Question Tag: Extractive Industries

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  • 15 Marks

AT – May2024 – PL – SC – Q5 – Tax Administration and Dispute Resolution

Discuss NEITI's vision, mission, four objectives, and three responsibilities each for government, taxpayer, revenue agencies per National Tax Policy 2017.

The Nigeria Extractive Industries Transparency Initiative (NEITI) was established through the NEITI Act, 2007. The body has the responsibility for the development of a framework for transparency and accountability in the reporting and disclosure of revenue due to or paid to the Federal Government by companies in the extractive industry.

In the same vein, the National Tax Policy, 2017, expressly stipulates the responsibilities of the various stakeholders towards the achievement of efficient tax administration in Nigeria.

Required:

a. Discuss the vision, mission and FOUR primary objectives of NEITI as provided for in the enabling Act.

(6 Marks)

b. Explain THREE responsibilities of each of the under listed stakeholders as provided for in the National Tax Policy, 2017:

(i) The government (3 Marks)

(ii) The taxpayer (3 Marks)

(iii) Revenue agencies  (3 Marks)

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  • 15 Marks

AT – May2024 – PL – SC – Q5 – Tax Administration and Dispute Resolution

Discuss NEITI's vision, mission, four objectives, and three responsibilities each for government, taxpayer, revenue agencies per National Tax Policy 2017.

The Nigeria Extractive Industries Transparency Initiative (NEITI) was established through the NEITI Act, 2007. The body has the responsibility for the development of a framework for transparency and accountability in the reporting and disclosure of revenue due to or paid to the Federal Government by companies in the extractive industry.

In the same vein, the National Tax Policy, 2017, expressly stipulates the responsibilities of the various stakeholders towards the achievement of efficient tax administration in Nigeria.

Required:

a. Discuss the vision, mission and FOUR primary objectives of NEITI as provided for in the enabling Act.

(6 Marks)

b. Explain THREE responsibilities of each of the under listed stakeholders as provided for in the National Tax Policy, 2017:

(i) The government (3 Marks)

(ii) The taxpayer (3 Marks)

(iii) Revenue agencies  (3 Marks)

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15Marks

AT – May2024 – PL – SC – Q7 – Cross-Border Tax Issues

Advise on concept and practice of treaty shopping, strategies to curb it, features of ECOWAS CET, and trade defense measures.

Abakali Limited is a company engaged in the manufacturing of three variants of beverages. The products of the company are well received by the consumers as the company now controls about 55% of the domestic market. The “chocolate” brand is the top earners for the company. According to a recent newspaper review, “it has the same quality as those imported into the country from the western world”.

The Board of the company has at one of its meetings decided to enter the West African market in 2024 and by 2026, the European market, through:

(i) Establishment of depots in major cities of four neighbouring countries (Republic of Benin, Togo, Ghana and Niger) and goods will be transported by road; and

(ii) Incorporation of a branch in a European country, full production will commence.

As stressed by one of the directors at the meeting, the major challenge the company has to sort out before the foray into these new markets, is the strategy to mitigate the negative impact of high tax rates (in Europe and West African countries) on the profits of the company, for better returns on investment to be achieved.

A director, who had earlier worked in an international company, suggested the use of “treaty shopping” as a tax planning strategy in the location of the branch office in Europe.

He equally pointed out that the Economic Community of West African States (ECOWAS) common external tariff framework has provided solution to the issue of different tax regimes in the sub-region.

Most of the members of the Board are not conversant with the concept of “treaty shopping” and ECOWAS common external tariff framework, and has therefore requested for professional advice on these issues.

The Managing Director, on behalf of the Board, has approached your professional accounting firm to provide advice on the salient points raised in the meeting.

