Export Processing Zones and Free Trade Zones play a significant role in modern-day globalization, international investment, and free trade. While different countries treat Free Trade Zones (FTZ) and Export Processing Zones (EPZ) differently, almost all of them institute at least partial tax exemption for their citizens and companies operating within their territory. These arrangements led to large enterprises of various nationalities taking advantage of such favourable policies. 

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As the economic policies of the country are evolving, businesses are always looking for ways to restructure their businesses in a bid to develop strong and efficient business policies to remain in business or stock quotation. Corporate restructuring could also be because of the failure of a business, a need for expansion, or an example when the government increased the minimum capital for banks and insurance companies. There are many ways in which a company can achieve business or corporate restructuring or reorganization.

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Transfer Pricing (TP) is described as the method by which connected organizations or related parties price goods, assets, services, intellectual properties, loans, and other commercial transactions between them. Transfer Pricing can be reasonably considered as an economic and legal tool used by business entities for the optimization of their tax burden. If the framework in which TP is implemented is legal, it provides significant tax benefits to businesses.

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First Thoughts: 4th Quarter Musings

So, it’s that time again when we finally usher in the final lap of the year. Welcome to the last quarter of the year. Well, technically this would not begin until tomorrow, but it wouldn’t hurt to start enjoying the feeling already. Tomorrow, 1st October marks our dear nation’s 61st Independence Day celebration and ushers us into the fourth and last quarter of the year.

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August 2021 VAT Compliance: What to Know and Do

  1. We take a break today from the VAT Politics and the Search for Focus series and the analytics that adorn it and torch on the more pressing issue of what you need to know and do with your August 2021 Value Added Tax (VAT) compliance.
  2. As you may know, you were ordinarily to have computed, remitted and filed your August 2021 VAT Returns before Tuesday, September 21, 2021. In actual fact and as at today the morning of Thursday, September 16, 2021, you are still exactly to do as you have always done in the circumstance that nothing has really changed despite the fast-moving currents. The VAT you have collected on behalf of FIRS is still payable to it.
  3. Since the publication of VAT Politics and the Search for Focus (Part 2) , the following new developments have been unearthed or happened in the ongoing VAT wars:
  • Nigeria’s Federal Inland Revenue Service (FIRS) had appealed the Monday, August 9, 2021, judgment of the Federal High Court (FHC) sitting at Port Harcourt, Rivers State in Attorney General for Rivers State v. FIRS & Another [BO4] at the Court of Appeal, Port Harcourt Judicial Division. Recall that it was this judgment that limited the taxing powers of the Federal Government of Nigeria (FGN) to the imposition and administration of only taxes on incomes, profits, capital gains and stamp duties. The judgment states that the FGN has no powers to impose and administer any other taxes including VAT, Withholding Tax
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Lagos State Government joined the Rivers State Government earlier today and became the second State to enact its VAT Law in Nigeria. This event was indeed foreseen from Monday, September 6, 2021, when the Federal High Court (FHC) sitting at Port Harcourt, Rivers State in Attorney General for Rivers State v. FIRS & Another, refused to grant the FIRS’ application for the stay of execution of the August 9, 2021 decision of the FHC. The FHC had on August 9, 2021, declared the VAT Act 1993 (as amended), unconstitutional. Although the FHC’s August 9, 2021 decision was in the manner of a declaration of the law, in which case nothing was to be executed or executable, yet the FIRS had proceeded to apply for the stay of execution, apparently seeing the implication of the August 9, 2021 decision on its VAT revenue collection mandate for the Federation.

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It has been a busy time for Nigeria’s Federal Inland Revenue Service (FIRS); not necessarily because of the increase in its 2021 Value Added Tax (VAT) collections (for the first time, it grossed +N1trillion in VAT collections in the first half of a year), more because of the many fights it’s embroiled in. One major fight is the bid by some States, led by Rivers and Lagos States, to take control of the collection and appropriation of VAT within their territories. Armed with the August 9, 2021 decision of Nigeria’s Federal High Court (FHC) sitting at Port Harcourt in Attorney General for Rivers State v. FIRS & Another, the States claim to their VAT revenue is that the Federal VAT Act 1993 (as amended) is unconstitutional. It would appear that Rivers State enacted its VAT Law No. 4 of 2021 on August 19, 2021 on the strength of the decision while Lagos State has promised that its VAT Law is in the offing. Earlier on December 11, 2020, same FHC sitting at Port Harcourt in Emmanuel Ukala v. FIRS & Another had held that the FIRS had no authority or jurisdiction to audit or investigate the Plaintiffs for VAT among other Federal taxes and that the appropriate tax authority is the Rivers State Board of Internal Revenue. Yet earlier, same FHC, this time, sitting in Lagos State had in October 2019, in Registered Trustees of Hotel Owners and Managers Association of Lagos v. Attorney General of the Federation & Another declared the charging provisions of the VAT Act (specifically Sections 1,2,4,5 and 12 thereof) unconstitutional.

