By Hussaina Yakubu
Governor Nasir El-Rufai of Kaduna State on Tuesday presented a draft budget of 233 billion naira for 2022 in the State Assembly House.
El-Rufai said the state expects internally generated revenue (IGR) of 67.26 billion naira and 24.9 billion naira in value added tax (VAT) which will be used to finance partly the budget.
He indicated that the budget has capital expenditure of N146 billion and recurrent expenditure of N87.6 billion.
The governor said the government expected N54.19 billion from the Federation account and N500 million from the COVID-19 response.
He added that the government would borrow 19.8 billion naira from local and external sources, raise 34.08 billion naira from grants and 500 million naira from the sale of government assets, among others.
Giving a sectoral breakdown of the budget, El-Rufai said agriculture received 1.79 billion naira; Business, innovation and technology 3.72 billion naira; Housing and urban development 9.34 billion naira, public works and infrastructure 36.97 billion naira.
In addition, education received the highest vote of 44.68 billion naira; Health 22.76 billion naira and social development 690.52 million naira.
He said the government had earmarked 2.98 billion naira for the environment and natural resources; 4.99 billion naira for water and 18.13 billion naira for general administration.
He explained that the budget has a capital / recurring ratio of 63-37 percent.
By Chinyere Joel-Nwokeoma
Espera Global Corporation CEO Dr Glenn Prince-Abbi says a lot needs to be done to drastically improve the amount of income generation in the country.
Prince-Abbi, revealed this in an interview with the Nigeria News Agency in Lagos.
He was responding to the 16.39 trillion naira credit bill for 2022 introduced by President Muhammadu Buhari on October 7.
The CEO urged the federal government to ensure proper oversight of revenue-generating ministries, departments and agencies (MDAs) to increase revenue.
Prince Abbi said this is necessary to ensure execution of the 2022 budget, if the proposals become law.
He said that with proper oversight, the federal government could extract tremendous value in the area of income-generating MDA remittances.
“Much remains to be done to radically improve the quantum of income generation. In fact, statistics show that Nigeria's income generation is one of the lowest in the world, relative to the size of the Nigerian economy.
“To achieve budget performance, a crucial area where the federal government can extract tremendous value is the area of income-generating MDA remittances.
“I think this is a major area where the federal government can extract value in unprecedented ways.
“There should be a complete transformation and turnaround in the quality of oversight by the federal government over its revenue-generating MDAs.
"My recommendation is that once the Appropriations Bill 2022 is enacted, the federal government should initiate defined strategy sessions with its revenue-generating MDAs," Prince-Abbi said.
According to him, income-generating agencies must be made to realize clearly that the game changer in terms of planned public spending depends on them.
“For a budget heavily dependent on borrowing, I am concerned that there are still many overdue remittances of some 2.65 trillion naira (equivalent to $ 6.48 billion) from various entities such as 77 oil companies in default.
“This exhibition is totally untenable, indefensible and unacceptable.
“These pending remittances provide a huge unexplored window to tap into to strengthen the federal government's revenue position in 2022 to support budget development.
“I understand that the president gave his approval for these companies to be closely monitored and branded and required to pay all their unpaid remittances resulting from oil profit tax, corporate income tax, school tax, VAT, withholding tax, fees and concessions on rentals.
“The government is forced to borrow to finance the budget and yet there are huge overdue remittances.
"These are difficult times and the federal government must be tougher on all parties to achieve the performance of the 'budget for economic growth and sustainability', called the 2022 budget," he added.
Prince Abbi said there should be no sacred cows to collect these funds.
"Clear and short deadlines must be given to them to honor these payments - and the sanctions must not be spared for confronting these violators, if they show lethargy to comply with them," he said.
On the budget assumptions, Prince-Abbi said the benchmark oil price of $ 57 per barrel for budget 2022 oil revenues was realistic and defensible.
"This is because at the moment the price of oil has passed the ceiling of $ 80 per barrel," he noted.
“President Buhari presented a record 16.39 trillion naira ($ 39.8 billion) budget for 2022.
“In the process, the president actually confirmed a previously released GDP growth forecast of 4.2% and an inflation projection of 13%.
“In my opinion, this growth forecast is achievable, just as I think 13% inflation can in fact be improved.
“This is because the main culprit behind Nigeria's inflationary trends are food prices, and this adds to the spiraling poverty and food insecurity,” he said.
Some 86,000 jobs have been lost in the UK’s nightlife sector since 2019, an industry body said on Monday, blaming coronavirus closures.
The Night Time Industries Association (NTIA) said the sector accounted for 1.6 percent of GDP in 2019, the equivalent of £36.4 billion ($49.6 billion, 42.9 billion euros), and employed 425,000.
