COMPANIES INCOME TAX (AMENDMENT) BILL 2005 - Chartered Institute of Taxation of Nigeria (CITN)

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COMPANIES INCOME TAX (AMENDMENT) BILL 2005

CORRECTIONS ON AMENDMENTS PROPOSED

S/N	Parag raph of Bill	Related Sections Cap-C21 LFN 2004	Subject Matter of Cap-C21 LFN 2004	Remarks		Recommen- dations
1	3	16(1)(b)	“(b) a Nigerian company which carries on business through a permanent establishment in Nigeria and whose profit accrued in part outside Nigeria……..”	The concept of a permanent establishment is not relevant to a Nigerian company.		Amend by substituting therefore the following: ‘(b) a Nigerian company whether its profit accrued in part outside Nigeria or not.”
2	17	61(1)	“(1) Without prejudice to section 60 of this Act, every person engaged in banking shall prepare a quarterly return specifying all transactions involving the sum of all transactions involving the sum of N1,000,000 and above and the name and addresses of all customers of the bank connected with the transaction and deliver the return to the Service”.		The Act deals with corporate entities and not individuals except those in the Armed Forces, residents of the Federal Capital Territory and those in Foreign Missions. It is necessary to limit the provision to corporate customers.	Amend by substituting the following “Corporate customers” for “all customers.”
3	16	60(5)	Any person may apply in writing to the Service for an extension of time within which to comply with the provisions of this section and section 12 of this Act, in so far as the person -		The mention of section 12 is irrelevant in this section as it has nothing to do with this. While section 60 deals with the Power to call for returns, books, documents and information, the provision of section 12 relates to a company’s obligation to make full disclosure of agreement	Delete “and section 12” after this “section”.

ISSUES OMITTED FROM PROPOSED AMENDMENTS

S/N	Parag raph of Bill	Related Sections Cap-C21 LFN 2004	Subject Matter of Cap-C21 LFN 2004	Remarks	Recommen- dations
3	-	31(3)	(3) “The amount of any loss incurred by a company engaged in an agricultural trade or business for the year of assessment in which it commenced to carry on such trade or business, shall be deducted as far as possible from the assessable profits of the first year after that in which the loss was incurred and so far as it cannot be so made, then from such amount of such assessable profits of the next year of assessment, and so on (without limit as to time) until the loss has been completely set off against the company’s subsequent assessable profits.”	Since there are no restrictions on the number of years for which companies generally can carry forward loses (S.7 of the bill), it is no longer necessary to preserve the S.31 (3) in favour of agricultural companies.	Section 31 (3) should be deleted
4	-	34 (3)	“For the purpose of this section the rural investment allowance shall be made against the profits of the year in which the date of completion of the investment falls and the allowance or any fraction thereof, shall not be available for carry forward to any subsequent year whenever full effect cannot be given to the allowance owing to there being no assessable profits or assessable profits less than the total allowance for the year the investment was made.	It is a disincentive to restrict the allowances to the profit of the year in which the date of completion of investment falls.	Section 34(3) should be deleted
5	-	40(11)	Where a company has incurred an expenditure on electricity, water, tarred road, or telephone for the purpose of a trade or business carried on by the company which is located at least 20 kilometers away from electricity,water,tarred road or telephone facilities which are provided by the government, the company shall be allowed a relief called “investment tax relief’ for each year expenditure is incurred on each such facility at the following rate of the expenditure – no facilities at all - 100% no electricity - 50% no water - 30% no tarred road - 15% no telephone - 5%	Having deleted “no telephone” in paragraph 8 of the bill, which amends S.34. It is necessary to do same for S.40(11)	Section 40(11) relating to “telephone” should be deleted
1	-	Part I, Sections 1, 2, 3, 4, 5, 6, 7, 8.	Establishment and constitution of the Board Establishment of Technical Committee of the Board. Powers and Duties of the Board. Signification and execution of powers, duties, etc. Power to amend the First Schedule Official Secrecy Forms Service and signature of notices.	Similar provisions are now contained in the FIRS Bill.	Part I (Sections 1 -8) should be deleted.
