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More reactions trail FIRS’s property valuation for company tax

More reactions have continued to trail the decision by the Federal Inland Revenue Service (FIRS) to commence the use of the value of the property housing the offices of companies to generate figures that will be charged as Company Income Tax (CIT).

Sometime in 2016, in its drive to increase tax revenue generation, the FIRS started applying the value of property as a basis for assessing companies to CIT rather than the turnover basis of assessment.

In October 2016, the FIRS went further to issue notices to several companies demanding for payment of CIT assessed on the new basis.
The tax was assessed at 6 per cent of the value of a property and payable within 30 days of receipt of the notice.

In arriving at the above rate, the FIRS deemed 20 per cent of the value of the properties as turnover, and then subjected the deemed turnover to CIT at 30 per cent. The assessment was regardless of whether or not the affected companies have been tax audited for the reviewed period.

The FIRS stated that the assessment was made in accordance with Section 30(1)(a) of the Companies Income Tax Act (CITA).

Section 30(1)(a) of CITA, stipulates that FIRS may assess a company to income tax on a fair and reasonable percentage of the turnover of the trade or business if there are no assessable  profits, or assessable  profits are less than FIRS’ expectation from that trade/business or if the assessable profits cannot be ascertained.

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Tax experts at Deloitte in their analyses of the new assessment argued that while Section 30(1)(a) empowers the FIRS to assess companies to CIT on a fair and reasonable percentage of the turnover of the trade or business of such company, “We are therefore not aware of any provision in CITA that permits FIRS to assess a company to CIT on a percentage of the value of its property. The action of FIRS may therefore be challenged by the affected taxpayers on the ground that the basis of assessment is arbitrary and not supported by the tax laws.”

They further said, the use of value of properties as a basis for assessment to CIT may be considered as unreasonable under certain circumstances.
Members of the organised private sector also recently faulted the property valuation/assessment being undertaken by the FIRS describing it as double taxation.

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The OPS, comprising the manufacturers association, association of small and medium enterprises, employers’ association, chambers of commerce and industry groups among others, said the exercise was not backed by law and was not within the mandate of the FIRS.

“There already exists a plethora of property valuation-based taxes in Nigeria. The Land Use Charge payable in Lagos State, which is being replicated across the country, is based on property valuation. The governor’s consent fees payable on alienation of interest in property across the country is based on property valuation. Capital Gains Tax payable on disposal of property is somehow influenced by property valuation. Rent payable on lease of real estate property is subject to withholding tax deduction,” OPS said in a communiqué.

According to the group, the exercise will have dire consequences on firms, households and government, noting that “the FIRS’ intention to value and assess the same property for tax purposes expressly negates the Federal Government’s objective of improving the ease of doing business recently initiated.”

Also joining the argument, the Lagos Chamber of Commerce and Industry (LCCI) said moves by the FIRS to use property value as a basis for CIT assessment was worrisome.

The LCCI Director-General, Mr Muda Yusuf, stressed that adoption of the new model of assessment by FIRS would not only undermine investors’ confidence but also roll back the recent gains of recovery in the economy.

He said adoption of this assessment model by the FIRS was difficult to justify, inconsistent with the law and not harmonious with the best practice principle in taxation.
“The CITA is very clear on the basis and methodology for the assessment of CIT. The introduction of property valuation as a basis for assessment is at variance with CITA,” he said.

He further argued that there was no theoretical or empirical basis to establish a correlation between the value of a business premises and the profitability of the business.
Yusuf said: “Already, corporate organizations in Lagos State are paying the Land Use Charge, which is essentially property tax to the Lagos State Government. What is being introduced by the FIRS is for all practical purposes another form of property tax.”

But the Chairman of the FIRS, Babatunde Fowler, at the Annual General Meeting of the Nigerian Employers Consultative Forum (NECA) in Lagos, recently, insisted that the FIRS was not subjecting companies to additional income liabilities.

Fowler said: “We are not taking property tax. We look at corporate properties in the name of corporate organization. Because we found out corporate organizations, limited liability companies were not filling any returns but we noticed that they own properties.

“So we started a process in Abuja. We found that property worth N4 trillion in those corporate names have not paid any tax. People fund companies, file no return and then use them to develop properties.”
He argued that according to the law, when you don’t file or keep any record, the FIRS will take your turnover as a basis to compute your tax. The FIRS will take 20 per cent of that turnover as the assumed profit and tax it at 30 per cent.

Fowler also said: “So if you have a property worth N100 million, with that computation, we charge you N6 million. That is basically what it is. It is not property tax, we are just using turnover to estimate the tax you pay.”

Sunday Michael Ogwu

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