But it said there were “fears that many of the jobs lost to the pandemic in the night-time economy sector will be lost for good” because of closures and lower demand.
Nightclubs and casinos were among the last to reopen when coronavirus restrictions began to be eased in June.
Scotland and Wales are pushing ahead with proof of vaccination records to allow entry into nightclubs but the UK government, which sets health policy in England, has opposed the move.
NTIA chief executive Michael Kill said the moves by the devolved administrations in Edinburgh and Cardiff were “chaotic”.
“It is the worst possible time to introduce vaccine passports, which will further damage a sector essential to the economic recovery,” he said.
Details of job losses in the industry come as several sectors, including hospitality and catering, complain of severe staff shortages hitting their recovery.
Kill said finance minister Rishi Sunak should use his autumn budget statement to announce additional support for nightclubs, bars, casinos, festivals and their suppliers.
He called for the current 12.5 percent rate of sales tax (VAT) on hospitality to remain until 2024.
Britain has been one of the worst affected countries by Covid 19, with nearly 138,000 deaths recorded since early last year.
A mass vaccination programme has seen 78.5 percent of all those aged 12 and over receive two doses of a vaccine, helping to cut hospital admissions with severe Covid.
But infection rates are still high. Last week, the seven-day average number of positive cases was 37,255, according to government data.
Source Credit: TheGuardian
By Franca Ofili
Mr Temitayo Orebajo, Director, Tax Policy and Advisory Department, Federal Inland Revenue Service (FIRS) says all Civil Society Organisations (CSOs) are expected to register for tax purposes and obtain Taxpayer Identification Number (TIN).
Orebajo said this in Abuja on Thursday at a webinar on CSOs tax responsibilities and compliance.
He said the webinar was aimed to promote CSOs understanding and knowledge of their tax responsibilities.
The News Agency of Nigeria reports that the webinar was organised by FIRS and the European Union Agents for Citizen-Driven Transformation (EU-ACT), a Non-Governmental Organisation.
The webinar is to provide an opportunity for CSOs to engage the FIRS on parts of tax regulations that concern them, and the challenges and bottlenecks they face in their bid to stay compliant.
Orebajo said that the CSOs were statutorily required to maintain accurate record of employees, proper books of accounts for tax purposes.
He said that failure to comply would attract appropriate penalties under the extant tax laws.
Orebajo said that VAT on goods purchased by NGOs for use in humanitarian donor funded projects was at zero rate under the value added tax.
“The NGO itself is not exempted from VAT where the organisation procures contracts or purchases goods that are not directly used in humanitarian donor funded projects.
“Likewise, any service procured or consumed by NGO is liable to VAT, except where such service is exempted under the VATN Act,” he said.
Orebajo said that NGOs were required under the Pay As You Earn (PAYE) obligation to deduct tax at source from salaries and other emolument of the employees, directors, officers among other.
According to him, the obligations under the Companies Income Tax Act (CITA) in section 25 of CITA provides tax relief to any company making donations to an organization listed under the fifth schedule to CITA.
He said that such donation must be made out of its profits for the year of assessment and total donation shall not exceed 10 per cent of the total profits of the company for the said year of assessment.
“Donation is not of capital nature, except where the donations are made to universities or other tertiary or research institutions and should not exceed 15 per cent of total profits or 25 per cent of tax payable.
“NGOs requiring to be listed under the fifth schedule to CITA may apply to the Minister of Fice through FIRS,’’ Orebajo said.
He advised the organisations to see the important of returns to the government because most of them take payment to government for granted.
Mrs Nneka Esomeju, of Joint Tax Board, said that the rule of minimum wage was exempted from tax but added that corps members are to pay tax when other things are added. (www.)
By Ismaila Chafe
The federal government condemned the reaction of social media group Twitter to President Muhammadu Buhari's series of tweets via his verified Twitter account @mbuhari.
The Nigerian News Agency (NAN) reports that the Nigerian leader warned on Tuesday via his Twitter account that a "brutal shock awaits" these unpatriotic elements who promote the insurgency and burn essential national assets across the country.
“Many of those who misbehave today are too young to be aware of the destruction and loss of life during the Nigerian civil war.
"Those of us who have been in the fields for 30 months, who have been through the war, will treat them in the language they understand," the president said via his twitter page.
Twitter, however, reportedly deleted the tweet, stating, "This Tweet violated Twitter rules."
Reacting to development, Information and Culture Minister Lai Mohammed accused Twitter of double standards, claiming that Twitter deliberately ignored prompting tweets from the leader of the indigenous peoples of Biafra (IPOB), Nnamdi Kanu and his cronies. .
