A non-governmental organisation (NGO) is an association of persons registered under Section 590 of the Companies and Allied Matters Act (CAMA) 1990. Upon registration of the association, the body corporate may contract in the same form and manner as an individual in accordance with Section 605 of CAMA 1990.
It is to be noted that by virtue of the provisions of Section 23 of the Companies Income Tax Act (CITA) any organisation registered under any law within the federation or any part thereof as a co-operative society shall also be treated as an NGO.
NGOs include organisations, institutions and companies engaged in ecclesiastical, charitable, benevolent or educational activities of a public character.
Many countries including Nigeria have recognised the significant role being played by these organisations in building a strong, caring and well-functioning society as well as in contributing to its welfare and economic growth.
In recognition of this, government grants tax incentives to such organisations in form of exemption of their profits (other than those derived from trade or business carried out by them) from income tax and zero rate of Value Added Tax (VAT) for their humanitarian services.
The role of the tax authority is to ensure that these tax incentives or benefits are appropriately enjoyed and not abused and that the obligations associated with the tax benefits are complied with by the NGOs. Therefore, these guidelines are to check possible abuse and ensure standardisation.
Legal basis
Section 23(1) of the CITA Cap C21.LFN 2004 states that the profit of any statutory, charitable, ecclesiastical, educational or other similar associations are exempted from CIT obligations provided such profits are not derived from any trade or business carried on by such an organisation or association.
Where an NGO engages in any trade or business, the profit derived there from will be subjected to income tax as provided for in the Act. Also, where the NGO invests its assets in any institution, the income derived from such investment shall be subjected to tax. It should be noted that Capital Gains Tax (CGT) shall arise where assets are disposed of by the NGOs at a gain.
Case Laws
A relevant case is that of Arbico Ltd Vs FBIR, {1996} 2 All NLR 303. The plaintiff in the dispute, Arbico, had acquired a plot of land, erected a building and sold the property at a profit.
The company was subsequently assessed for tax on the proceeds of the sale of the property. The company objected to the assessment on the basis that the transaction was a one-off and did not constitute “trade”. The case was ultimately settled in the Supreme Court.
