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Churches still not paying tax, but their non-ecclesiastical activities are taxable, says Okoro


Dr. Jerome Okoro, a partner at Hermon Barristers & Solicitors, is an expert in tax and energy law. In this interview with Assistant Editor, Law and Foreign Affairs, JOSEPH ONYEKWERE, he explains knotty issues on tax administration, hike in energy tariff, Petroleum Industry bill and the botched nationwide strike by organised labour leaders among others.

What is your reaction to the hike in electricity tariff and fuel price increase at this particular period?
To justify subsidy removal resulting in the fuel and electricity price hikes, government usually cites: continual budget deficits running into trillions of Naira; the dwindling fortunes in oil and tax revenues, and dissensions with oil marketers resulting in fuel scarcity and long fuel queues. However cogent these grounds may sound, the plight of the masses deserves equal consideration. Firstly, there is need for wide consultations with the people before implementing such far-reaching policies as these energy price hikes. In this case, Nigerians were suddenly struck with increase in prices of their vital energy items. Explanations only came later, and that made the arbitrariness very glaring. Moreover, it is ill-timed. People are barely recovering from the pangs of the COVID-19 lockdown. The ripple effect of fuel price hike on the prices of other essential commodities is well-known. Again, subsidy removal should be in reasonable degrees for the effect to be less biting. The ground is not yet set for full deregulation. With domestic refining grossly failing local fuel needs, and the unmetered electricity billing still widespread, these recent energy price hikes would simply throw the masses at the pricing mercy of the fuel marketers and the electricity DISCOs.


Nigerians would like to understand the new electricity tariff regime and its categorisation. Can you shed more light on this? 
The Nigerian Electricity Regulatory Commission (NERC), new tariff regime tagged the Multi-Year Tariff Order (MYTO) 2020 was introduced to take effect from September 1, 2020. NERC refers to charges under the tariff as ‘Service Reflective Tariff’; in other words, the more the hours of electricity supplied to you, the higher your bill. In the categorization, there are five tariff service bands of electricity consumers, depending on the power supply to the bands by the various DISCOs. There is the Service Band A which comprises consumers receiving minimum of 20 hours of electricity supply per day; Band B receives minimum 16 hours; Band C gets 12 hours; Band D gets 8 hours; and Band E receives 4 hours. For each band, the tariff – the price per KwH (Kilowatt per hour, which is the measuring unit of electricity consumption) is set by NERC for each of the DISCOs. For instance, the tariff for Band A under Abuja DISCO is N49.75KwH, while that for Ikeja DISCO is N53.87KwH. The DISCOs have further issued guidelines narrowing down the Band classification. In the sub-categorization, you have within each Band, the single to three-phase line customers, and street light supply. Then there are the lifeline customers whose consumption per month is less than 50KwH.

There are strong arguments for and against deregulation of the downstream sector, owing to moribund refining infrastructure. What is your position on the matter?
Deregulation of the downstream sector cannot go in one fell swoop under Nigeria’s current import-dependent supply of refined products. The comatose state of our three refineries is now a twice-told tale. So, deregulation must be strategically phased to save the masses from exploitation by product marketers. Let the government substantially incentivize the ongoing refinery construction projects – the major one and the modular ones, and privatize the three existing refineries in the most open and merit-based bidding processes. Then, total deregulation would be tolerable.


Do you think that organised labour sold out by suspending the planned national strike since the use of strike by labour unions is recognised by local and international laws?
There might not have been corrupt inducement on the labour representatives to suspend the strike, but the Nigerian masses have a strong basis to lament that labour has betrayed their expectations. The basis of the lamentation, by my perception, is poor communication between the labour unions and these same masses they are supposedly fighting for. When, in leading a people, you do not clarify your motives and directions to them, they are justified to assume betrayal and corrupt inducement against you. Upon threat of strike, you should make the masses clearly understand your specific demands and ultimatum. If government is compelled to negotiate, labour should disclose the common points reached in the negotiation and the timelines for implementation, and also clarify that suspension of proposed strike is only till the end of those timelines. Such vital clarifications were not optimized by labour in this case, and so most Nigerians are still left wondering why labour suspended the strike, hence the justified assumptions of betrayal.

