CSOs and the obligation to pay taxes

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BY BERNARD OKRI

Recently, Nigerian media have reported that civil society organizations (CSOs) have opposed paying taxes, saying the law exempts them from paying taxes.

While the law grants some concessions to CSOs, it is important to note that there are also tax obligations that they must meet.

A civil society organization is described as an organization comprising organizations, institutions and businesses engaged in ecclesiastical, charitable, voluntary, literary, scientific, social, cultural, sporting or educational activities of a “public character”. The public character appears here in quotation marks because it is an expression which has been and is widely misinterpreted. However, the public nature as expressed in the section means that the business is open to the public and that any member of the public is allowed to access it, regardless of their status.

CSOs are required by law to register as an entity, depending on their location and the scope of their operations. They can register according to the level of local, state or national government, due to their scope. And at each level, the required tax obligation takes effect.

A CSO registered at the local government level must be registered under the relevant provision of the local government edict to function as a community CSO. The CSO is required to comply with the provisions of the edict in the conduct of its activities. It cannot carry out activities outside the jurisdiction of the local government area.

A CSO can also be registered as a State CSO, authorized only to operate in that particular State.

A nationally recognized CSO is one that is registered with the Corporate Affairs Commission (CAC). Its operational competence can extend to the whole country.

In a webinar co-hosted by the Federal Inland Revenue Service (FIRS), Joint Tax Board (JTB), the European Union-funded British Council managed the Agents for Citizen Driven Transformation (EU-ACT) program on the “Q&A Webinar on Fiscal Responsibilities and CSO Compliance.” “It has been said that” Civil society organizations (CSOs), including non-governmental organizations, religious bodies, trade unions, cooperative societies, etc., have responsibilities to fulfill under the tax laws in force, whatever the nature of their operations ”.

Therefore, CSOs have the responsibility of filing income tax returns.

During the webinar, which had broad CSO representation, Temitayo Orebajo, director of the FIRS Tax Policy and Advisory Department, in his presentation on CSO tax liability, flattened some people’s assertion that CSOs have no tax liability. He said: “There is a penalty for CSOs for not filing and there is a penalty for late filing. Whether you (CSO) have something to do or not, you have a responsibility to file. After one year of registration, in order not to break the law, you must at least file for bankruptcy. It might just be a one-page document.

In addition, CSOs are staffed and required to deduct personal income tax from the salary paid to them and remit it accordingly to the relevant tax authority as they fall due. This type of tax is commonly referred to as pay-as-you-earn (PAYE). CSOs in this situation act as agents of government.

Moreover, under the corporate income tax, article 55 of the law stipulates that “Any company, including a company benefiting from an exemption from incorporation, must, whether or not a company is subject to tax. to tax under this Act during a taxation year, with or without notice from the Service, file a self-assessment declaration with the Service in the prescribed form at least once a year. business. Most CSOs fall into the category of incorporated trustees registered under Part C of CAMA, while few others may be companies limited by guarantee. Thus, they are required to file income tax returns.

While section 23 (c) of the corporate income tax exempts from tax corporations carrying on ecclesiastical, charitable or educational activities of a public nature, the conditional clause “to the extent that such profits are not derived from of a trade or business carried on by such a business ”, may make the CSO / NGO liable for tax. For example, if a church has a multi-purpose hall to host public events and goes beyond giving it to its members and rents it out to the general public to host wedding receptions, meetings, seminars, etc. for a rental fee; then the amount charged to it as rent must be taxed. The CSO / NGO in such a situation is required to pay the tax to the government because it has gone beyond its statutory mandate to carry out activities of a commercial nature.

There is also the expression in Article 23 (c) “of a public nature”. This has sparked a lot of debate as to its meaning. However, the public character as used in the section is defined in section 105 of the CITA as amended by the 2020 finance law to mean “that the organization or institute is registered in accordance with the applicable law in Nigeria; and does not distribute or share its profits in any way to members or promoters ”.

When the argument is analyzed under the criterion of value added tax (VAT), VAT is a consumption tax that is borne by the end consumer of goods or services, with the exception of those specifically exempted in the first annex of the VAT law. However, part three (3) of the first annex of the VAT law prescribes a “zero rate” for goods purchased for use in humanitarian projects financed by donors.
Humanitarian projects financed by donors are defined as projects undertaken by non-governmental organizations and religious and social clubs or societies recognized by law whose activity is not for profit and is of public interest.

In most cases where the goods are invoiced at zero rate, any VAT paid on the goods supplied to the CSO / NGO can be refunded, after sufficient proof that the goods are used in humanitarian projects funded by donors.

Although the above concession only applies to “goods”, services provided to CSOs are subject to VAT at the prevailing rate of 7.5% VAT, in which case the OSC will be charged for VAT on all services consumed by it. When an NGO also provides goods or services subject to VAT, it must issue a tax invoice, charge VAT, and submit it to the Federal Inland Revenue Service no later than the 21st of the month following the month of supply.

CSOs also have an obligation to withhold tax from any payment made to a contractor or seller on transactions subject to withholding tax such as rent, advice, service contracts, constructions, etc. .

From the above, it is clear that CSOs are not fully exempt from paying taxes under the laws of the Federal Republic of Nigeria. However, they benefit from several tax exemptions under the tax laws in force. Therefore, it is not a general exemption from the payment of taxes as understood in the media space.

Okri is the president of the Global Economic Policy Initiative (GEPIn)


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