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OECD, Nigeria meet on maximising benefits of two-pillar tax solution

Published

1 year ago

April 14, 2023

NewsDirect

Nigeria has continued to participate in rules development in the interest of the country and Africa.

A delegation from the Organisation for Economic Co-operation and Development (OECD) met with Nigerian representatives on 4th and 5th April 2023, at a workshop it jointly organised with the Federal Inland Revenue Service (FIRS), to discuss the maximisation of the benefits of the Two-Pillar Solution for Nigeria.

This is contained in the Workshop’s Outcome Statement released today. The Outcome Statement was signed by the Executive Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami and the OECD Representative, Mr. Ben Dickinson.

The Two-Pillar Solution, a proposal by the OECD Inclusive Framework, is a set of proposed rules, endorsed by 138 countries across the world as a uniform solution to the tax challenges of the digitalised economy, as well as Base Erosion and Profit Shifting.

Nigeria, one of the four members of the Inclusive Framework that did not endorse the set of rules, met with the OECD delegation last week to familiarise relevant government officials with the rules, Nigeria’s position, as well as the potential benefits of the Two-Pillar Solution to the country and the world in general.

The workshop was attended by key stakeholders, led by the Executive Chairman of the FIRS, Mr Muhammad Nami, who was represented by the Coordinating Director, Executive Chairman’s Group, Mr. Muhammad Lawal Abubakar.

Also in attendance were the representatives of the Office of the Vice President, the Federal Ministry of Finance, Budget and National Planning, the Federal Ministry of Justice, Federal Ministry of Industry, Trade and Investment, Nigerian Investment Promotion Commission (NIPC), Nigeria Export Processing Zone Authority (NEPZA), Oil and Gas Free Zone Authority (OGFZA), Nigeria Export Promotion Council (NEPC), Joint Tax Board (JTB), and some States’ tax authorities.

After a critical review of the rules and Nigeria’s participation in their development, stakeholders at the meeting resolved that “there is the need for Nigeria’s continued participation in the rule development, as a member of the Inclusive Framework, to ensure that the interest of the country and Africa is factored into the design and development of the rules.”

The Outcome Statement noted that whether or not Nigeria endorsed the statement of October 2021, and the detailed rules to be released later, to address challenges arising from the digitalisation of the economy, the country’s tax base and fiscal policy options will be impacted by the implementation of the Two-Pillar solution, especially the Pillar 2 Global Minimum Tax Rules of 15 per cent effective tax rate (the GloBE rules).

The meeting consequently observed that there was the need for Nigeria to immediately implement fiscal policy measures to address these potential impacts.

“In light of this, there is a need to commence immediate implementation of fiscal policy measures around the Global Minimum Tax Rules, in view of the fact that other jurisdictions around the world have commenced implementation of measures that will enable them reap top-up taxes allowed under the rules, which will be to the detriment of Nigeria from 2024, if no step is taken.

“There is also an urgent need to review and streamline Nigeria’s tax incentives, as the rules will have the impact of allowing other jurisdictions to mop up taxes not collected in Nigeria due to tax incentives,”the statement read.

The Stakeholders also observed that Nigeria could implement and reap the benefits of Pillar 2, even where it does not wish to implement Pillar 1, noting that “Effective implementation of Pillar 2 rules holds significant potential for increased tax revenue to fund government programme, boost the economy and keep Nigeria as an attractive investment location.”

As part of its recommendations, the OECD-Nigeria Meeting urged stakeholders within the country to commence internal engagements and “draw up a national strategy for immediate streamlining of its tax incentives, to avoid ceding its tax base to other jurisdictions, owing to the implementation of Pillar 2 rules.”

The Workshop Statement enjoined Nigeria to take immediate steps to respond to Pillar 2 through implementation of tax policy options, which may include “changing its income tax rule to bring up its effective tax rate to a minimum of 15 per cent or introducing a Qualified Domestic Minimum Top-up Tax (QDMTT).”

The meeting emphasised on the need for Nigeria to continue to participate in the rule development “as a matter of importance to protect national interest.”

Nigeria is a member of the Inclusive Framework, and has actively participated in the rule development process despite not endorsing the Inclusive Framework October 2021 Statement on the grounds that it was in Nigeria’s best interest not to do so, to ensure that the country does not lose out on potential revenue from the digital economy.

The Executive Chairman of the FIRS had in a statement in May 2022 noted that the country had concerns over the impact the rules could have on Nigeria’s tax system and revenue generation.

“There are serious concerns on how the rules (particularly on Pillar 1) would compound the issues in our tax system. For instance, to be able to tax any digital sale or any multinational enterprise (MNEs), that company or enterprise must have an annual global turnover of €20 billion and a global profitability of 10 per cent. That is a concern. This is because most MNEs that operate in our country do not meet such criteria and we would not be able to tax them,” Mr Nami stated then.

