President Buhari of Nigeria.
The Nigeria Police Trust Fund (Establishment) Act 2018 (the “Act”) was signed into law by the President of the Federal Republic of Nigeria on June 24, 2019. The Act establishes the Nigeria Police Trust Fund, which is designed to, amongst others, provide funds for the training and retraining of personnel of the Nigeria Police Force, provide state-of-the-art security equipment and machineries, to improve the general welfare of the said personnel, and enhance their preparedness to effectively discharge their constitutional duties of protection of life and property.
The Trust Fund is created to exist for only 6 years from the commencement of the Act; and will, at the expiration of that period, cease to exist unless it is extended for any further period by an Act of the National Assembly
The Enactment, has significant tax implications for companies operating in Nigeria particularly bearing in mind the present state of the Nigerian economy and the harsh operating environment pre3sently in the country.
Net profit levy imposed on companies by the Act is effectively double taxation measured against constitutional and international best practices, since the levy is paid from profits that have already been taxed.
implications of the Act on companies in Nigeria
Section 4(1) of the Act provides that the Trust Fund shall, amongst other things, consist of –
- an amount constituting 0.5% of the total revenue accruing to the Federation Account;
- a levy of 0.005% of the net profit of companies operating business in Nigeria; and
- money derived from investment made by the Trust Fund.
Companies operating in Nigeria are now required to pay a levy representing 0.005% of their net profits to the Federal Government for the benefit of the Trust Fund, in addition to the traditional 30% company income tax and 2% education tax paid to the Federal Government from the companies’ taxable profits, it is important to note the use of the term “NET PROFIT” which has significant implications on the calculation of what is due and payable.
Companies operating in Nigeria will not be entitled to deduct the cost of the 0.005% net profit levy contributed to the Trust Fund under the Act from their taxable profits when assessing their 30% company income tax.
The Act failed to define the scope of “companies operating in Nigeria”.
The new levy imposition is also against the spirits of the Revised National Tax Policy issued by the Federal Ministry of Finance on February 1, 2017, which cites reduction in the number of taxes and avoidance of multiple taxation as part of the policy guidelines of the Nigeria tax system[ The imposition of a 0.005% levy on the net profits of companies carrying on business operations in Nigeria obviously failed to take the commendable objectives of the Revised National Tax Policy 2017 into consideration.