Nigeria

FIRS issues Circular to guide implementation of the Withholding Tax (WHT) Regulations 2024​

On February 24, 2025, the FIRS issued a Circular detailing some guidelines for the implementation of the WHT Regulations, 2024 which became effective on transactions from January 1, 2025. 

1. Scope and Applicability: It applies to a wide range of entities, including companies, partnerships, statutory and non-statutory bodies, unincorporated persons and non-resident persons involved in transactions requiring tax deduction at source.
2. Exemptions for Small Companies: Small companies are exempt from deducting tax at source if the transaction value is ₦2,000,000 or less and the supplier has a valid TIN. The Circular provides illustrations to guide small companies on when to deduct tax.
3. Fake Receipts: The Circular reiterates the penalties for failure to deduct or remit WHT, including sanctions under the law for the submission of fake or counterfeit receipts.
4. Exemptions: The FIRS clarifies it's position on the exemptions of interest or fees paid to a bank by direct debit and commission withheld by brokers in accordance with industry norms.

FIRS releases Guidelines on Advance Pricing Agreements (APA)

The Federal Ministry of Finance (MoF) has issued the Deduction at Source (Withholding) Regulations 2024 (the ’Regulations‘ or ’WHT Regulations‘), effective 1 January 2025, there is a provision for early application from July 1, 2024, in certain circumstances. These Regulations have introduced a number of changes to the withholding tax (WHT) regime in Nigeria. This is a positive development for eligible taxpayers who may be interested in getting certainty on the Transfer Pricing treatment of their intercompany transactions in advance of undertaking the transactions. This APA can help to avoid costly and time-consuming disputes with the FIRS. 

Deduction at Source (Withholding) Regulations 2024

The Federal Ministry of Finance (MoF) has issued the Deduction at Source (Withholding) Regulations 2024 (the ’Regulations‘ or ’WHT Regulations‘), effective 1 January 2025, there is a provision for early application from July 1, 2024, in certain circumstances. These Regulations have introduced a number of changes to the withholding tax (WHT) regime in Nigeria. 

Windfall tax on Nigerian banks

The Nigerian government is proposing a 70% tax (‘windfall tax‘) on realised profits made by Nigerian banks from exchange transactions in the 2023 - 2025 financial years (FYs). This proposal has sparked some debate considering the many practical concerns that it raises. One of such issues is that it retrospectively applies the tax on profits from FY 2023, which the banks already filed and paid by June 2024.

Federal High Court (FHC) nullifies the requirement to pay security deposits before appeal at the Tax Appeal Tribunal (TAT) and the courts

The (FHC of Nigeria recently struck down provisions that required taxpayers to pay security deposits before filing appeals at the TAT and the courts. These provisions, found in various rules and Practice Directions, were deemed to infringe upon taxpayers' constitutional right to fair hearing and were consequently declared null and void.

The FHC's decision highlighted the importance of the right to appeal as a constitutional right and criticised the deposit requirements for imposing an undue burden on taxpayers. The offending provisions were struck down, allowing taxpayers to file appeals without payment of any deposit.

While the ruling is lauded for upholding taxpayers' rights, questions remain regarding the interpretation of relevant laws and the standardisation of deposit requirements that still exist in the FIRS Establishment Act. The constitutionality of rules of court and practice directions also remains contentious, indicating potential further legal challenges.

Overall, the ruling provides clarity on taxpayers' rights in Nigeria's tax dispute resolution process and underscores the need for transparent and fair procedures in tax administration.

Federal Government waives value-added tax (VAT) and customs duties on gas and gas equipment

In December 2023, the MoF released a Circular on fiscal incentives for the gas sector that waives VAT and customs duties on gas and gas equipment. This Circular is in line with the Presidential Gas for Growth Initiative, which aims to improve the investment climate in Nigeria and to increase the utilisation and supply of gas in the domestic market. The Circular contains incentives and directives to the Nigerian Customs Service (NCS) and the Federal Inland Revenue Service (FIRS).

The FIRS postpones commencement of the automated collection of VAT on imported goods purchased through digital platforms

The FIRS has postponed its intended commencement of the automated collection of VAT on imported goods purchased through digital platforms.

The 2020 Finance Act amended the VAT Act to require non-residents that make taxable supplies of goods and services to Nigerian customers to register and account for VAT on supplies to Nigeria. Following this amendment, the FIRS issued Guidelines on Simplified Compliance Regime for VAT for Non-Resident Suppliers on 11 October 2021, with an effective date of1 January 2022with respect to supply of services and intangibles and 1 January 2024 for goods.  

