Nigerian Tax & Fiscal Outlook 2019


The 2018 fiscal year witnessed an increased tax activism by the revenue authorities and the Ministry of Finance. These events clearly
demonstrated the government’s intention to widen the tax net and raise additional revenue.
The high tax revenue drive in the year 2018 was evidenced by the extension of the Voluntary Assets and Income Declaration Scheme (VAIDS), the introduction of the Voluntary Offshore Assets Regularization Scheme (VOARS), the release of the revised Income Tax (Transfer Pricing)
Regulations 2018 (the Regulations), amongst other major activities in the year.

The 2018 fiscal year witnessed an increased tax activism by the revenue authorities and the Ministry of Finance. These events clearly
demonstrated the government’s intention to widen the tax net and raise additional revenue.
The high tax revenue drive in the year 2018 was evidenced by the extension of the Voluntary Assets and Income Declaration Scheme (VAIDS),
the introduction of the Voluntary Offshore Assets Regularization Scheme (VOARS), the release of the revised Income Tax (Transfer Pricing)
Regulations 2018 (the Regulations), amongst other major activities in the year.

B. Key Tax and Revenue Highlights in 2018
1. Tax Administration
In the year 2018, the FIRS recorded a total tax revenue collection of about ₦5.32 trillion. The oil component of the ₦5.32 trillion is ₦2.467 trillion (46.38%), while the non-oil component is ₦2.852 trillion (53.62%). The FIRS has a revenue target of ₦8 trillion for 2019.1
The World Bank Group, which tracks the ease of doing business in different countries, published its 2019 Doing Business Report (the Report) in
October 2018. The Report ranks Nigeria at 146 out of 190 countries on the ease of doing business index, a drop from 145 ranking for the year 2018.
However, on the ease of paying taxes, Nigeria recorded an improvement from 171 in 2018 to 157 in 2019.2

This growth may be attributed to regulatory reforms such as the introduction of ICT initiatives geared at improving the tax system
and making the payment of taxes easier and simplified.
As mentioned earlier, the VAIDS, which was originally introduced in July 2017, was extended till 30 June 2018. According to the Chairman of
the FIRS, the Scheme generated about ₦54 billion in paid taxes. Upon conclusion of the VAIDS, the FIRS undertook an exercise to track non-
compliant taxpayers with annual banking turnover of ₦1 billion and above. This exercise accounted
for about ₦21 billion additional taxes.3

The Federal Government also launched the VOARS in October 2018 offering a 12-month window allowing taxpayers with undisclosed offshore assets and incomes within the past 30 years to voluntarily declare the assets and pay the corresponding taxes on such assets/incomes.

However, since the introduction of the Scheme in October 2018, there has been little or no evidence of enforcement on the part of the government nor
eagerness on the part of taxpayers to participate in the Scheme. It would appear that the Scheme seems to be have been targeted at clamping down on corrupt practices rather than tax compliance. Moreover, those targeted under the VOARS should have already been covered under the concluded VAIDS.
2. Tax Legislation and Policy
• The House of Representatives in January 2018 passed the Petroleum Industry Governance Bill (PIGB); almost 8 months after the Senate passed the Bill on 25 May 2017. The Bill was subsequently forwarded to the President for assent within the course of the year. However, the President withheld his assent for constitutional and legal reasons.4
• The Federal Government of Nigeria also released the Income Tax (Country by Country Reporting) Regulations, 2018 (the CbC Regulations) giving effect to the Country- by-Country Multilateral Competent Authority