The minister also accused Twitter of displaying the same prejudices as during the ENDSARS demonstration where the government and private property were looted and set on fire, taming his human rights, while "he finds Buhari's tweet offensive ".
According to him, the role of Twitter is suspect and Nigeria will not be fooled.
He said: “Twitter can have its own rules; it is not the universal rule. If Mr. President anywhere in the world feels very bad and worried about a situation, he is free to express such views.
“Now we should stop comparing apples to oranges. If an organization is banned, it is different from any other that is not.
"Second, any organization that gives directives to its members, to attack police stations, to kill police officers, to attack correctional centers, to kill guards, and you are now saying that Mr. President did not Right to express dismay and anger about this? We are guilty of double standards.
“I don't see anywhere in the world where an organization, a person will stay somewhere outside of Nigeria, and order its members to attack the symbols of authority, the police, the military, especially when that organization has been banned.
“Whatever the name, you cannot justify giving the order to kill the police or to kill someone you do not agree with.
The minister, who briefed State House correspondents on the results of the Federal Executive Council (FEC) meeting, revealed that the council had approved 5.6 billion naira for the establishment of an oxygen plant. in each of the 36 states of the federation.
Mohammed, who briefed on behalf of his counterpart in the Ministry of Health, Dr Osagie Ehanire, said:
“The Minister of Health presented a note, which was approved, for the emergency supply, installation and maintenance of oxygen production plants and the construction of factory houses in each of the 36 Federation States and Abuja.
"The contract was approved for the sum of N 5,615,127,479, including 7.5 percent VAT, in favor of four different companies, with an execution period of 20 weeks."
He said the approval was aimed at cushioning the effect of the COVID-19 pandemic, which had made oxygen a very critical commodity.
Mohammed also revealed that the council had approved N1.1 billion for the purchase of aviation security uniforms and accessories for use at various airports across the country.
He said: “The Minister of Aviation has obtained approval for the award of a direct procurement contract for the design, manufacture and supply of aviation safety uniforms and accessories.
"The total sum is N1, 127, 945,000. The peculiarity of uniforms for the aviation industry is that it has certain standards of the International Civil Aviation Organization (ICAO) which would be followed."
He further revealed that the Niger Delta Ministry of Affairs also secured an approval of 864.7 million naira for two road contracts which were abandoned by previous administrations.
“The Minister of the Niger Delta obtained the approval of Phase I of Okpula-Igwartanta linking Imo and Rivers State, started in 2010.
“It got approval for a variation of N620 763,000. It also got approval for erosion flood control on the Ndemili-Utagba-Onitsha road in Delta State, started in 2014.
"The council today approved 244 million naira to increase the amount of the original contract," he added. (NAA)(NAN)
By Temitope Ponle
The Revenue Mobilization and Fiscal Allocation Commission (RMAFC) said revenue-generating agencies remitted more than 1.5 trillion naira to the Federation's account in the first quarter of 2021.
Mr. Elias Mbam, the chairman of RMAFC revealed this in Abuja, when he received the revenue performance report from the post-mortem sub-committee of the Federal Account Allocation Committee (FAAC).
Mr. Nwachukwu Christian, head of public relations for RMAFC, in a statement issued Monday in Abuja, said the report showed that the Federal Inland Revenue Service (FIRS) had made the highest payment of more than 759 billion naira.
The Ministry of Mines and Steel Development (MMSD) exceeded its target for the quarter with more than 891 million naira.
The president further said that more than 496 billion naira had also been paid into the Federation's account as value added tax (VAT) for the first quarter of 2021.
According to him, this exceeded the targeted tax revenue, or 108.01 percent for the period under review.
Mbam also said that the commission, together with the FAAC post-mortem subcommittee, had received arrears of N 260 billion.
This is in addition to the more than 845 billion naira that the subcommittee recovered in the 2020.
The president underlined the commitment of the commission in its efforts to increase the generation of income and the equitable distribution of the accumulated income among the three levels of government. (NOPE)(NAN)
By Adeyemi Adeleye / Oluwatope Lawanson
The Chartered Institute of Taxation of Nigeria (CITN) has urged the National Assembly to review and reconsider the distribution of state taxation powers as part of the ongoing 1999 constitutional amendment process.
Dame Gladys Simplice, president of CITN, made the proposal in a memorandum to the National Assembly during the southwest zone public hearing on the 1999 constitutional revision in Lagos on Wednesday.
According to her, the state's taxing powers appear to be illusory and speculative under the current constitution.
Simplice recommended a separate state legislative list, such as the model 1995 draft constitution, to enumerate subjects upon which states could legislate and to establish the basis for taxes that are impossible, administrable and collectible by the state.