2	-	9(3)(a)	(3)In this section,” dividend” means – a) in relation to a company not being in the process of being wound up or liquidated, any profits distributed , whether such profits are of a capital nature or not, including an amount equal to the nominal value of bonus shares, debentures or securities awarded to the shareholders; and	Bonus shares should not be deemed to be of revenue nature because it is capital. In practice it had never been so.	The phrase, “bonus shares” in 9(3)(a) should be deleted.
6	-	23(2) & (3)	(2) The President may exempt by order- (a) any company or class of companies from all or any of the provisions of this Act; or (b) from tax all or any profits of any company or class of companies from any source, on any grounds which appears to it sufficient. (3) The President may by order amend, add or repeal an exemption made by notice or under the provisions of subsection(2) or(4) of section 9 of the Personal Income Tax Act in so far as it affects a company, and , subject to the foregoing, the following notices and order shall continue in force for all purposes of this Act – (a) the Income Tax Exemption(Interest on Nigerian Public Loans) Notice; (b) the Income Tax(Exemption)(Nigerian Broadcasting Corporation)Order; (c ) the Railway Loan (International Bank) (Exemption of Interest) Notice.	The power to exempt and amend should be by the Federal Executive Council and officially published in the gazette.	The word, “President” should be substituted with “Federal Executive Council”.
7	-	29(1)	(1) ………..Provided that in respect of any company which makes up its accounts to any date between 1 January and 31 March, 1980, the profits to be assessed to tax- a) in 1980 year of assessment, shall be the profits of the period from the beginning of the accounting year to 31 December, 1979; and b) in 1981 year of assessment, shall be the profits for 1 January to the end of the company’s accounting year in 1980.	This part is no longer relevant today.	S.29 (1) to be deleted.
		29(3)(d)	Provided that if the basis period for the second or third year is the period of nine months from April 1 to 31 December, 1980, the profits of that basis period shall be grossed up as if they were the profits of twelve months;	The proviso is no longer required.	The second proviso in 29(3) (d) should be deleted.
		29(4)(c)	Provided that where the profits of such year is for a period of nine months from 1st April to 31st December 1980, the profits shall be grossed up as if they were the profits of twelve months; and	The proviso is no longer required.	The proviso should be deleted.
8	-	29(3) (a) (b) (c)	(3) The assessable profits of any company from any trade or business for the year of assessment in which it commenced to carry on such trade or business (or in the case of a company other than a Nigerian company, for the year of assessment in which it commenced to carry on such trade or business in Nigeria) and for the two following years of assessment( which years are in this subsection respectively referred to as “the first year”, “the second year”, and “the third year”) shall be ascertained in accordance with the following provisions – for the first year the assessable profits shall be the profits of that year. for the second year the assessable profits shall, unless such notice as hereinafter mentioned is given, be the amount of the profits of one year from the date of the commencement of the trade or business as determined for the purposes of paragraph(a) of this subsection for the third year the assessable profits shall, unless such notice as hereinafter mentioned is given, be computed in accordance with subsection(1) of this section.	The same principle that limits losses to the amount actually incurred should also apply to profit.	The phrase, “Nothing in this section shall render a company liable to pay twice on the same profit” should be inserted as 29(3)(d ) while 29 (3) (d)-(e) are re numbered 29 (3) (e)-(f)
9	-	29(10)	“Where, in pursuance of Chapter 3 of Part II of Companies and Allied Matters Act, a company (in this subsection referred to as “the re-constituted company”) is incorporated under that Act to carry on any trade or business previously carried on in Nigeria by a foreign company and the assets employed in Nigeria by the foreign company in that trade or business carried vest in the reconstituted company.…….. shall have effect, that is-…. a)……. f)……..and in this subsection “foreign company” means a company incorporated outside Nigeria before 18 November, 1968, and having on that date an established place of business in Nigeria.	In view of the definition in S.29 (10)(f), the entire provision of S.29(10) are outdated since the event being referred to happened 37years ago.	S. 29 (10) should be deleted
