Introduction

Following the outbreak of Corona virus disease (COVID-19) and its massive spread across the world there have been unprecedented disruptions in local and international commercial/economic activities. The economic impacts of the Covid-19 pandemic are taking their toll on businesses, households, individuals and government revenues across the world. Consequently, various governments across the world have introduced fiscal and economic stimulatory measures to cushion the impact of the pandemic on its tax payers and the economy.

This focus of this paper is to outline and discuss the “palliative’ measures undertaken by Nigeria to cushion the effect of Covid-19 on taxpayers and to determine whether Nigeria’s response is sufficient to ameliorate the burden of taxpayers.

Proposed measures by the House of Representatives

On 24 March, 2020, the House of Representatives passed the Emergency Economic Stimulus Bill 2020 (The Bill) and it is currently before the Senate which is unable to meet for a hearing in compliance with the lock-down directive of the President. Section 1 provides for the main objectives of the Bill which are:

To provide temporary relief to companies and individuals and alleviate the adverse financial consequences of a slowdown in economic activities as a result of Covid-19
To protect the employment status of Nigerians who might otherwise become unemployed;
Provide a moratorium on mortgage obligations for individuals;
Eliminate additional fiscal bottleneck on the importation of medical equipment, medicines, personal protection equipment, etc.;
Cater to the general wellbeing of Nigerians pending the eradication of the pandemic and a return to economic stability.
Specifically, the Bill purportedly seeks to provide for the following reliefs to be granted to corporate bodies and individuals in Nigeria:

Special Tax Rebate:
Section 3 of the Bill provides that any employer duly registered under the Companies and Allied matters Act (CAMA) LFN 2004 which maintains the same employee status without retrenching any staff from 1 March to 31 December 2020, would be entitled to a 50% income tax rebate of the actual amount due, or paid as pay as you earn (PAYE) tax under Personal Income Tax Act. Under section 4, the Bill further provides that a company will not be excluded from benefiting from this relief if there is a reduction in number of employees due to death arising from natural causes, voluntary disengagement, or disengagement by virtue of a breach of the Labour Act Cap L1 LFN 2004. By the provisions of Section 6 of the Bill, Employers that are partly or wholly under the Petroleum Profit Tax (“PPTA”) Act are not eligible for this relief. Section 5 of the Bill defines “rebate” to mean 100% refund of employers income tax which shall be 50% of PAYE tax due or paid on employees of such employer who maintain the same status of employees from 1st March 2020 to 31st December 2020 or such other period as the president may stipulate. “Employers” shall mean entities registered under Part A and B of CAMA.

From a cursory reading of the Bill, it appears that the Bill is intended to provide “corporate tax rebates” to encourage companies in the country to maintain their payroll status for the immediate term and with the hope of providing relief on corporate tax liability. But, considering the fact that personal income tax is payable by the employee and not the employer, the question that agitates the mind is whether an employer under the Bill can be incentivized through a tax relief for which it is not liable? To put it in clear perspective, the question is whether a company/employer is a taxable person under the Personal Income Tax Act (PITA) LFN 2004.

To begin with, it is settled that a company does not come within the definition of a taxable person under PITA. PITA defines a “taxable person” at Section 108 as: “any individual or body of individuals (including a family, any corporation sole, trustee or executor) having any income which is chargeable with tax under the provisions of this Act.” By the combined effect of Sections 1, 2, 3 and 108 of PITA, the following are the categories of “taxable persons” under PITA: individuals, communities, families, trustees and trusts; save for military personnel in the Nigerian Armed Forces, Police Force and officers of the Nigerian Foreign Service. In 7up Bottling Co. Plc. v. L.S.I.R.B. [2000] 3 NWLR (Pt. 650) 565 particularly at pages 602 to 606, paragraphs B to C the Court of Appeal had to consider the effect of Section 53 on “assessments”, which is now Section 54 of PITA. According to the Court, the “assessment” is a matter between the relevant tax authority and the taxable person and not between the tax authority and an employer – see page 603 at paragraph H. According to the Court, the “taxable person” under PITA and “the PAYE system is the employee, not the employer” – page 605 at paragraph B. See also, Nigerian Breweries Plc v. L.S.I.R.B. [2002] 5 NWLR (Pt. 759) 1; D.S.A. Agricultural Machinery Manufacturing Company Ltd v. Lagos State Internal Revenue Board [2013] 11 TLRN 115, 132 – 133.

Under Personal income tax act (PITA), tax is imposed on the income of individuals and not corporations and under the PAYE scheme the tax liability rests on the employee and not on the employer though for ease of tax administration, the law requires the employer to deduct at source the tax liability of the employee and remit same to the relevant tax authority (RTA). Thus the employer is merely the agent of the tax authority to collect and remit PAYE taxes of its employees. By Section 82 of the PITA, where the employer fails to account for or deduct and remit the tax due, the RTA can recover the amount together with 10% penalty and interest as a debt due by the employer to the RTA. Based on the fact that an employer/company is not a taxable person under the PITA, the courts have held that RTA cannot rely on section 104 of PITA to distrain the assets of an employer in a bid to recover unpaid tax. Rather, it is the assets of the employee in question that should be restrained since the tax liability is on the employee. See the recent decision in NDDC V. RSBIR (2020) 3 NWLR Pt. 1711 CA 371.

