The biggest challenge that the Federal Inland Revenue Service (FIRS) is currently grappling with is funding of the 2016 budget and subsequent ones.
Chairman FIRS Mr Tunde Fowler stated this while responding to questions from reporters after the opening ceremony of the meeting on Transfer Pricing in the Economic Community of West African States (ECOWAS), said the Federal Government has had a recourse to funding its budgets from taxation by ensuring that all corporations operating and making profit within the country pay the appropriate tax when due.
The forum had: Protecting the Tax Base and Building a Strong Investment Climate Across the Region as its theme.
Fowler urged all citizens whether in the state or local government to pay their right tax and levy, and assured that the FIRS would ensure optimal expenditure of the fund.
He said: “The biggest challenge for FIRS this year is to fund our current and future budgets. But at the same time, being the largest economy, some people might say the second after the evaluation of the exchange rate.
“However, we have to rely on taxation to fund our budget and subsequent budgets; and we have to ensure that all organisations operating within Nigeria, making profit within Nigeria pay the taxes that are due to Nigeria.
“I think it is a collective drive. All of us in Nigeria, whether you are paying federal tax or state tax or local government levy, we just have to pay the right amount of taxes while we as administrators we do the best we can do with it.”
Explaining the topic “transfer pricing”, Fowler said it meant to make profit in one location and declare it in another place where there is lower tax rate to deny the country where the income was generated the accruable tax benefits.
He said:”What they are talking about is transfer pricing, because when profits are made in one location but declared in another location usually where the tax rate is lower.
“So, let’s give a simple example. You might have companies- multi-nationals operating in Nigeria and declaring the profit in another country where the tax rate is lower. So, where the income is made or the interest is generated from does not benefit from the taxation.”
The FIRS chairman said the challenges of price transfer has caused Organisation for Economic Cooperation and Development (OECD) $250 billion loss of taxation of which the West African sub-African region lost about $9million in the circumstance.
He said: “It is a problem all over the world. Like I said earlier the OECD last year gave a figure of $250 billion loss in taxation. One of the speakers from ECOWAS (Economic Community of West African States) said within the West African sub-region, we are looking at between $3million and $9million. If you convert that, you can imagine what it can do for any African country.
“This forum has two focuses. One is to improve the level of tax administration, to exchange ideas and ensure that the tax administration within the sub-region have to do with these issues. We have treaties whereby you will not be taxed in two different countries.
This has nothing to do with double taxation. “
Speaking earlier at the opening ceremony the ECOWAS Commissioner for Industry and Private Sector Promotion Kalilou Traore stated that “The Economic Community of West African States is committed to implementing programs that facilitate regional integration and making it work for private sector operators and the people of West Africa,”
“We recognize that it is important to develop internationally shared transfer pricing principles for the region” he furthered added
The event is an opportunity for ECOWAS countries to share their experiences of introducing and implementing transfer pricing rules. Initiatives will be identified to assist member states to address implementation challenges arising from the scarcity of data, information and limited capacity.
“Taxes from multinational companies constitute a substantial amount of tax revenue in West African countries. This regional workshop is an opportunity for Nigeria and other ECOWAS member states to collaborate on protecting their tax base with efficient transfer pricing regimes”, said Mathew Gbonjubola, Head, International Tax, Nigeria Federal Inland Revenue Authority (FIRS).
The meeting will aim to determine the future direction of transfer pricing regimes in ECOWAS countries, in light of regional and international initiatives. The member states will explore how they can cooperate to support each other to introduce effective transfer pricing regimes throughout the region.
For his part Head of Section – Economic Cooperation and Energy Juan Casla, said “The fact the European Union is financing this project is testimony of the Commission’s committed to supporting developing countries to establish efficient, effective, fair and transparent tax systems, to implement international tax standards, and therefore to increase domestic revenue mobilization and tackle tax evasion, tax avoidance and illicit financial flows. Our support to improving investment conditions is a priority of the EU cooperation with West Africa in general and Nigeria in particular,”
“West Africa has enormous potential to strengthen their competitiveness and increase investment flows, which can drive growth, reduce poverty, and deliver jobs to the region. The World Bank Group is pleased to be working in partnership with regional organizations, member states, the private sector and development partners to help these countries unlock investment challenges along key trade corridors, and improve their competitiveness within the global economy,” said Roland Lomme, Senior Governance Specialist, World Bank Group.
The transfer pricing program is an element of the Improved Business and Investment Climate in West Africa Project, a four-year initiative that was launched in November 2014. The €7.7 million project, funded by the European Union, seeks to support ECOWAS to improve investment policy in West Africa. The transfer pricing program is implemented by the World Bank Group, in partnership with OECD and ATAF.
It is comprised of the following areas of support: comprehensive reviews and recommendations on the transfer pricing rules of ECOWAS countries, including a detailed survey and report to be presented at the event; in-depth long-term support on transfer pricing policy, legislation and implementation to three ECOWAS countries: Liberia, Nigeria and Senegal (available to other ECOWAS countries from 2017); the development of tools to assist ECOWAS countries to increase their capacity on transfer pricing and related issues; and the identification of ways in which ECOWAS countries can mutually support each other in the development and implementation of transfer pricing rules.