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Nigeria: Taxation Post Covid—What to Expect

BY ADEGBOLA THOMAS AND ADEOLA AKINDELE
The first case of Covid-19 in Nigeria was recorded in
Lagos State on February 28, 2020, and the Federal Gov-
ernment of Nigeria subsequently directed a complete
lockdown of Lagos and Abuja, the nation’s economic
and political capitals respectively, for 28 days, in a bid
to curtail the spread of the virus. The lockdown in Nige-
ria, while critical for disease containment, impacted the
economic and social structures of the country and led to
demand and supply disruptions. Some businesses were
faced with going concern issues and had to employ
varying degrees of cost-cutting measures for survival.
A United Nations Development Program report esti-
mates that about 3.84 million persons in Nigeria have
experienced direct job loss with a further projection of
13 million persons who may have experienced collat-
eral damage (Brief 3 | Potential Impact of Lockdown
Policies on Poverty and Well-Being: A brief prepared by
UNDP Nigeria on behalf of the UN System in Nigeria).
As at October 30, 2020, there had been 62,521 con-
firmed cases with over 1,141 deaths and 58,249 dis-
charged patients (Covid-19 Situation Report 114: Data
as reported and accurate by NCDC as at October 30,
2020). The government and businesses now expect the
economy, which recently recovered from a 2016 reces-
sion, to shrink further this year.
Nigeria’s 2020 budgeted revenue was largely based
on crude oil production volume of 2.18 million barrels
per day with a price benchmark of $57 per barrel. How-
Adegbola Thomas is a Manager and Adeola
Akindele is an Experienced Staff Analyst, Tax,
Regulatory and People Services Division, with
KPMG in Nigeria.
ever, the revenue projections were not realistic because
of Covid-19, which triggered a sudden drop in demand
for oil and consequently a plunge in global oil prices.
The Federal Executive Council, therefore, approved the
review of the 2020 budget to 10.81 trillion Nigerian
naira ($28.4 billion), from the original approved amount
of 10.58 trillion naira.
Despite the revision, Nigeria’s economy is still in a
delicate balance, as there are no clear indications that
the country will be able to meet its revenue targets.
Based on the 2020 first quarter report of the Federal In-
land Revenue Service (FIRS) and the Medium-Term Ex-
penditure Framework and Fiscal Strategy (MTEF/FSP)
report released by the Federal Ministry of Finance, Bud-
get and National Planning, Nigeria may only be able to
achieve about 50% of its revenue targets in 2020.
As if the situation is not overwhelming enough, the
first quarter MTEF/FSP report noted that the bulk of the
revenue generated was used to meet debt service obli-
gations as the country’s debt service payments as a per-
centage of revenue rose to 99% in the quarter.
What Should We Expect Post
Covid-19?
Given the above challenges, it is only a matter of time
before revenue agencies resort to ingenious means of
shoring up government revenue in the coming months.
However, revenue agencies and tax authorities will
need to proceed with caution in view of the saying that
no nation can ever tax itself into prosperity.
Therefore, whilst the Nigerian government will be
bogged down with the question of how to generate
enough revenue to finance the revised budget, the gov-
ernment should also be concerned with measures that
can stimulate business and economic activities.