The FIRS had initially planned to roll out the regime with respect to supply of goods by non-resident suppliers by 1 January 2024; however, the FIRS has decided to postpone it to afford more time to develop a seamless process and collaborate more effectively with key stakeholders (e.g. the NCS). Pending any next steps, the FIRS has stated that the existing guidelines for services and intangibles provided by non-resident suppliers continue to remain in effect. 

The FIRS and Lagos State Internal Revenue Service (LIRS) agree to establish joint audit and investigation framework

The FIRS and LIRS signed a Memorandum of Understanding (MoU) to establish a Joint FIRS and LIRS Audit and Investigation Team (JAIT or ’the Team‘) on 6 February 2023. The JAIT implementation committee organised a sensitisation meeting on 10 August 2023 to educate stakeholders on the guidelines for successful implementation of the collaborative framework. The objective of the MoU is to harmonise the tax procedures between the FIRS and LIRS, foster collaboration, promote exchange of information, and reduce time and cost for relevant stakeholders. There are perceived concerns about the likelihood of success of the JAIT initiative, considering the short-lived nature of a similar policy introduced in 2017 that aimed to harmonise audits among the FIRS and all the State Internal Revenue Services (SIRSs). However, carrying out a pilot with only the FIRS and LIRS under the JAIT is more practical. 

The FIRS issues assessments to international petroleum tankers and transport vessels

In a recent turn of events, the FIRS has begun to issue assessments to companies operating ocean-going petroleum tankers, based on intelligence obtained from regulators. The letters have been addressed to International Petroleum Vessel Companies (IPVCs) deemed to have ’conducted business‘ in Nigeria. In the assessment letters, the FIRS either apply a 6% tax plus a 10% penalty and 19% interest on perceived freight income earned by the IPVCs from periods as early as 2011 or assume a treaty rate, which is lower in most cases. In some of those assessments, the FIRS includes a tax on demurrage and detention charges earned on vessels chattered. There are no public details of how the income earned by the IPVCs was determined.

The FIRS stated that if the IPVCs assessed fail to submit their tax returns or make payments, it will be considered as tax evasion. The FIRS also mentioned that they are prepared to activate international cooperation mechanisms with foreign jurisdictions to enforce the tax payments.

International shipping companies need to evaluate whether they are required to register and pay taxes in Nigeria and determine the extent of their revenue subject to Nigerian tax. This is now more critical, considering new tax law amendments that require international shipping companies with Nigerian operations to submit their Tax Clearance Certificates (TCCs) upon request by the regulators.

Highlights of Nigeria’s 2023 Fiscal Policy Measures

The Federal Government has approved the Fiscal Policy Measures 2023 (FPM 2023). The FPM 2023, which is dated 20 April 2023 with an effective date of 1 May 2023, replaces the Fiscal Policy Measures 2022 (FPM 2022) and comprises:

• Supplementary Protection Measures (SPMs) for the implementation of the Economic Community of West African States (ECOWAS) Common External Tariff (CET) 2022 to 2026
• an import prohibition list, applicable only to certain goods originating from non-ECOWAS member states
• changes in excise duty rates on certain items, such as tobacco and alcoholic beverages
• introduction of green taxes on single- use plastics and certain categories of vehicles, and
• reduced import duty rates on certain manufacturing items available to verifiable manufacturers.

There are some concerns around the matters included in FPM 2023. The Federal Government needs to consider suspending the FPM 2023 and engage stakeholders to address the various concerns raised, clarify potential ambiguities, and prepare detailed regulations to accompany the FPM before implementation.

The FIRS has introduced new changes to TaxPro Max VAT filing procedure

The FIRS has announced new updates to the VAT filing procedures on the TaxPro Max system. The aim is to increase the efficiency of the input VAT claim, sales adjustment entries, and output VAT filing procedures. The changes take effect from the April 2023 filing period.

The FIRS is seeking to seamlessly match output VAT collection to the input VAT claimed by businesses and promote transparency in VAT compliance. To educate the public on the process and the increased data requirements to file a complete VAT return, the FIRS released illustrative videos on YouTube, documented guides, and also held a sensitisation event on 18 April 2023 targeted at various stakeholders.

The FIRS mentioned that the changes are in their pilot phase, but there is absolute commitment from management towards full implementation and adoption by taxpayers.