It also recommended that point 59 of the exclusive legislative list (taxation of income, capital gains and stamp duties), point 13 (copyright) and point 62 (trade and commerce and in particular sub-points a, b, d, e and f) must be modified.
According to her, item 43 (patents, trademarks, trade or trade names, industrial designs and trademarks) should also be amended.
Simplice said this should be in favor of the state and local communities in terms of legislation, imposition and administration of ancillary taxes on the matter.
“Exclusive use of the added value of states and local authorities for autonomous revenue is strongly recommended.
“The current constitutional rationale for the Value Added Tax Act under Article 315 of the Constitution that it covered areas relating to sales tax is disturbing.
“It is recommended that the VAT be transformed into a simultaneous legislative list with a different formula, namely:
“The federal government should legislate and administer interstate, wholesale and export VAT, while states should register and administer intrastate and retail VAT,” she said.
According to her, in any case, the collection of these revenues should be independent of the use by each state and federal government.
She added that the current condition of the constitution, which brought together the powers of taxation and legislative powers, gave the mistaken impression that states did not have specific powers to impose and administer taxes except by relying on an imaginary residual list.
The President noted that there were certain items in the exclusive and competing legislative list that the federal government should not have to deal with, adding that this made states and local governments mere parasitic appendages of the federal government.
“Given the particular needs and development of state and local governments that are closer to the people, there is a practical need to evolve expansive taxes and net revenues. This current configuration of the constitution does not encourage this reality.
"The expansion of state taxation powers will encourage a high commitment to tax mobilization and improve healthy development competitions between federative units," she said.
In addition, Simplice said the constitution should guarantee the independence of the Federation's Auditor General to ensure accountability, transparency and credibility.
She added that this should also be amended to allow the Auditor General to directly reimburse any funds from anyone deemed not to have been spent for the purposes for which they were intended.
The CITN president said there was a need to clearly delineate the exclusive federal and state legislative list.
"This will secure the powers of the states and allow them to function without being too dependent on the federal government," she said.(NAN)
By Gabriel Agbeja
The Director- General, Nigerian Civil Aviation Authority (NCAA), Capt. Musa Nuhu, on Wednesday said the authority had planned to deepen effort towards safeguarding highly skilled manpower in aviation industry.
Nuhu, who made this known during an interview with the News Agency of Nigeria (NAN) in Abuja, said such move would boost the confidence to ensure safety and comfort of the flying public.
He said NCAA, being a regulatory body, would ensure the nation keep boasting of improved aviation infrastructural facilities at the airports, state of the art navigational aids and modern weather forecasting equipment.
“Our mission is to provide aviation safety and economic regulation in the most efficient, effective, quality and technology driven manner to the satisfaction and benefit of all the stakeholders, consistent with the highest international standers.
“NCAA is ready for the sustainable development of the industry and national economy,” he said.
Nuhu said that NCAA was currently working on some applications for the new airlines.
According to him, about six new airlines will start to operate soon to strengthen the capacity in the aviation sector.
“There are quite a few airlines coming up. About two or three to start operating this year. The rest will start next year,” he said.
The director-general called on all pertinent stakeholders to work together as a team to further design strategies towards best practice to grow the industry from the level of Covid-19 impact.
“For the airlines, we provide `Ultimate Means of Compliance“ for them to keep fly and to avoid spending huge among of money to send the aircraft and people for training.
“That on its own was in form of palliative from NCAA to all local airline operators to save their money,” it said.
Nuhu observed that the recent increase in air fare was as a result of a bit higher demand than the available capacity in the industry.
He commended the Minister of Aviation, Sen. Hadi Sirika, for his efforts towards alleviating challenges confronting Nigerian Airline Operators (NAO).
“In the issues of assisting the airlines, I think the Federal Ministry of Aviation has done wonderfully well in consulting airlines operators , protecting foreign exchange , proposing of giving them single digit loan.
“Also, removing 7.5 per cent tax (VAT) in the new financial bill among others,” he said.
On the issue of bailout for the airlines, the NCAA boss said it was a strictly policy matter being handled by the ministry.
In a related development, a senior member of staff in the ministry, who pleaded anonymity, said disbursement of five billion naira aviation palliative fund, the bailout, was handle by a committee set up by the minister.
The official said that the member was drawn from the ministry, the Airline Operators of Nigeria (AON) and the ancillary service providers.
According to him, all decisions on beneficiaries and number of benefits were taken by the committee without any interference by the ministry.
“This was to ensure transparency and fairness which the ministry can assert were achieved,” the official said.