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First Thoughts: To Give or Not to give unto Caesar

Sometime last week, I came across a meme on social media. It was basically a screenshot of a WhatsApp conversation where the first person said “Hello, my name is Caesar” and the response of the other person was “Caesar, abeg wetin be your own no dey my hand o!” If you’re a student of the Bible or did some CRK at some point in school, you would remember the part where the Pharisees in a bid to test Jesus Christ asked him if it was right to pay taxes unto Caesar. Jesus responded with the line “Give unto Caesar what is Caesar’s and unto God what is God’s” and that is how that powerful quote came about.

The concept of federalism in Nigeria has been one interesting subject over the years and myriads of conversations have been birthed from it. The clamour for restructuring over the years now is an offshoot of the challenges with the system of federalism practiced in Nigeria. The recent ruling in Rivers State’s E.C Ukala v FIRS case shook the Nigerian table tremendously and until now, the reactions have continued to pour in from all quarters with both kudos and knocks alike.

In a nutshell, Value Added Tax (VAT) according to the VAT Act and subsequent amendments, and even portions of the Finance Act, 2019 have been stipulated to be remitted to the Federal Inland Revenue Service (FIRS) and in turn, all VAT collections from all the states in Nigeria are shared amongst the 36 states and the Federal Capital Territory (FCT). For me, this is a fundamental flaw. The sharing formula has not exactly helped matters and we find out that this is major disincentive for hardworking states, knowing fully well that the wealth they work for would be distributed to some states who do not need to even move a finger. Ironically, the value added taxes collected on alcoholic beverages are also redistributed and some states in Nigeria practicing Sharia Law and banning the sale and consumption of these beverages within their jurisdiction still benefit from this redistribution.

The landmark judgement was music to my ears and while we watch patiently as the relevant consultations continue and most likely a major appeal from the FIRS to the ruling, I believe more Nigerian states would be encouraged to begin to fight for what they believe is rightfully theirs. Hopefully this serves a wakeup call to all and sundry that there is no food for lazy man. Every state should strive for its own autonomy, improve its internally generated revenue (IGR) earning capacities and not continue to depend largely on the federal allocations (FAAC). It is only then that we can achieve the equitable distribution of wealth we all clamour for. The burden on the centre needs to be relieved before things fall apart and the centre can no longer hold.

In this Issue, we discuss:

  1. Capital gains: What you need to know
  2. E.C Ukala v FIRS; The Rivers State VAT Ruling: Implications on Businesses.
  3. 7 things to know about Withholding tax (“WHT”) on Interest Expense
  4. Tax Audit and Tax liability: what you should know
  • The Central Bank of Nigeria (CBN) says the country’s inflation rate may drop to 13 percent this year and single digit by 2022. Hassan Mahmud, Director of Monetary Policy Department, CBN, said this on Friday in Lagos at the virtual mid-year Economic Review and Outlook 2021, organised by the Chartered Institute of Bankers of Nigeria (CIBN)’s Centre for Financial Studies, in collaboration with B. Adedipe Associates. Read more HERE.
  • The Federal Inland Revenue Service (FIRS) says its revenue projections for the year 2022 financial year is N10.1 trillion. This was disclosed by its Chairman, Muhammad Nami while appearing before the House of Representatives Committee on Finance on Wednesday, in Abuja, during a public hearing by the committee on the 2022-2024 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). Read more HERE.
  • Nigeria will receive $3.35 billion as its share of the International Monetary Fund (IMF) $650bn Special Drawing Rights (SDRs) to help boost the liquidity of member countries. Kristalina Georgieva, managing director of the IMF, announced the deployment in a statement on Monday. SDR is an international reserve asset created by the United Nations specialised agency to supplement its member countries’ official reserves. Read more HERE.
  • The Bankers’ committee announced plans to begin the sale of foreign exchange to customers through the platform of the Nigerian Inter-bank Settlement System Plc (NIBSS). The committee is a forum of chief executives of Nigerian banks and the directors of the different departments of the Central Bank of Nigeria (CBN), with the CBN governor as chairman. Read More HERE

Please stay tuned to our TaxThursday bulletins, our website and of course our mobile application, TBook.

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Till Next Time

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