business outing depends more on the business owners than government and its regulatory authorities. The pathway for delivering this success in business begins with getting its formal structure right, which could very well serve as proxy to its business optimization behaviour.
Wednesday 11 April 2018 In Association with C002D5556 BUSINESS DAY 29 Banks credit to vulnerable sector, a focus for CBN Stories by HOPE MOSES-ASHIKE One of the considerations of the Monetary Policy Committee (MPC) which met last week was the level of credit to the private sector, which they found very low and unsatisfactory. The level of credit in the domestic economy channelled to productive private sector is critically below the levels required to place the economy on the path of balanced, sustainable, and inclusive growths. The volume of credit between November and December last year till February this year is put at N16 trillion. “For us to push for growth, deposit money bank must one way or the other be en- couraged to grant credit to those who need credit”, said, Godwin Emefiele, governor of the Central Bank of Nigeria (CBN). Addressing the media after the MPC meeting, Emefiele said the details as to the guidelines that will be unfolded by the CBN through the deposit money banks to increase credit to the private sector to catalyze credit in the economy will be made available in due cost. However he said it is important to know that CBN will continue to adopt more conventional monetary policy approach that will streamline with the Bank’s development finance objectives to accelerate credit to the week, “to the needy, to priority sectors of economy at a single digit interest rate with a view to ensuring that we play our own role to catalyze growth in the country”. The greatest challenge of the 17.3 million Micro, Small and Medium-Scale Enterprises (MSMEs) SMEs in operation is the poor access to affordable financing; leading to an estimated financing gap of about N9.6 trillion. “From time to time the banking supervision department that primarily supervises or that have direct oversight of the operations of banks put in place policies that will encourage credit”. In recognition of the importance of financing for economic growth and given its understanding of the implication of risk management in credit allocation, the Central Bank adopted a two prong approach to resolve the insufficient credit flow to the private sector and concomitantly accomplish its development finance function. The first of the two ap- proaches include a de- risking of bank lending to the private sector through a wide-range of credit guarantee schemes undertaken by the Bank. The second involves direct intervention initiatives in key high impact sectors including agriculture, MSMEs, manufacturing, and power. Banking sector credit to the private sector is expected to grow to N16.7 trillion in 2018, representing a growth of 6.34 percent from N15.7 trillion recorded in 2017 according to FSDH Research. The improvement in the macroeconomic and business environment; improved consumers’ confidence; and the drop in the yields on the Nigerian Treasury Bills (NTBs) are the main drivers of the expected credit growth. Reeling out the achievements of the Bank, Emefiele said the sum of N393.5 billion had been released to 478 large scale agricultural projects since inception in 2010, even as the Bank was poised to disburse up to N400 billion at only 9.0 percent interest rate under the Real Sector Support Facility (RSSF), adding that the strategic initiative was targeted at projects in manufacturing and agriculture, given the mutual interdependence of both sectors for the complete industrialization of agro-allied business. Heritage Bank commits to sustainable growth, profitability Heritage Bank Plc, Nigeria’s Most Innovative Banking Service provider, has restated its commitment to sustainable growth and profitability despite the prevailing adverse macro-economic environment. The bank said in statement issued over the weekend by Fela Ibidapo, Divisional Head, Corporate Communications of the bank that, “Its ambition to emerge as a systemic important bank in the Nigerian banking industry remains its underlying corporate growth strategy.” According to him, the foundational element of its growth strategy: People, Partnership and Process have been recalibrated to match the rapidly changing needs of its customers especially as it deploys full steam retail banking franchise. He said the bank was on a growth track and was not unmindful of the headwinds facing the domestic economy, adding that it is very optimistic that the Heritage Brand will continue to soar over the current economic tide through its collective efforts to remain an enduring institution. Ibidapo said the bank would continue to grow by appealing to key client segments especially in the retail space and also focus on underpenetrated banking segments while building loyalty amongst the bank’s existing customer base. The statement said the bank was committed to building an enduring and resilient banking franchise in the country, remarking that in the midst of the seemingly stormy realities presented by events within the political and economic environments, the bank will continue to pursue its strategic aspiration of not only being stable but also being sustainable in earnings and profitability in its growth plan. The Divisional Head, Corporate Communications remarked that the bank was committed to deploying its resources towards the delivery of innovative banking solutions to its customers as well as create and transfer wealth to all its stakeholders. CIBN advocate sustained monetary, fiscal policy for economic growth Although the prevailing conditions that characterised the economic dynamics in 2017 assumed a positive trend on the average on international markets with rising stocks, Nigeria’s economic indices also improved significantly in year, which has necessitated the call for a sustained monetary and fiscal policies by the Chartered Institute of Bankers of Nigeria (CIBN) to sustain the economic growth trajectory in Nigeria as witnessed in 2017. The economy rebounded after five consecutive quarters of contraction in the second quarter of the year with a marginal growth in Gross Domestic Product (GDP) of 0.6 percent. However, the economy grew at 1.92 percent (year-on-year) in real terms, in the fourth quarter of 2017. The inflation rate which peaked at 18.72 percent in January 2017 consistently dropped reaching 15.37 percent in December 2017, the lowest in 19 months. While rendering the report of his stewardship at the CIBN 2017 Annual General Meeting (AGM) 2017, the president of the institute Segun Ajibola said the policies put in place by government are proving, as indicated in the World Bank Ease-of-Doing-Business Report 2018, which placed Nigeria in the 145th position among 190 economies, 24 positions better than the 169th position the nation ranked in the 2017 report. According to Ajibola, the year also saw the launch of numerous government and regulatory agencies’ policies and initiatives intended to boost the Nigerian economy. “The CBN opened a foreign exchange window especially for Small and Medium Enterprises (SMEs) in order to improve activities of the sector. The apex bank also opened a special foreign exchange window for investors and exporters. The ‘Investors and Exporters’ (I&E) FX Window’ was created to boost liquidity in the forex market and ensure timely execution and settlement for eligible transactions,” he stated. To further facilitate access of SMEs to finance, the then Acting President of Nigeria, Yemi Osinbajo in May 2017 assented to the Security Transactions in Movable Assets Bill, 2017 and the Credit Reporting Bill, 2017 as passed by the National Assembly. The CBN also sustained its intervention in the country’s foreign exchange market through Dollar injection in the year under review. As at August 2017, it was estimated that a sum of $9.964 billion had been injected by the apex bank since the intervention. This inflow of liquidity translated to significant improvements in domestic production as well as boosted revenue and profits for local manufacturers which aided the country’s recovery from recession in the second quarter of 2017. The global banking industry witnessed fundamental changes in 2017 with Financial Technology (FinTech) redefining activities and operations in the industry. Although cryptocurrency had been around since 2009, the year 2017 marked its emergence into the mainstream.