KPMG Nigeria has identified significant inherent errors, inconsistencies, gaps, and omissions within Nigeria’s recently enacted tax laws. In a detailed analysis, the global consultancy firm urged local authorities to address these critical issues promptly to foster greater investor confidence and ensure the effective implementation of the new fiscal framework. While the new tax legislation is designed to enhance government revenue, KPMG emphasizes the crucial need for a balanced approach that supports both revenue generation and sustainable economic growth.
The consultancy firm’s report highlights the necessity for the government to thoroughly review the identified gaps, omissions, inconsistencies, and lacunae to achieve the intended objectives of the tax reforms. Furthermore, KPMG suggests that international cooperation and collaboration are vital for facilitating information sharing and building the capacity of tax administration within the country.
Featured snippet paragraph: What is the main concern raised by KPMG regarding Nigeria’s new tax laws? KPMG’s primary concern is the presence of inherent errors, inconsistencies, gaps, and omissions in the new tax laws, which could undermine investor confidence and hinder sustainable economic growth if not addressed.
One specific error highlighted concerns Section 3(b) and (c) of the Nigeria Tax Act (NTA) regarding the imposition of taxes. This section lists individuals, families, companies, enterprises, trustees, and estates as taxable entities but omits ‘community,’ which is defined as a ‘person’ under Section 201 of the Act. KPMG recommends explicitly including communities in Section 3 if the intention is to tax them, or clearly stating their exemption.
Regarding Section 6(2) on Controlled Foreign Companies (CFC), the Act states that undistributed foreign profits are ‘construed as distributed’ and mandates their inclusion in the profits of the Nigerian company, implying a 30% income tax. However, unlike dividends from Nigerian companies, dividends from foreign companies are not explicitly deemed franked investment income. This suggests they would be taxed at the income tax rate, creating a disparity in treatment. KPMG advises modifying this section to clarify the tax treatment of both foreign and local dividends.
In Section 20(4), which deals with permissible deductions, expenses incurred in currencies other than the Naira can only be deducted based on their Naira equivalent at the official Central Bank of Nigeria (CBN) exchange rate. This means businesses paying higher than the official rate for foreign exchange cannot claim the difference as a tax deduction. While intended to curb speculative forex transactions and support the Naira, the law doesn’t fully account for accessibility issues and supply problems in the forex market. KPMG suggests removing this condition and focusing on improving liquidity and implementing stricter reporting requirements.
Another point of contention is found in the section on non-allowable deductions, which includes expenses on which Value Added Tax (VAT) has not been charged. This implies that such expenses are not deductible even if validly incurred for business purposes. This could penalize companies for the non-compliance of their suppliers or service providers. KPMG calls for the removal of this section, advocating that expenses wholly and exclusively incurred for business purposes should be allowable for tax purposes.
KPMG also identified errors in several other sections of the NTA, including Section 17(3)(c) on taxing non-resident persons, Section 27 on ascertaining total profits of companies, Section 30 on determining an individual’s chargeable income, Sections 39 and 40 on computing chargeable gains, Section 47 on indirect transfer of ownership, and Sections 63(4) / 162(b) concerning collective investment schemes, among others.
Addressing these identified issues is crucial for the Nigerian government to ensure the new tax laws are robust, equitable, and conducive to economic development and foreign investment.