“Secondly, the €20 billion global annual turnover in question is not just for one accounting year, but it is that the enterprise must make €20 billion revenue and 10 per cent profitability in average for four consecutive years, otherwise that enterprise will never pay tax in our country, but in the country where the enterprise comes from, or its country of residence,” the statement read.

Thirdly he noted that for Nigeria to subject a Multinational Enterprise to tax under the rule, the entity must have generated at least €1 million turnover from Nigeria within a year.

Mr. Muhammad Nami stated that this is an unfair position especially to domestic companies which, with a minimum of above N25 million (that is about €57,000) turnover, are subject to companies income tax in Nigeria. He added that this rule will take-off so many Multinational Enterprises from the scope of those that are currently paying taxes to Nigeria. In other words, even the MNEs that are currently paying taxes in Nigeria would cease to pay taxes to us because of this rule.

Fourthly, on the issue of dispute resolutions under the Two-Pillar Solution, the FIRS Executive Chairman explained that the rules were such that in the event of a dispute between Nigeria and a Multinational Enterprise, Nigeria would be subject to an international arbitration panel as against Nigeria’s own justice system.

“It would be subject to international arbitration and not Nigeria’s judicial system and laws—even where the income is directly related to a Nigerian member of an MNE group, which is ordinarily subject to tax in Nigeria on its worldwide income and subject to the laws of Nigeria. We are concerned about getting a fair deal from such process. More so, such a dispute resolution process with a Multinational Enterprise, in an international arbitration panel outside the country, would lead to heavy expenses on legal services, traveling and other incidental costs.

“Nigeria would spend more; even beyond the tax yield from such cases,” the statement had read.

Related Topics:Muhammad Nami OECD tax solution

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Oyetola in Lagos, defies downpour, embarks on inspection tour

Published

1 day ago

May 17, 2024

NewsDirect

By Seun Ibiyemi

The rain in Lagos began very early on Thursday morning. But the torrential rainfall did not stop Minister of Marine and Blue Economy, Adegboyega Oyetola, CON, from embarking on the tour of two key institutions that were recently brought under his ministry — the Nigerian Institute for Oceanography and Marine Research (NIOMR) and the Liaison office of the Department of Fishery and Aquaculture, which houses College of Fishery, Lagos.

His first port of call was NIOMR, where the Chief Executive of the institute, Prof. Abiodun Sule, took the Minister through some of its strategic breakthroughs, including unveiling some of the different species of fish in our waters.

The Minister charged the Institute to take up the challenge of mapping out the country’s various marine resources, saying the country needs to know what it has and in what quantity.

He charged the staff to redouble their efforts and ensure they find a solution to the rising cost of fish feeds in Nigeria. The Minister reiterated his desire to increase local production of fish, while reducing dependence on importation.

From the Institute, Oyetola and his entourage, which included the Permanent Secretary, Oloruntola Olufemi; Director, Maritime Safety and Security, Babatunde Bombata, and the Executive Director, Engineering and Technical Services, Engr. Ibrahim Umar, who represented the the MD of NPA, headed for the Department of Fishery and Aquaculture, where the delegation inspected the Laboratory and charged the staff not to lower the standard of monitoring and inspection so as to ensure the country’s exporters are not blacklisted by the International community and also ensuring that those being imported meet required standard.

He assured the staff of both institutions of his commitment to their welfare, while urging them to also increase their capacity and productivity, as he wants to see the fishing contribute to job creation and increase in revenue of the FG.

The elated members of staff promised the Minister not to let him down and pledged their commitment to the vision and mission of the Minister with respect to the maritime sector.

Business

CPPE urges CBN to halt interest rate tightening, as businesses are yet to recover from previous hikes

Published

1 day ago

May 17, 2024

NewsDirect

The Centre for the Promotion of Public Enterprise (CPPE) has called on the Central Bank of Nigeria (CBN) to slow down on monetary policy tightening ahead of its Monetary Policy Committee (MPC) meeting this month, stating that businesses are yet to recover from the hawkish monetary policy stance in the last two months.

The Centre stated this in its reaction to the latest inflation figures published by the NBS where headline inflation rose to 33.69 percent in the month of April from 33.20 percent in March.

According to the statement signed by the Director-General of the CPPE, Dr Muda Yusuf, monetary policy tools should be paused for the fiscal side of the economy to work towards addressing the supply issues affecting the inflation dynamics in the country.

He stated, “Meanwhile we urge the monetary policy Committee to soften its monetary tightening stance for the time being. Businesses are yet to recover from the shocks of the recent bullish rate hikes. The monetary instruments should be put on pause while fiscal policy tools address supply-side factors in the inflation dynamics.”

