June 20, 2018
On April 5 2017, the Federal Government of Nigeria (FG) launched the Economic Recovery and Growth Plan (ERGP) which was designed to revamp the Nigerian Economy following the recession in 2016. A critical objective of the ERGP is to improve non-oil revenue through improved tax and customs administration. As stated in the ERGP, “this would ensure a more diversified fiscal revenue base away from the current dependence on crude oil and gas”
In its efforts to meet the fiscal objectives of the ERGP, the FG sought to implement the tax reform strategies earlier documented in the revised National Tax Policy by setting up a National Tax Policy Implementation Committee (the Committee). The Committee was mandated to produce, within one month, proposed amendment bills and regulations on non-contentious areas in the tax laws, in order to increase government revenues, simplify tax payment, and grow the economy.
On 6 June 2018, the FG approved two Executive Orders (EOs) and proposed five different Amendment Bills (ABs) based on the report of the Committee. This article seeks to provide insights on some of the proposed reforms and their potential implications.
Indefinite Carry Forward of Tax Losses by Insurance Companies and Companies Commencing Business
The 2007 CIT amendment had expunged the general (4 years) restriction for the carry forward of tax losses for companies. However, this provision was inadvertently retained in sections relating to insurance companies and companies within their first four years of commencement of business. It was considered discriminatory for the affected companies and has been a source of controversy. It is heartwarming that this issue will be resolved by the proposed amendments and the affected companies will enjoy the same reliefs available to other companies.
Applicability of Excess Dividend Tax on Retained Earnings and Exempt Income
Section 19 of CITA requires companies to substitute the dividends paid in any year for the taxable income, where the company has no taxable profits or the total profits is less than the dividends paid. This section is essentially an anti-avoidance rule but it has been a source of controversy especially when the tax authority seeks to apply it to dividends distributed from a tax-exempt income or retained earnings (which already suffered tax). Although there has been diverse court ruling on this issue, the proposed bill will put the matter to rest as it clearly exempts the double tax impact on dividends paid from retained earnings and profit of companies exempted from tax.