On April 1, 2021, the Federal Inland Revenue Service (FIRS) issued an undated Notice signed by the FIRS Executive Chairman, Mr Mohammed Nami. The Notice emphasised the need for Approved Enterprises (AEs) operating inNigeria’s Free Trade Zones, Export Processing Zones and Oil & Gas Free Zones (the Zones) to file their income tax returns with the FIRS. The full content of the notice stated:
The Finance Act 2020, which came into effect 1st January 2021, amended Section 18(1) of the Nigeria Export Processing Zones Authority (NEPZA) and Oil and Gas Free Zone Authority (OGFZA) Acts respectively. Consequently, notice is hereby given to all enterprises registered and operating in the Nigeria Export Processing and Oil & Gas Free Zones (the zones), tax practitioners and the general public that:
The NEPZA Act and OGFZA Act (as amended) mandate all enterprises registered and operating in the zones to file income tax returns in accordance with the provisions of the Companies Income Tax Act (CITA).
Read Also Value added tax considerations for casino operations in Nigeria
As such, all enterprises registered and operating in the zones are required:
a. to file income tax returns for 2021 and subsequent years of assessment; and
b. to compute income tax and pay the tax due (if any).The returns should be in the manner and time specified by CITA. For ease of compliance, all approved enterprises are required to file their income tax returns at the following FIRS’ tax offices:
a. Enterprises operating in the Zones located in South-South Geo-political region of Nigeria- MTO Port Harcourt;
b. Enterprises operating in the Zones located in South-East Geo-political region of Nigeria- MTO Enugu;
c. Enterprises operating in the Zones located in South-West Geo-political region of Nigeria- MTO Ibadan;
d. Enterprises operating in the Zones located in North-East and North-West Geo-political region of Nigeria- MTO Kano;
e. Enterprises operating in the Zones located in Lagos State – MTO Lagos Island; and
f. Enterprises operating in the Zones located in North-Central Geo-political region of Nigeria and FCT- MTO Abuja.
Relevant penalties prescribed by CITA or Federal Inland Revenue Service (Establishment) Act 2007 shall apply to any company that fails to comply with the filing requirements as regards due dates.
It is to be noted that the FIRS listed its tax offices in Nigeria’s 6 (six) geopolitical zones as locations where AE’s operating in the respective zones are to file their returns.
Legal requirement to pay tax in Nigeria
Section 9 of the Companies Income Tax Act (CITA) requires payment of specified rates of tax on the profits of companies accruing in, derived from, brought into, received in Nigeria. Section 40 of CITA as amended by section 16 of the Finance Act, 2019 provides for the rate of companies’ income tax.
Legal requirement to file tax returns in Nigeria
The requirement for AEs to file their tax returns is in accord with section 55 of the Companies Income Tax (CIT) Act. Despite the exemption status from tax liability, the AEs are required to file the returns as stated above. Generally, the timeline for filing returns is also stated. Thus, every company shall file with the Board its audited accounts and returns (a) in the case of a company that has been in business for more than eighteen months, not more than six months after the close of the company’s accounting year; (b) in the case of a newly incorporated company, within eighteen months from the date of its incorporation or not later than six months after the end of its first accounting period as defined in section 29 (3) of this Act, whichever is earlier. Failure to comply with the provisions of this section shall be liable to pay as penalty an amount of (a) N25, 000.00 in the first month in which the failure occurs; and o (b) N5000.00 for each subsequent month in which the failure continues.
Are AEs required to pay tax?
The question that may agitate the minds of stakeholders is whether the requirements to file company income tax returns amounts to a requirement for AEs to pay companies income tax. For long, it has been understood that the policy behind the establishment of free trade zones is to encourage investments by not requiring AEs to pay tax. The question is whether the requirement of the law highlighted in FIRS notice is contrary to this policy. The answer to that question is ‘NO’. AEs are still not required to pay tax. By section 8 of the Oil and Gas Export Free Zone Act and the Nigerian Export Processing Zone Act, approved enterprises within the export free zone are exempt from tax.
It is important to note that in given instances, AEs may have tax obligations under extant tax laws, although they have no tax liability. To this end, a clear distinction must be made between tax liabilities and tax obligations. A tax liability arises where there is an incidence of tax for a person. Thus, a person is liable to tax when tax is imposed on the income of that person by a statute. Conversely, a tax obligation arises when a person has the responsibility to act as an agent of the tax authority by withholding, deducting, collecting and remitting the tax that is imposed on the income or payments of another party. A tax obligation could also presuppose a responsibility to file relevant documents (such as tax returns) in line with extant laws.
However, as it relates to the requirement to file of returns especially, it is worth stating that this requirement might have the effect of being burdensome, thereby negating the full impact of the benefits sought to be conferred on AEs by the law.
Conclusion
The requirement for AEs to file tax returns with the FIRS is expected to facilitate FIRS’ information database on all companies carrying on business activities in Nigeria, including non-resident companies and companies exempted from taxation in Nigeria. This would ensure that the FIRS has adequate information and data on companies carrying on business in Nigeria and enhance tax administration in the country.
Companies exempted from payment of tax are still not required to pay tax. By the provision of the FIRS Notice these companies are only required to file tax returns as discussed in this paper.
Nwabulu is a partner in Kenna Partners. He is grateful to Peace Adeleye and Daniel Olika of the firm’s Tax Practice Unit. Interactions with Peace and Daniel contributed to enrich this paper.