The Lagos Internal Revenue Service and its counterpart in Ogun State have indicated interests in the collection of tax from the winner of the 2020 edition of the Big Brother Nigeria reality TV show, Olamilekan ‘Laycon’ Agbeleshe. What does the law say about taxing wins from reality TV shows or what would the tax be for? 
The Personal Income Tax Act (PITA), 2011, in its broadness on taxable persons and income, captures wins from reality shows. Section 2 of PITA subjects a person resident in Nigeria to tax by the state of residence. Section 3 taxes the income of a Nigerian resident sourced from within or outside Nigeria. It mentions among taxable income: gain or profit from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised; and it leaves no restriction on the list of taxable incomes. Besides, the 3rd Schedule to PITA, which provides a long list of incomes exempted from tax, does not include this type of income among the tax-exempt incomes. You can see that the wide net of tax law catches income from reality show wins, notwithstanding that it is one-off. The tax authorities are therefore right to be interested in the money. In this case, two States, Lagos and Ogun are eyeing the money. I do not know where the young man resides; I do not know where the show took place, but the rightful state to tax the money is where he resides. So says Section 2 of PITA.


The Petroleum Industry Bill (PIB) has been reintroduced. What is your view about its fiscal framework? 
The new bill introduces such significant changes in the fiscal aspect like: reducing the royalty rate from 10 per cent to 7.5 per cent for offshore fields producing not more than 15,000 barrels per day; and increasing the benchmark threshold of crude oil price for charging royalty from $35/barrel to $50/barrel. On the whole, I see the bill as a broad-spectrum solution to lapses and controversies in the various extant petroleum fiscal laws like the Petroleum Profit Tax Act, The Deep Offshore Act, and the regulations. Shortfalls in such other laws can be made up in the new bill and the resultant act – similar to the role the Finance Act 2019, plays in respect of some tax laws. For instance, the new PIB now clarifies that gas flaring penalties are non-tax deductible, a provision that is equivocal in the Associated Gas Re-injection Act, resulting in litigious battles that once involved me.

Do you think the present lawmakers can pull the bill through this time, considering that it is arguably the oldest bill in the National Assembly today? 
Yes, I am optimistic on that. The global drive towards alternative energy sources is in frantic speed and may catch up with Nigeria’s estimated 37 billion barrels of crude oil and over 200 trillion cubic feet of gas. This fact and the attendant need to draw petroleum sector investments faster, are not lost on the government, which I think contributed immensely to the recent conduct of the second marginal fields bid round in 2020, an event that had been delayed since 2013. So, both the Federal Executive and the National Assembly are pressured to round off the bill. The new-found cordiality between these two arms of government would also facilitate the journey of the bill into an act.

What are the major problems of tax administration in the country?
From my observation, I will mention: (1) compliance challenges of taxpayers resulting from procedural rigours and low familiarity with the compliance system. (2) Poor awareness – people are ill-informed of the taxes, the incidents of the taxes and their duties on the taxes. (3) Intricacies and ambiguities of the tax laws, and (4) conflicts of taxing authorities.


How can we improve taxation and at the same time mitigate the impact on impoverished citizens at this period of harsh economic downturn? 
Ease of tax compliance must be doggedly pursued to mitigate the additional cost of compliance on taxpayers. Incentive provisions in the tax laws must be given full effect by the government, and adequately exploited by the taxpayers, and this demands the latter’s mass awareness on the incentives. The economic downturn also demands invoking such discretionary administrative instruments as waivers of interests and penalties, extension of compliance times, and payment by instalment, to aid ailing ventures.

Nigeria tax system is confronted with many issues and challenges such as multiplicity of taxes, bad administration, non-availability of database, tax touting, complex nature of the Nigerian tax laws, minimum tax, commencement, change of accounting date and cessation and non-payment of tax refunds. Are the issues resolvable and how? 
Yes, they are resolvable and indeed the pace of resolution and attained results so far are quite laudable. In the recent past, the level of enlightenment on tax was miserably low. Tax administration was virtually by routine, and many lawyers steered clear of tax specialization just as taxpayers avoided deep enquiries, all as a result of the intricacies of tax. But now, tax information flow is overwhelming, and likewise innovations in administration. Based on awareness, people are able to identify the distinct statuses of the taxes, thereby dispelling erroneous impression of multiplicity of taxes. Digital tax administration and greater use of guidelines, and circulars are of ample aid to tax administration. On lack of database, collaboration between FIRS and CAC creates new hope because tax registration and issuance of TIN are now simultaneous with CAC incorporation. FIRS should also optimize its statutory powers to source information from the banks. On complexity of Nigerian tax laws, minimum tax, commencement, change of accounting date and cessation, the Tax Appeal Tribunal as a specialized tax dispute resolution forum is charged with a huge interpretative role. I call for a specialised tax division for the Federal High Court, and tax specialist judges of the appellate courts. Again, taxpayers should always seek consultants’ advice on intricate issues before the chips are down. On tax refund, one of the easiest substitutes is equivalent roll-over or tax credit in lieu of refund, but if a monetary refund is vigorously pursued, it can be obtained.