Agreement signed on 27 January 2016 and ratified on 3 August, 2016.
The CbC Regulations which was published in an official gazette dated 8 January 2018 requires Multinational Enterprises (MNEs) headquartered in Nigeria that meet the specified threshold of global revenue to provide tax authorities with information about the MNEs’ global activities, profits, and taxes.
This is to better assess international tax avoidance risks; improve transparency in the tax practices of the MNEs; and prevent tax
evasion or avoidance through base erosion and profit shifting.
• Similarly, the FIRS released the revised Income Tax (Transfer Pricing) Regulations 2018 (the TP Regulations) which ushered in a Transfer Pricing (TP) specific penalty regime.
The TP Regulations repeals the Income Tax (Transfer Pricing) Regulations No. 1 2012 (the 2012 Regulations) and has an effective date of 12 March 2018.
However, the TP Regulations will be applied to the basis period commencing after 12 March 2018. The revised TP Regulations introduces a stiffer TP Regime in Nigeria.
Although the exemption of certain categories of companies from contemporaneous TP documentation requirement will reduce the compliance burden on such companies, the introduction of stiff administrative penalties for TP offences is a material change that will affect taxpayers.
• The Federal Government approved an increase in the excise rates on tobacco and alcoholic beverages effective 4 June 2018, via circular: 17642/II/172 of 5 March 2018. The revision introduces additional specific rates to the pre-existing ad-valorem rate for Tobacco
(Cigarettes) and replaces the old ad-valorem rates for alcoholic beverages with specific excise rates. It is expected that there will be
a surge in the Federal Government’s revenue from these products.
• On 26 March 2018, the President assented to Nigeria’s Double Tax Agreement (DTA) with Singapore and a Memorandum of Understanding (MoU) with Switzerland and the International Development Association, following the approval by the Federal Executive Council. There was no formal
ratification of the agreements by the National Assembly. The DTA clarifies the taxing rights of both countries on income arising from cross-border transactions between Nigeria and Singapore and also reduces the incidence of double taxation on such income while the MoU is in line with Switzerland’s policy on returning illegally acquired assets and provides for the disbursement of returned funds in tranches.
• In another development, the FIRS issued a Public Notice (PN) on 24 July 2018 which was addressed to taxpayers with annual turnover of ₦1 billion and above. Based on the PN, the FIRS is to prosecute taxpayers (falling within the income bracket of ₦1 billion and above) who failed to remit their taxes. The PN also stated that the FIRS intends to explore all legal means to recover all tax liabilities without further recourse to taxpayers, in the event of non-compliance.

3. Tax Adjudication
The TAT, which was dissolved in 2016, was reconstituted by the Federal Government across the six geopolitical zones as well as Lagos State and the
Federal Capital Territory, Abuja. The reconstitution was announced by the then Honourable Minister of Finance, Kemi Adeosun, in Abuja on 12 July 2018. The reconstitution of the TAT will expectedly foster speedy resolution of existing and fresh tax disputes. With the increased budgetary target of the FIRS and the increased disputes between the tax authorities and taxpayers, the reconstitution of the TAT is rather timely.
C. 2019 Budget Speech5
The Budget Speech indicates a downward review of the total revenue and expenditure projection for the year 2019 compared to the 2018 figures. The key assumptions underlying the 2019 budget proposal vis-à-vis the 2018 budget assumptions are reproduced below:
Specifically, the estimate for non-oil revenue consists of revenue from Companies Income Tax (CIT), Value Added Tax (VAT) and Customs Duties. The breakdown of the expected revenue from each of these sources for the year 2019 vis-à-vis the 2018 budgetary revenue projections is shown below:

The above table indicates a 1% increase in the CIT revenue projection, an 11% increase in the VAT revenue projection and a 7% reduction in the Customs Duties revenue projection for the year 2019. Clearly, these figures indicate that the government intends to improve its expected revenue from CIT and VAT.
However, the reduction in the projected revenue from Customs Duties may well be in line with the government’s overall drive to improve economic
performance by clamping down on importation of food items and refined petroleum products6

which would result in the reduction of Customs Duties collectible by the government on such products.
The proposed total expenditure for the year 2019 is estimated at ₦8.83 trillion which is 3.22 % less than the 2018 appropriated expenditure. The breakdown of the expenditure is as shown below:

The deficit of ₦1.86 trillion is expected to be funded as shown below:

Although the revenue estimates for the year indicates a reduction in the expected revenue from Customs Duties, revenue from VAT and CIT is expected
to increase by 11% and 1 % respectively when compared to the 2018 figures. Thus, it is expected that the government would continue in its drive to generate increased revenue from taxes in the year 2019.