Required:

As the officer designated to handle this task, you are to write a report to your Principal Partner for his review, before same is sent to the client. The report should address the following salient concerns of the client:

a. Explanation of the concept and practice of “treaty shopping” (6 Marks)

b. Discussion the strategies employed by various countries in curbing treaty shopping in international transactions

(2 Marks)

c. Discussion on the features of ECOWAS common external tariff framework

(4 Marks)

d. Comment on the trade defense measures put in place to guide the operations of the common external tariff framework

(3 Marks)

 ACC& Co (Chartered Accountants)

Lagos

INTERNAL MEMO

Date:

From: Senior Tax Consultant

To: Principal Partner

RE: TREATY SHOPPING AND ECOWAS COMMON EXTERNAL TARIFF

Sequel to your directive in respect of the request of our client for advise on concept and practice of “treaty shopping”, strategies being employed to curb treaty shopping; features of ECOWAS common external tariff and the trade defense measures put in place to guide the operations of the common external tariff, my comments are as follows:

a. Concept and practice of “treaty shopping”

Concept

(i) Treaty shopping is a situation where a person, who is resident in one country (say the “home” country) and earns income or capital gains from another country (say the “source” country), is able to benefit from a tax treaty between the source country and yet another country (say the “third‟ country).

(ii) The situation often arises where a person is resident in the home country but the home country does not have a tax treaty with the source country. (iii) Treaty shopping is an analysis of tax treaty provision by non-treaty party to structure an international transaction or operation so as to gain or take advantage of a particular treaty benefit.

Practice

(i) A resident of a state that is not a party to the double taxation treaty establishes an entity within a state that is party to the treaty in order to take advantage of its provision.

(ii) Consider a situation that there is double taxation treaty between country A and country B. Instead of a company resident in country C (which does not have a tax treaty with country A) investing directly in country A, it establishes a legal entity in country B through which it invests in country A in order to take advantage of country A/country B tax treaty to minimise its tax liability. Meanwhile, since there is no tax treaty between country C and the treaty countries (that is, countries A and B), resident of country A and B will not receive equal tax treatment with respect to income derived from country C. Therefore the principle of reciprocity is breached.

b. The strategies being employed by various countries in mitigating the menace of treaty shopping in international transactions

(i) The problem of treaty shopping could be tackled through anti-treaty shopping provisions despite the fact that it is one of the most complex international tax rules.

(ii) Some countries have also tackled the problem of treaty shopping by includingin their tax treaties, specific provision referred to as “limitation on benefit” or “LOB”. These provisions limit the benefits under the treaties in certain circumstances.

(iii) Companies which are not bona fide residents of the treaty countries or which are set up for treaty shopping purpose may be denied the treaty benefits.

c. Features of ECOWAS Common External Tariff (CET)

(i) The ECOWAS common external tariff is one of the principal instruments for harmonising ECOWAS member states and strengthening its common market.

(ii) To this end, the ECOWAS authority of heads of State and government established an ECOWAS customs necessitating the formulation of a common external tariff with a common nomenclature so that customs procedures are transparent, readily followed and delays at borders decreased, is a key stone in achieving this union.

(iii) In January 2006 in Niamey, the Authority of Heads of State and Government of ECOWAS adopted a decision establishing the ECOWAS- CET which draws on the basic UEMOA CET composed of four tariff bands, or rates of customs duty. Below is a table depicting the four tariff bands:

Category Percentage of duties Good description
0 0% Essential social goods
1 5% Goods of primary necessity, raw materials and specific inputs
2 10% Intermediate goods
3 20% Final consumption goods

(iv) The ECOWAS tariff nomenclature has been migrated from 2007 to the 2012 version (HS2012) introduced by the World Customs Organisation (WCO).

(v) On 25th October 2013, ECOWAS member states adopted the ECOWAS Common External Tariff with the 5-tariff band structure.

Category Percentage of duties Good description
0 0% Essential social goods
1 5% Goods of primary necessity, raw materials and capital goods
2 10% Intermediate goods and inputs
3 20% Final consumption goods or finished goods
4 35% Specific goods for economic development

(vi) Application of uniform tariff rate – CET is the application of the same customs duties, import quotas and preferences by a group of countries in a custom union.

