- Ascensions Consulting Services
Transcription
- Ascensions Consulting Services
Introduction 2.2 The Oil and Gas Free Zone Authority (“OGFZA” or the “Authority”) has published a NOTICE for what it termed as an efficient tax administration in the Oil and Gas Free Zones. The OGFZA notice which was issued in February 2015 created a Free Zones Tax Administration Unit (FZTAU) and Free Zones Global Investment Ltd (FZGIL). The latter is saddled with the responsibility of implementing the process. Although the notice was to take effect retroactively from 1st of January, 2015, however stakeholders in the sector have raised concerns on the action of the OGFZA over the propriety of the notice and the choice of date. The notice is said to derive its validity from Oil and Gas Free Zone (OGFZ) Act and its Regulations. 2. Highlights of the Notice 2.1 Commencement of the Notice The notice was to take effect from 1st January 2015, upon which no free zone enterprise shall interface directly with the Federal Inland Revenue Services (“FIRS”) or State Internal Revenue Services “SIRS”) or any public or private tax agencies for tax matters without recourse to FZTAU. It also stated that from the commencement date, all such taxes payable in the zone will be paid into the appropriate designated banks as contained in its published schedule of banks. Copies of all such payment schedules, are expected to be submitted to the FZTAU for record purposes. Regulatory Framework Regulation 34, of the OGFZ Regulations 2003 provides: “A Free Zone licensee shall: (a) at all times, comply with the terms and conditions of the licence and any lease agreement; (b) comply with administrative directives and circulars issued by the Authority, from time to time; (c) comply with the laws of Nigeria, to the extent in which they are applicable in the Free Zone; (d) submit to the Authority, at such intervals; that may be prescribed by the Authority, such statistical data, information and returns as regards the audited accounts, sales, purchases and other operations of the licensee, as the Authority may require or prescribe, from time to time” Section 13 (1) of OGFZ Act, 1996 also provides thus: “No person shall, without the prior permission of the Authority, enter, remain in or reside in the Export Free Zone.” Ascension Consulting Services 178B, Prince Ade Odedina Str, Off Sinari Daranijo Str, Victoria Island, Lagos, Nigeria. Tel: +234 1 761 4701 Mobile: +234 805 401 2394 [email protected] Section 5(1) (c), of the OGFZ Act, 1996 further provides that: (1) In addition to any other functions conferred on the Authority by this Act, the functions and responsibilities of the Authority shall include – (c) the approval of development plans of the Authority and the Export free Zone, the annual budget in respect of infrastructures, administrative buildings, promotion of the Export Free Zone, the provision and maintenance of services and facilities; By the combined effect of the foregoing provisions, Free Zone licensees are bound to comply with the directives of OGFZA and are equally bound by the laws of Nigeria to the extent that they apply to the Free Zones. Also no person shall enter the Free Zone without the prior approval by the OGFZA as the law allows the OGFZA to come up with developmental plans within the Free Zones. 2.3 Establishment of FZTAU and FZGIL The notice seeks to establish a Free Zone Tax Administration Unit saddled with the responsibility of collecting taxes, and to carry out a tax audit process etc. in the Zone. To this effect, Free Zone Global Investment Ltd has also been incorporated by the OGFZA to undertake the installation of efficient tax administration in all Oil & Gas Free Zones 2.4 Taxes Allowable in the Free Zone The notice contains a list of taxes deemed to be excluded from exempted taxes in the Free Zone, which include; a. PAYE tax of employees of Free Zones enterprises b. Withholding tax of third parties transacting in the Free Zones c. VAT on third party transactions in the Free Zones d. ITF deductions for training of Free Zone employees. The OGFZA highlighted these taxes so as to be consistent with the provisions of Section 8 of the principal Act (OGFZ Act, 1996) which provides that approved enterprises operating in the Export Free Zone are exempted from Federal, State and Local Government taxes, thus providing a clarification for the taxable position of unapproved enterprises operating in the zone. 2.5 Unit Duties of Free Zone Tax Administration The notice confers the following duties on the FZTAU within the Free Zone: a. To interface between free zone enterprises and all tax agencies in order to minimize the incidence of tax disputes. b. To harmonize and coordinate the process of collecting allowable taxes in all Oil and Gas Free Zones. c. To serve as a tax collection agent for all tax agencies