Nigeria: Submission of qualifying capital expenditure certificates
Notice directing companies that purchased qualifying capital expenditures to submit certificates to the tax office
Submission of qualifying capital expenditure certificates
The Federal Inland Revenue Service (FIRS) issued a public notice directing companies that purchased qualifying capital expenditure worth ₦500,000 and above during the 2016 and 2021 years of assessment to submit certificates issued by the Industrial Inspectorate Division (IID) of the Federal Ministry of Industry, Trade and Investment to the tax office where their respective tax file is domiciled. This is pursuant to Section 5(1) of the Industrial Inspectorate Act, Cap. I8, LFN 2004.
The deadline for compliance by the affected companies is 31 October 2022. Failure to comply may result in the capital allowance claimed on such qualifying capital expenditure to be withdrawn.
KPMG observation
There is no specific provision in the law enabling the FIRS to withdraw capital allowances claimed by taxpayers for failure to present the certificate within a stipulated timeframe. Tax practitioners hope that the FIRS will revisit its position accordingly.
In addition, the primary purpose of the certificate is to verify the cost of acquisition of fixed assets and provide consistency in their values as reported by companies in their financial statements and tax returns for capital allowance purposes. On this basis, the FIRS has accepted valid proofs of purchase and ownership of fixed assets, such as third-party receipts and invoices, in lieu of the certificate. Tax practitioners believe this is a good practice that needs to be sustained for the purpose of ease of doing business in Nigeria.
Further, the timeframe provided by the FIRS for all the affected companies in Nigeria to obtain and submit certificates for fixed asset purchases for a six-year period appears unrealistic given the limited capacity of IID to process a deluge of applications and issue certificates for all applicants at the same time. The FIRS needs to bear this in mind before enforcing the deadline and sanctioning any company that is unable to obtain the certificate before the deadline expires.
Lastly, the ₦500,000 threshold for compliance is now an immaterial expense given inflation rates and depreciation of the value of the Naira since the amount was prescribed in the law. Tax practitioners thus hope the threshold amount will be reformed.
Read a May 2022 report prepared by the KPMG member firm in Nigeria
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