(vii) The CET is one of the major characteristics of a custom union, which is a type of trade bloc formed through a trade agreement between governments of multiple tax jurisdictions.

d. The trade defense measures put in place in guiding the operations of the common external tariff include:

(i) Safeguard measures; especially in the protection of local industries;

(ii) Anti-dumping measures, through prohibition of certain items;

(iii) Anti-subsidy and countervailing measures; and

(viii) Supplementary protection measures.

Thank you.

Owo Ruh Senior Tax Consultant

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15Marks

AT – May2024 – PL – SC – Q6 – Capital Gains Tax

Advise on capital gains tax payable, cost of undisposed property, roll-over relief, and due date for tax payment on land disposal.

Kanadu Nigeria Limited is a manufacturer of leather shoes, bags and allied accessories since 2017. The recent changes in the taste of customers, particularly the quest for imported, cheaper leather shoes and bags, have had negative impact on the company’s profits. The management has decided to re-organise the business in a way to satisfy the customers better.

The following transactions were extracted from the books of the company:

(i) June 2017: Acquisition of an acre of land at the outskirt of the State capital forN8,500,000. The company spent an additional amount of N1,500,000 to sand fill the land;

(ii) August 2017: A factory was built on the acquired land for the purpose of the business at a cost of N65,000,000;

(iii) May 2022:Sold part of the factory‟s land for N25,500,000;

(iv) The market value of the remaining property unsold, as valued by a professional valuer, at the time of disposal in May 2022, was N99,500,000; and

(v) July 2023: Acquisition of a new acre of land in the town for N45,000,000 (utilised all the proceeds from the disposal of the land).

This is expected to be used for construction of another factory in the same line of business.

The company’s General Manager, who is an engineer, has just engaged your professional accounting firm as its tax consultants.

Required:

As the Principal Partner, you are to prepare a report to the General Manager, stating the:

a. Capital gains tax payable in line with the provisions of Capital Gains Tax Cap C1 LFN 2004 (as amended)

(10 Marks)

b. New cost of undisposed property

(2 Marks)

c. The roll-over relief (if any) the company is entitled to

(2 Marks)

d. Due date(s) for the payment of tax liabilities

(1 Mark)

ECO& Co (Chartered Accountants)

Zaria Road, Kaduna

Date: The General Manager Kanadu Nigeria Limited Kaduna

Dear Sir,

RE: TAX MATTERS

We refer to your request on the computation of capital gains tax payable, cost of undisposed property, roll-over relief and due date(s) for the payment of the tax liabilities in respect of some transactions embarked upon by the company. Our comments are as follows:

a.

Capital gains tax payable As shown in the attached appendix 1, the company made a chargeable gain ofN10,200,000 on the disposal of part of its land. In line with the provisions of Capital Gains Tax Cap C1 LFN 2004 (as amended), the company will pay tax at the rate of 10% and this gives N1,020,000. This should be paid to the Federal Inland Revenue Service integrated office in Kaduna.

b.

New cost of undisposed property This is arrived at by deducting the cost of the part (land) disposed from the total cost of the property. That is, N75,000,000 – N15,300,000 = N59,700,000.

c.

Roll-over relief The company utilised the whole proceeds derived from the disposal of land (N25,500,000) in acquiring another land in the State Capital for the purpose of the business. However, the re-acquisition of the new land took place more than 12 months from the date of the disposal (May 2022 – July 2023). The Capital Gains Tax Act 2004 (as amended) specifies as part of conditions for grant of roll-over relief, that re-acquisition of a new asset must take place within 12 months of disposal. In view of this provision of the Act, the company does not qualify for any roll-over relief.

d.

Due date(s) for the payment of tax liabilities The disposal of the land took place in May 2022. In line with the provisions of Section 2, Finance Act 2020), the due date for the payment of the capital gains tax is June 30, 2022.

We hope this report adequately represents the mandate given to us. Should you require further clarification, we will be glad to address it.

