The Nigerian Government is planning to impose a 0.005% tax on companies operating businesses in Nigeria. The tax, although they call it levy, stems from The Nigerian Police Trust Fund Act, that was passed in April, and signed into law in July.
The Act establishes fund: proceeds from which training of police personnel will be facilitated and also the procurement of security machinery and equipment.
According to PWC: The Act imposes a levy of 0.005% of the “net profit” of companies operating business in Nigeria. The fund will also consist of 0.5% total revenue accruing to the federation account, in addition to proceeds from grants, intervention funds, aids, donations, investment income, etc.
A board will be established to administer the fund and make other administrative decisions to fulfill the objects of the Act.
It is designed to last for 6 years only, after which the assets and liabilities will be transferred to the Nigerian Police.
While security and the need to improve the welfare of the Nigerian Police cannot be excused, there have been a lot of concerns about the Act.
In the wake of time where the Government increased VAT from 5% to 7.2%, people are worried that multiple taxation is becoming another heavy burden on businesses struggling to cope with so many infrastructural deficiencies.
And most of all, foreign companies operating businesses in Nigeria. Although the 0.005% (N5 per N100, 000) seems so insignificant, it places additional administration on corporate taxpayers. A situation PWC says it could create concerns around the stability of the tax regime in Nigeria.
According to the report: The Act specifies that the Fund’s income is tax exempt, but does not make provision for tax deductibility for the companies making payments. Also, although the Act refers to the contribution as levy, it should be classified as an income tax under IAS 12, as it is imposed on income/profits.
It is therefore not tax deductible based on CITA which specifically disallows taxes on income or profits of companies. One other issue that caught the eye is that the Net Profit for computing the levy is not defined in the Act. Therefore, companies should be able to interpret it the other way, which is, profits after tax, but before the levy.
One other notable issue is that the Act does not contain provisions on collection and administration of the levy. That means, a further regulation would therefore be needed if FIRS will be responsible for the administration, since any other approach will result in high cost of administration.
Also the Act provides for audit and presentation of an annual report to the president only. When the tax is coming from publicly and privately owned businesses who would want accountability, to ensure that their taxpayer’s money has been judiciously utilized.
However, there is hope that may be a new regulation that will address these concerns.