The official affirmed that aviation sector was also expecting another sum of twenty seven billion naira palliative, as promised by the federal government, to support the industry. (NAN)(NAN)
CBN and the regulatory role of “printing money”
By Kadiri Abdulrahman of the News Agency of Nigeria (NAN)
“Government’s printing of Naira simply means loans advanced to states to pay salaries and survive; and not the literal interpretation of printing money from the factory and sharing to the public,” according to Godwin Emefiele, Governor of the Central Bank of Nigeria (CBN).
It was Emefiele’s initial reaction to a recent comment by Gov. Godwin Obaseki of Edo that the CBN printed about N60billion to augment Federal Account Allocation Committee (FAAC) subvention to states in March.
Speaking at the Edo Transition Committee stakeholders engagement, Obaseki had raised concern that the step the apex bank took was an indication that the Nigerian economy was ailing.
The Edo governor said: “when we got FAAC for March, the Federal Government printed additional N50billion to N60billion to top-up for us to share. This April, we will go to Abuja and share. By the end of this year, our total borrowings are going to be within N15trillion to N16 trillion.”
This position by Obaseki elicited varied reactions from cross sections of Nigerians, most of it creating panic.
Economists and financial experts have warned that Nigeria faces the risk of falling off the fiscal cliff if the Federal Government continues its reliance on ‘Ways and Means’ to fund its widening deficits.
The experts said Obaseki’s revelation reflects the sad reality of the economy and that the future appears increasingly bleak except the trend is reversed.
However, the National Economic Council (NEC) has affirmed that there was no printing of N60 billion or any other amount to shore up allocation for the month of March.
The council, which is chaired by Vice President Yemi Osinbajo, took the position during its meeting in Abuja on Thursday.
A statement by Laolu Akande, spokesperson for the Vice President, said that the Council expressed satisfaction with clarifications made by the Nigeria Governors’ Forum, represented by its Chairman, Gov. Kayode Fayemi of Ekiti State.
Akande said that the Minister of Finance, Budget and National Planning, Zainab Ahmed, and Emefiele also made clarifications on the issue.
“Having received presentations from the Minister of Finance, the Central Bank Governor, and the NGF, the NEC has affirmed that there was no printing of N60 billion or any other amount whatsoever to shore up allocation for the month of March as wrongly insinuated recently in the press.
“The Council expressed satisfaction with clarifications made by the NGF, the Finance Minister and the CBN Governor.
“Both the Minister and the CBN Governor stated to the Council that the allegation of the printing of money to augment allocation was outrightly false. The NGF also supported the conclusion and NEC affirmed same as the highest constitutional body tasked with economic affairs in the country,” Akande said.
Meanwhile, Emefiele had earlier explained that the apex bank does not just print money and distribute to people.
He warned that the apex bank would take immediate steps to recover all N614 billion credit facilities given to states in budget support and bailouts to enable them pay salaries in the past.
“I think it is important for me to put it this way, that in 2015 and 2016, the kind of situation we found ourselves, we did provide a budget support facility to all the states of this country. That loan is still unpaid up till now.
“Most countries in the world today are confronted not only by the challenges coming from the COVID-19 pandemic, but other issues causing economic crisis.
“What I keep saying is that it will be irresponsible for the CBN or any other federal reserve bank to stand idle and refuse to support its government at this time,” he explained.
The Finance minister, Zainab Ahmed, had also countered Obaseki’s position on the issue.
Speaking to newsmen after a Federal Executive Council (FEC) meeting in Abuja, Ahmed said that what was distributed at the monthly FAAC meetings were generated revenue from government institutions available to the public at the ministry’s website.
“The issue that was raised by the Edo governor for me is very, very sad, because it is not a fact.
“What we distribute at FAAC is revenue that is generated and in fact distribution of revenue is a public information.
“We publish revenue generated by FIRS, the customs and the NNPC and we distribute at FAAC. So, it is not true to say we printed money to distribute at FAAC, it is not true,” the minister said.
Some analysts believe that Obaseki was probably drawing attention to the undeniable revenue challenge the Nigerian government presently contends with, and the dire need to accelerate economic diversification to accommodate broader revenue options.
According to Mr Laoye Jaiyeola, Chief Executive Officer of Nigeria Economic Summit Group (NESG), central banks of other countries facing similar economic challenges as Nigeria also print money.
Jaiyeola corroborated Emefiele explanation that “printing money” does not always have to do with physical cash.
He said: “When they say printing money, it is not cash. You know how banks create money; it is not only cash.
“All the money we have in Nigeria is not in cash. So, the CBN can create N1billion and only about N100million out of it can be in cash.”
He urged stakeholders to understand the concept of “ways and means” to get the issue in proper perspective.
“The concept of ways and means is something most of us should understand. If government says this is our budget for the year, these are statements of where they expect income to come from and what expenses they are going to have.