in the collection of allowable taxes in the free zone. d. Liaise with all tax agencies and obtain tax clearance certificate for employees and receipts for contractors of free zone enterprises. e. Submit all such tax clearance certificate and receipts to free zone enterprises for distribution to their employees and contractors. f. Conduct periodic Tax Audit for all enterprises operating in the zone to ensure compliance. g. To issue periodic tax notifications to free zone enterprises to remit all tax deductions as at Ascension Consulting Services 178B, Prince Ade Odedina Str, Off Sinari Daranijo Str, Victoria Island, Lagos, Nigeria. Tel: +234 1 761 4701 Mobile: +234 805 401 2394 [email protected] when due in order to avoid unnecessary penalty for late or non-payment of payable taxes. a. Implication on Tax Agencies (FIRS, SIRS etc) h. To arbitrate on any tax dispute arising between a free zone enterprise and any tax agency. i. 2.6 ii. Penalties and interest on the taxes will be demanded from FZTAU where a default in payment occurs. The Free Zone Global Investments Ltd The Free Zone Global investments Ltd is a company incorporated by OGFZA to ensure efficiency and professionalism in the implementation of its new directive. The Company shall be the Special Purpose Vehicle (SPV) of OGFZA, towards undertaking the installation of efficient tax administration in all Oil and Gas Free Zones. 3. Comments and Observations 3.1 Controversies leading to the Notice The OGFZA raised concerns in its notice that contrary to the OGFZ Act, there has been series of reports of various government agencies entering the Free Zones and demanding for payment of taxes from the Free Zones Enterprises without seeking permission. It further observed that as a result of the direct interface of Tax Agencies and Zone Licensees, disputes and court cases have erupted. In order to avoid such unfriendly occurrences in the Free Zone and in compliance with Section 5 (1) (c) of the OGFZA Act 1996 and other sections cited above, the OGFZA decided to intervene and interface directly with all such public organizations to reduce incidence of frictions between free zones enterprises and these agencies. 3.2 Implication of the Notice Although there are a lot of arguments to be canvassed for and against the notice, however the anticipated effects the notice may have include: The Tax agencies will have to demand payment of payable taxes from the FZTAU directly. iii. The Tax agencies will have to sue FZTAU where any default or issue arises requiring the court to intervene. b. Implication on Free Zone Enterprises (including their employees, contractors etc.) i. The Free Zone Enterprises will have to pay the taxes of their employees or contractor to the FZTAU. ii. All complaint on assessment, collection or enforcement of taxes will be directed to FZTAU. iii. The Free Zone Enterprises may have to sue FZTAU where any dispute arises. c. Oil and Gas Free Zone Authority i. OGFZA through FZTAU acts as an intermediary between the free zone enterprises and the tax agencies. ii. FZTAU will have to perform the functions of the tax agencies e.g. tax audit, issuing tax notification etc. iii. FZTAU will have to ensure that taxes collected are fully remitted to the tax agencies concerned and ensure all necessary documentations are prepared and forwarded to the tax payers. iv They must ensure that the indicative time lines for payment of taxes are fully complied with. Ascension Consulting Services 178B, Prince Ade Odedina Str, Off Sinari Daranijo Str, Victoria Island, Lagos, Nigeria. Tel: +234 1 761 4701 Mobile: +234 805 401 2394 [email protected] 3.3 Legality of prohibiting entry of Tax Agencies into the Free Zone One recurrent question to ask is whether the notice is made within the bounds of relevant Laws? The Act allows the OGFZA to issue directives and circulars to facilitate its administrative functions. The Act further confers on the Authority the powers to superintend the Free Zone, such that persons, which will include bodies, public or private agencies, who intend to gain access to the Free Zone will have to first obtain permission. It is in this light that the OGFZA issued the notice to regulate the access and interactions affecting the Zone Licensees. Although the Act vested the power to administer the zone in the OGFZA, it allows persons to gain access into the Zone provided the permission of the OGFZA is sought and granted. Consequently, where the OGFZA issues directives precluding persons or tax agencies as the case may be from gaining direct access to the zone to carry out their lawful duty, it may be argued that such directive has enlarged their powers, whether they have acted within their powers will be for the courts to determine. 