February 21, 2020
The Federal Inland Revenue Service (FIRS or the Service) has recently issued three Public Notices to taxpayers with respect to the tax status of dormant companies, implementation of the new Value Added Tax (VAT) rate under the Finance Act, 2019 (Finance Act) and the remittance of Stamp Duties under the Finance Act. We have provided below, the details of the Public Notices and implication for taxpayers and the general public.
Regularization of Tax Status Dormant Companies
The FIRS has issued a Public Notice advising all dormant companies to regularize their tax returns with the Service on or before 30th June 2020. The Notice clarifies the definition of a dormant company as ‘A company that has formally informed FIRS that it would be temporarily out of business for at least a period of one financial year due to understandable exigencies e.g. adverse economic circumstances.’ It further states that dormant companies may substitute “Statement of Affairs” for “Accounts” in their tax returns.
According to the Notice, the FIRS is collaborating with the Nigerian Financial Intelligence Unit, Corporate Affairs Commission, Money Deposit Banks and other relevant agencies, to ensure that all taxpayers file and pay appropriate taxes when due. Failure of any company to comply with the Notice may result in a delisting of such company from the list of incorporated entities, lien on the bank account of such company or other enforcement actions.
Commencement of Finance Act Implementation – Value Added Tax
Further to the publication of the Finance Act in the Federal Government Gazette, the FIRS has issued a Public Notice on the implementation of the VAT provisions of the Act.
The Notice reiterates that the Finance Act increases the VAT rate from 5% to 7.5% and also expands the list of goods and services exempt from VAT. Based on the Notice, companies are expected to update their accounting systems or applications, which previously computed VAT at the rate of 5% to reflect the increased rate of 7.5%. In addition, consumers of goods and services are required to ensure that their receipts reflect the new rate and expanded list of exemptions when making payments for goods and services consumed.
Furthermore, all VAT returns are expected to be filed using the new rate effective February 2020 and any late submission of returns from January 2020 will be penalized in accordance with the provisions of Finance Act, especially the late filing penalties.
Remittance of Stamp Duties
On 17th January 2020, the FIRS published a Notice informing the general public that the Service is the only competent authority mandated to impose, charge and collect Stamp Duties on dutiable instruments, where such instruments are executed between a company and an individual, group or body of individuals.
The Notice further clarifies that the FIRS is solely responsible for the collection of all Stamp Duties deducted by the Office of the Accountant General of the Federation, Central Bank of Nigeria, all Deposit Money Banks, Central Securities Clearing Systems in the capital market operations and other institutions not mentioned.
Consequently, the Notice directs that all outstanding Stamp Duties which have been previously deducted and are still being held by the institutions mentioned above, should be remitted immediately to the FIRS not later than 7 days from the publication of the Notice. i.e. 24th February 2020. Subsequent Stamp Duties are to be instantly remitted to the FIRS Stamp Duties Account upon deduction.
By issuing these Notices, the FIRS is pushing for compliance with tax obligations by all companies. It reflects the renewed drive for tax revenue by Government and highlights FIRS’ collaboration with other government agencies. Given the increase in penalties for non-compliance with the provisions of the VAT Act, Companies Income Tax Act and other laws, companies and business owners should liaise with their tax consultants to ensure compliance with the provisions of the tax laws and remit their taxes / file returns when due in order to avoid the sanctions and penalties that may be imposed for non-compliance.
For Stamp Duties, it is expected that this notice by the FIRS will resolve the controversy about which agency has the powers to collect Stamp Duties, especially as the Nigerian Postal Service has previously made public statements about collecting Stamp Duties. Companies should therefore remit any outstanding Duty which has been collected by them and remit same to the FIRS. Going forward, they should also remit such Duties to the FIRS once collected, since there is now clarity about the FIRS’ authority as the agency of Government empowered to collect such Stamp Duties.
We will monitor any further administrative guidelines and directives in this regard and highlight any subsequent developments.