“But this income does not come at the time they expect it. So, the central banks as governments’ bankers are allowed to give some amount of money to the governments pending when they then pay back.
“So, the CBN does that through the concept of ways and means. So, when government eventually gets this money, they pay back,” he explained.
Shedding more light on the contentious issue, a professor of Economics from the University of Ibadan, Lanre Olaniyan, also said that the idea of printing money mainly relates to the CBN creating money for government.
Olaniyan said that “creation of money” for government by central banks was normal, adding that cash will only be involved if the cash reserve was extremely low.
He explained that the idea was for the central bank to give loans to government as “the lender of last resort”.
“In elementary economics, we are told that the central bank is the lender of last resort to the government,’’ he said.
He described “Seigniorage”, the process where the apex bank prints money to fund activities of government is a welcome development in economics when necessary.
He added that a country freshly out of recession, like Nigeria, needed to put money in people’s pockets.
“The Federal Government will have to spend enough money that will go round a large percentage of the citizenry to sustain the post-recession economy; it is called “quantitative easing”, he said.
However, a breakdown of details of the February revenues which were shared by the three tiers of government in March listed VAT as contributing a total of N157.327 billion; the largest revenue shared.
This was followed by petroleum profit tax of N137.583 billion, and remittances by the Department of Petroleum Resources of a total of N133.583 billion.
Nigeria Customs Service contributed N89.350 billion; company income tax, and related taxes, N66.356 billion; the Nigerian National Petroleum Corporation, N64.161 billion; and the Ministry of Mines and Steel Development provided N976 million.
The breakdown shows a gross income of N649.336 billion, but when the cost of revenue collection as well as the 13 per cent derivation payment to oil-producing states were deducted, the total came to N596.944 billion.
N8.645 billion was taken from the Forex Equalisation Fund Account to augment the allocations, making it a total of N605.589 that was shared by the three tiers of government.
The document shows that the federal government got N205.160 billion as its share, while the 36 states received N166.085 billion and the 774 councils got N122.853 billion.
Oil-producing states shared an additional N37.143 billion as derivation payment.
There is no entry to indicate that N60 billion was added from any source.
An economist, Mr Tope Fasua, believes that printing of money is an integral part of the functions of the CBN.
Fasua said that the apex bank performs that function through the Nigerian Security Printing and Minting Plc, where it is the largest shareholder.
He added that “the reason why the CBN will want to print money ranges from the routine to the emergency.
“Routine because the CBN has to ensure that banks are always liquid in terms of cash, and emergency for the purpose of economic intervention.”
The Chairman of the Progressives Governors Forum, Gov. Abubakar Bagudu of Kebbi State, also waded into the controversy.
Bugudu explained that due to the shortfall in revenues by N43.34 billion compared to the previous month, an augmentation was made in the sum of N8.65 billion from the Forex Equalization Fund Account.
He said that this brought the total distributable revenue to N605.59 billion.
He added that revenues distributed monthly primarily consisted of mineral revenues from the sales of oil and gas, as well as non-mineral revenues from customs and excise duties, company income tax and value added tax.(NAN)
***If used, please credit the writer and the News Agency of Nigeria (NAN).
By Centurion Tax and Investment Desk
With the enforcement of the new law (No. 2018 - 10 of March 30, 2018) enacted in March 2018 which amended certain provisions of the General Tax Code (CGI), the Senegalese legislator has strengthened and finalized the fiscal measures on transfer pricing. Reforms in transfer pricing were introduced in 2012 in line with the global fight against tax base erosion and profit shifting (BEPS).
Senegal is a member of the inclusive framework of the Organization for Economic Cooperation and Development (OECD) on BEPS, which currently includes 100 countries. Senegal has ensured through the adoption of minimum standards, that its tax bases will no longer be reduced by means of artificial profit transfers.
In this regard, Senegal has taken advantage of the 2018 tax reform to integrate into its domestic legislation, with certain measures stemming from the BEPS Project. This includes the country-by-country declaration and the introduction through the new Article 17.2 of the CGI; the limitation of the deductibility of the amounts paid by the Senegalese branch to its headquarters that were established abroad.
It should be noted that the concept of a foreign company branch within the meaning of the CGI does not cover the definition adopted by the OHADA legislator. Hence, under the revised Uniform Act relating to the law of commercial companies and economic interest groups (AUSCGIE), branches of a foreign legal person is considered as those belonging to a person outside the territory of the OHADA member states. This concept is to be distinguished from the one retained by the tax regulation which considers as a branch of a foreign legal entity to the one belonging to a person located outside Senegal. Therefore, the limitation of deductibility established will also apply to branches belonging to legal entities located in the OHADA area.
