Rankings Report: Nigeria

Nigeria's economy begins recovery post-pandemic and moves up ‘ease of doing business’ ranking

In 2020, Nigeria experienced its deepest recession in two decades, but growth resumed in 2021 as pandemic restrictions were eased, oil prices recovered, and the authorities implemented policies to counter the economic shock. Nigeria was highly vulnerable to the global economic disruption caused by COVID-19, particularly due to the decline in oil prices. Oil accounts for over 80 percent of exports, a third of banking sector credit, and half of government revenues. Che Golden reports


s part of its COVID-19 response, the government carried out long-delayed policy reforms in 2020. It began to harmonise exchange rates; it initiated reforms to eliminate gasoline subsidies; adjusted electricity tariffs to more cost-reflective levels; cut non-essential spending; and enhanced debt management and increased transparency in the public sector, especially for oil and gas operations. It has also changed many taxation laws, making it easier to invest and do business in Nigeria, and opening up new markets for accountancy companies.

World Bank annual ratings for 2019 on  ease of doing business ranked Nigeria 131 amongst 190 economies. This was an improvement from its previous ranking of 146 in 2018. Nigeria was also identified as one of the economies with the most notable improvement in ease of doing business in the 2020 report. Some of the major areas of regulatory reforms in Nigeria that led to this rise include improvements in starting a business, dealing with construction permits, getting electricity, registering properties, trading across borders, enforcing contracts and resolving insolvency.

"Since 2019, various changes have been introduced in the statutory laws via the Finance Acts (2019, 2020 and 2021) and the Companies and Allied Matters Act (CAMA)," says Olabisi Afolabi, tax and transfer pricing manager for Pedabo. "While the Finance Acts have been used to amend tax and other revenue generation legislations, CAMA, the principal law governing the registration and administration of companies and other business, was totally revamped."

Olabisi Afolabi
tax and transfer pricing manager, Pedabo

One of the key reforms was aimed at boosting the SME sector. Prior to the enactment of Finance Act 2019, all companies in Nigeria were liable to tax on their profits or subjected to a minimum tax where there is no taxable profit, including start-ups and businesses that are still in the incubation stage. The system of subjecting all companies to tax did not incentivise new businesses that require time and the reinvestment of profits in order to grow, rather than using the little income it generates to pay tax. They also ran the risk of double taxation before reform, a problem that arose from the creation of overlapping tax basis periods when the rules are applied, confusing a lot of business owners and investors. This double taxation of the same income was removed via Finance Act 2019 which amended the commencement and cessation rules to allow new businesses and discontinuing businesses to be subjected to income tax strictly based on the profits of their actual income for each accounting period.

"The new rules have also brought about a simplification of the tax laws which makes planning easier and more realistic for investors," says Afolabi.

The taxation of dividends distributed from retained earnings had been a major sticking point for both local and foreign investors prior to 2020, as any dividend paid by a company was compared with the tax profits of that year such that the dividend was deemed the taxable profits if it were higher. This restricted a companys’ ability to pay dividends from previously taxed but undistributed profits and profits that were not ordinarily taxable. With the amendment of Section 19 of CITA by the Finance Act 2019, dividends from retained earnings, franked investment income, pioneer profits, exempted profits, small companies, and distributions from real estate investment companies are now all exempted from what was previously termed 'Excess Dividend Tax'. This is a relief to shareholders as it eliminates the double taxation occasioned by the old provisions and now incentivises the distribution of dividends from previously undistributed earnings, as well as giving full effect to the exemption status of certain income already exempted from tax by the relevant laws.

Just as some of the regulatory developments are aimed at ensuring ease of doing business, Nigeria has also continued to enact new tax legislations that attempt to encourage tax compliance amongst taxpayers. These measures are put in place to ensure that taxpayers are not intentionally avoiding their tax compliance obligations. Individuals and organisations now have to provide a Tax Identification Number as a prerequisite to opening a business bank account or to have access to a continued operation of their bank account in relation to its business operations.

