1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
In the past year, Nigeria enacted the Finance Act, 2023 [the FA 2023]. This act has wide coverage, with the most significant aspect being its effort to enhance the compliance or enforcement modalities surrounding the taxation of income derived from international shipping and airline transportation.
Prior to the enactment of the FA 2023, the Federal Inland Revenue Service [FIRS], the apex tax authority in Nigeria, had, for some years, been trying to enforce the tax legislation on international transport companies. Based on the provisions of the act, international transport companies that derived (or are deemed to derive) income from Nigeria with no separate financial statements of their Nigerian operations are expected to submit a detailed gross revenue statement of their Nigerian operations. The statement must be certified by the company’s external auditor and at least one of its directors, and accompanied by all invoices issued to their customers.
Also, as a means of driving compliance, the law further mandates regulatory agencies in the shipping and air transport as well as other relevant sectors to always request from international companies that derive income from shipping and air transport evidence of income tax filing for the preceding tax year, together with a tax clearance certificate showing income tax paid for the three preceding tax years before such companies can continue to carry on business in Nigeria or obtain any relevant approvals and permits.
2. What has been the most significant impact of that change?
With this drive for enforcement and the FA 2023 provisions, international transport companies (shipping and airline) and all entities along the value chain started re-evaluating their existing and prior contracts, arrangements, and tax implications on all parties involved. The re-evaluation also resulted in caution [for] some companies in accepting contracts to come into Nigeria.
The caution has [the] potential to affect a critical sector of the Nigerian economy; thus, affected companies, particularly international companies in the maritime and petroleum sectors, engaged with FIRS to clarify the implications of the law amendments on their operations – the latest engagement was a workshop held in December 2023 by the FIRS in collaboration with Oil Producers Trade Section, an oil sector advocacy body.
3. How do you anticipate that change impacting your work and the market moving forwards?
The entire tax landscape for the international transport sector in Nigeria continues to evolve and we envisage all participants taking more cognizance of their obligations and need for certainty.
Impacted companies require increased support with advisory services, contract reviews, audit provisioning evaluation, treaty benefit claims, [and] tax audits, as well as other tax and regulatory compliance requirements.
4. How has this changed the way you offer tax advice?
This has not significantly changed the way we give advice – it has confirmed the relevance of our existing advisory model.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
During the past 12 months, the Presidential Fiscal Policy and Tax Reforms Committee was inaugurated and saddled with the mandate of addressing critical challenges around fiscal governance, revenue transformation, and economic growth facilitation. One of the issues being canvassed by the committee is the reform of all tax laws, including those applicable to the international transport industry, in order to:
Aid clarity and set specific conditions for applicability to persons/arrangements;
Ensure ease of compliance and widen the net of compliant participants;
Ensure ease of administration and collection;
Generate revenue for the government while balancing the fairness of the tax;
Eliminate double taxation; and
Enhance international trade and transport to or from Nigeria.
We are hopeful that the recommendations to be put forth by the committee would address the issues noted above and the government would implement them accordingly.
6. What are the potential outcomes that might occur if those changes are implemented?
We envisage a change in law or [the] guidelines and/or regulations applicable in the industry to address the above-mentioned challenges.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Yes. Implementing a regime that addresses the challenges noted above will, amongst others, increase revenue for the Nigerian government, enhance [the] ease of doing business in Nigeria (a key priority for the Nigerian government), [improve] voluntary compliance, as well as [create] more business opportunities for advisers in relation to advisory; i.e., contract review and compliance support.
8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
Yes. The alignment of the regulatory landscape for business ventures, especially foreign-owned companies in Nigeria. For example, the minimum capital requirement in line with the primary legislation on business set-up contradicts the requirements of the guidelines of another regulatory agency to obtain some permits. The primary agency, in a bid to be pragmatic, sought to enforce the conditions of the other regulatory agency. This may, amongst other factors, trigger uncertainty, impact ease of doing business, and trigger potential breaches of bilateral investment treaties that Nigeria executed.
Additionally, some tax legislation requires more clarity – including [a] re-evaluation of existing tax incentives and obsolete provisions. This is also to confirm that the tax law is as dynamic as the new business environment and provide clarity on some of the recent changes to tax laws.
9. How do you believe those changes would help improve the tax landscape in your market?
According to Benjamin Graham [the renowned US investor], “successful investing is about managing risks, not avoiding it”. Thus, investors consider clarity and certainty very critical in business decisions. This is more so as certainty and clarity are some of the key hallmarks of a good tax and legal system.
On the above premise, these proposed changes would provide clarity, aid ease of doing business, and (in addition to other factors) attract more foreign direct investment [FDI] that Nigeria really needs. The FDIs will have a ripple effect on the economy and ultimately the tax and business landscape.
10. How are issues surrounding the taxation of the digital economy affecting your work?
Currently, in Nigeria, the income tax laws have provisions for digital economy taxation. It is not a separate taxation but an expansion of existing rules on taxable income in Nigeria. Since the expansion of the coverage of Nigerian tax rules to digital activities through the Finance Act, 2019 and the Significant Economic Presence Order, 2020, the changes have generated a lot of discourse and requests for compliance and advisory services. The changes have also impacted the entire modalities for advising companies without physical presence but with revenue generation linkages to Nigeria.
Similarly, the Nigeria Value Added Tax Act has been amended such that non-resident suppliers, inclusive of suppliers of digital services, are required to include VAT on their invoices. There are also guidelines covering supplies through digital means of goods, services, intangibles, and other digital products involving persons not physically present in Nigeria and consumers or businesses in Nigeria.
While the rules are not yet finalised across every facet, these elaborate provisions have minimised, to a very large extent, some of the issues that, until now, posed taxation challenges in Nigeria of income derived from the digital economy. Consequently, the opportunities are numerous in this area.
Nigeria is one of the few countries that has not adopted the global minimum tax agreement and the jury is still out on whether this would change any time soon. In the meantime, we are investing in understanding its implications on our economy.
11. How would you describe the tax authorities’ approach in your region/jurisdiction?
There are initiatives by various tax authorities that are geared towards ensuring that taxpayers have a seamless experience when it comes to payment of taxes; e.g., online tax platforms of the FIRS and states’ revenue authorities have been so useful in reducing the stress previously experienced by taxpayers.
The tax authorities have also been cooperative, coupled with a renewed drive to ensure that the fair share of taxes is paid to the government and to focus further on enforcement of taxpayers’ obligations.
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