By Hillary Asemota
The Federal Inland Revenue Service (FIRS) has explained why Nigeria did not sign the Organisation for Economic Cooperation and Development (OECD) G20 inclusive framework two-pillar solution to tax challenges of the digitalized economy.
According to FIRS, the framework two-pillar solution proposes a framework of rules aimed at tackling base erosion and profit shifting, and providing for the taxation of Multinational Enterprises (MNEs).
Four member countries of the Inclusive Framework (Nigeria inclusive), out of 140, have not agreed to the two-Pillar solution, the Service added.
FIRS in a statement quoted the Executive Chairman of the FIRS, represented by the Group Lead, Executive Chairman’s Group, Mr M. L. Abubakar, noted that taxation of the digital economy has become a topical issue that many economies and developmental blocs are working to solve.
The FIRS boss said: “Nigeria has been involved in various work-streams under the OECD project and had articulated its position on the technical work towards the goal of producing a common front for countries. However, our concerns on potential negative revenue returns that the rule designs would have for developing countries were unaddressed, Nigeria abstained from committing to the rules at this time.”
The Group Lead Special Tax Operations Group, and Nigeria’s representative at the OECD Inclusive Framework Mr. Mathew Gbonjubola, despite the expected outcome that both pillars will increase global corporate Income Tax by as much as $150 billion per annum, with 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 issues that developing countries have with the outcome that was published in 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 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 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.” He explained.
On concerns raised by Nigeria, Gbonjubola, explained that while the whole project started out to find solutions to the challenges of a digitalised economy the outcome was completely different.
