IFUEKO OMOIGUI OKAURU. FCA, MFR, ACTI EXECUTIVE CHAIRMAN, FEDERAL INLAND REVENUE SERVICE; CHAIRMAN, JOINT TAX BOARD @ THE NIGERIA INVESTORS BUSINESS FORUM, BERNE SWITZERLAND 20 TH AND 21ST NOVEMBER, 2009
Overview of the Nigerian Tax System Why Tax Incentives? Tax Incentives in Nigeria Role of Foreign Investors Reform of the Nigerian Tax System Conclusion 29/11/2009 2
Nigeria operates a Federal system of Government Taxation is on the exclusive legislative list with concurrent provisions for taxes on individuals to be collected by the State Government Local Governments are able to collect fees, charges and levis for all items as listed under the 4 th schedule of the Constitution. Federal Inland Revenue Service (FIRS) is the national tax authority. Each State has a State Internal Revenue Service (SIRS) as required under the Personal Income Tax Act 29/11/2009 3 3
Taxes can be categorised into 3 types taxes imposed on individuals taxes imposed on corporate entities taxes imposed on transactions and assets Taxes on Individuals Personal Income Tax - on income of individuals: maximum rate of 25% after deductions and allowances Development Levy payable by all taxable person: fixed amount per annum 29/11/2009 4
Taxes on Corporate Entities Companies Income Tax 30% of profits after deductions and allowances Petroleum Profits Tax: on petroleum activities- between 50% and 85% Education Tax 2% of assessable profits foreign companies are exempted Technology Levy Taxes on Assets Property Taxes not yet legislated on in Nigeria 29/11/2009 5
Taxes on Transactions Value Added Tax: 5% of the value of goods and services supplied in Nigeria Capital Gains Tax: 10% of gains on disposal of asset after deductions Stamp Duty: imposed on instruments executed by individual and corporate entities in Nigeria rates vary Excise Duty imposed on the manufacture of goods in Nigeria collected by the Nigeria Customs Service Import Duty - imposed on the importation of goods into Nigeria collected by the Nigeria Customs Service Export Duty imposed on the export of goods outside Nigeria collected by the Nigeria Customs Service 29/11/2009 6
Tax incentives are special arrangements in the tax laws to: attract, retain or increase investment in a particular sector stimulate growth in specific areas assist companies or individuals carrying on identified activities Underlying basis is to ensure overall growth of the Nigerian economy and even development of all sectors 29/11/2009 7
Current policy of Nigerian Government is to ensure: incentives are sector based and not granted arbitrarily benefit to the Nigerian economy exceeds the cost of taxes foregone Incentives are reviewed regularly to confirm if they are serving the expected purpose Foreign investors enjoying incentives are expected to voluntarily plough back into the Nigerian economy 29/11/2009 8
Tax laws provide various incentives to companies carrying on business in Nigeria Incentives may be granted on industry basis or on tax type and may include: exemption from payment of taxes reduction in rate of tax to be paid grant of allowances and deductions from profits subject to tax etc President has broad powers to grant tax incentives to any company or individual 29/11/2009 9
Under the Industrial Development Act Pioneer Status is granted to qualifying companies and/or products and services resulting in 3-5 year tax holidays Qualifying industries include Mining manufacture of cement, glass and glassware, lime from limestone, ceramic products, rubber, leather textile etc Areas of industry that are of economic benefit to the country 29/11/2009 10
granted to companies in certain industries where it is deemed that the industry is not carried out on a scale suitable to Nigeria s economic requirements it is in public interest to do so from payment of taxes attracts tax exemption for a three year period in the first instance and a maximum of five years in total tax free dividends during pioneer period carry forward of losses made and capital allowances (on assets) incurred during the pioneer period 29/11/2009 11
Under the Companies Income Tax Act Loans granted to Nigerian companies may be exempt from tax, where they meet prescribed criteria Dividends received from Nigeria are exempt from tax, other than withholding tax deducted at source Profits of shipping and airline companies subject to tax in Nigeria is restricted to activity carried out in Nigeria Dividends interest, rent or royalty earned by companies outside Nigeria and brought in through specified channels are exempt from tax Interest earned by a foreign company on its bank deposits in Nigeria are exempt from tax Nigerian companies with a minimum of 25% foreign equity and within their first four years of operation are exempt from payment of minimum tax Incentives for downstream gas utilisation projects?? exemption from taxes for specified period tax free dividends etc 29/11/2009 12
Incentives under the Personal Income Tax Act Non-Nigerian employees of foreign companies in Nigeria may be exempt from tax in Nigeria, where they spend a cumulative period of less than 183 days in Nigeria during a 12 months period, and their income is subject to tax in their home country The Minister of Finance has wide powers to grant exemptions to any person based on a treaty entered into with Nigeria Under the Capital Gains Tax Act Foreign companies carrying on business in Nigeria are exempted from capital gains tax on disposal of assets, except such proceeds are brought into Nigeria 29/11/2009 13
