What you should know and do about it

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Tuesday, March 23, 2021 / 11:35 a.m. / By Deloitte / Header image credit: NITDA

Background

The NITD Levy (“the Levy”) is an income tax payable by certain categories of businesses that have annual turnover of at least NGN 100 million; it is calculated as 1% of the Profit Before Tax (PBT) of the subject companies. The National Information Technology Development Agency (NITDA) act imposes the tax and requires the Federal Inland Revenue Service (FIRS) to administer it.

The NITDA law became law in 2007, and the NITD tax has been in effect since then.

Who pays the NITD tax?

The NITD levy is due by the following categories of companies:

1.
GSM service providers and all telecommunications companies;

2.
Cyber ​​companies and Internet service providers;

3.
Pension managers and pension related companies;

4.
Banks and other financial institutions;

5.
Insurance companies.

Is NITD tax payable by foreign companies that derive income from Nigeria?

The NITDA law does not exclude foreign companies, directly or indirectly, from the NITD tax. Therefore, foreign companies should comply with the obligation to pay NITD tax. NITDA and / or FIRS may need to provide advice on this matter, in particular on determining the PBT of Nigerian profits of responsible foreign companies.

What if I don’t know if my business is exposed to NITD?

When the responsibility of your business is not immediately clear, you may need to refer to the relevant legislation that regulates the categories of businesses that are subject to the NITDA tax. Relevant legislation includes the Banks and Other Financial Institutions Act, the Insurance Act, the Pension Reform Act, and the Nigerian Communications Act. If your business is subject to this legislation and / or your business is regulated by regulatory authorities under this legislation, it is likely that your business is subject to NITD tax.

You may also consider contacting NITDA and / or FIRS for clarification of your NITD status.

It will be great for the NITDA to issue regulations that provide a detailed list of businesses that are subject to the NITD tax, in order to provide the desired clarity to the business community.

How to pay the NITD tax?

Article 16 of the NITDA law requires the FIRS to assess whether companies are subject to the NITD levy when it also subjects them to the corporate income tax (CIT) and / or the petroleum profits tax (PPT). Since the FIRS typically relies on taxpayers to submit their CIT or PPT self-assessment returns, it is expected that the FIRS will increase the NITD assessment on responsible companies as early as the taxpayers submit their CIT / PPT returns. PPT or on the due date of these statements. .

The NITD levy is payable within 60 days of receipt of the FIRS assessment notice.

You must therefore wait for the evaluation of the FIRS before paying. If you don’t get the FIRS assessment, you might as well keep your money.

Do I have to submit an NITD direct debit declaration?

You do not have to do this, as the NITDA Law does not impose such an obligation on you.

Under the tax administration [Self-Assessment] Regulation (TASAR), FIRS requires the submission of self-assessment NITD direct debit reports, as long as such an obligation exists under the NITDA Act. There is no obligation to submit self-assessment NITD direct debit reports under the NITDA Act, which makes the self-assessment requirement under TASAR redundant.

In a FIRS publication titled “Understanding the NITD Levy” (“the Post”), the FIRS has stated that it expects a taxpayer to submit self-assessment NITD Levy Reports within 6 months. following the end of its financial year, at the same time as its CIT declarations and also pays the direct debit on the date of submission. This appears to be a recommendation and not an obligation, as current laws do not make NITD self-assessment a requirement.

What happens if I don’t pay or submit returns on time?

If you do not pay your NITD debit within 60 days of the issuance of a contribution by the FIRS, then you are liable to a penalty of 2% of the unpaid debit. The penalty becomes payable when the FIRS issues a notice to you. If after 2 months the penalty is not paid, an offense has been committed and is liable to a fine of at least NGN 1 million if convicted. The managing director (CEO) of the company can also be prosecuted and sanctioned.

You are not required to submit NITD direct debit reports, so there are no penalties.

In the post, FIRS said the payment due date for an NITD direct debit request note was 30 days instead of 60 days. In addition, in the publication, the FIRS said the late payment penalty was 10% of the levy and unpaid interest at the Central Bank of Nigeria’s monetary policy rate (MPR), plus a spread to be determined by the Minister of Finances. When the NITD charge is in foreign currency, the FIRS indicates that the reference rate is the higher of the MPR or the London interbank rate. The FIRS positions on penalties and interest on unpaid NITD debits are totally at odds with the provisions of existing laws; If the FIRS applies a penalty on the NITD levy on the basis of the publication, it will act beyond the scope of the powers that existing laws give it.

What should I do when I receive an NITD direct debit request note that contradicts the NITDA?

Please object to the claim note within the scope of the dispute and refer to the correct assessment basis in the NITDA. You must pay your uncontested liability in case of opposition. If you have wrongly paid more than the correct penalty, it is possible to request a refund from FIRS.

How do I account for the NITD debit in my financial statements?

The NITD levy is a tax on profit, based on the guidelines of International Accounting Standard (IAS) 12, and should therefore be recognized as a tax expense below the PBT line, in the financial statements for the year. where it is incurred.

When an entity incurs a penalty for late payment of the NITD tax, this penalty is not considered an income tax and therefore should be recorded as an expense above the PBT line.

How does the NITD levy impact other income taxes?

Section 12 (2a) of the NITDA Act specifies that the paid NITD levy is tax deductible. Therefore, in calculating a company’s taxable profits, the NITD levy should be treated as a deductible expense, even if it is recognized below the PBT threshold. NITD direct debit only paid is deductible; therefore, the NITD levy paid for one year is normally deductible from the profit for the following year. However, a business can also claim a deduction from the profit in the same year, where it would potentially make the payment before filing its annual tax returns.

Drawing

The table below shows how to account for the NITD levy in a given year and how it qualifies for a tax deduction the following year. Please focus on the green and blue highlights. The assumption, in this case, is that year 1 is the first year of activity, which is why there is no NITD levy deduction in that year as none would have been paid the last year.


What else should I do?

Review your tax compliance and reporting process and make sure that it adequately helps you comply with NITD levy requirements and helps you report it correctly in your financial statements. You need to create relevant controls around these. If your business does not have a robust tax compliance and reporting process with adequate internal controls, your business is exposed to the risk of non-compliance and material misstatement regarding taxes in your financial statements.

What if I have questions?

If you have any specific questions that I haven’t covered, especially if they relate to a live case you are dealing with, please email t0 [email protected] Where [email protected].

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Proshare Nigeria Pvt.  Ltd.

Proshare Nigeria Pvt.  Ltd.

Proshare Nigeria Pvt.  Ltd.

Proshare Nigeria Pvt.  Ltd.


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