Nigeria’s National Information Technology Development Tax

The National Information Technology Development Tax (NITD) is payable by Nigerian companies that have an annual turnover of at least 100 million Nigerian naira ($ 262,800). It is calculated as 1% of the profit before tax (PBT) of the subject companies.

The National Information Technology Development Agency (NITDA) Act (NITDA is an agency of the Federal Government of Nigeria, whose primary mandate is to foster the development and growth of information technology in Nigeria ) imposes the levy and requires the authority of the tax administration, the Federal Inland Revenue Service (FIRS), to administer it.

The NITDA law came into effect in 2007, and the NITD tax has been in effect since then. The levy is a major source of funding for NITDA’s activities.

What do businesses need to know?

Who pays the royalty?

The NITDA levy is payable by the following categories of companies:

  • GSM service providers and all telecommunications companies;
  • cyber businesses and Internet service providers;
  • pension managers and pension related companies;
  • banks and other financial institutions;
  • insurance companies.

What if a business is unsure of its exposure to the levy?

Where the category of a business is unclear, the business may refer to the legislation that regulates the categories of businesses subject to the NITDA levy. This legislation includes the Banks and Other Financial Institutions Act, the Insurance Act, the Pension Reform Act and the Nigerian Communications Act. If a business is regulated by the agencies established to administer the aforementioned legislation, that business is most likely liable for the NITD tax.

In addition, a business can approach NITDA and / or FIRS to clarify its exposure to the levy. It would also be a positive step for the NITDA to issue regulations that provide a detailed list of businesses that are subject to the tax.

Does a company need to submit self-assessment NITD direct debit reports?

The NITDA Act does not require companies to submit self-assessment NITD direct debit reports.

In fact, the NITDA law imposes the obligation to perform an NITD levy assessment on the FIRS and not on the taxpayer. Article 16 of the NITDA law requires FIRS to subject companies to the NITD levy alongside the corporate income tax (CIT) and / or the petroleum profits tax (PPT). FIRS typically relies on taxpayers to submit CIT / PPT self-assessment statements; therefore, in order to comply with the requirement of the NITDA Act, the FIRS should increase the assessment of the NITD tax on the affected companies at the earliest when those companies submit their CIT / PPT returns or on the due date of these statements.

Under the tax administration [Self-Assessment] Regulation (TASAR), the FIRS requires the submission of self-assessment NITD direct debit reports, as long as such an obligation exists under the NITDA Act. As there is no obligation to submit self-assessment NITD direct debit reports under the NITDA Act, the self-assessment requirement under TASAR becomes redundant.

However, in practice, the FIRS requires companies to submit self-assessment NITD direct debit declarations within six months of the end of their financial year, together with their CIT / PPT declarations, and to pay the direct debit. before the submission date. This practice is based on a FIRS publication, Understanding the NITD Levy (the publication). As the publication contradicts the provision of existing laws, a taxpayer who complies with it is simply charitable.

When does a business have to pay NITD tax?

In accordance with the provisions of the NITDA Act, NITD tax is payable within 60 days from the time a business receives a notice of assessment of NITD tax from FIRS.

However, in practice, many taxpayers easily pay their NITD at the same time as their CIT, within six months of the end of their financial year, as published. Again, this is charity.

What if a business doesn’t pay or submit returns promptly?

If a business does not pay its NITD tax within 60 days after the FIRS issues a formal notice, it would be liable to a penalty of 2% of the unpaid tax. The penalty becomes payable when the FIRS issues a formal notice to the company. If after two months the penalty is still not paid, the company would be liable to a fine of 1 million naira or more, if convicted. The CEO of the company can also be sued.

The NITDA law does not require companies to submit returns, so there are no associated penalties.

In the publication, for the purpose of imposing a penalty for late payment of the NITD tax, the FIRS indicated that the due date for payment of the tax was 30 days from the date of issuance of the tax. a notice of formal notice; it should be 60 days. FIRS also said the late payment penalty was 10% of the levy and unpaid interest at the Central Bank of Nigeria’s monetary policy rate, plus a spread to be determined by the Minister of Finance.

FIRS positions on penalties and interest on unpaid NITD direct debits contradict the provisions of existing laws. If the FIRS applies a penalty on the levy on the basis of the publication, it will act beyond its powers.

What should a business do if they receive an NITD Direct Debit Request Notice that contradicts NITDA?

In this case, the company must oppose the notice of formal notice, in writing to FIRS, while referring to the correct valuation basis under NITDA. The company must pay its uncontested responsibility in the event of opposition. If the company has wrongly paid more than the correct penalty, it is possible to request a refund from FIRS.

How does a business account for the levy in its financial statements?

The NITD levy is a tax on profits, based on the guidelines of International Accounting Standard (IAS) 12, and therefore should be recognized as a tax expense below the PBT line, in the financial statements for each year.

What is the impact of the tax on other income taxes?

Section 12 (2a) of the NITDA Act specifies that the paid NITD levy is tax deductible. Therefore, in calculating the taxable profits of a business, the NITD levy should be treated as a deductible expense, even if it is recognized below the PBT threshold. Only the paid NITD levy is deductible; therefore, the NITD levy paid for one year is deductible from the profit for the following year. However, a business can claim a deduction from profit for the same year, when it expects to pay the levy before filing its tax return.

Drawing

The table below shows how to account for the NITD levy in a given year and how it can be considered tax deductible in the following year. The assumption in this case is that year 1 is the first year of activity, which is why there is no NITD deduction for that year as none would have been paid the previous year. .

Planning points

Every business should review its tax compliance and reporting process and ensure that it adequately contributes to complying with NITD levy requirements and reports them correctly in the financial statements. Management must put in place relevant controls around these requirements.

If a business does not have a robust tax compliance and reporting process with adequate internal controls, that business is exposed to the risk of non-compliance and material misstatement regarding taxes in its financial statements.

This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.

Nojeem Yusuf is a Director in the Tax and Regulatory Services Unit of Deloitte Nigeria.

The author can be contacted at: nyusuf@deloitte.com.ng