3.4 Legality of Collection of Taxes and Conduct of Periodic Audit by FZTAU The issue of tax is a constitutional matter. A closer look at Section 163 of the 1999 Constitution (as amended), expressly confers the powers to collect taxes on the Federal and State Governments. Section 8 of the Federal Inland Revenue Establishment Act (FIRSEA) 2007 points out the powers of the Federal Inland Revenue Service (FIRS) to collect taxes on behalf of the Federal Government. On the other hand, the States collect taxes through the various State Internal Revenue Services. The OGFZ Act limits the OGFZA only to the regulation of the affairs of entities operating in the zone and makes no provision for the body to collect taxes. Therefore, for the OGFZA to enlarge its statutory powers to include the collection of taxes by a mere Notice, may mean a disregard of existing order. Also, the function of conducting audit is the prerogative of the FIRS or SIRS consistent with the provisions of Section 26 (4) of the Federal Inland Revenue Service (Establishment) Act 2007 (FIRSEA) and Section 47 (4) Personal Income Tax Act 2011 as amended. It is our view that taking up this responsibility is contrary to the intendment of the law and may bring the concerned entities to a future double jeopardy. 3.5 Legality of the MOU The notice reveals that parties concerned have signed MOU in this regard. It may also be argued whether the parties can sign such an MOU, considering the fact that it will mean assigning its powers to persons not envisaged by the law. In law, parties are free to enter into agreements, however the parties must have the capacity to enter such agreement. Also parties are allowed by law to delegate their powers in accordance to law. The provisions of Section 8,Federal Inland Revenue Service (Establishment) Act 2007, empowers the FIRS to assess, collect, account and enforce payment of taxes payable to them, (in this case Value Added Tax and withholding taxes of third party transactions within the Free zone). Similar provisions are contained in Personal Income Tax Act, which confer the same power on the various State Internal Revenue Services to collect PAYE taxes. Although the notice did not specify the tax agencies that the OGFZA entered the MOU with, however, it may mean that the aforementioned government agencies may have totally delegated their powers to the FZTAU within the Free Zone. 3.6 Dispute Resolution The Tax Appeal Tribunal (TAT) is the body saddled Ascension Consulting Services 178B, Prince Ade Odedina Str, Off Sinari Daranijo Str, Victoria Island, Lagos, Nigeria. Tel: +234 1 761 4701 Mobile: +234 805 401 2394 [email protected] with the responsibility of settling disputes arising between the tax payer and the tax authority. From the Notice, Value Added Tax (VAT) and Withholding taxes of third party transaction are payable in the Free zone. These taxes are administered by both the Federal Inland Revenue Service (FIRS) and State Internal Revue Authorities. It is our view that these tax regulatory bodies should be the ones to enforce the payment of these taxes and appear at tribunals or other competent courts in tax disputes. Where the notice purports to confer on the FZTAU the power to collect taxes, the problem will be whether the FZTAU can also enforce the collection of such taxes in the Tribunal or court of law? Conclusion It is our view that the notice infringes on the powers of the various Tax agencies, considering the fact that their functions will now be performed by an arm of the Oil and Gas Free Zone Authority (.OGFZA). Also by assuming the status of an intermediary in relation to taxes collectable within For further enquiries please contact: the Free Zone, OGFZA has enlarged its statutory functions/ powers. We recommend that in overseeing the Free Zone, - OGFZA through the FZTAU, should neither act as a regulatory agency nor as an intermediary because agencies like the FIRS and the SIRS’s are regulators by law nor have the capacity and specialization for this task. Disclaimer Please note that this memorandum is not intended to give specific technical advice and it should not be construed as doing so. It is designed to alert clients to some of the issues. It is not intended to give exhaustive coverage of the topic. Professional advice should always be sought before action is either taken or refrained from as a result of information herein. In any case, Ascension does not accept any responsibility for any decision whatsoever made based thereon or any liability incurred for failure to consult with professionals on any specific areas of issues raised. Azeez Alatoye 08099934520 [email protected] Ademola Olanrewaju 08098568889 [email protected] Adeniyi Sunmola 08099934537 [email protected] Ascension Consulting Services 178B, Prince Ade Odedina Str, Off Sinari Daranijo Str, Victoria Island, Lagos, Nigeria. Tel: +234 1 761 4701 Mobile: +234 805 401 2394 [email protected]