Furthermore, the Centre appreciated the slowdown in inflation for the month, especially headline and food inflation, but noted that the main drivers of price hikes (food, transport, insecurity in farming communities and other structural problems) are yet to cool down.

He explained that the drivers of inflation are supply-based and being addressed by the fiscal authorities. Also, Dr. Yusuf doubled down on his call to the Nigerian Customs Service (NCS) to set a quarterly exchange rate between N800 and N1000 for import duties assessment, noting that the continuous fluctuation has a pass-through effect on inflation.

In his words, “Meanwhile the exchange rate benchmark for the computation of import duty continues to be a major concern to businesses as it has become a major inflation driver. We again urge the CBN to peg the rate at between N800 -N1000/dollar to be reviewed quarterly. This is necessary to reduce the pass-through effect of heightening trade costs on inflation.”

Meanwhile, the CPPE also lauded the commencement of refining by the Dangote refinery, stating that it would help slow down inflation in the short term.

Recall that Nigeria’s inflation rate rose to 33.69 percent in April on the back of an increase in food and transport prices. The rate is one of the highest in about 28 years.

The CBN, in an effort to rein in inflation, has increased

Business

April 2024: FG, States, LGs share N1,208.081trn

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1 day ago

May 17, 2024

NewsDirect

The Federation Account Allocation Committee (FAAC), at its May 2024 meeting chaired by the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, shared a total sum of N1,208.081 Trillion to the three tiers of government as Federation Allocation for the month of April, 2024 from a gross total of N2,192.007 Trillion.

From the stated amount inclusive of Gross Statutory Revenue, Value Added Tax (VAT), Electronic Money Transfer Levy (EMTL), and Exchange Difference (ED), the Federal Government received N390.412 Billion, the States received N403.403 Billion, the Local Government Councils got N293.816 Billion, while the Oil Producing States received N120.450 Billion as Derivation, (13 percent of Mineral Revenue).

The sum of N80.517 Billion was given for the cost of collection, while N903.479 Billion was allocated for Transfers Intervention and Refunds.

The Communique issued by the Federation Account Allocation Committee (FAAC) at the end of the meeting indicated that the Gross Revenue available from the Value Added Tax (VAT) for the month of April 2024, was N500.920 Billion as against N549.698 Billion distributed in the preceding month, resulting in a decrease of N48.778 Billion.

From that amount, the sum of N20.037 Billion was allocated for the cost of collection and the sum of N14.426 Billion given for Transfers, Intervention and Refunds. The remaining sum of N466.457 Billion was distributed to the three tiers of government, of which the Federal Government got N69.969 Billion, the States received N233.229 Billion, Local Government Councils got N163.260 Billion.

Accordingly, the Gross Statutory Revenue of N1,233.498 Trillion received for the month was higher than the sum of N1,017.216 Trillion received in the previous month of March 2024 by N216.282 Billion. From the stated amount, the sum of N59.729 Billion was allocated for the cost of collection and a total sum of N889.053 Billion for Transfers, Intervention and Refunds.

The remaining balance of N284.716 Billion was distributed as follows to the three tiers of government: Federal Government got the sum of N112.148 Billion, States received N56.883 Billion, the sum of N43.855 Billion was allocated to LGCs and N71.830 Billion was given to Derivation Revenue (13 percent Mineral producing States).

Also, the sum of N18.775 Billion from Electronic Money Transfer Levy (EMTL) was distributed to the three (3) tiers of government as follows: the Federal Government received N2.704 Billion, States got N9.012 Billion, Local Government Councils received N6.308 Billion, while N0.751 Billion was allocated for Cost of Collection.

The Communique also disclosed the sum of N438.884 Billion from Exchange Difference, which was shared as follows: Federal Government received N205.591 Billion, States got N104.279 Billion, the sum of N80.394 Billion was allocated to Local Government Councils, while N48.620 Billion was given for Derivation (13 percent of Mineral Revenue).

Oil and Gas Royalties, Companies Income Tax (CIT), Excise Duty, Petroleum Profit Tax (PPT), Customs External Tariff levies (CET) and Electronic Money Transfer Levy (EMTL) increased significantly, while Import Duty and Value Added Tax (VAT) recorded considerably decreases.

According to the Communique, the total revenue distributable for the current month of April 2024, was drawn from Statutory Revenue of N284.716 Billion, Value Added Tax (VAT) of N466.457 Billion, N18.024 Billion from Electronic Money Transfer Levy (EMTL), and N438.884 Billion from Exchange Difference, bringing the total distributable amount for the month to N1,208.081 Trillion.

The balance in the Excess Crude Account (ECA) as at May 2024 stands at $473,754.57.