The Hospitality Industry, particularly the hotels, have prior to the outbreak of the Corona Virus, also known as COVID-19 virus pandemic, grew exponentially, in line with the growth at the time in global Gross Domestic Product (“GDP”) and millennial growth.
The passing into Law of the Finance Act 2019, with its various Tax Amendments, could further excruciate the enthusiasm of many Hospitality and Tourism Owners, Operators, Managers and other stakeholders who are already over-burdened with infrastructure and multiple taxes challenges.
We have tried to simplify these recent Tax Amendments, with their impact on the Hospitality and Tourism Industry.
Value Added Tax Act (as amended)
The Value Added Tax Act is the first key legislation that impacts on the bottom-line of Hotels and other Hospitality Establishments. This is as the principal function of a Hotel is to provide quality lodging or board, meals and other associated ancillary hospitality services. The latter principal function has tax implications that you must be aware of.
VAT Rate – The first major change that the amended VAT Act has brought into effect is the increase in the Value Added Tax (“VAT”) Rate from 5% to 7.5%. Hotels, other hospitality and tourism businesses must therefore adjust their invoices to reflect this increment in order for any defaulting business not to individually bear any difference or short-fall in the collection of the correct VAT rate; with the punitive penalties that also apply for non-compliance with the other provisions of the VAT Act (as amended).
VAT Returns – In order to avoid the increase in the penalties for failure to file monthly VAT Returns, remit any excess VAT to the federal tax authority, or claim a VAT credit where there is one to be claimed, Hospitality and Tourism Owners, Operators, Managers, etc whose businesses have an annual turnover or revenue in the amount of Twenty-Five Million Naira (N25,000,000) and above must ensure that they comply with the VAT Registration, Returns and Remittances filing requirements.
Small Companies – Hospitality businesses with an annual turnover of Twenty-Five Million Naira (N25,000,000) or less in any accounting financial year are exempted from VAT and Companies Income Tax (“CIT”) compliance obligations.
Non-Resident Companies – In addition to non-resident companies like International Hotel brands, franchisors, operators and managers, who are now required to register for VAT compliances, these non-resident operators, franchisors, managers, etc must also include in all their invoices the VAT rate of 7.5%. The domestic recipient of the goods and services is in turn obligated to withhold the 7.5% VAT, whether or not invoiced by the non-resident, and remit the withheld VAT to the federal tax authority in the currency of the invoice transaction.
Customs and Excise Duties Act (as amended)
All goods, whether manufactured locally or imported, are now liable to be charged the same Excise Duty. Hotel Operators will therefore need to proactively investigate the cost-benefit of purchasing locally manufactured goods as compared to foreign manufactured goods.
Stamp Duties Act (as amended)
A single one-off Stamp Duty charge of N50 (Fifty Naira) now applies to every transaction, including electronic and bank transfers between separate parties, for every single transfer of Ten Thousand Naira (N10,000) and above.
Companies Income Tax Act (as amended)
Tax Rate – To encourage entrepreneurship, the Companies Income Tax Act was amended to enable Limited Liability Companies, including those in the Hospitality and Tourism Industry, to enjoy lower Companies Income Tax rates. Small Companies, which are companies with an annual turnover of Twenty-Five Million Naira (N25,000,000) or lower will no longer pay any Companies Income Tax (“CIT”) in any financial year-end that their turnover does not exceed the N25Million threshold.
Following from the immediate above paragraph, Medium-Sized Companies, which are companies with annual turnovers of N25Million to One Hundred Million Naira (N100,000,000) are now only liable to bear twenty per cent (20%) CIT on their annual profits. The CIT rate for Large Companies, which are companies with annual turnovers above N100Million, remains at thirty per cent (30%) of such large companies’ profits derived from, accruing in, brought into or received within jurisdiction
Tax Identification Number (“TIN”) – In addition to every Hotel’s registered operating entity disclosing its registered incorporation number in all its correspondence and other paperwork, all Hospitality and Tourism businesses must also have a Tax Identification Number (“TIN”) in order for such establishments to continue to be allowed to operate their bank accounts and or open new bank accounts.
As commendable as many of the tax amendment provisions in the Finance Act 2019 are, the controversy however continues as to whether a consumer of the same hospitality and tourism goods and services is liable to pay both the federal legislated VAT and the Consumption Taxes legislated by some States without infringing the rules against Double Taxation. A Constitutional amendment as opposed to continuing conflicting case law jurisprudence on this issue appears to be the more likely and effective solution to this quagmire.
OSEROGHO & ASSOCIATES
Legal & Tax Practitioners, Notary Public.
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