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Government Measures
The Federal Government has already put together
some palliative measures, with the Central Bank of Ni-
geria (CBN) unveiling a series of interventions, includ-
ing a 50 billion naira Targeted Credit Facility (TCF);
100 billion naira health sector loan; injection of 3.6 tril-
lion naira into the banking system; reduction of interest
rates from 9% to 5%; and introduction of a one-year
moratorium on applicable CBN interventions.
The CBN has also started disbursing the 50 billion
naira TCF via the Nigeria Incentive-based Risk Sharing
System for Agricultural Lending Microfinance Bank to
the beneficiaries. Out of the 80,000 applicants, about
1,000 have been able to access the loan, and it is ex-
pected that this number will rise in the coming months.
The House of Representatives, through the Economic
Stimulus Bill, proposed some tax rebates for businesses
and organizations that retained their employees
through the Covid-19 crisis, subject to their satisfying
some conditions. Although details on the applicability
of the rebate to taxpayers and businesses are still
sketchy, it appears that oil-producing companies may
be excluded from eligibility for the palliative. This may
be counterproductive, given that most oil producers are
the worst hit, with the twin shock of the Covid-19 pan-
demic and dwindling oil prices.
It is expected that there will be greater clarity and in-
clusiveness on the applicability of the Bill before it is
passed by the Nigerian parliament and assented to by
the President.
Tax Measures
The FIRS also communicated, through its official
publications, palliative measures such as:
s waivers of late return penalty for taxpayers who
pay early and file late;
s extension of timeline for filing of value-added tax
(VAT) and withholding tax, from the statutory 21 days
to the last working day of the month, following the
month of deduction;
s extension of transaction tax remittance deadline
to last day of the month;
s suspension of tax audits and investigation;
s extension of the due date for filing of companies
income tax by one month;
s submission of tax returns by taxpayers without au-
dited financial statements which must be submitted
within two months of the revised due date of filing;
s waiver of penalty and interest on additional tax as-
sessments provided the liability was paid before August
31, 2020, toward easing the effect of Covid-19 on tax-
payers.
Some professionals and business owners have com-
mented that the above palliatives may be inadequate in
COPYRIGHT R 2020 BY THE BUREAU OF NATIONAL AFFAIRS, INC.
light of the greater risks and economic upheaval that
most businesses may be facing. It is, however, a wel-
come development that the tax authorities are showing
some level of support to businesses during these un-
precedented times.
Nevertheless, the tax authorities could also consider
the possibility of adapting a more inclusive and exten-
sive approach to helping businesses cushion the effect
of post-Covid-19 challenges. For instance, the tax au-
thorities could comfortably extend the waiver of penalty
and interest charges on additional tax audit assess-
ments and self-assessed tax liabilities that have re-
mained unpaid after their statutory payment timelines
to a much later date, such as the end of the year, when
there may be an upswing in economic activities.
Communicating with Tax Authorities
Tax audits/investigations were initially suspended, al-
though the FIRS since resumed the exercise on June 30,
2020. Given Covid-19 social distancing protocols, it is
unthinkable that taxpayers would be comfortable host-
ing revenue officials within their office premises for tax
audit exercises. Therefore, it may be necessary to con-
sider a paradigm shift towards virtual tax audits using
web-based or cloud-based systems.
Taxpayers would be open to electronic transmission
of documents via emails, holding tax audit meetings via
video conferencing platforms, and utilizing cloud-based
document storage systems, provided that the appropri-
ate data encryption and security systems are available
to the tax officials. This would eliminate the challenges
associated with travel time, document security, docu-
ment retention and space constraints.
Similarly, it is expected that there will be less fre-
quent visits to tax offices for routine tasks such as sub-
mission of tax returns and letters, payment notifica-
tions, processing of tax clearance certificates and re-
ceipts etc., as taxpayers adopt the various online means
of document exchange to process their applications,
submit their tax returns and obtain the relevant
receipts/confirmations.
The Finance Act, 2019 has already clarified that a no-
tice of objection submitted via electronic means such as
email is valid. Thus, it is only natural for taxpayers to
explore this alternative for exchanging correspondence
with the tax authorities.
This is surely a wake-up call to tax authorities to de-
velop a functional and robust online/electronic tax por-
tal that would accommodate the various needs of tax-
payers. The portal’s functionality should be akin to the
internet bank platforms of commercial banks and
should be capable of multiple functionalities, including
download of tax position of business/individual, re-
ceipts and tax clearance certificates.
Another post Covid-19 expectation will be the digital
migration of tax payments/collection. The coronavirus
pandemic has served as an accelerator for the digital
payments industry, as consumers and businesses have
been forced to drastically change their purchasing hab-
its. Digital payment is characterized by lower fees,
prompt payment, greater security, and more flexible
payment options. A number of utility and service deliv-
ery organizations have accentuated the need for their
customers to move to digital/online based payments.
It is to be expected that taxpayers and tax authorities
will continue to adopt different digital platforms, in-

cluding contactless cash service providers, to respec-
tively pay and collect tax liabilities. In fact, digital mi-
gration of tax payments fulfills the canon of taxation as
it relates to convenience and economy; with an intrinsic
capacity to significantly limit tax evasion and fraud.
One easy way of collecting taxes is the integration of
tax collection platforms with different payment chan-
nels. This is particularly important for indirect taxes,
such as VAT, given that the taxes occur simultaneously
as the transaction is conducted. If the tax collection
platform is integrated into the transaction payment
channels, the taxes are automatically collected and
transferred into the relevant tax account of the revenue
authorities. This will no doubt increase government rev-
enue from tax while also expanding the tax base of the
country.
The Covid-19 crisis has caused an increase in press
releases from regulators and tax authorities, and it is
expected that the post Covid-19 era will usher in more
circulars, policy documents and updates to existing tax
and regulatory processes. Tax and regulatory updates
are welcome developments, although it may be difficult
to keep track of them unless they are compiled into a
single working document. It is also possible that tax-
payers and other stakeholders may not agree with some
of the contents of circulars and press releases, as they
typically contain the FIRS’ opinions on contentious is-
sues in tax law.
It is, therefore, important that the process of arbitra-
tion is timely so that clarity can be obtained within the
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3
shortest possible time, and taxpayers can have a degree
of certainty in their decision-making process.
Looking Ahead
It is commendable that the Federal Government of
Nigeria, the CBN and the tax authorities continue to roll
out fiscal stimulus packages to reduce the burden on
companies. It is our hope that more palliatives will be
introduced in these trying times.
However, the global forecast is that the world
economy will plunge into a recession, post-Covid-19.
Some businesses will fold, while others will thrive and
grow from the opportunities that Covid-19 presents.
Beyond the immediate reactions highlighted above,
companies must look ahead, think and act strategically
in the context of the emerging new normal. Businesses
need to build strategic risk management capabilities to
inform future strategy and better prepare them for the
world as we now know it.
This column does not necessarily reflect the opinion
of The Bureau of National Affairs, Inc. or its owners.
Adegbola Thomas is a Manager and Adeola Akindele
is an Experienced Staff Analyst, Tax, Regulatory and
People Services Division, with KPMG in Nigeria.
The authors may be contacted at: adegbola.thomas@
ng.kpmg.com; adeola.akindele@ng.kpmg.com