…Expands scope of taxable income
The National Assembly has proposed significant amendments to the Companies Income Tax Act (CITA), aimed at tightening tax enforcement on foreign shipping and aviation firms operating in Nigeria.
The tax reform bills are now before President Tinubu for assent.
Both chambers of the National Assembly had last week adopted a harmonised version of the tax reform bills submitted by the conference committee.
The reports were presented by Sani Musa, chairman of the conference committee, who also chairs the finance committee in the Red Chamber, and James Faleke, chairman of the House Committee on Finance (APC, Lagos).
At the heart of the reform is the amendment to Section 14, which governs the taxation of foreign transport companies.
According to the revised provision of the Nigerian tax bill, foreign companies engaged in sea or air transport will now be taxed on profits accruing from carriage services initiated in Nigeria, regardless of where the company is domiciled.
“Where a company (whether or not a Nigerian company) carries on the business of transport by sea or air and calls at any port in Nigeria, the profits of the company from the carriage of passengers, mails, livestock or goods shipped, or loaded into an aircraft in Nigeria, shall be deemed to be derived from Nigeria,” read Section 14(1) of the bill.
Read also: Rivers: N’Assembly still has power to stop Tinubu’s declaration – Prof. Ajayi
This means that even if the company is not registered in Nigeria, it is still liable for tax on all cargo and passengers originating from the country.
The only exception, as stated in Section 14(2), applies where “the carriage is undertaken solely for the purpose of trans-shipment or of transfer from one form of transport to another.”
Furthermore, Section 14(4) introduces an anti-tax avoidance mechanism, allowing Nigerian tax authorities to apply foreign ratios to determine profit where reciprocal laws exist:
“Where the Board is satisfied that a company has been assessed to tax… in a country outside Nigeria which imposes tax on profits similar to the tax imposed by this Act… the Board may adopt the ratio of profit to receipts and the ratio of depreciation to receipts from that country and apply them to the operation in Nigeria.”
In the absence of such data, Section 14(5) authorises the use of a fair percentage of the company’s total Nigerian revenue to ascertain tax.
Additionally, a minimum tax threshold of two percent of gross revenue from Nigerian operations is now established under Section 14(6).
To support enforcement, Section 14(8) now mandates that regulatory authorities in the maritime and aviation sectors request evidence of income tax filing and tax clearance certificate for the preceding three years before granting any operational permit.
Meanwhile, Section 27 of CITA, which deals with disallowable deductions, has also been revised.
Notably, the amendment introduces a limitation on capital allowance claims to curb tax avoidance practices, especially by foreign firms and digital asset companies.
Section 27(1)(h) also introduces a safeguard against abuse of imported asset depreciation:
“Capital allowance shall be allowed in respect of assets imported into Nigeria only where there is a certificate issued by the appropriate authority or relevant documentation confirming the existence and importation of the asset.”
The National Assembly’s move to amend Section 31 further strengthens how total profits are computed.
Read also: N’Assembly passes NDLEA bill, replaces death penalty with life imprisonment for offenders
It now stipulates, “The profits of any company for each year of assessment from all sources of income shall be ascertained separately in accordance with the provisions of this Act and shall be the profits of the company after deduction of all expenses incurred during the year in question which are wholly, exclusively, necessarily and reasonably incurred in the production of those profits.”
Samuel Agbeluyi, immediate past president of the Chartered Institute of Taxation of Nigeria (CITN), lauded the federal government’s tax reform initiatives, describing them as timely and aligned with global best practices.
“This isn’t peculiar to Nigeria alone. Globally, non-resident entities pay taxes where they generate income,” he said.
He explained that shipping has long played a critical role in Nigeria’s economic life, especially in crude oil exports, the importation of consumer goods, and logistics.
Nigeria, he noted, also has over 30 airports, including five international hubs that are vital for passenger movement and cargo freight.
He explained, “Yet, due to the capital-intensive nature of these sectors and the dominance of foreign players, enforcing tax compliance has been a major challenge.
“These cross-border companies often escape taxation, leading to significant revenue loss.”
He welcomed new provisions in the tax legislation, which are expected to be signed into law by President Bola Tinubu, highlighting that profits derived from the carriage of goods or passengers originating in Nigeria should be chargeable to tax.
