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Violet Ezirike |
Chinelo Agom-Eze |
While adjudicating a dispute between an international oil company and the Federal Inland Revenue Service (FIRS), the Nigerian Tax Appeal Tribunal (TAT) recently held that where there is a conflict between an agreement and statute, the provisions of the statute prevail. Although this was a positive decision for the foreign company, it nevertheless highlights the negative impact the lack of clarity in Nigeria's tax regimes could have on foreign investment.
The case in question emanated from a conflict between the provisions of the Modified Carry Agreement (MCA) executed between an international oil company and a government agency and the provisions of the Petroleum Profits and Tax Act (PPTA) in the interpretation of deductions of capital allowances. The MCA provides that approval of the Nigerian National Petroleum Corporation (NNPC) should be obtained before any deductions of capital allowances. In contrast, the PPTA allows for deductions without prior approval. The position of the law as espoused by the TAT appears to be at variance with the position of the FIRS, which puts equity interest over economic interest in calculating petroleum profit tax.
An earlier decision of the TAT (Gazprom v. FIRS) addresses the fundamental issue of the clarity of tax regimes. In the instant case, the issue surrounded the registration and charge of tax by the non-resident company with a contract to perform services for a Nigerian company. In interpreting section 10(2) of the Value Added Tax Act, the TAT held that the non-resident company is only required to register and charge VAT where it carries on business in Nigeria. It was further held that since the subject was a contract to perform services for a Nigerian company the same did not apply and reverse charges could not be imposed.
The disposition of the TAT to provide clarity to a complicated tax regime is a vote of confidence in the adjudication of tax related issues. Nonetheless, it is pertinent to consider the prolonged effect of unclear tax laws on foreign investment as this lack of clarity could act as a barrier to entry when companies are unable to ascertain future costs. In countries like India and Cambodia, the unclear tax rules are currently affecting tax returns and hindering possible foreign investment. The Nigerian government must therefore take implicit cues from these matters and establish a clear single stream tax policy, particularly in light of the economic instability facing the nation.
Violet Ezirike and Chinelo Agom-Eze