10	-	29(11)	“For the purposes of subsections (9) and (10) of this section, the Board may by notice require any person……………to prepare and deliver to the Board any returns specified………within the period specified in the notice…...not being a period of less than 21 days from the service thereof”	In view of the preceding amendments, section 10 referred to is no longer relevant.	The principal Act should be amended by substituting “subsection (9) for subsections (9) (10)” in subsection 29 (11)
11	-	33	“(1) Notwithstanding any other provisions in this Act where in any year of assessment the ascertainment of total assessable profits from all sources of a company results in a loss, or where a company’s ascertained total profits results in no tax payable or tax payable which is less than the minimum tax, there shall be levied and paid by the company the minimum tax as prescribed by subsection (2) of this section…… (2)……(3)……(4)…………..……the next assessment year	It is contrary to tax principle to ask a company making losses to pay income tax. There are other administrative ways of checking abuses of loss reliefs	Amend the Principal Act by deleting the section
12	-	40 (2) &(3) & (5)	“(2) In addition to any levy made pursuant to subsection(1) of this section, there shall, as from the assessment year commencing on 1 January 1989 be levied and paid a special levy of fifteen per cent on excess profits of every company including banks and for the purpose of this subsection “excess profits” means the difference between total profits as computed in accordance with section 31 of this Act and standard profits as calculated in accordance with the provisions of subsection(3) of this section. (3) For the purposes of subsection (2) of this section, “standard profits” means- (a) in the case of every Nigerian company – (i) the addition of the amounts arrived at after applying the percentages specified in this sub-paragraph to the amount of capital employed at the end of the accounting period, that is to say- Paid-up capital ………40 per cent Capital or statutory reserve…20 per cent General reserve……….20 per cent Long-term loan….20 per cent; or (ii) the amount of six million naira, whichever is greater; (b)in the case of every company other than a Nigerian company and as respects any year of assessment commencing on 1 January, 1989- (i) the amount of fifteen per cent of the turnover of the company for that year being turnover attributable o any part of the operations of the company carried out in Nigeria; or (ii) the amount of six million naira, whichever is greater. (5) The provisions of Parts VIII and XIV of this Act shall apply to subsection (3) of this section.	This provision of the law has been deleted by S.28A of Decree no. 63 of 1991. The sub-section had previously been deleted from the statue books. It is surprising how it comes up again in the 2004 Act.	Amend the principal Act by deleting sub paragraphs (2) & (3) & (5) .
13	-	64 102	(1)“ Where in respect of any trade or business carried on in Nigeria by any company(whether or not part of the operations is carried on outside Nigeria), the Board- (a) is satisfied that there is reasonable ground for suspecting that an offence involving any form of total or partial non-disclosure of information or any irregularity or offence in connection with, or in relation to tax, has been committed; and (b) is of the opinion that evidence of the offence or irregularity is to be found in the premises, registered office, any other office, or place of management of the company or in the residence of the principal officer, factor or agent or representative of the company. (2)……….(3)………(4)……….. (5)……….(6)………(7)……… (8)Either prior to or during or after a warrant of search is being or has been served or executed on a principal officer, agent, factor or representative of the company, such principal officer, factor or agent may also be called upon to an interview before an officer of the Board to answer any query or question in connection with the activities of the company as would enable the Board to arrive at a fair and correct tax liability of the company”. “Any officer of the Federal Inland Revenue Service duly authorized in writing in that regard by the chairman of the Board, may prosecute or conduct on behalf of the Board, any prosecution or other proceedings arising under this Act in any court in the Federation”	Sections 64 and 102 contain powers of the Board to enter and search premises and conduct of proceedings respectively should be in the proposed FIRS Bill.	Amend the principal Act by deleting sections 64 and 102.
