Current Government Policies and Implication on Business
ILLEGAL TAXATION ON PROPERTY BY THE FEDERAL INLAND REVENUE SERVICE
In April 2017, the Federal Inland Revenue Service (FIRS) had served companies with a phony letter on Property Valuation & Assessment Visit, which was addressed to the “Property Owner”.
NECA had then sought authentication of the letter and its contents from the Executive Chairman of the FIRS. In response, the FIRS had confirmed knowledge of the issuance and further explained that the exercise was “targeted at companies which are liable to tax under the Companies Income Tax Act but have not registered as tax payers and have not filed any tax returns.”
It had also stated that commercial organizations who had been allocated properties were being reviewed for tax purposes in accordance with section 30 (1) (a) Companies Income Tax Act C21, The Revised Edition (Laws of the Federation of Nigeria) 2004. Furthermore, the FIRS stated that the exercise was “being done to bring all corporate organizations into the tax net and increase the Federal Government’s revenue for the monthly Federation Account Allocation Committee (FAAC) and meet fiscal projections for the economy.”
The Business Community was, therefore, surprised when the FIRS decided to forward tax demand notices for year 2016 to Enterprises (running into millions of naira) based on assessed value of properties. Though, the Organised Private Sector, rather than NECA, will be taking-up this issue, among others, with the FIRS, we wish to state as follows:
- The approach by the FIRS to get as many companies as possible into the tax net is erroneous. Property tax and Company Income tax are different and should not be merged or mixed-up. Furthermore, using the value of the property housing the offices of companies to generate figures that will be charged as Company Income Tax is wrong as some companies are tenants in several buildings.
- The introduction of Property Tax by the FIRS is contrary to Existing Laws in Nigeria. The Land Use Act vest all land in the Governor and companies have been paying Land Use Charge as assessed by various State Governments.
- The demand and payment of Property Tax from the FIRS and the Land Use Charge by State Governments on companies amounts to double taxation. Thus, the implication is that more companies would close-shop with attendant effect on employment, security and the economy
- This is another imposition of a tax burden on companies that are struggling to survive and come out of recession and it might discourage foreign investments into the country.
- Furthermore, section 30 of Companies Income Tax Act is no longer in existence as section 12 of Companies Income Tax (Amendment) Act 2007 states: “Section 30 of the Principal Act is deleted”.
In the light of the foregoing, we implored members not to honour the demand notice from the FIRS. We are on top of this issue and will do all within our means, even if it will mean seeking judicial intervention, to stop this illegal tax.
IMPLICATION OF THE EXERCISE ON THE ECONOMY
The perceived undercurrent of the Federal Inland Revenue Service (FIRS) Property Valuation and Assessment has dire consequences on the on firms, Government and the household.
- The demand and payment of Property Tax to the FIRS and the Land Use Charge by State Governments on companies amounts to double taxation. This is capable of discouraging new private investments and would place existing companies in precarious situations which may lead to close-down.
- Unfortunately, as companies close down, Government tax revenue will be adversely affected. Already, Nigeria’s tax-to-GDP ratio is abysmally small at 6%, this will further dip.
- Also the household will be at the receiving end for as companies close down, apart from commodity prices that would rise, unemployment situation will worsen leading to further deteriorating in the Discomfort Index (DI) and human misery brought about by poverty in the Nigeria.
We therefore see FIRS exercise as unfounded and an economic illusion which will not benefit the Government, companies or households as Nigeria will eventual lose.
NECA appreciates the current financial position of the Government and the need to increase Internally Generated Revenue (IGR), but this must not be to the detriment of our already tax compliant member-organizations. It is important that any measure to increase the IGI of Government must be in line with provisions of the law and global best practices. The FIRS in this circumstance has no legal right to assess company’s property for tax purpose. We would however, advise FIRS to device a legal framework that will bring the numerous non-tax paying organizations into the tax net rather than pursuing a non-justiciable measure that will end up crowding-out existing tax-compliant organization and throw the country in chaos.
The place of dialogue and frequent interaction cannot be overemphasized, especially as it would reduce lag in information, communication as it relates to businesses and also acts as a feedback mechanism. We solicit that a mechanism is put in place to ensure the sustenance and effectiveness of a Quarterly Forum with the Organised Private Sector and also request for more collaboration in engaging member-companies in public enlightenment of Tax and related issues.