Collecting taxes will still be an issue as long as Nigerian citizens feel that it is pointless paying them. "Tax evasion in Nigeria is largely fueled by bad governance and the feeling by citizens that, ultimately, they must provide infrastructure and other basic services for themselves," says Abel A. Onyeke, managing partner of Nexia Agbo Abel & Co. "Put simply, it is doubtful if there will be decrease in tax evasion when people believe that their taxes would not be used to benefit them."

Fidelis Chukwu
senior manager, Pedabo

"One of the key changes made to the Value Added Tax (VAT) Act is the appointment of non-resident suppliers (NRS) of goods and services as agents for collection of VAT," says Fidelis Chukwu, senior manager at Pedabo. "This will bridge the VAT leakages created where NRS transacts business in Nigeria via digital means and given the fact that such transactions are difficult to track especially in a business-to-consumer (B2C) arrangement. It is expected that this initiative will help government generate more VAT revenues, given the growth of cross-border digital transactions."

Other changes introduced include the new levies on companies carrying on business in Nigeria, such as the Nigeria Police Trust Fund Levy and the National Agency for Science and Engineering Infrastructure (NASENI) Levy (targeted at specific companies). These levies will be charged at 0.005% on the net profit before tax and 0.25% of annual turnover respectively, and they are expected to give a boost to the government’s efforts at improving national security and providing funding for research and development of technology in Nigeria.

Enacting the Petroleum Industry Act (PIA) was another major development in the Nigerian tax space. The PIA introduced a lot of changes to the governance and fiscal framework of the Nigerian petroleum industry. The new petroleum law regulates both the upstream, midstream and the downstream sectors of the industry. The law also repealed a number of pieces of legislations that were previously operational in the Nigerian oil and gas industry, streamlining the relevant legislation and administration of the industry. This new law will become fully operational in 2023 and it is expected to boost investment in the industry by both local and international players.

However, there is still a lot of work to be done. "Other areas of concern raised by taxpayers are the multiplicity of taxes and demand for these taxes by multiple agents of government, as these have created additional burden on taxpayers," says Chukwu. "Different agencies of government both at state and federal levels demand the same tax from taxpayers, leading to the unpredictability and uncertainty of the tax system. Though the Finance Act 2021 attempts to address one of these concerns by specifically stating that FIRS is the only bona fide agency of government saddled with the responsibility of issuing tax assessment and collecting taxes, the compliance level of this provision remains doubtful."

Peter Nwofia, partner at tax and regulatory services for Mazars, has seen a boom in tax work as the amendments in the tax laws have opened up new frontiers for tax service providers. For example, the introduction of taxation of non-resident companies having significant economic presence in Nigeria and the renewed drive for stamp duties collection, have increased tax engagements in Nigeria.

"However, from a personal perspective, the clients’ demands have increased and this is justifiable considering that these clients are now faced with challenges different from what they have been used to," he says. "Accounting professionals are now challenged to go over and beyond in order to meet the demands of the customers. Similarly, there have been pressures to either provide more services at the old prices or grant a fee cut on same level of service. Many accounting firms had to accede to these requests especially as customers/clients are just coming out of the effects of the Covid 19 pandemic. On the side of employee recruitment and retention, it has become increasingly more difficult to recruit and retain employees in Nigeria as many Nigerian professionals are migrating to other countries. We have also seen the Gen Z employees choosing to rather take on other professions that they consider more flexible and ‘fun’."

Chief Igho Dafinone chairman, Crowe Dafinone, Nigeria

While the boom in demand has led to a significant improvement in fees for tax advisory work, routine compliance and audit work remain resistant to improvement with poor liquidity in the economy hindering growth, according to Chief Igho Dafinone, chairman of Crowe Dafinone. "However, we are seeing growth in the areas of valuation of corporate entities and in handling transactions crossing borders," he says.

Foluso Oso
head of the tax Department,
Crowe Dafinone, Nigeria

"I think there will be improvement in audit fees as customers change their perception and come to value the work much more, ", says Foluso Oso, head of the tax Department at Crowe Dafinone. "We will also see increasing tax practice where ethical behaviour is stressed particularly on international or cross border work. However, I think this will be offset by rising wage costs due to the effect of virtual working with developed economies using economically mobile people. We are now going to have to compete with overseas companies for a limited pool of skilled staff."

Main image credit: Ikechi Ugwoeje