14	-	103	“The Board may with the approval of the Commissioner pay rewards to any person, not being a person employed in the Federal Inland Revenue Service in respect of any information which may be of assistance to the Board in the performance of its duties under this Act.	The current usage for “Commissioner” is now “Minister”.	Amend the principal Act by deleting “commissioner” and substituting with the word “Minister”
15		71(8)	(8)“The Board of Appeal Commissioners shall remain in office until a new body is sworn in”	Typographical error	Delete “Board” and substitute it with “Body”
16		77(1)	“(1) Notwithstanding any other provision of this section, every company shall, not later than three months from the commencement of each year of assessment, pay provisional tax of an amount equal to the tax paid by such company in the immediately preceding year of assessment in one lump sum.	This provision is no longer necessary since self-assessment system of filing returns is now mandatory for every tax payer	Amend the principal Act by deleting subsection (1) and provisions of subsection (2) (a).
4.1.2. ISSUES OMITTED BETWEEN LFN 1990 AND LFN 2004
1	-	23		Paragraph “ff” introduced by Decree 12 of 1987 contained in LFN 1990 as paragraph “g” has been deleted. There was no law deleting this paragraph.	This paragraph should be retained.
2	-	19	“Where a dividend is paid out as profit on which no tax is payable to- [1996 No. 30.] no total profits; or total profits which are less than the amount of dividend which is paid, whether or not the recipient of the dividend is a Nigerian company, is paid by a Nigerian company, the company paying the dividend shall be charged to tax at the rate prescribed in subsection(1) of section 40 of this Act as if the dividend is the total profits of the company for the year of assessment to which the accounts, out of which the dividend is declared, relates.	Reference in LFN 2004 should be to 1998 No. 18 where 1996 No. 30 is currently inserted.	1998 No.18 should be inserted
-	5th Sched ule			The following have been omitted from the list: 34. The Nigerian Children’s Trust Fund. 35. Nigerian Conservation Foundation 36. Nigerian Accounting Standards Board 37. Kewalram Chanrai Foundation Limited 38. Afprint Foundation Limited 39. Paterson Zochonis Industries Limited Education Trust Fund. 40. Educational Cooperative Society 41.Rotary International (Polioplus Programme) 42. National Science and Technology Fund 43. The Musical Society of Nigeria 44. University College Hospital Endowment Fund. *Authority: Item 34 by Decree No. 30 of 1990* *Items 35-42 by Government Notice No. 572 published in Official gazetteNo.47, Vol.74 of 20th August 1987.* *Items 43 & 44 by Government Notice No.887 published in Gazette No.74 Vol.74 of December 24, 1987*	We recommend that the list is updated and the existing item “34” in the principal Act be renumbered as item “45” after it has been established that there is no other Fund approved by the Minister of Finance between December 1990 and now.
4	1	Subsidiary Legislation		The following subsidiary legislations were omitted: Income Tax Appeals (Appeal Commissioners) Rules. Companies Income Tax (Exemption) Interconsulting Limited) Order. Companies Income Tax (Authorised Deductions) (Nigerian Industrial Development Bank) Rules. Companies Income Tax (Exemption) (Instituto di Credito re le Imprese di Pubblica Utilita) Order Companies Income Tax (Exemption) (Kreditanstalt fur Wiederan fibau Frankfurt am Main) Order Companies Income Tax (Exemption) (Kreditanstalt fur Wiederan fibau Frankfurt am Main) (No.2) Order Companies Income Tax (Exemption) (Commonwealth development Finance Company Limited) Order Companies Income Tax (Exemption) (Kreditanstalt fur Wiederau fibau)Order Companies Income Tax (Exemption) (Nigerian Agricultural and Co-operative Bank Limited) Order Companies Income Tax(International Finance Corporation) (Exemption) Order Companies Income Tax(Defence Industries Corporation of Nigeria) (Exemption) Order Double Taxation Relief (Between the Federal Republic of Nigeria and the United Kingdom of Great Britain and Northern Ireland ) Order	The omitted items should be reviewed and re-instated as necessary.