Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader at PwC, said the FIRS requirement that corporations obtain government approval before purchasing assets for N500,000 or more serves no meaningful purpose.
Oyedele disclosed this via a Twitter post where he explained why the law is redundant.
He brought attention to the depreciation of the Nigerian exchange rate from its strong position during Nigeria’s early years where, according to him, assets worth N20k per Industrial Inspectorate Act when enacted in 1970 was equivalent to over $30k (N12million+).
Mr Oyedele raised concerns about the application of the regulation given the massive depreciation of the exchange rate.
He said, “Naira was stronger than US$ up to 1985. Assets worth N20k per Industrial Inspectorate Act when enacted in 1970 was equivalent to over $30k (N12m+). Asking companies to seek approvals from govt to buy assets of N500k or more today serves no useful purpose.”
Another Twitter user, Adémúlèyá Stephen commented on the post saying “N500k isn’t even up to the price of an average laptop or a phone”
The Nigerian exchange rate was 55kobo to $1 in 1980, during the height of the oil boom, and 89kobo to $1 in 1985. The exchange rate had plunged from N2 to $1 by 1986, and the currency had never recovered.
Today, the exchange rate between the naira and the US dollar closed at N419/$1 at the official Investors and Exporters (I&E) window. The Naira is also trading against the US dollar at N600.5/$1 at the peer-to-peer market.
Recently, FIRS had asked all companies that received capital allowances on Qualifying Capital Expenditure (QCE) of N500,000 or more between the years of assessment 2016 and 2021 to submit the Certificate(s) of Acceptance issued by the Federal Ministry of Industries, Trade and Investment’s Industrial Inspectorate Division.
The Regulators said that Companies who received capital allowances on QCE of N500,000.00 or more between 2016 and 2021 years of assessment by October 31st will be affected. In addition, any company that fails to submit the relevant Certificate of Acceptance will have its capital allowances for the period withdrawn by the FIRS.
Capital allowances, which are similar to tax deductions, are provided for qualified capital expenditures incurred on the provision of certain assets used in a trade or rental operation. They essentially allow a taxpayer to depreciate the cost of an asset over time.
However, seeking government approval before purchasing assets worth N500,000 and above, which is equivalent to $833 using the parrel market rate would add to the bureaucratic bottlenecks and adversely affect the ease of doing business in Nigeria