By Ikechukwu Okaforadi and Musa Adamu
Critical economic stakeholders and financial sectors experts, disagreed yesterday on three out of the seven areas of tax regimes the federal government seeks amendments for in the new finance bill before the senate.
President Muhammadu Buhari had on October 8, 2019, during the presentation of the N10.33trillion to the joint sitting of the National Assembly, added the finance bill to the budget for consideration and approval by the Federal lawmakers.
The seven areas of tax reforms the federal government proposed in the bill are Company Income Tax 2004, Value Added Tax (VAT) 2007, Customs and Excise Tariff 2004, Personal Income Tax 2007, Capital Gains Tax 2007, Stamp Duties Act 2004 and Petroleum Profit Tax 2004.
In giving the proposed tax reforms, legislative inputs, both Chambers of the National Assembly had penultimate week, passed the Finance Bill for second reading upon which a joint public hearing was held Tuesday with critical stakeholders in the Sectors.
But at the Public hearing session, while most of the stake holders, commended the federal government on the proposed tax reforms, some of them however disagreed with proposed upward review of Value Added Tax (VAT) from 5% to 7.5 %, N50 stamp duties on all forms of transaction and percentage increase on Petroleum Profit Tax.
First to kick against the contentious areas of Tax reforms, were the Oil Producers Trade Section (OPTS) on what they called additional multiple taxes within the sector.
Specifically, OPTS as submitted in a paper presentation by its spokesperson, Shobayo, “the introduction of 7.5- 10% withholding tax ( WHT) on dividends paid out of petroleum profits as contained in section 5& 26 of the bill , would increase the tax liability in addition to the pre-existing 85% PPT rate and erode returns on investment.
“OPTS suggests that this proposal be removed from the Bill, and instead considered within the wider context of a Petroleum Industry Bill, so that its full implications for all stakeholders can be assessed and decided upon.
“In Sections 3(c), and 3(d) the definition of the profits of a foreign company subject to Nigerian corporate income tax with significant economic presence has been expanded in such a way that intra-company transactions are now likely to be subject to WHT of 10%.
“The determination of what constitutes significant economic presence of a company has been left to the discretion of the Minister.
“OPTS is concerned that this has the capacity to increase industry’s operating expenses and by extension its overall cost base. Additionally, the determination of what constitutes significant economic presence of a company by the Minister (S.3(d)) introduces elements of discretion, thereby creating uncertainty.
“OPTS recommends the adoption of globally-accepted industry practice of exempting intra-company at-cost services. In addition, the bill should also provide guidelines to the determination of what constitutes significant economic presence.
“Sections 35 & 38 expand the definition of Services for VAT purposes and introduce VA-T Reverse Charge on Imported Services. These provisions have broadened the definition of services to “the services provided to a person in Nigeria, regardless of whether the services are rendered within or outside Nigeria”.
“With this expanded definition, invoices and similar transactions will be subject to Nigerian VAT of 7.5%. Beneficiaries of such services will now be required to self-account for VAT.
“OPTS is concerned that this amendment will widen the operating expenses base, thus, increasing industry operational costs. Again, OPTS recommends the adoption of globally-accepted industry practice of exempting intra-company at cost services.
“In conclusion, it is our view that additional taxes, such as those proposed in the Bill, will further increase our costs and tax burden, thereby constituting another significant challenge to Nigeria’s attractiveness for new investment.
“It will further erode Nigeria’s competitiveness in the global oil and gas industry to the advantage of other countries. Nigeria is currently struggling to attract investment in the oil & gas sector, having received only 3% out of the 73 billion dollars of major project investments in Africa from 2015 to 2019.
“It is our view that we should address taxation within a holistic fiscal package consistent with F GN’s objectives of sustainable long-term growth”.
Other stakeholders like the Manufacturers Association of Nigeria (MAN), led by Rasaq Okulaja who represented the President of the Association kicked against VAT increase from 5% to 7.5% and N50 stamp duties on all manner of transactions, recommending that transactions amounting to N100,000 and above should only be affected.
However the Minister of Finance, Zainab Ahmed and Chairman of the joint committee, Senator Solomon Olamilekan Adeola ( APC Lagos West), in their separate remarks, assured that the proposed reforms are geared towards sweeping changes in our taxation policy for sustainable economic growth and development.
Senator Adeola in his remarks said: “The objectives of the bill as outlined by President Buhari are to strategically promote fiscal equity by mitigating instances of regressive taxation.
“It is worthy to note that the additional funds from the increment of taxes would be used to fund healthcare services educational and infrastructural programmes.
“In addition, 85% of all the VAT revenues will be allocated to both states and local governments”.