It therefore follows that the House of Representatives cannot validly seek to benefit an employer from the taxes paid by an employee and it is doubtful if the bill will become law in its present state without an amendment. It does appear that the green chamber failed to appreciate the operations of the PITA.

Since a company’s income is not chargeable with tax under PITA but under Companies Income Tax Act or Petroleum Profits Tax Act(PPTA), the proper way for the government to provide relief on corporate tax liability during the COVID 19 Pandemic is to bring tax reliefs under the CITA,PPTA and possibly under the Value Added Tax Act(VATA). One would expect that in such critical times, the National assembly will pass laws that will bring tangible reliefs to tax payers such as period of exemption from Companies income tax for companies that has been hard hit by the Covid-19 pandemic or a suspension of VAT payment on essential goods and services.

It has also been observed that the Bill is not explicit on the manner of implementing this incentive either by way of a refund of the PAYE tax paid to the State Inland Revenue Service or a corporate income tax refund by FIRS using PAYE as the basis for the computation. Furthermore, the basis for the exclusion of oil companies under the PPTA is also unclear as there is a threat to the job security of their staff and threat of survival as well, given the continued decline in crude oil price even below the production cost.

Import duty waiver on medicines and medical goods :
Pursuant to Sections 10 and 11 of the Bill there is proposed an import duty waiver on medical equipment, medicines, personal protection equipment and such other medical necessities (as may be determined by the Minister of Health) required for the treatment and management of the Pandemic in Nigeria. Section 12 of the Bill provides that the import duty waiver shall remain in force until 31st December 2020.

All over the world, shortage of test kits, personal protection equipment, medicines and other such has contributed to the loss of lives caused by this pandemic. Many of the goods that will qualify for these exemptions are already VAT exempt. Further removal of import duties prioritizes these goods and will spur import activity. This aspect of the bill is quite commendable.

Deferral of residential mortgage obligations:
Section 8 of the Bill provides for deferral of mortgage obligations on residential mortgages obtained by individual contributors to the National Housing Fund for a period of One Hundred and Eighty(180) days effective from 1st of March, 2020.

Measures by the Federal Inland Revenue Service (FIRS)

The FIRS has issued three (3) Public Notices/press release in response to the Covid- 19 pandemic. Firstly, FIRS made a press release, informing the general public of the launch of its “Business Continuity Plan” (BCP). The BCP is expected to mitigate the impact of the Pandemic on taxpayers, FIRS’ staff, stakeholders, other visitors and the revenue generation aspirations of the FGN. According to the FIRS public notice, FIRS has put in place the following measures to lessen the impact of the Pandemic on businesses and other economic activities of taxpayers:

The due date for filing Companies Income Tax (CIT) returns has been extended by one month.
Taxpayers can file their CIT returns with FIRS without an audited account, provided that the audited accounts are filed within two months after the revised due date of filing.
Timeline for payment of withholding tax and filing of value-added tax returns has been extended from the 21st of every month to the last working day of the month.
To minimise contact with FIRS, taxpayers can either submit their returns on the FIRS e-portal efiling.firs.gov.ng or via designated emails based on the categorisation of such taxpayers by FIRS.
For desk reviews and tax audits, FIRS will publish information requests on its website and create a portal where requested documents can be uploaded by the taxpayer.
The BCP is a commendable effort by the FIRS to comply with global best practices in light of the COVID-19 pandemic. For instance, FIRS’ administrative measures to assist taxpayers to comply with the law during this difficult period. However, it should be noted that the adequacy of the tax measures needs to be reviewed and improved upon considering the negative impact of COVID-19 on production, supply chains, sales, profitability and cash-flow for businesses.

The FIRS should also be specific on extension of the payment deadline, and waiver of penalty and interest on late filing of tax returns and payment of the taxes due, especially as businesses experience liquidity problems.

Going forward, The Press notice did not address the obligation of corporate organisations to file transfer pricing returns 6 months after financial year-end. Even though this may be implied from the extension of the filing deadline for income tax returns, a specific statement on TP returns would be desirable considering the significance of the late filing penalty. Also, the Obligation to file Petroleum Profits Tax (PPT) and other taxes are not expressly covered under the Notice. Considering that it is not all taxes that are specifically covered, it would be ideal that FIRS clarifies its position on these other taxes to avoid any form of uncertainty. Therefore, it is expected that FIRS should consider including these other returns and statutory obligations in the extension of deadlines, given that the recent developments affect all kinds of businesses.

