INTRODUCTION
The Federal Inland Revenue Service (“FIRS”) recently issued information circular no: 2021/01 (“the Circular”) for the purpose of clarifying the tax treatment of Non-Governmental Organisations (NGOs) and the application of the provisions of the Companies Income Tax Act (CITA) Cap. C21 LFN 2004 (as amended), Personal Income Tax Act (PITA) Cap.P8 LFN 2004 (as amended), Capital Gains Tax Act (CGTA) Cap. C1 LFN 2004 (as amended) and the Value Added Tax (VAT) Act Cap.V1 LFN 2004 (as amended) to the income, operations and activities of NGOs.
In this piece, we shall discuss the provisions of the key aspects of the Circular.
- DEFINITION OF AN NGO
In the Circular, an NGO is defined as a not-for-profit association of persons incorporated as a company limited by guarantee under PART A of the Companies and Allied Matters Act (CAMA) 2020 or registered under PART C of CAMA, or under any other law in force in Nigeria, or registered under the laws of a foreign jurisdiction and approved as such in Nigeria. The Circular further clarifies that such an association must be registered for the purpose of advancing a public good and not for the purpose of making profit and distribution of same to its members.
NGOs include organisations, institutions and companies engaged in ecclesiastical, charitable, benevolent, literary, scientific, social, cultural, sporting or educational activities of a public character as defined by Section 105 of PITA. Co-operative societies registered under any law within the Federation shall also be accorded the same treatment as NGOs.
- REGISTRATION FOR TAX PURPOSES
All NGOs are expected to register for tax purposes and obtain Taxpayer Identification Number (TIN) with relevant documents such as the registration documents provided by the Corporate Affairs Commission and other relevant documents (if any).
The registration is to be done at the designated FIRS medium tax office of the NGOs as indicated in the table below:
S/N | GEO POLITICAL REGIONS | DESIGNATED TAX OFFICE |
1. | Lagos State | MTO Lagos Island |
2. | North Central & FCT | MTO Abuja |
3. | North East & North West | MTO Kano |
4. | South East | MTO Enugu |
5. | South-South | MTO Port Harcourt |
6. | South West | MTO Ibadan |
- TAX OBLIGATIONS OF NGOs
PERSONAL INCOME TAX
The circular reiterates that the profits of an NGO from approved activities except profits derived from a trade or business carried on by the NGO are exempt from PIT in line with the provisions of Section 19(1) and Paragraph 13 of the Third Schedule to the PITA.
However, the income earned by individual promoters and all employees of the NGO including but not limited to trustees, directors and guarantors shall be liable to PIT. Taxable income in this regard includes but is not limited to emoluments from all sources – including the NGO, fees, salaries, benefits – in- kind.
The NGOs are required, in line with its PAYE obligation to deduct tax at source from salaries and other emoluments of employees, directors, officers, etc. and remit same to the relevant tax authorities in the currency of payment of the emoluments.
COMPANY INCOME TAX
The Circular states that the following income or profits of the NGOs shall be liable to CIT:
- Profits derived from trade or business carried on by the organisation/institution such as proceeds from sale of goods or merchandise, provision of consultancy, professional or other services for a fee;
- Investment Income such as interest, rent, royalty, dividend or similar income.
According to the Withholding Tax Regulations, payers of these income to the NGOs are obligated to deduct withholding tax from the payments. Also, NGOs are obligated to deduct WHT on contracts awarded to suppliers and contractors, as well as other qualifying payments, and remit same to the relevant tax authorities in the currency of transaction.
With respect to filing of CIT returns, by virtue of Section 55 of CITA, it is mandatory for all NGOs to file tax returns every year and such returns shall include audited financial statements, tax and capital allowances computations and a formal statement containing the amounts of surplus from every source for the relevant tax years.
VALUE ADDED TAX
With respect to the treatment of VAT, the Circular makes the following clarifications for NGOs:
- Goods purchased by NGOs for use in humanitarian donor-funded projects are zero rated under the VAT Act, however where the organisation procures contracts or purchases goods that are not directly used in humanitarian donor-funded projects, VAT shall apply at the prevailing rate of 7.5%;
- Any service procured or consumed by NGO is liable to VAT except where such service is exempt under the VAT Act;
- Upon procuring goods or services from persons not liable to charge VAT or from non-resident suppliers, NGOs are required to self-account for the VAT and remit same to the FIRS;
- NGOs shall charge VAT on all taxable goods and services supplied and remit same to the FIRS as and when due.
In compliance with Section 15 of the VAT Act, NGOs are required to file VAT returns with the FIRS on or before the 21st day of the month following that in which the purchase or supply was made.
CAPITAL GAINS TAX
Gains from the disposal of chargeable assets of NGOs are exempt from tax in line with Section 26 of the CGTA, provided that such gains are not derived from the disposal of any assets acquired in connection with any trade or business carried on by the organisation. Also, the gains must be purely applied for the purpose of the approved activities of the organisation.
Additionally, the Circular provides that NGOs shall be required to maintain accurate records of its employees and proper books of accounts and a failure to comply with the aforementioned requirements shall attract appropriate penalties under the relevant Acts.
CONCLUSION
There are several misconceptions surrounding the status of NGOs, with regards to their taxability. Many have argued that NGOs and affiliated individuals such as employees, guarantors, trustees, directors etc. are not to pay any form of taxes.
In view of the above, the FIRS has taken a good initiative via the Circular to provide clarifications on the tax compliance obligations of NGOs in Nigeria. It is hoped that this will also result in additional vigilance of the activities of the NGOs by tax authorities while also misinforming the incidences of tax leakages occasioned as a result of the activities of NGOs.
To read the FIRS Circular, please click here
For more information please contact:
Blackwood & Stone LP
+234 903 3501 613