National Assembly’s Tax Reform: A Blow to Foreign Shipping and Aviation Companies

The Nigerian National Assembly has put forward substantial amendments to the Companies Income Tax Act (CITA) aimed at strengthening tax enforcement on foreign shipping and aviation companies operating within Nigeria. These amendments form part of a larger tax reform bill designed to improve revenue generation, simplify tax compliance, and establish a more equitable tax regime for both individuals and businesses.The proposed tax reform bill stipulates that foreign companies involved in sea or air transport will be taxed on profits derived from carriage services initiated in Nigeria, irrespective of the company’s domicile. This implies that even if a company is not registered in Nigeria, it remains liable for taxes on all cargo and passengers originating from the nation. Additionally, the bill introduces an anti-tax avoidance mechanism, enabling Nigerian tax authorities to utilize foreign ratios to ascertain profits where reciprocal laws are applicable. This measure ensures that companies cannot evade taxes through profit manipulation. Samuel Agbeluyi, the immediate past president of the Chartered Institute of Taxation of Nigeria (CITN), remarked, “The anti-tax avoidance mechanism is an essential element of the tax reform bill, as it will assist in preventing companies from evading taxes and promoting fairness in the tax system.”

Minimum Tax threshold

A minimum tax threshold of 2% of gross revenue derived from Nigerian operations has been instituted to ensure that corporations contribute to the nation’s revenue. The minimum tax threshold is anticipated to foster equity within the tax system and guarantee that companies fulfill their tax obligations fairly.The legislation further imposes restrictions on capital allowance claims to combat tax avoidance strategies, particularly among foreign enterprises and digital asset firms. As stipulated in the bill, capital allowances will only be permitted for assets imported into Nigeria if accompanied by a certificate from the relevant authority or appropriate documentation verifying the asset’s existence and importation.

Implications of the Tax Reform Bill

The tax reform bill is projected to significantly influence Nigeria’s economy. It is expected to enhance revenue generation for the government, which can be allocated to essential public services such as healthcare, education, and infrastructure. Additionally, the bill is set to stimulate economic growth by fostering a more conducive business environment and attracting investments. The Nigerian government estimates that the tax reform bill will boost revenue generation by 20% in the first year following its implementation.The tax reform legislation seeks to simplify tax compliance by streamlining tax regulations and alleviating administrative burdens. Individuals with an annual income of ₦800,000 or less are exempt from personal income tax, offering financial relief to those with lower incomes. Additionally, the legislation introduces measures aimed at enhancing transparency and accountability in tax administration, thereby safeguarding taxpayers’ rights. As stipulated in the bill, the Federal Inland Revenue Service (FIRS) will be mandated to provide taxpayers with a clear and succinct explanation of their tax obligations and rights. The tax reform legislation brings forth both challenges and prospects for Nigeria’s tax framework. A significant challenge lies in ensuring adherence to the new tax laws and regulations.The proposed tax reform legislation represents a crucial advancement towards establishing a more efficient and effective tax system in Nigeria. By improving revenue generation, simplifying tax compliance, and ensuring a more equitable tax regime, the bill aspires to foster economic growth and development. Once enacted by President Tinubu, the legislation is anticipated to positively influence Nigeria’s fiscal environment and contribute to the nation’s economic growth and development.