In terms of Article 17.2 the Senegalese legislator has taken up the position of the French Council of State (which, in a judgement dated November 9, 2015) that the transfer pricing rules were applicable to internal financial transactions between a French branch and its foreign headquarter, despite the absence of separate legal personality of the branch. Thus, the tax law recognizes it as its own fiscal personality and the branch does not have a separate legal personality/identioty from that of its head office.
Consequently, the financial flows between a branch and its headquarters are not excluded from the scope of transfer pricing. In this respect, the Senegalese legislator has adopted specific measures to prevent and limit any transfer of profits from the branch to its headquarters.
The main purpose of this article is to present the laws governing the deductibility of expenses incurred by a Senegalese branch in its relations with its foreign head office and analyze the impact of these measures in practice on the different sectors of activity as well as on the tax treaties to which Senegal is party to.
1. The principle of non-deductibility of amounts paid by the Senegalese branch to its foreign headquarters
1.1 Basis and justification of the limitation
From a fiscal point of view, the permanent establishment of a company must be taxed separately even if it has no legal personality. In applying this principle, the tax legislator has extended the requirement of compliance with the arm's length principle to the privileged financial relationships that exist between a branch and its head office.
In this respect, in order to prevent any transfer of profit from the Senegalese branch to its foreign head office, the Senegalese legislator specifies that payments made in the form of interest or royalties by the Senegalese branch from a foreign company will be deducted from taxable profit.
In order to understand this concept of provision, it is necessary to make reference to the ministerial reply made by Mr. Georges Mesmin (deb. AN, JO of January 19, 1981, p.245, n° 31725) and the decision of the administrative court of appeal of Paris in CAA Paris, May 28, 1991 n°2918, Weston Hyde Products Ltd. It was held that since the branch has no separate legal personality or autonomy over its assets, the payments it makes to its head office actually represent part of the profit made by the foreign company in the country where the branch has been established.
1.2 What about head office expenses and the concept of head office ?
Article 17.2 of the CGI rejects the deductibility of the amounts paid in particular for the management activities by the Senegalese branch to its head office. This limitation has raised questions about the deductibility of head office expenses, which have not yet been defined by the tax legislator or the administrative doctrine. In general, the head office expenses refer to general administration and management expenses, so they could be assimilated to management activities.
Therefore, it becomes imperative for the Senegalese taxpayer to know whether the management services mentioned in Article 17.2 refer to headquarters expenses. In such instances, there is a contradiction between Article 9.5 of the CGI, which provides for the possibility of deducting 20% of the accounting profit for head office expenses, and the limitation set out in Article 17.2. The arbitration of the application of these seemingly contradictory provisions would provide clarity of the tax system to the taxpayers. To this end, it is recommended that taxpayers take up the issue by inviting the Senegalese tax authorities to give a formal ruling, in particular through a rescript.
In our opinion, the basis of Article 17.2, which takes up the provisions of Article 7 of the OECD Model Convention, was to exclude from the right to deduct all amounts paid by the Senegalese branch to its foreign headquarters. If this was the aim of the Senegalese legislator, the latter should, in order to be consistent, be modified or repealed the provisions of article 9.5 of the CGI. By default, in view of the current tax system, it can be validly argued that the amounts paid by the Senegalese branch to its foreign head office as head office expenses remain deductible up to 20% of the accounting profit made in Senegal.
In addition, would this limitation still apply if the amount is paid to another establishment linked to the central office? One may be led to believe that the Senegalese legislator wanted to avoid this possibility by specifying that the limitation applies to "the central office of the legal person or to any of its offices". In our perspective, this wording is not sufficient to exclude from the right to deduct sums invoiced by another establishment of the head office. Especially since it raises an even more important question: what reality or content should be attributed to the offices of the head office of the legal person?
Finally, the principle of non-deductibility of amounts due or paid by the branch to the head office is not absolute. It may be overridden in certain situations under certain conditions, in particular because of the nature of the transaction, or the sector of activity of the entities concerned, or also because of the effect of international tax conventions.
Limits to the principle of non-deductibility of amounts paid by the Senegalese branch to its foreign headquarters.
This mitigation is materialized in three cases: (i) in case of reimbursement of expenses incurred by the head office on behalf of its branch, (ii) when it is a banking company (iii) the impact of double tax treaties signed by Senegal.
2.1. The case of expense reimbursements
The Senegalese legislator has excluded all the amounts paid to the foreign head office with the exception of reimbursements of expenses from the deductible expenses. This exclusion is expected because the branch has the responsibility to control these expenses. As such, the branch has the possibility to deduct interest paid at its head office and corresponding to financing contracted from a third party for the needs of the branch.
