Background
The National Council of State recently approved the repeal and re-enactment of the Nigeria Police Trust Fund (NPTF) Establishment Act, 2019. Key proposals include:
- Removal of the sunset clause, making the Fund a permanent institution as opposed to the proposed sunset of 2026 (i.e. 6 years after establishment of the Fund)
- Increase of the statutory deduction from the Federation Account from 0.5% to 1%.
- Directive for the Attorney-General of the Federation to draft and transmit the amended bill to the National Assembly.
Potential Impact of the proposed amendments on Corporate Taxes
The proposed 1% FAAC allocation is a government revenue reallocation, not a new tax or levy on companies. It does not alter existing obligations under the extant tax laws. Therefore, corporate taxpayers are not required to make any new remittance or filing arising from this proposed amendment.
Implications of the proposed Repeal and Re-enactment of the Police Trust Fund Act.
The current NPTF Act, 2019 stipulates an additional funding source to the Fund: ‘0.005% of the net profit of companies operating business in Nigeria. Under the current regime, the Fund is expected to wind down 6 years after its establishment in 2019, which means the Fund is expected to be wound down by 2025. That said, the obligation for corporate taxpayers to make contributions to the Fund remain in effect.
By virtue of the proposed amendments, contributions to the Fund will continue after 2025 provided the NPTF Act is repealed and amended as proposed by the Federal Government of Nigeria. Companies who have modeled their tax payments to exclude contributions to the Fund, need to bear in mind that in the event the proposed repeal and re-enactment is done by the Nigerian National Assembly, contributions to the Fund will continue after the 2025 financial year.
Conclusion
The Council’s approval to raise the Police Trust Fund allocation to 1% represents a fiscal policy change aimed at sustainable police funding, not a new corporate tax. Corporate organizations should maintain compliance with existing levies and tax filing timelines while monitoring the legislative process for any revisions that may impact their future obligations. Contributions to the Fund may likely continue after the 2025 financial year (which was the initial target year for winding up the fund) subject to the repeal and re-enactment of the Nigeria Police Trust Fund (NPTF) Establishment Act.
