MEDIATRACNET
Nigeria abstained from signing the Organisation for Economic Cooperation and Development (OECD) Group of 20 Inclusive Framework agreement on two-pillar solution to tax challenges of the digitalized economy for concerns on potential negative revenue returns the rule would have for developing countries, the Chairman of the Federal Inland Revenue Service (FIRS), Muhammad Nami, has said.
The OECD G-20 Inclusive Framework two-pillar solution proposes a framework of rules aimed at tackling base erosion and profit shifting, providing for the taxation of multinational enterprises (MNEs).
Four of the 140 member-countries of the inclusive framework, including Nigeria, have not yet agreed to the two-pillar solution.
But Nami said in a webinar session hosted by the FIRS last week that Nigeria’s refusal to sign the agreement on the two-pillar solution was informed by the negative impact it was likely to have on the country’s tax revenue returns.
The FIRS Chairman who spoke through the Group Lead, Executive Chairman’s Group, M. L. Abubakar, said taxation of the digital economy has become a topical issue that many economies and developmental blocs were working to solve.
He said the OECD and the United Nations Tax Committee have commissioned projects to produce a common front for countries to adopt.
“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. That’s the reason Nigeria abstained from committing to the rules at this time,” he clarified.
Nami said the webinar was therefore to educate the general public on the modalities and impact of the statement released by the OECD Inclusive Framework on October 8, 2021 and to provide a broad picture on why Nigeria abstained from signing the agreement.
The webinar which was a special edition of the FIRS Taxpayer Engagement Series was hosted by Technical Assistant (Tax Policy) to the Executive Chairman FIRS, Olufemi Olarinde, while technical papers were delivered by experts, including Mathew Gbonjubola, Temitayo Orebajo, Kehinde Kajesomo, Emmanuel Eze and Aisha Isa.
Gbonjubola said the Group Lead Special Tax Operations Group, and Nigeria’s representative at the OECD Inclusive Framework highlighted that despite the expected outcome that both Pillars would increase Global Corporate Income Tax by as much as $150 Billion per annum.
Besides, it said it would have a favourable environment for investment and economic growth, although there were serious concerns that the pillars did not address negative revenue outcomes for Nigeria and other developing countries.
“The general issues that developing countries have with the outcome that was published in October 8 report 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.
“You and I know that 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 the specific concerns raised by Nigeria, 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 noted further 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 said.
He further explained that Nigeria is unable to implement the mandatory binding resolution on arbitration because of constitutional limitations as to tax dispute resolution.
Gbonjubola also stated that for Nigeria, “Pillar 2 was 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, he said Nigeria would either accept both Pillars or reject both, adding that one cannot pick one to the exclusion of the other.
Since Nigeria was not able to join one of the pillars, he said it means the country was out of both Pillars.
The tax expert said Nigeria did not see any additional revenue coming into her coffers by way of Pillar 2, though he added that it could act as a behaviour modifier for policy makers 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, he said, 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, adding that it also did not take cognisance of issues around developing countries, capable of making those outcomes not to provide additional revenue, and if any, very little, and at very significant cost.
Nigeria, he said, which participated in all the meetings of the working groups, would continue to participate in the design of all technical notes and model rules, and would agree to the Pillars if its expressed concerns are addressed.
“Nigeria will continue to participate in the inclusive framework activities, particularly the design of all the technical notes and the model rules, and then, if and only if, the concerns we have expressed are addressed, then Nigeria still has the chance to join up and to sign up. But if not, we will leave that to our policy makers to decide going forward,” he said.
