Thursday, April 29, 2021 / 08:19 AM /by Wole Obayomi / Header Image Credit: FIRS

The Federal Inland Revenue Service (FIRS) has issuedInformation Circular No.: 2021/02 on the procedures for enlisting Funds, Bodiesand Institutions (FBIs) under the Fifth Schedule to the Companies Income Tax(CIT) Act, Cap 21 Law of the Federation of Nigeria, 2004 (CITA) ("theCircular"). The Circular was issued pursuant to the provisions of Section25 of the CITA and Requirements for FBIs (under the 5th Schedule to the CIT)Regulations, 2011 ("the Regulations").

We have provided below, a summary of the key aspectsof the Circular:

1.     Eligibilitycriteria

The Circular categorisedeligible FBIs that may apply to be listed under the Fifth Schedule to the CITAunder three (3) broad categories as follows:

1. a publicfund established in Nigeria,
2. a statutorybody or institution in Nigeria, and
3. anecclesiastical, charitable, benevolent, educational, or scientific institutionor body of a public character established in Nigeria.

Other criteria prescribedin the Circular include: registration of the FBIs in accordance with the relevantlaw in Nigeria; prohibition of distribution of their profits, whether in cashor kind, to their members or promoters; and exclusive use of theirincomes for the objectsof the institution or organisation in the interest of the public.

2.    Approvalprocedures and administration of tax-deductible certificate (TDC)

• Initial application for TDC - Eligible FBIs arerequired to submit a completed application form for listing under the FifthSchedule (which can be downloaded from www.firs.gov.ng), along with other supportingdocuments listed in the Circular and evidence of payment of a non-refundablefee of N250,000to the FIRS.

Once the application isreviewed and approved, the FIRS will issue a three-year TDC to the FBI andnotify the Honourable Minister of Finance, Budget and National Planning(HMoFBNP), in line with the provisions of the Regulations. Thereafter, theHMoFBNP may amend the Fifth Schedule of the CITA by Order in a Federal Gazetteto include the approved FBI under the Fifth Schedule to the CITA. However,where the application is denied, the FIRS shall notify the applicant of suchdenial within 30 working days.

• Renewal of TDC - Upon expiration,the TDC may be renewed for another three years subject to satisfactoryperformance and compliance with the relevant laws, rules, and regulationsapplicable to the activities of FBIs in Nigeria. In addition, FBIs are requiredto submit their tax clearance certificates, current financial statements,compliance report of their activities for the period covered by the expiredTDC, evidence of payment of a non-refundable fee of N150,000 and a copy ofthe expired TDC.

The FIRS may revoke anFBI's TDC, delist the FBI from the Fifth Schedule, or refuse the deduction of ataxpayer's donations to an FBI where the FBI no longer meets the requirementsfor which the certificate was granted, notwithstanding the validity of the certificateat the time.  Where such a decision is made, the FIRS shall notify theHMoFBNP within 30 days of its decision and provide reasons for the action.

Comments 

By Order No. 1 of 2011, the then Coordinating Ministerof the Economy and Minister of Finance, in the exercise of her powers underSection 25(6) of CITA, amended the Fifth Schedule to CITA to include anadditional list of organisations eligible to receive tax deductible donationsunder the Schedule. Further to this, the FIRS, pursuant to the provision ofSection 61 of the FIRS Establishment Act (FIRSEA) and approval of the Minister,published the Regulations for the  administration of the Order.

The guidelines in the Circular are based on theprovisions of Parts III and IV of the Regulations. Part III of the Regulationsrequires eligible FBIs to apply for and obtain TDCs upon payment of theprescribed fees, to prequalify them for receiving deductible donations underthe Fifth Schedule, while Part IV provides for the 3-year validity period ofthe TDC and conditions for its renewal for another 3 years. 

There may be concerns on the legality of Order No. 1of 2011, the Regulations and Circular issued by the FIRS further to it. This isin light of the recent judgement of the Federal High Court in the case betweenthe Registered Trustees of Hotel Owners and Managers Association of Lagosand Attorney-General of the Federation & Minister of Finance, Budget andNational Planning (reviewed in our newsletter Issue No. 9.7 of 30 September 2020). Onthis basis, the FIRS may consider submitting the provisions of Order No 1 of2011 as proposals for amendment of the Fifth Schedule to CITA in Finance Bill,2021. If the provisions of the Order are incorporated into Finance Act, 2021,the FIRS will be in order to reissue the Regulations and the Guidelines orcombine the two in one instrument. In this regard, the FIRS may want to revisitthe prescribed fees for obtaining the TDC, especially in the interest of smallFBIs. Also, to the extent that the objective of administration of the amendmentto the Schedule by the FIRS is to prequalify eligible FBIs for tax deductibledonations in lieu of their specific listing in the Schedule, as was thepractice before 2011, the need for TDC's renewal every three years should bedispensed with as a TDC should not be treated as a tax clearance certificate. Such newly prequalified FBIs should be treated equally as the FBIs that werespecifically listed in the Fifth Schedule up to 2011 as they are not requiredto renew their eligibility status periodically.

Download Here -FIRS Circular on 5^th Schedule Listing

Credits

* Thisstatement was first published in the Issue 4.10/ April 2021 Newsletter of KPMGof Wednesday, April 28, 2021. For further enquiries, please contact the author,Wole Obayomi via [email protected]

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