Yours faithfully, For: ECO & Co (Chartered Accountants)

Tunji Ojo Principal Partner

Appendix 1: Determination of capital gains tax

N‟000
Cost of land 8,500
Sand filling 1,500
Factory cost 65,000
Total cost of the factory 75,000
N‟000
Sales proceeds 25,500
Less: Cost of acquisition (W1) 15,300
Chargeable gain 10,200

Capital gains tax @ 10% of N10,200 1,020 Workings 1: Cost of part disposed Cost = A x C

A + B Where, A = Sales proceeds = N25,500,000 B = Market value of part undisposed = N99,500,000 C = Overall cost of the asset = N75,000,000

Therefore, Cost =

N25,500,000

N25,500,000 + N99,500,000 𝑥 N75,000,000

=

N25,500,000

N125,000,000 𝑥 N75,000,000

= N15,300,000

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15Marks

AT – May2024 – PL – SC – Q5 – Tax Administration and Dispute Resolution

Discuss NEITI’s vision, mission, four objectives, and three responsibilities each for government, taxpayer, revenue agencies per National Tax Policy 2017.

The Nigeria Extractive Industries Transparency Initiative (NEITI) was established through the NEITI Act, 2007. The body has the responsibility for the development of a framework for transparency and accountability in the reporting and disclosure of revenue due to or paid to the Federal Government by companies in the extractive industry.

In the same vein, the National Tax Policy, 2017, expressly stipulates the responsibilities of the various stakeholders towards the achievement of efficient tax administration in Nigeria.

Required:

a. Discuss the vision, mission and FOUR primary objectives of NEITI as provided for in the enabling Act.

(6 Marks)

b. Explain THREE responsibilities of each of the under listed stakeholders as provided for in the National Tax Policy, 2017:

(i) The government (3 Marks)

(ii) The taxpayer (3 Marks)

(iii) Revenue agencies  (3 Marks)

a.

The vision, mission and objectives of the Nigeria Extractive Industries Initiative (NEITI)

Vision The vision of NEITI is to build a NEITI that is accountable, effective, well- resourced and result oriented.

Mission The mission is to cultivate a culture of transparency, accountability, due process and zero-tolerance for corruption in Nigeria‟s extractive industries, for the benefit of the citizenry.

The primary objectives of the NEITI are to:

  • Ensure due process and transparency in the payments made by all extractive industry companies to the Federal government and statutory recipients;
  • Monitor and ensure accountability in the revenue receipts of the Federal Government from extractive industry companies;
  • Eliminate all forms of corrupt practices in the determination, payment, receipts and posting of revenue accruing to the Federal Government from extractive industry companies;
  • Ensure transparency and accountability by government in the application of resources from payments received from extractive industry companies; and
  • Ensure conformity with the principles of global Extractive Industries Transparency Initiative (EITI).

b.

Responsibilities of the under listed stakeholders

(i) The government All levels and arms of government; ministries, extra-ministerial departments and agencies where applicable shall:

  • Implement and regularly review tax policies and laws;
  • Provide information on all revenue collected on a quarterly basis;
  • Ensure adequate funding, administrative and operational autonomy of tax authorities; and
  • Ensure a reasonable transition period of between three and six months before implementation of a new tax.

(ii) The taxpayer

A taxpayer is a person, group of persons or an entity that pays or is liable to tax. The taxpayer is the most critical stakeholder and primary focus of the tax system. The taxpayer shall consider tax responsibilities as a civic obligation and constant duty that must be discharged as and when due.

The taxpayer shall be entitled to:

  • Relevant information for the discharge of tax obligations;
  • Receive prompt, courteous and professional assistance in dealing with tax authorities;
  • Raise objection to decisions and assessments and receive response within a reasonable time;
  • A fair and impartial appeal; and
  • Self-representation or by any agent of choice, provided an agent acting for financial reward shall be an accredited tax practitioner.

(iii) Revenue agencies

Any agencies responsible for the collection and administration of revenue shall:

  • Treat the taxpayer as a customer;
  • Ensure efficient implementation of tax policies, laws and international treaties;
  • Facilitate inter-agency co-operation and exchange of information;
  • Undertake timely audits and investigations;
  • Undertake tax awareness and taxpayers‟ education; and
  • Establish a robust process to prevent, detect and punish corrupt tax officials.

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