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From Uche Usim, Abuja
The Federal Inland Revenue Service (FIRS) on Tuesday explained why Nigeria was among the four countries that were missing at the 140-nation deal that sought to increase taxes imposed on multinational companies to 15% and ultimately galvanize the reallocation of more than $125 billion of profits from around 100 of the world’s largest and most profitable multinational enterprises (MNEs).
The deal, held in Paris, France in October this year, at the instance of the Organisation for Economic Cooperation and Development (OECD), represents more than 90 per cent of global Gross Domestic Product (GDP), ensures that these firms pay a fair share of tax wherever they operate and generate profits.
However, reacting to the development, FIRS, in a statement, noted that Nigeria’s reasons for not agreeing to the two-pillar solution adopted by the OECD G20 stem from concerns on potential negative revenue returns that the rule would have for developing countries; which were totally unaddressed.
Explaining in detail, the statement quoted Mr Mathew Gbonjubola, the Group Lead Special Tax Operations Group, and Nigeria’s representative at the OECD Inclusive Framework as saying that despite the expected outcome that both pillars will increase global corporate income tax by as much as $150 billion per annum, with an attendant favourable environment for investment and economic growth, there were serious concerns that the pillars did not address negative revenue outcome for Nigeria and other developing countries.
“The general issue that developing countries have with the outcome that was published on October 8th is the high cost of implementation. And that speaks to the complexities of the proposal in the inclusive framework statement. In every complex situation or rule, implementation and compliance will always be difficult. When implementation or compliance is difficult, there would be a high cost of implementation.
“Another issue was that the economic impact assessment that was carried out on Pillar 1 and 2 were founded on an unreliable premise. The country-specific impact assessment that was done was top-down. Somebody just looked at the GDP of Nigeria and says Nigeria’s GDP is this much and then they should be able to buy this number of shoes and things like that. And you and I know, in that kind of postulation, the margin of error is usually very wide. That exactly was what happened with this. Particularly for Nigeria, when we ran the numbers it was way off the figures that the OECD gave us.
“And the final issue most developing countries had was that the developed world, within the inclusive framework, was very indifferent to the concerns expressed by most developing countries. This you can see from the outcome, with respect to the complexity, issues of the high cost of implementation and on the issue of revenue accruable to developing countries. When you look at the bulk of the money that would accrue from the project, if any, 70% – 80% will go to the developed countries. Almost nothing comes to the developing countries.”
On the specific concerns raised by Nigeria, Mr Gbonjubola, who led Nigeria’s team on the Inclusive Framework negotiations, explained that while the whole project started out to find solutions to the challenges of a digitalised economy the outcome was completely different.
He went further to note that the statement by the OECD Inclusive Framework required all parties to remove all Digital Service Taxes and other relevant similar measures with respect to companies taxation and to commit not to introduce such measures in the future.
“The statement required the withdrawal of unilateral measures by countries. Which Nigeria does not have a problem with (Nigeria does not have any unilateral measure targeted at digital services companies). However, the paper that was released on unilateral measures was so expansive in its definition that we are concerned that the taxing rights that Nigeria has always enjoyed may be withdrawn.”
He further explained that Nigeria is unable to implement the mandatory binding resolution on arbitration because of constitutional limitations as to tax dispute resolution.
He also stated that for Nigeria, “Pillar 2 is not a deal-breaker because Nigeria could work with Pillar 2.
“We have a few issues with Pillar 2 but we could live with them but because Pillar 1 and 2 are a single package, since we are rejecting Pillar 1, we can’t take on Pillar 2.
“Under the inclusive framework rule you either accept both Pillars or you reject both Pillars. You cannot pick one to the exclusion of the other. And since Nigeria is not able to join one of the pillars, it means we are out of both Pillars.”
Mr Gbonjubola also stated that Nigeria does not see any additional revenue coming to by way of Pillar 2, though he added that it could act as a behaviour modifier for policymakers to take another look at the various tax incentives and tax waivers we have in our tax laws and begin to restructure them in other to ensure that we are not deliberately throwing away revenue.
“Nigeria could not sign up to the statement of the inclusive framework because it did not address the concerns that we had expressed as a country and it also did not take cognisance of issues around developing countries, which will make those outcomes not to provide additional revenue, and if any, very little, and at very significant cost,” the FIRS explained.
