Nigeria’s streamlined tax laws have been embroiled in allegations that the published version is not what the country’s parliament passed.
By Dulue Mbachu
Nigeria started implementing new tax laws from 1 January. But what was supposed to be an overhaul to improve tax administration is being dogged by allegations that some parts of the published legislation were doctored. Doubts set in when, on 17 December, Abdulsamad Dasuki, a member of the House of Representatives from the opposition People’s Democratic Party (PDP), raised concerns during a parliamentary session about discrepancies between what was passed and what was published in the official gazette by the All Progressives Congress (APC) government led by President Bola Tinubu.
“What was passed on this floor is not what is gazetted,” said Dasuki. “I’m seeing something completely different,” he said, citing sections indicating more powers awarded to the authorities than had been authorised by lawmakers.
The allegations appeared poised to derail Tinubu’s signature tax reforms. These ushered in a National Revenue Service (NRS) to replace the old Federal Inland Revenue Service. The laws include the Nigeria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service Establishment Act, and the Joint Revenue Board Establishment Act.
Calls for suspension
There were calls to suspend the implementation of the new laws pending an investigation. Veteran opposition leader and former vice president Atiku Abubakar said that to alter the tax laws as passed was “treason”. Peter Obi, another opposition rival to Tinubu, also called for a stay of implementation.
But Tinubu brushed aside the objections. “Our administration is aware of the public discourse surrounding alleged changes to some provisions of the recently enacted tax laws,” he said in a 30 December statement. “No substantial issue has been established that warrants a disruption of the reform process.”
Reading the passed and the published versions of the laws reveals significant discrepancies. For instance, in the tax administration law, the lawmakers give the NRS responsibility for administering all federal taxes, including value-added and petroleum taxes. But this explicit role is omitted in the published version, creating a legal vacuum.
The Tax Act sets the threshold income for individuals to pay the full rate of tax at 50m naira ($35,200) and for companies at 250m naira. In the published version these thresholds are reduced to 25m naira for individuals and 50m naira for companies, with the reporting frequency for businesses altered from yearly to quarterly.
The gazetted version also bypasses the need for a court order before effecting asset seizures as part of tax enforcement. In addition, a provision was inserted requiring an individual or company to deposit 20% of the assessed tax before being allowed to file an appeal against that assessment before a tax tribunal.
While lawmakers provided for assessment and payment of taxes in the currencies of transaction in the passed version, the published law makes it mandatory for all taxes related to petroleum to be paid in US dollars.
Other identified discrepancies include altering the definition of taxable “communities” in the Tax Administration Act to change the scope of such entities, and the addition of a provision that limits rent relief to 500,000 naira that was never approved in the legislative process.
Perhaps the most consequential alteration was the removal of legislative oversight over tax administration, including the power to summon the tax authorities. The function was pared down to a requirement for the NRS to audit its accounts.
Streamlining tax
One place where the new tax regime is quickly making itself felt by citizens is in financial transactions. Any transfer above 10,000 naira from one bank account to another now attracts a stamp duty of 50 naira.
In other ways, the new legislations streamlined old tax laws and the framework for administration among the federal, state and local governments. The main tax act, for instance, brings together under one law an assortment of 11 different previous laws that could then be repealed. Whatever their shortcomings, the new laws represent the most significant changes in taxation in Nigeria for many decades.
People who earn the minimum wage or have an annual income of 800,000 naira a year or less are completely exempt from paying income taxes. For the rest, the charges are progressive, with the maximum 25% tax rate applying only to those with an annual income over the threshold.
A similar tax logic is applied to businesses. Companies with an annual turnover of less than the threshold are no longer required to pay taxes. For medium-sized and large corporations, the company income tax was reduced to 25% from 30%.
The far-reaching nature of some of the changes is evident in the new structure for calculating capital gains tax (CGT). While most retail investors will be spared, those with total disposable proceeds exceeding 150m naira in a given year, with gains exceeding 10m naira over the same period, will pay capital gains tax on the excess.
For an individual, CGT will be calculated using the personal income tax rate, and depending on income level could range from zero to 25%, unlike the previous regime that charged a flat 5% rate. Companies are now required to pay a flat 30% CGT, the same as the company income tax rate.
Investment bankers and fund managers have been informing their customers of a new 10% withholding tax now applicable on interest earned from investments in Treasury bills, corporate bonds, commercial papers, promissory notes, bills of exchange and similar short-term financial instruments. The only exceptions are investments in federal government bonds and central bank open-market operations bills.
International consultancy firm KPMG said it conducted a review of the new laws that revealed “certain errors, inconsistencies, gaps, omissions and lacunae” in 31 sections of the new laws and said that they “need to be urgently reconsidered to ensure the attainment of the stated objectives”. While noting the effort to protect low-income earners, KPMG also highlighted the risk of “oppressive” taxation against high-income earners. Finding the right balance is in general essential, KPMG concluded.
Government responds
Some of the points raised by KPMG are useful, while others missed the point, said Taiwo Oyedele, chairman of the presidential panel on tax reforms overseeing the overhaul.
KPMG’s review “reflected a misunderstanding of the policy intent, a mischaracterisation of deliberate policy choices, and, in several instances, repetitions and presentation of opinion and preferences as facts,” said Oyedele, a former senior official at PWC Nigeria before his presidential assignment.
Steps are now underway to ascertain the duly passed versions of the tax laws to ensure they’re consistent with the true intent of the lawmakers. The National Assembly kicked off the process by publishing certified true copies of the new laws. This will lead to revisions and republication of the authenticated laws in the official gazette.
So far, no one has owned up to inserting unauthorised provisions. Lawmakers have launched an investigation “to determine the circumstances surrounding the circulation of unauthorised versions of the tax acts and to recommend measures that will prevent a recurrence”.