Secondly, on 6th April 2020, The FIRS announced health and safety protocols for physical visits to its offices and the following measures to mitigate the impact of COVID-19 on taxpayers:

Taxpayers can now take advantage of our simple, user friendly and robust efiling process to submit their documents online instead of visiting the tax offices. Our dedicated email addresses for each of the offices are available on our website: firs.gov.ng;
Use of electronic platforms for payment of taxes and processing of tax clearance certificates;
Remittance of VAT on or before 21st day of every month has been extended to last day of the month;
Late Returns Penalty (LRP) has been waived for taxpayers who pay early and file later. Supporting documents can also be emailed to the dedicated email addresses or submitted later to the tax offices by those who are not able to use the email facility;
Taxpayers facing challenges in sourcing for FOREX to offset their liabilities are hereby given the option of paying in Naira at the prevailing Investors & Exporters (I & E) FOREX window rate on the day of payment;
The period to file PIT returns for Foreign Affairs, Non Residents, Military and Police has been extended to the 30th June, 2020;
Field Audit, Investigations and Monitoring visits have been suspended till further notice.
Some state tax authorities have also introduced similar measures for tax payers in the states. The Lagos State Internal Revenue Service (“LIRS”) announced the extension of the deadline for filing personal income tax returns by 2 months from 31st of March to 31st of May 2020. Through a public notice issued by the Federal Capital Territory Inland Revenue Authority (“FCT-IRS”), the deadline for the filing of personal income tax returns has been extended by 3 months from 31st of March to 30th of June 2020.

The public notices by the FIRS commendably extends time for filing tax returns but the government has not given tax payers any substantial tax relief to lessen the impact of the pandemic on businesses.

Also the electronic filing of returns and online payment of taxes is accepted in Nigeria. It is not novel and will surely not qualify as a “palliative” in this difficult period. In Earth Moving International Ltd v. FIRS (unreported judgment delivered on September 17, 2019 in appeal no; TAT/C2/CIT/030/2018) the Tax Appeal tribunal sitting in Lagos held that electronic service of taxpayer’s objection against a notice of assessment issued by the FIRS is valid. Although, electronic filing of tax returns in not a recent development, taxpayers and RTAs should fully embrace use of technology for ease of compliance and efficient tax administration respectively.

Finally, on 22nd April 2020, the FIRS issued a public notice titled “FIRS update on palliative to cushion effect of Covid-19 on tax payers”. From a cursory reading of the Public Notice it will be discovered that there was no “updated palliative” and one can safely conclude that the title is quite misleading. The said notice could serve best as a demand/appeal by the FIRS to a section of taxpayers, whose sectors are experiencing a boom and significant increase of income at this point in time, for a high level of cooperation in payment of their taxes. The sectors mentioned by the FIRS to be experiencing boom due to increased transactions as a result of the lockdown or even despite the pandemic are Telcos, Financial Institutions, eCommerce, Supermarkets, manufacturers/ processors of certain products, etc. This reveals the fact that certain sectors will not be affected by pandemics and should become the top choice for wise investors.

The FIRS acknowledged the difficulty businesses are experiencing at this period yet failed to offer a real and substantial relief to cushion the economic shocks occasioned by the pandemic. The handicap may have been occasioned by the plight of the government in its budget deficit as a result of the global shut down and drastic fall in crude oil price.To butress the point,the federal government has cut down the 2020 budget by over 320 billion naira and proposed a new budget of 10.27 trillion against the 10.59 trillion naira passed by the National assembly based on the global economic realities as a result of the corona virus pandemic as well as recent crisis in the oil market.

Tax Measures by Some Selected Countries

IMF reported that Norway reduced the VAT rate from 12% to 8%, deferred payment of various tax payments, suspended aviation charges, changed the company income tax regulations so that loss making companies can re-allocate their losses towards previous years taxed profits and reduced Employers social insurance Contributions.

In USA, the Corona Virus Aid Relief and Economy Security Act (CARES Act) makes provision for 250 billion dollars as one time tax rebate to individuals.

In Canada there is a provision for one time special payment through goods and services tax credit for low and modest income families as well as deferral of various taxes until after 31st August, 2020 and there will be no interest or penalties during the period.

Conclusion

Nigeria has introduced certain tax measures to cushion the economic impact of the Covid-19 pandemic but these measures are insufficient and in some cases impracticable. It is expected that Nigeria should borrow a leaf from other countries such as tax rebates, deferral of all taxes for longer periods, reduction of tax rates and suspension of VAT/CIT payments etc. However, it is not only individuals and businesses that are experiencing the hardships brought by the recent developments, the government has a major budget deficit to deal with and the economy is headed for worse recessions. This is a wakeup call for the government to purge itself of every form of corruption and mediocrity towards diversifying the economy. Players in the private sector should consider areas that are experiencing boom even during this crisis period and channel their investments into those areas such as e-commerce, telecommunication, Agriculture/food supply etc.

Ebube Godwin Onyejekwulum is an Associate at Synergy Attornies, Lagos and can be contacted via email: [email protected].