Companies Operating in Nigeria May be Liable to 0.25% Turnover Tax Under the NASENI Act.
On 24 January 2021, President Muhammadu Buhari ordered the Federal Inland Revenue Service (FIRS) to collect the statutory levy applicable under the National Agency for Science and Engineering Infrastructure (NASENI) Act.
The Federal Government of Nigeria established the Agency (NASENI) in 1992 with the primary mandate to create an enabling, knowledge-driven environment for local mass-production of standard parts, goods and services required for the nation’s science and technology advancement. The enabling legislation for the Agency is the NASENI Act (“the Act”).
One way in which the Agency is to be funded, is through the collection of a levy (or tax) at a quarter percent (i.e. 0.25%) of the turnover of commercial companies operating in Nigeria.
Applicability of the NASENI Levy
Based on the law, the “NASENI levy” applies to companies with a turnover of N4m and above. However, the turnover threshold was subsequently increased to N100m and above. Furthermore, the Act provides that all contributions made to the fund shall be deductible against Companies Income Tax (CIT).
Some Concerns for Consideration
Although the law has been effective since 1992, there has been little awareness of its existence. Taxpayers are unaware of any obligation to pay the NASENI levy and there has been neither demand nor enforcement by either NASENI or the FIRS on commercial companies in Nigeria regarding the NASENI Levy.
However, with the recent directive by the Presidency for the law to be implemented, certain questions arise.
- Although the Act states that the FIRS would be responsible for collecting the NASENI levy, it does not contain provisions on collection and administration of the levy. Further regulation may therefore be required if the FIRS is to be responsible for the administration of the NASENI levy.
- Would the FIRS enforce compliance and from which year of assessment? What are the procedures for assessment and objection in the likely event of a dispute with taxpayers?
- What will be the due date of payment given that the Act does not prescribe a due date for payment of the NASENI levy?
- The Act does not also prescribe any penalty in the event of a default. Would Section 32 of the FIRS Establishment Act (FIRSEA), which stipulates a general penalty, be applicable given that the NASENI Act is not specifically stated in the FIRSEA?
- Does the Tax Appeal Tribunal have the power to rule over cases concerning the NASENI levy?
- How does this tax interplay with the National Information Technology Development Agency (NITDA) levy? Both are imposed on the same base and threshold (N100m turnover). Also, the Agencies overseeing both levies have historically been under the Ministry of Science and Technology, although there are signals that NASENI may now be under the direct supervision of the Presidency.
Commentaries
- Although the NASENI Act has been around for a long time, imposing a levy on companies and the timing of its implementation is likely to pose a huge challenge for taxpayers, especially due to effects of the pandemic on businesses and the economy.
- It goes without saying that this would adversely affect ease of doing business in the country.
- Imposition of this and other taxes not based on the profit of a business could lead to payment of tax out of capital, especially for companies making losses.
- Also, introducing the levy at the same time as a reduced minimum tax rate of 0.25% will defeat the purpose of the relief aimed at supporting vulnerable businesses. In effect, this will constitute a new tax contrary to the commitment by the federal government not to introduce new taxes at this time.
- On the other hand, the NGN100 million threshold implies that micro, small and medium sized companies are not required to comply with the NASENI Act. Also, the financial burden will be reduced by deduction against CIT for companies that are not subject to the minimum tax.
- Finally, affected companies are advised to be on the lookout for further clarifications from the FIRS. It may also be necessary to consider the impact of this levy on their financial position and compliance obligations.
