Archive for month: November, 2022

By Seun Timi-Koleolu and Feyijuwa Akinyanmi

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Introduction

The Nigerian Finance Act, 2021 grants the Federal Inland Revenue Service (“FIRS”) new powers to appoint persons as Value Added Tax (“VAT”) agents for the purpose of collecting and remitting VAT to the FIRS.  In furtherance of this, the FIRS recently issued a public notice (“Notice”), appointing Telecommunications service providers- MTN and Airtel; and money deposit banks, as VAT agents and mandates them to collect/withhold VAT on taxable supplies made to them.

We have set out below, information to provide clarity on the notice.

1.What is VAT?

VAT is a consumption tax paid on goods and services supplied in Nigeria other than goods specifically excluded under the Value Added Tax. It is currently charged at the rate of 7.5%.

2. Application for a Type Approval Modification Certificate

Generally, suppliers of goods and services in Nigeria are required to collect VAT at the rate of 7.5% and remit it to the FIRS on or before the 21st day of the following month. Most service providers usually charge their clients VAT in addition to their fees.

3. What has the Notice changed?

By virtue of the Notice, money deposit banks (commercial banks), MTN and Airtel (the “New VAT Agents”) are now required to withhold VAT on taxable goods and services supplied to them. The Notice also requires the New VAT Agents to remit VAT withheld to the FIRS on or before the 21st day of the following month.

4. When will the Notice take Effect?

The New VAT Agents are required to commence withholding VAT from January 1, 2023.

5. Is there any Penalty for Failure to Comply with the Provisions of the Notice?

The New VAT agents that fail to collect or withhold VAT from relevant contractors would be liable to pay a penalty of 150% of the amount not collected plus 5% interest above the CBN Monetary policy rate.

6. How can Service Providers Get a Refund For Input Tax Already paid?

Generally, the Value Added Tax Act permits taxable persons to offset the VAT paid by them on business costs (Input Tax) from VAT charged on their goods and services and payable by their clients (Output Tax). It is, however, important to note that only input tax paid on: i) goods purchased or imported directly for resale;  and ii) goods that form the stock-in-trade used for the direct production of any new product on which the output tax is charged, is permitted to be deducted from the business’ output tax.

Where the output tax exceeds the input tax, the taxable person will be required to remit the excess to the FIRS. However, where the input tax exceeds the output tax, the taxable person will be entitled to request a refund from the FIRS.

Under the Notice, the FIRS stated that businesses whose input tax exceeds their output tax would be entitled to a refund from the FIRS. The FIRS is also permitted to convert the amount refundable to credits for the purpose of offsetting their future VAT liability.

Conclusion

Although, we are not privy to the reasons for the authorisation of the New VAT Agents to commence the collection of VAT, this might be a test run  by the FIRS for a system of VAT collection by consumers.

We will keep you updated with new developments.

By Seun Timi-Koleolu and Adedolapo Arisoyin

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Introduction

On November 8, 2022, the new Africa Carbon Markets Initiative (ACMI) was inaugurated at the United Nations Climate Change global conference held in Sharm, Egypt, with an objective to scale the production of carbon credit across the continent.

Nigeria and other African countries shared their commitment to collaborating with the ACMI to achieve this objective, and we expect that steps will be taken in Nigeria to implement this objective.

In furtherance of this commitment, it is expected that the Nigerian government will put in place a framework for the implementation of a carbon credit system in Nigeria.

We have set out in this article, a general overview of how carbon credits work in other jurisdictions, as we expect that a similar system will be adopted by our government in developing the framework.

1. What is carbon credit?

Carbon credit is an instrument that represents one (1) tonne of carbon dioxide (CO2) or greenhouse gas (GHG) emissions removed from the atmosphere. Carbon credits are given to companies whose activities benefit the climate either by removing CO2 from the air or preventing it from being emitted in the first place.

Carbon credits were devised as a mechanism to reduce GHG emissions by creating a market in which companies can trade in emissions permits. Under the system, companies get a set number of carbon credits, which decline over time, and can sell any excess to another company.

2. What are the types of carbon credit markets?
There are broadly two types of carbon credit markets in the world right now, the compliance market which is developed as a result of regulatory requirements, and the voluntary market, which allows private companies and individuals to purchase carbon credits voluntarily. We assume that in Nigeria, the first market that will be developed will be the compliance carbon credit market.

3. How do carbon credits work?

Typically, in jurisdictions like the USA, and certain developed nations where regulations exist with respect to the activities governing carbon credits, it is the responsibility of the governing body to create and allocate carbon credits periodically to deserving companies and individuals within that jurisdiction. The number of credits issued to a particular company or organization represents its emissions limit.

In certain jurisdictions, carbon credits are given to companies whose activities pull out
emissions from the atmosphere. Companies that want to compensate for their carbon
footprint may purchase carbon credits from responsible companies that have accumulated
carbon credits.

4. How does a company qualify for carbon credits?

In states in the USA where regulations for carbon credits exist, companies that:  i) over time produce less GHG emissions, and ii) embark on projects that prevent GHG emissions or aim to remove GHG emissions from the atmosphere, will be eligible to earn carbon credits.

5. Who can purchase carbon credits and from where?

Carbon credits can be purchased by individuals, companies, non-profit organizations, and governments. Carbon credits can be purchased: directly from private companies with excess carbon credits; through a broker, and on a climate trade marketplace.

6. What are the benefits of carbon credits to companies?

a. It creates monetary incentives for companies that consciously embark on projects to reduce GHG emissions; and for companies that devise methods to reduce its GHG emissions in the course of its activities;

b. It creates a system for the proper measurement and verification of emission reductions; and

c. Addressing climate change will create immense dividends for the African and Nigerian economy.

7. What are the Regulations that affect carbon credits in Nigeria?

The United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol and Paris Agreement, whose objective is to stabilize GHG concentrations in the atmosphere, to which Nigeria is a party.

The Climate Change Act, 2021 which provides a legal framework for achieving low GHG emissions and categorizes climate change actions into national plans and programmes.

It is also interesting to note that Nigeria has launched its Energy Transition Plan, which details a roadmap to achieve net zero emissions by 2060.

Conclusion

It is not clear the category of companies that will be eligible for carbon credit in Nigeria. We, however, expect that the Nigerian government will develop a framework that will outline and govern the implementation of carbon credits in Nigeria in the near future.