1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
Notable changes to the indirect tax legislation, regulations, and practice in Ghana and Nigeria include:
Customs and excise
In Nigeria, the government introduced new customs and excise legislation, effective 20 April 2023. The government further suspended a green tax on telecommunication services, single-use plastic, and some motor vehicles, with an effective date of 6 July 2023. On 1 June 2023 and 1 June 2024, respectively, 2023 and 2024 excise rate regimes took effect.
The Nigerian government also introduced a 0% duty rate on some basic food items, effective 15 July 2024. The preferential rate on these food items will expire on 31 December 2024, unless extended by the government.
In Ghana, the government introduced a range of climate-focused taxes, including an emissions levy on the carbon dioxide equivalent emissions for specified industries and internal combustion engine vehicles. This climate tax regime also grants a waiver of import duties and VAT on the importation of electric vehicles for public transport.
VAT
The Nigerian federal tax authority, the Federal Inland Revenue Service [FIRS], launched a new VAT filing process effective 1 April 2023.
The Ghana Revenue Authority [GRA] introduced a compulsory electronic VAT [e-VAT] invoicing system that requires all entities to comply with an E-VAT invoicing requirement. The roll-out of e-VAT continues in phases with the revenue authority looking to set up over 2,000 businesses in 2024.
The Ghanaian government has recategorised the supply of premises for rent and the sale of property by real estate developers from supplies attracting the standard VAT rate of 15% to a flat VAT rate of 5%. This change took effect from 1 January 2024.
2. What has been the most significant impact of that change?
The most significant impacts of the various changes are as follows.
Customs and excise
The new customs and excise legislation in Nigeria has modernised the Nigerian customs and excise landscape, as the previous legislation was over 60 years old, with very few amendments introduced while it was in force. With the new legislation, there are now clearer dispute settlement procedures, significantly more fines and penalties for infractions, formal post-clearance audits, and modern trade facilitation tools (e.g., the authorised economic operator programme, which was formally launched on 15 April 2024, and the advance ruling programme, which was formally launched on 2 May 2024).
A welcome change in Nigeria is the suspension of the green tax, which has brought some relief to impacted sectors that continue to face increased business costs in an economy battling rising inflation, high energy costs, currency devaluation, and foreign exchange shortages.
The 2023 and 2024 excise rate regimes increased excise duty rates on tobacco and alcoholic beverages, which had a concomitant impact on the cost of these products in the market. The Nigerian government continues to use these excise duty increases to discourage the consumption of these products, while raising taxes. In addition, the roll-out of the 0% duty rate on some basic food items is intended to lower the food inflation rate, which exceeded 40% in March 2024. As the policy has just been introduced, with the first shipments under the policy yet to arrive in Nigeria, it is too early to determine if the policy will actually drive down the cost of food items.
In Ghana, with the introduction of climate-focused taxes aimed at encouraging more environmentally friendly practices, we have noticed an immediate impact from a growing interest by businesses to re-evaluate their day-to-day business practices.
VAT
In Nigeria, the new VAT filing process, which requires that taxpayers provide transaction-level details for purchases and sales when filing monthly tax returns, provides the FIRS with more data that would aid in enforcing a robust tax audit process. This has driven more taxpayers to be more attentive to their tax operations.
In Ghana, the e-VAT invoicing roll-out has fundamentally changed how the GRA obtains assurance over taxpayer VAT reporting, with real-time visibility over business revenue. In the same measure, e-VAT has drastically changed how VAT supplier enterprise resource planning and other invoicing systems interact with the GRA. In particular, there is now a need for taxpayer systems to integrate into the GRA’s servers via an application programme interface or via third-party e-invoicing solution providers.
3. How do you anticipate that change impacting your work and the market moving forwards?
These regulatory changes have been geared towards improving the business environment, ameliorating the impact of the economic downturn on the business community, as well as improving tax collections.
As such, we have seen businesses increasingly focus on adapting their current tax strategy to become more efficient, including seeking third-party specialists’ support, while achieving strict compliance with the extant laws. This predominant business posture has created requests for tax advocacy, tax management, and tax transformation assignments. This has also created the need to provide tax technology solutions, which has impacted where we invest our time and resources.
4. How has this changed the way you offer tax advice?
Now more than ever, clients in Ghana and Nigeria are looking for value and would be willing to compensate advisers based on value add and not time cost. This means that tax advice to clients must not only be focused on answering a problem statement presented but also should be tailored to the prevailing circumstances of the client within the context of the current economic landscape. In an environment with continuous changes, clients are also looking for advisers who keep them up to date with developments in the environment, properly evaluate the impact of these developments, and offer low-cost solutions with minimal disruptions to business operations.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
In Nigeria, there is ongoing work by a committee set up by the Nigerian president to review the tax and fiscal landscape. Some of the changes that have been introduced by this committee include overhauling the revenue administration system for efficient tax collection (e.g., having one tax authority collect all federal taxes) and targeting under-taxed sectors of the economy (e.g., the digital economy).
