CSJ Engages In EU-ACT Civil Society Regulatory Frameworks & Compliance Training

There is a common misconception that non-governmental organisations (NGOs) have no tax obligations, but how the tax office treats them is far more complex than a simple “yes” or “no.” All NGOs must be aware of their obligations, otherwise they might be in for a rude awakening when they receive a reminder from the Federal Inland Revenue Service (FIRS).

Following the coming into force of the Finance Act 2020, the FIRS issued two Information Circulars providing guidelines on the taxation of incomes of NGOs in Nigeria.

NGOs include a company limited by guarantee under PART B of the Companies and Allied Matters Act (CAMA) 2020 or registered under PART F as Incorporated Trustee of the Act, or under any other law in force in Nigeria, or registered under the laws of a foreign jurisdiction and approved as such in Nigeria. These include organisations, institutions and companies that are engaged in ecclesiastical, charitable, benevolent, literary, scientific, social, cultural, sporting or educational activities of a public character as defined under Section 105 of CITA.

The Guidelines clarify that though NGOs enjoy statutory tax exemption on their incomes and gains, the tax exemption enjoyed is conditional and not absolute. The tax exemption will not apply where non-profit entities derive their incomes or gains from activities of a commercial nature. NGOs are also required to file their tax returns as at when due, ensure compliance with applicable tax procedures, and maintain accurate accounting records. In addition to the reiteration of the prohibition of distribution of the profits of entities of public character to their members, the Guidelines further clarify that the distribution of assets (whether in cash or in kind), such as gifting a vehicle or any asset for the personal use of the promoters or members of such entities, shall be construed as distribution of profits.

The tax obligations of NGOs under the Guidelines include: (i) registration with FIRS for tax purposes; (ii) filing of annual tax returns under section 55(1) of the CITA[6] and other relevant statutory provisions; (iii) liability to pay tax on all incomes and gains derived from commercial activities, or on incomes and gains not exclusively applied to the NGO’s charitable object(s); (iv) registration with FIRS for listing under the Fifth Schedule to the CITA, for the purpose of eligibility to receive tax-deductible donations under section 25 of the CITA; (v) deduction at source, and remittance to the relevant tax authority, of applicable taxes, payable on the emoluments of its employees, directors, and officers (under the Pay-As-You-Earn regime).

The Guidelines also clarify as tax-exempt, income derived by non-profit entities from members’ subscription fees, donations, grants, zakat, offerings, tithes, funds realized from launchings, etc. However, where an NGO engages in any trade or business, or invests its assets in any institution, the profit or income derived therefrom (active or passive) is liable to tax appropriately. As such, incomes or profits liable to tax include proceeds from sale of goods or merchandise, provision of consultancy, professional or other services for a fee, and investment income, such as interest, rent, royalty, dividend or similar income.

The issue of poor compliance of NGOs/ Civil Society Organisations (CSOs) to existing civil society regulations can be attributed to so many factors including CSOs lack of the requisite knowledge and information about these regulations and how to go about such compliance.

This assertion was reinforced by the outcome of the survey conducted by the European Union Agents for Citizen-Driven Transformation (EU-ACT) Programme in March 2021 to establish the current levels of compliance with legal frameworks amongst its supported CSOs/Networks/CBOs in the FCT (Abuja), Lagos, Sokoto, Kano, Rivers, Edo, Adamawa, Enugu, Plateau and Borno States. The survey findings, for instance, indicated that out of the 119 CSOs’ responses that were processed, less than a third of the CSOs were compliant with the CAMA law, less than 10% of the CSOs were fully tax compliant and only 14% of the CSOs were SCUML compliant. And yet, compliance to regulatory frameworks is paramount to sustaining and strengthening civil society organisations.

It was on this note that the Programme organized a training for its partner CSOs/Networks/CBOs across the aforementioned 10 focal states to improve CSOs’ awareness of the important regulations (CAMA, Taxation, Anti-Terrorism and Money Laundering, and Pension) and how they affect their operation; capacitate them on how to become effective in their compliance obligation to these regulations; as well as improve their compliance to them.

Three staff members of the Centre for Social Justice (CSJ) participated in the training held in Abuja.

Working in partnership with relevant regulatory agencies, Corporate Affairs Commission (CAC), Federal Inland Revenues Service (FIRS), Special Control Unit Against Money Laundering (SCUML) and Pension Commission (PenCom), the training helped EU-ACT CSO partners to gain in depth knowledge of the requirement of the laws/regulations as well as receive continuous guidance on how to effectively and efficiently meet these requirements. The ACT Programme is funded by the European Union and implemented by the British Council.