Fed Govt Proposes New Sharing Formula For Electronic Transfers’ Revenue

*LGAs to get 35%, States 50%, Fed Govt 15%

The federal government has proposed an amendment to the sharing formula for revenue from electronic money transfer (EMT)

Currently, the federal government keeps 15 per cent of EMT revenue while 85 per cent goes to the state governments.

In the proposed amendment contained in the Finance Bill 2022 now with the National Assembly, the federal government is asking to keep its 15 per cent but wants the legislators to split the balance between the state governments and local government councils in a 50 per cent: 35 percent ratio.

The administration of President Muhammadu Buhari has been pushing for greater autonomy-financial and political, for local government councils in the country. The new revenue proposal appeared to be the administration’s parting gift to the local government councils.

The EMT regulations provides for a singular and one-off levy of N50 on the recipient of any electronic receipts or transfers of N10,000 or above.

For equivalent receipts or transfers carried out in other currencies, the levy is charged at the exchange rates determined by the Central Bank of Nigeria (CBN).

The federal government has projected to generate N136.3 billion as revenue from ETM to be paid by bank customers in 2023. This is based on a projected 2.7 billion volume of eligible online transfers in the year.

But the CBN has disclosed that EMT transactions has tipped the scales at over N306.09 trillion as at the end of October, 2022. What this means is that the federal, state and local governments will be expecting to take in trillions of naira from EMT levies.

Another proposed amendment contained in the Finance Bill is the demand by the federal government to charge oil companies 50 per cent of their company income tax rate for flaring gas.

According to the Bill, “the CIT rate for a gas-flaring company (defined as a company that vents or flares associated or non-associated natural gas unless in the case of an emergency) is to be increased from the standard 30 per cent to 50 per cent”.

In addition, a company engaged in the commercial winning, capture, production and utilisation of gas will be entitled to a single 50 per cent investment tax credit on its qualifying expenditure for that purpose.

The federal government also wants “an import levy of 0.5 per cent to be imposed on all eligible goods imported into Nigeria from outside Africa to finance Nigeria’s capital contributions, subscriptions and other financial obligations to various multilateral institutions such as the AU, UN etc”.

The line items for contributions, subscriptions and other obligations in the annual budget runs across almost all the Ministries Departments and Agencies (MDAs) and gulps billions of Naira. But dedicating a levy to fund these lines of expenditure, the federal government will be freeing up funds in the budget to address other issues.

There is also a demand in the Bill asking for a “rural investment allowance ranging from 15 percent to 100 percent of cost incurred by a company to provide facilities such as electricity, water and tarred road where such facilities have not been provided by the government within 20kms of the location to be repealed”.

The Bill wants an existing partial tax exemption from CIT granted on income in convertible currencies derived from tourists by a hotel to be repealed.

If approved by the National Assembly, income derived by a company from gaming, gambling, betting, or lottery business will now be taxable under the Companies Income Tax Act.

Gains on digital assets including cryptocurrency will be taxed under the capital gains tax act at the rate of 10 percent while capital losses on chargeable assets (including shares) will become tax deductible against chargeable gains on the same class of asset.

Currently, losses incurred on the disposal of any asset are not deductible for capital gains tax purposes.

Some amendments will affect the Value Added Tax schedule for the country. The Finance Bill 2022, the federal government wants, the introduction of general anti-avoidance transfer pricing rules to counteract any artificial arrangement in respect of transactions between connected persons for VAT purposes.

Persons appointed to deduct VAT at source on invoices received from their vendors are now to remit such VAT to the FIRS on or before the 14th day of the following month (currently 21st day of the following month).

An importer of goods purchased online, from a non-resident supplier who has been appointed by the FIRS to charge and collect VAT, is required to provide proof of such appointment and VAT charged on the invoice as a condition for clearing the goods without further VAT and

The redefinition of building for VAT purposes to exclude any fixtures or structures that can be easily removed from land such as radio and television masts, transmission lines, cell towers, mobile homes etc. This implies that such assets are not eligible for the VAT exemption on building.

In the Bill, a public officer is required to seek administrative approvals and ensure there is an approved procurement plan in addition to existing requirements for the award or signing of contracts.

Failure to comply is liable to three years imprisonment and a fine of N100,000 on conviction.

All services, including but not limited to telecommunication services, provided in Nigeria will be liable to excise duty at rates to be specified through a Presidential Order.

The Bill wants an amendment of the Customs and Excise Tariff Act to clarify the responsibility and powers of the finance minister to review customs and excise tariffs through the Tariff Review Board.

There is also a request before the National Assembly that “any amount paid as premium by an individual during the preceding year of assessment in respect of own life or the life of a spouse, or contract for a deferred annuity will be tax deductible provided that any portion of a deferred annuity withdrawn within five years of paying the premium will be taxed at the point of withdrawal”.

The Bill explained: Analysing the Bill, Mr Taiwo Oyedele of Pricewaterhouse Coopers (PwC) told The Nation that “some progress have been made with respect to the tax system most fundamentally as a result of the 2017 National Tax Policy and the subsequent annual finance acts over the past 4 years. We have seen reforms targeted at the digital economy; exemptions for small businesses and minimum salary earners; and efforts to improve transparency and fiscal discipline by government owned enterprises among others”.

“However, there is still a long way to go before we achieve a tax system we can be proud of. Critical among these include the need for harmonisation of taxes and revenue agencies; effective architecture to leverage data for tax intelligence; the need for political leaders to build trust by setting the right tone at the top and providing fiscal exchange to taxpayers through the efficient utilisation of revenue to serve public good; and so on” he said.

Speaking to the plan to amend tax premium on life insurance Oyedele noted that “the amendment is actually positive for the insurance industry. If people can get tax deductions for their insurance premium then they will be more inclined to buy life policies and contract of annuities. The five years restriction proposed in the Bill is meant to prevent abuse and put such insurance contracts on the same pedestal as contributions under the Pension Reform Act”.

With regards to the gas flaring tax, Oyedele argued that “government owns controlling interests in the major oil assets. Gas flare-out requires huge investments and historically government has failed to play its part thereby making it difficult for gas flaring to end or reduce significantly.

“This is the reason why the various gas flaring penalty regimes have failed to achieve any meaningful progress. Not only is the timing questionable, it will be unfair to punish the companies without addressing the fundamental issues”.