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In the era of non-oil budgeting

What is the fate of taxpayers on double taxation provisions? - Part 2

Can taxpayers dare to expect relief against double taxation provisions within the tax laws in the era of non-oil budgeting? Yes, they can. Will they get such relief? It depends

With both external and internal challenges engaging to task the mettle of the present administration to resolve the myriads of socio-economic problems confronting the average Nigerian due to inherited acts of omissions or commissions by successive administrations before it, the pressure is on.

If the pressure to deliver the 2016 budget through non-oil revenue sources is not carefully managed, there is a tendency that the geese, which is predominantly the taxpayer class that must be approached to lay the golden egg, the tax revenue, may be “killed” or dis-incentivized by excessive tax payment or compliance pressure especially where accelerated expansion of the tax net has not been significantly achieved.

There appears to be general agreement with the view stated in the National Tax Policy (NTP) that, “taxpayers are the single most important group of stakeholders within the tax system. They are the bedrock of the tax system and the source of all revenue generated by tax authorities.” If this is the case, then existing and potential “taxpayers” must be treated in a manner that acknowledges that they are truly the “single most important group of stakeholders within the tax system” by government and its tax authorities.

The dilemma for taxpayers is whether they will continue to “bear a higher tax burden than anticipated” (a structural problem) within the spectre of exposure to double taxation in an era where the realistic significant immediate source of non-oil revenue is tax revenue.

We will continue the second part of this series by highlighting the potential double taxation exposures to corporate taxpayers inherent in the Cessation Tax Rules (Section 29{4}) and Change of Accounting Dates (Section 29{2}) which should be fixed.

(ii) Cessation tax rule: This rule applies to companies that permanently cease to carry on trade or business in Nigeria, but will not apply to a company in temporary dormancy.

The provisions of Section 29(4) are summarized below:

  • Year of cessation/ultimate year: The assessable profit for the year in which the cessation occurs will be the profit earned from 1 January of that year to the date of cessation of the trade or business. For instance, where a company that makes up its accounts to 31 December every year ceases business on 30 September 2016, the applicable year of assessment (YOA) is 2016 and the profits assessable to tax would be that of 1 January 2016 to 30 September 2016.
  • Penultimate year: The basis period of the YOA preceding the year of cessation may either be on an actual year basis or a preceding year basis.  Going by the earlier illustration, the applicable YOA will be 2015 and the assessable profit to be taxed will be the higher of the profits earned from 1 January 2015 – 31 December 2015 (actual basis) or that earned from 1 January 2014 to - 31 December 2014 (preceding year basis).

In applying cessation rules, a corporate taxpayer with unrelieved tax losses and/or capital allowance may be exposed to double taxation where such unutilized tax assets are forfeited after the re-computations of the company's tax for preceding six years of assessment is exhausted and the company still has unrelieved losses and/or capital allowances.

(iii)  Change of accounting date

       A company may change its accounting date for various reasons. These include:

  • Regulatory/industry wide uniformity and compliance. For example, the Central Bank of Nigeria's directive for uniform financial year end for all Nigerian banks in 2009 is one of such cases
  • The need to synchronize the accounting date of a subsidiary with that of the holding company
  • The convenience of stock taking at a particular period of the year.

In line with the provisions of Section 29(2) of CITA, where a company fails to make up its account for a financial year in line with the corresponding day in the previous accounting year, then the tax authorities have the right to elect the basis on which the assessable profits of that company in the year of change, and that of subsequent two YOAs would be computed and taxed.

In practice, the tax authorities often assess companies to tax for these three years by computing the tax payable under the old date and new date and subjecting the company to tax using the date that results in higher aggregate assessable profit or lesser aggregate tax losses as the case may be.

The issue of double taxation in this scenario arises where accounting profit on which tax have previously been paid are being re-subjected to tax based on the right of election available to the authorities.

Can taxpayers dare to expect relief against double taxation provisions within the tax laws in the era of non-oil budgeting? Yes, they can.  Will they get such relief? It depends.

Just as the government is dusting up potentially revenue generating provisions which hitherto have been “idling” in the corpus of the tax law, it can also review the concerns for double taxation provisions within the same body of law and deliver on the promise of its NTP.

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