One of the major problems facing effective discharge of function in Local Government in Nigeria is challenges of revenue allocation, which arises due to corruption, undue interference from either state or federal government, use of State Joint Local Government Account and poor budgeting and accounting system. How can these issues be appropriately addressed? 
The movement of local governments’ federal allocation should have no stoppage at the states. The local governments should be directly receiving what the law allots to them, and should promptly sue for it if withheld. That way, such gross and common abuse as state governors proliferating local governments for selfish political ends would be checked. I see the State Joint Local Government Account as a huge constitutional impediment to local government fiscal autonomy, for which Section 162 of the Constitution needs significant amendments. On accountability, apart from a stricter internal accounting system of the local governments, the EFCC should extend its focus beyond the federal and state government funds to the local government funds.

Section 23(1) of the Companies Income Tax Act (CITA) Cap C21, LFN 2004 states that the profit of any statutory, charitable, ecclesiastical, educational or other similar associations are exempted from companies income tax obligation provided such profits are not derived from any trade or business carried on by such an organization; still some argue that churches should pay tax. Is there any link between this argument and some provisions of the newly signed CAMA 2020? 
CAMA is not tax legislation; CITA is. The correlation here is that when a church attains corporate status by registration under CAMA as incorporated trustees, whilst it has no obligation to pay tax on its ecclesiastical activities, it is nonetheless, mandated to file returns to FIRS under Section 55 of CITA. When a church engages in a business not related to its ecclesiastical concerns, for instance, it runs a factory or a service-based business, the consequent profit is liable to tax. CAMA 2020 has not changed this position, as there is still no obligation on churches to pay tax on their ecclesiastical activities. What the new CAMA brought in which has raised whirling dust is in its Section 839(1)(a)(b)(c)(2)(3), which enables CAC to take over the management of a church’s affairs from the trustees on certain grounds like misconduct and mismanagement.


Why are NGOs expected to register with the Integrated Tax Offices (ITO) of FIRS and to file for returns considering the provisions of Section 23(1) of the Companies Income Tax Act (CITA) Cap C21, LFN 2004?
The obligation to pay tax is distinct from the obligation to file returns. Section 23 CITA takes away the duty of tax payment from NGOs, but Section 55 emphasizes the duty of all corporate entities including those exempted from tax under Section 23 (NGOs inclusive) to file returns with FIRS. The rationale for returns from tax-exempt entities is to aid FIRS in ascertaining whether such a body is actually keeping away from profit-making ventures that are liable to income tax.

All companies registered under part C, now part F of CAMA with Corporate Affairs Commission (CAC) are said to be mere associations that do not qualify as charities or NGOs because those sections do not empower them to so act. The argument is that Nigeria does not yet have a statutory framework for the registration and operation of NGOs. Is that not a serious lacuna in our corpus juris?
There are copious extant laws enabling the formation and operation of NGOs in Nigeria, albeit without express mention of NGOs. Section 40 of the Constitution creates a right to freedom of association. Registration under Part F of CAMA is for all entities that are not involved in profit-making ventures, and there are no restrictions on activities that can come under this category provided the activity is not illegal, immoral or contrary to public policy. NGOs fall under this class. An NGO can also be registered under CAMA as a company limited by guarantee. Then on taxation, we have talked about Section 23 of CITA, which exempts from tax, the profits of charity organizations and the likes not arising from their trade or business.  By Section 25 of CITA, donations to certain public benefit organizations that are listed in the Fifth Schedule of CITA are tax-deductible, while supplies to non-profit entities are subject to VAT. With all these laws, I beg to differ from the view that NGOs in Nigeria are floating in legal vacuum.


In this article:
Jerome OkoroNERC
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