D. Tax Insights for 2019
1. Tax and Transfer Pricing In 2018, the Federal Government introduced the CbC Regulations and revised TP Regulations
(the Regulations). Both Regulations give effect to a number of the Organisation for Economic Co-operation and Development (OECD)
Recommendations on tackling base erosion and profit shifting to low paying tax jurisdictions by taxpayers. The Regulations also impose stiff
penalties for non-compliance with TP rules.
Following the release of the Regulations, the FIRS issued a notice indicating that it will begin to enforce compliance by imposing the stiff penalties (as contained in the Regulations) on defaulting taxpayers begining January 2019.
Thus, it is expected that the FIRS would intensify TP audits in the year 2019. The implementation of the revised TP Regulations will impact the
Nigerian TP Space in a very significant way as it will drive greater compliance on the part of taxpayers. Thus, MNEs that have previously
arranged their affairs to shift profits to low tax paying jurisdictions would have to ensure that they carry out sufficient economic activities in such jurisdictions otherwise they may find that they would have to face significant TP adjustments that would impact their tax liabilities.
In addition, the Nigerian Government has taken a major step in implementing the OECD automatic exchange of information programme by issuing
the CbC Regulations. This would afford the Nigerian government access to information on the activities of MNEs in various jurisdictions.

2. Focus on Value Added Tax
The 2019 revenue projections indicate an 11% increase in the estimated revenue from VAT compared to the year 2018. The projected
increase in VAT collections is in line with the National Tax Policy and the Economic and Growth Recovery Plan (2017 – 2020) which projects an
increase in the VAT rate for luxury items from 5 to 15 per cent within the period.
In addition to the projected increase in VAT rate, a number of audit reports issued by the FIRS in recent times are focused more on VAT and
Withholding tax issues as opposed to other tax types. Perhaps this move by the FIRS is in line with the government’s overall objective of
improving VAT collections in the year 2019.
Furthermore, the Value Added Tax Act (Amendment) Bill which is currently before the National Assembly expands the scope of the application of VAT to include intangible property.

It also includes an obligation on resident beneficiaries of VATable services to deduct and remit VAT to the FIRS in cases of transactions with
non-resident entities.
Following from the above, it is clear that the intention of the government is to increase revenue generation from VAT by expanding the VAT base
and possibly increasing the VAT rates. Moreover, there is a likelihood that the government may be moving into a differential VAT rate system where certain luxury items as well as carbonated drinks will be subjected to higher VAT rates. However, given that the year 2019 is an election year it
remains uncertain whether the legislature would speedily review and pass the proposed legislative changes into law.
3. Tax Adjudication
In 2018, the TAT was reconstituted after over two years of inactivity. It commenced its sittings in November 2018 by attending to existing appeals
filed from the year 2015 while entertaining new appeals.
Given the FIRS’s commitment to raise ₦8 trillion in revenue collections in the year 2019, it is expected that there would be a significant number of disputes between the taxpayers and tax authorities which would result in increased appeals before the TAT in the course of the year. It is hoped that the adjudication process will be improved to ensure speedy resolution of tax disputes.
E. Conclusion
Although the proposed budget for the year 2019 indicates a reduction in the projected revenue and expenditure for the year, the revenue from CIT and
VAT is expected to increase from the 2018 budgetary figures. Thus, it would appear that the Federal Government would continue to drive increased tax
compliance. It is also anticipated that the Federal Government’s strategy of increasing revenue by focusing on non-oil revenue sources will continue in 2019.
It is also possible that the government will introduce new items to the list of items banned from importation within the course of the year. Although this move may result in a reduction in revenue from Customs Duties as projected by the 2019 budget, it would be in line
with the government’s overall objective to clamp down on importations and encourage local manufacturing.

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