Apprehension over use of property value for companies’ tax assessment

Although, it is expedient that every company should pay provisional tax not later than three months from the beginning of each year of assessment, which is an amount equal to the tax paid in the previous year of assessment, experts are however questioning the move to use property value to determine figures charged as company income tax.

THE recent move by the Federal Inland Revenue Service (FIRS) to use value of property owned by companies to generate Company Income Tax (CIT) may have unsettled professionals in the built environment. 

CIT is regulated by Companies Income Tax Act (CITA) Cap C21, laws of the Federation of Nigeria and income derived from the country by a non-resident company.

It is a payment on account of the year’s income tax assessment and taken at the rate of 30 per cent of total profit of a company.

These include, any trade or business, rent or any premium arising from a right granted to any other person for the use or occupation of any property.

However, due to heavy default by companies, FIRS has resorted to looking at property of companies who are not paying tax as a way of making them live up to their responsibilities.

Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Babatunde Fowler recently confirmed that the agency has commenced the use of property value to determine what companies should pay as CIT.

He said: “We established over 2000 plus properties and lands, that were built, developed in corporate names limited liability companies that have not filed any taxes.

“The value of these taxes were in the excess of two trillion naira and have never paid any taxes before. We contacted them, sent them our assessments and a number of them are paying.

“Some of them claim not to own the property, those of them that claim not to own the property and of course their list was sent to government. Presidency is to decide what would happen to those properties that have no owners. To those that have owners and have not paid, they would be prosecuted. We are also in the process of going to court to get the approval of the court orders to sell those properties. We are not only doing that in Abuja. We’ve concluded in Lagos. We are currently doing it in Osun, Oyo, Kaduna and eventually we would cover the whole federation”.

But experts opinion vary on the issue. Some of them, who spoke to The Guardian expressed worries that it will further stifle organisations, which are still managing to cope with difficult business environment in the country.

With huge operational cost and heavy taxation already crippling businesses, operators said, the move would affect government’s commitment on ease of doing business.

While some said FIRS by that decision will be involving in property valuation, which is a clear mandate of valuers, others said FIRS is only trying to bring defaulters to tax net.

For example, former Chairman of Estate Surveyors and Valuers Registration Board of Nigeria (ESVARBON), Elder William Odudu said it is wrong to use  property as a basis for income tax. 

According to him, If a company like First Bank Plc, owns a building like its corporate headquarters in Lagos, is to pay tax on the value of its property that runs in billions of naira, it will kill the company.
 
This, he said, is because the bulk of the building is used for administrative purposes and not for rents.

He stressed that what FIRS should be looking for is the income generated by the property and not the asset, which is not generating income.

But an estate surveyor, Mr. Akin Olawore felt that there is nothing bad in such move as the main objective is to bring many people to the tax net.

According to him, companies are also required by law to declare their fixed assets in their accounts and are to identify if they are not existing and what they are doing with the property.

Olawore who doubles as president of the Nigerian-British Chamber of Commerce (NBCC) said, there is no direct implications to the real estate as it is all about a way of bringing a lot of people to the tax net, since property is physical and cannot run away.

Explaining further on the issue, the Head Communications and Servicom Department, FIRS, Mr. Wahab Gbadamosi said the idea is to make people fulfill their tax obligations.

According to him,” if you have had the opportunity to make your wealth in this economy, in this society, the least you can do is pay your tax”.

He also debunked the notion that FIRS is doing property tax. 

He said: “ We are looking at turnovers and we thought what would be fair in that we take the value of the property and assume that it was the turnover that went through the account. That is one method. 

“For those who said they built the property five years ago when the exchange rate was lower, we also enter dialogue with them and reduced it, but we are saying that everyone has to be accountable,” he added.

“Note that in assessing owners of idle property, based on turnover, we are not doing property evaluation. We have the right to be subjective and use deemed income. But with that, in trying to get the actual turnover, we will look at the value of an asset. It could be so much easier if people could just do the right thing and file the correct returns. So that is why we use the value of the asset to determine the tax”, he said.