Incentives under the Petroleum Profits Tax Act Expenses incurred outside Nigeria which are wholly, exclusively and necessarily incurred for the Nigerian operations are allowed as deductions against the profits of the Nigerian company (this may include parent company expenses incurred in respect of the Nigerian company) Interest on inter-company loans obtained under open market terms are allowed as deductions 29/11/2009 14
Tax Incentives in Nigeria (6) Incentives under the Value Added Tax Act Import of several items exempted from value added tax Exported goods and services also exempted from value added tax Import and Export Duty Exemptions and Reductions Import and export duty exemptions and reductions are available for several items List of exempt items and rates is reviewed annually based on economic considerations and developments in the Nigeria economy 29/11/2009 15
Tax Incentives in Nigeria (7) Incentives under the Tax Free Zones and Export Processing Zones There are laws creating tax free zones and export zones, which exempt companies operating in those areas from tax obligations in Nigeria for operations carried out in the zones Companies are required to register before enjoying the benefits and all activities must be performed exclusively within the zones - activities outside the zones will be subject to tax Tax free status is continuous as long as activities are restricted to the zones Government may however review the status of the zones based on economic considerations 29/11/2009 16
Tax Incentives in Nigeria (8) Nigeria s Double Tax Treaty network, offers significant incentives to investors..there is considerable room for further expansion subject to development of a clear tax treaty strategy Nigeria has existing treaties with: United Kingdom Canada Belgium France Romania Netherlands Pakistan South Africa China (to take effect on 1 January, 2009) Treaties with South Korea, Spain, Sweden and Russia are awaiting ratification of Nigerian authorities 29/11/2009 17
Foreign investors are partners with the Nigerian Government and people to develop the Nigeria economy Relationship should be reciprocal, not exploitative Nigerian Government guarantees security of investments, investors should discharge their obligations (tax, corporate social responsibility etc) 29/11/2009 18
Significant increase in foreign direct investment to Nigeria since 1999 Nigerian Government has responded with reforms and investment in sectors such as: Banking, Power Transportation Infrastructure Tax and other areas geared towards creating a conducive atmosphere for investors Sustained tax reforms highlights commitment of Government to develop systems for the benefit of all, including foreign investors 29/11/2009 19
Tax reforms carried out in major areas Tax Policy Tax Legislation Tax Administration The FIRS Strategic Plan (2004-2007) was articulated and implemented. Implementation of the 2008-2010 Plan is ongoing 29/11/2009 20
Effective funding has been channeled to the tax system FIRS now retains a percentage of its collection Improvement in the tax system achieved through legislative, administrative and policy reforms Several legislations passed into law - first comprehensive amendment to tax laws in two decades; other amendments ongoing 29/11/2009 21
Autonomy granted to the FIRS First National Tax Policy awaiting approval by Federal Executive Council Holistic reorganization of operations have been undertaken New groups and units were created with specialised functions Audit and enforcement functions are being enhanced One stop tax offices have been created Integrated Tax Offices (ITOs) and Large Tax Offices (LTOs) Employees are to be recruited in specialised fields -over 2000 job openings are being filled Units are now more cohesive and inter-linked 29/11/2009 22
Automation of systems carried out electronic registration of tax payers through Tax Identification Number (TIN) electronic payment and remittance systems were installed and have minimised and plugged leakages in tax collection system An Integrated Tax Administration Systems (ITAS) is being implemented 29/11/2009 23
Capacity building initiatives are being implemented Training policy is in place Training and retraining of employees at all levels is ongoing Identified skills gaps are constantly addressed Improved staff remuneration, welfare and general working conditions FIRS has also facilitated increased inter-agency collaboration Tax collection has significantly improved Over $80 billion has been collected between 2004 and 2009- about 150% increase between 2004 and 2008 29/11/2009 24
Greatest incentive for investors is a stable efficient, effective and well organized tax system Nigerian Government is committed to improving the tax system in line with global best practices Nigerian Government is always willing to provide incentives, which will be to the overall benefits of the Nigerian economy FIRS/JTB are open to partnership with agencies and persons in other jurisdictions 29/11/2009 25
Conclusion (2) Formula is foreign investors + incentives + increased economic activities =guaranteed returns for investors and development of the Nigerian economy! 29/11/2009 26
Questions? Comments