It should be noted that even if Article 17 of the CGI is not explicit on this point, the reimbursements of expenses in question must comply with the provisions of Article 8.II of the CGI, which sets out the conditions for deductibility. Among other conditions, the reimbursement of expenses must be duly justified and relate to the activity of the branch.
The amounts to be reimbursed must be evaluated practically, as the tax authorities may reject the lump sum and approximate calculations. Therefore, reimbursements are deductible only when they relate to the activity pursued by the branch. The reimbursements of the expenses has further raised some additional questions, particularly with respect to indirect taxation. As a matter of fact, in practice the Senegalese tax authorities claim VAT in cases of rebilling. Reimbursements that are excluded from the scope of VAT are subject to compliance with the following three cumulative conditions:
Thus, the reimbursement by the Senegalese branch of expenses incurred by its foreign headquarters are not subject to transfer pricing rules because they do not reflect a flow of goods or services.
2.2. The banking exception: the case of interest paid to the head office-foreign bank
The legislator of the Senegalese branches of foreign banks has set a principle of non-deduction of amounts paid by a Senegalese branch to its foreign head office. This exception specifically concerns interest paid by the branch to its parent banking institution followed by a loan.
This is in line with the banking legislation which enshrines the principle of single approval. In this respect, the establishment of a duly authorized bank or financial institution in a WAEMU Member State other than the one for which the authorization was granted may be done under the legal status that the applicant bank or financial institution deems appropriate (branch, agency or subsidiary).
In fact, in France, the Conseil d'Etat has confirmed that the deductibility of interest in a banking context in the Bayerische Hypo, Unicredit and Caixa Geral de Depositos cases, which involved the French branches of German, Italian and Portuguese banks respectively. (CE n°344990, 346687 and n°359640 of April 11, 2014).
The derogatory regime applicable to branches of foreign banks is based on the fact that the granting and the collection of advances are operations closely related to their ordinary activity.
In contrast, branches of foreign insurance companies do not benefit from any special regime. As a result, the deduction of financial charges relating to funds made available to them by their head offices is denied to them.
2.3. The impact of tax treaties on the deductibility of amounts paid to the foreign head office
In the case of a tax treaty signed by Senegal, it replaces the provisions of the CGI, including those of article 17.2. Tax treaties may provide for deductibility rules that differ from the provisions of the Senegalese legislation. These rules should be applicable to both the Senegalese branch and the foreign headquarters.
For example, under the terms of the Senegal-France tax treaty, amounts paid by the branch to its headquarters are not excluded from the right to deduct. The said convention even allows for the deduction of a proportion of the head office overheads in proportion to the figure.
On the other hand, the new tax conventions inspired by the OECD model, in the case of the Senegal-UK tax convention and the UEMOA convention, apply the same provisions as article 17.2 of the CGI, which exclude the right to deduct the amounts paid by the Senegalese branch to its foreign headquarters.
However, in practice the Senegalese tax authorities did not apply these provisions. In fact, the WAEMU convention has been in force since 2008 but there has not been a situation where the Administration questioned the deductibility of the amounts paid by the branch to its headquarters.
Even practitioners do not generally raise this specificity when advising their clients on the deductibility of expenses incurred by the Senegalese branch of a foreign legal entity. The traditional analysis in this regard has been limited to the threshold for deductibility of head office expenses under the domestic tax system.
With the introduction of the provisions of Article 17.2 by the new law of March 30, 2018, the tax practice in this matter is bound to evolve, as the tax administration will be more attentive to the relationship between the branch and its headquarters.
The new transfer pricing regime relating to the branch-head office relationship may appear to be a new tax issue. This relative novelty can be explained, among other things, by the fact that the tax authorities do not apply it in practice. The fact remains that there is still a certain antilogy between the provisions of the new article 17.2 and those of article 9.5 of the CGI, which the legislator or the tax authorities must clarify.
In any case, it is now appropriate, to control the determination of the tax result of a Senegalese branch of a foreign legal entity such as bank branches established in Senegal, to ensure the limitation of deductibility introduced both by the General Tax Code and international tax conventions. The innovations made by Law No. 2018 - 10 of March 30, 2018 amending certain provisions of the General Tax Code (CGI), definitely puts Senegal into the space of BEPS.
The fight against the tax base erosion must however be balanced with economic attractiveness. It should be certain that the branch office is a legal form appreciated by foreign investors therefore It allows to penetrate markets durably and efficiently at a relatively lower cost. In light of all the limitations and restrictions built around the branch office, the latter may risks losing all its appeal to foreign investors who will prefer to invest in jurisdictions with certainly more flexible regulations.