In Ghana, we expect the full implementation of a recent revision to the VAT regime where the number of VAT-exempt items are reduced. For instance, non-life insurance, which is listed as a VAT-exempt supply, would be regarded as a taxable supply. Also, there is an indication that the Ghanaian government will seek to broaden the scope of exemptions for active pharmaceutical inputs, excipients, and other finished pharmaceutical products. Overall, full implementation of e-VAT invoicing requirements, including for non-resident suppliers of electronically supplied services [ESS], will remain a major agenda item for the Ghanaian government in the coming year.
6. What are the potential outcomes that might occur if those changes are implemented?
Overhauling the Nigerian revenue administration system in such a way that one tax authority could have visibility of all federal taxes paid by a taxpayer should provide more data that would make it more difficult for taxpayers to evade taxes. For instance, it becomes more difficult for a taxpayer to declare different transaction values to the same tax authority, which could occur if the taxpayer is reporting to different tax authorities. It also becomes easier for taxpayers to deal with a single tax authority on similar issues (albeit different taxes), as opposed to two different tax authorities.
In Ghana, the implementation of VAT on non-life insurance will increase business costs across the spectrum, as well as add non-life insurance companies, previously outside the VAT compliance net, to the VAT compliance net. Non-resident suppliers of ESS in Ghana will also need to identify suitable solutions to comply with e-VAT invoicing requirements.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
These changes could potentially reduce tax compliance and administrative costs, while also increasing and promoting equitable tax collection. For instance, in the case of the potential revenue administration overhaul in Nigeria, the expectation is that there would be efficiencies gained (i.e., people, processes, technology, etc.) for both the tax administrator and taxpayer when only one team is focused on collecting federal taxes. In Ghana, we expect the increased revenue assurance from e-VAT invoicing to reduce government pressure and to introduce new taxes in the medium term.
Additionally, we expect that the increased focus on the digital economy will de-emphasise the government’s focus on traditional businesses.
8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
As per the extant VAT law in Nigeria, only businesses that trade in goods and those that purchase raw materials used to produce a good subject to VAT are allowed to recover VAT incurred on purchases. Specifically, the Nigerian VAT law does not allow service companies to follow the traditional input/output VAT process to recover VAT incurred on purchases. Instead, these service companies are required to expense the VAT incurred through the profit and loss account. We would like to see this rule changed so that service companies are also afforded the same preferences.
From a customs and excise landscape, we would like to see the Nigeria Customs Service [NCS] de-emphasise physical checks at the ports and move to the post-clearance audit environment. This would reduce both bottlenecks at the ports and the cost of trading across borders. The expectation is that only traders with an acceptable risk would be assessed in the post-clearance audit environment.
In Ghana, the current VAT regime includes a 6% statutory levy that is assessed, together with a standard VAT of 15%. Unlike VAT, the levy is not deductible and hence constitutes a cost to businesses. We would like to see the government consider converting the 6% levy into a deductible input tax, as the levy in its current form remains a high cost to the business community, as well as consider aligning exemption and relief provisions in the customs tariff schedule with the VAT Act exemption schedule. Similarly, there is a need for administrative alignment between customs valuation and transfer pricing rules to provide certainty to businesses and make the regimes less susceptible to confusion.
9. How do you believe those changes would help improve the tax landscape in your market?
By allowing service companies to recover input VAT through the traditional input/output VAT process, the Nigerian government will be levelling the playing field for all taxpayers, particularly as the service sector continues to power the Nigerian economy. Additionally, by moving to a post-clearance audit environment, the NCS can recover import taxes ‘lost’ at the borders, as the NCS would have more time to take a more holistic view of the transaction(s) after the import occurs and properly assess the transaction to tax.
In Ghana, these changes would introduce greater efficiency into the tax administration system, which is expected to improve domestic revenue mobilisation. The elimination of the 6% levies cost to businesses would improve profitability and make the domestic VAT system more efficient.
Also, providing a framework whereby customs valuation can be aligned with arm’s-length valuation under transfer pricing rules would eliminate the potential confusion resulting from misalignment in the current system. Currently, there is no framework that aligns customs valuation with the arm’s-length standard determined under transfer pricing rules. This gap adversely impacts the applicable duties and taxes on imported goods traded between related parties.
10. How are issues surrounding the taxation of the digital economy affecting your work?
The digital economy continues to receive significant attention, with the Nigerian and Ghanaian governments seeking to achieve proper taxation of that economy. As a result, there have been several proposed and enacted amendments for taxation of the digital economy. For instance, since 2022, the Ghanaian government has implemented existing legislation for non-resident ESS suppliers to charge and collect VAT on digital supplies used or enjoyed in Ghana.
This attention has meant that we not only proactively keep abreast of ongoing discussions by the government but also contribute and/or advocate for fair and equitable legislation based on global effective practices and/or peculiarities of the local environment.
11. How would you describe the tax authorities’ approach in your region/jurisdiction?
The approach of the tax authorities in Nigeria and Ghana is increasingly more data driven, with more targeted queries, audits, and investigations. We have seen the FIRS in Nigeria increasingly deploy technology tools for tax compliance, request more electronic data during the tax filing process, and collaborate with various regional and international organisations.
From a customs and excise perspective, we have seen the NCS in Nigeria launch a range of trade facilitation tools and significantly increase the number of stakeholder sessions and taxpayer education programmes on both traditional and digital mediums.
The various approaches taken by federal tax authorities in Nigeria and Ghana are consistent with the current climate of mobilising revenue from taxation.
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