Key points to remember
• The FIRS grants a one-time concession to taxpayers with tax obligations denominated in foreign currencies to pay those obligations in naira, converted into naira at the exchange rate of the FX CBN Investors and Exporters (I&E) desk.
• The concession period runs from March 1 to March 31, 2022.
• Certain categories of businesses and operations are excluded from the concession.
Recently, the Federal Inland Revenue Service (“FIRS”) issued a public notice titled “Payment of unpaid foreign currency tax debts in Naira” (the “Note“), which grants taxpayers a concession, within one month, to pay their tax debts denominated in foreign currencies in Naira.
Generally, taxpayers are required under Nigerian tax law to assess and pay their tax liabilities in the currency that was used for the underlying transactions from which the tax liabilities arise. More specifically, Article 54 of the Corporation Income Tax Act (as amended) (“CITA”) provides that income tax under the CITA must be made in the currency in which the transaction giving rise to the tax was made.
Lately, there have been currency problems (“currencies”) the liquidity and stability of the Nigerian interbank foreign exchange market, which has affected the supply and availability of foreign currency in the foreign exchange market. This concession granted and published in the notice will allow companies that have experienced difficulties in obtaining foreign currency to offset their tax obligations to the FIRS.
As stated in the Notice, the concession covers all taxpayers and all types of taxes except:
I. Companies operating in the oil and gas (upstream) sector (presumably because they usually earn foreign currency revenues); and
II. Tax liabilities denominated in foreign currencies that matured on or before December 31, 2021.
The concession granted will expire on March 31, 2022. Thus, taxpayers may have to obtain foreign currency to settle their tax debts denominated in foreign currencies after the end of the concession period.
Taxpayers who wish to take advantage of the concession to offset their tax obligations denominated in foreign currency in naira will be required to pay such obligations in naira at the applicable rate of exchange based on the Central Bank of Nigeria exchange rate. FX Investors and Exporters (I&E) Window on the date of the transaction and/or the date on which the tax liability became payable. In addition, proof of payments along with relevant transaction documentation should be forwarded to the office of the FIRS Executive Chairman, with a copy submitted to the local tax office where the taxpayer is domiciled.