Why Nigeria didn't sign OECD minimum corporate tax deal

The Federal Inland Revenue Service (FIRS) on Tuesday explained why Nigeria did not sign the tax treaty worked out by the Organisation for Economic Cooperation and Development (OECD).

Nigeria in October rejected a tax pact signed by 136 countries, which aimed to enforce a corporate tax rate of at least 15 per cent.

The countries agreed to the pact amid concerns that multinational companies are re-routing their profits through low tax jurisdictions to cut their bills.

Earlier in July, more than 100 countries supported the initial OECD proposals when they were made public. Countries that initially resisted, including Ireland, Hungary and Estonia, are now on board.

However, Nigeria, Kenya, Pakistan and Sri Lanka have not yet joined the agreement.

The international group, ActionaAid, supported Nigeria’s decision to reject the deal.

The FIRS said in a statement Tuesday: “Nigeria has been involved in various work-streams under the OECD project and has articulated its position on the technical work towards the goal of producing a common front for countries.

“However, our concerns on potential negative revenue returns that the rule designs would have for developing countries were unaddressed.”

The FIRS said it has organised a webinar to educate the public on its decision.

Nigeria’s representative at the OECD Inclusive Framework, Mathew Gbonjubola, said despite the promise that the new deal will increase global corporate income tax by as much as $150 billion yearly, with attendant favourable environment for investment and economic growth, there were serious concerns that the pillars did not address negative revenue outcome for Nigeria and other developing countries.

“The general issue that developing countries have with the outcome that was published on October 8th is the high cost of implementation. And that speaks to the complexities of the proposal in the inclusive framework statement. In every complex situation or rule, implementation and compliance will always be difficult,” he said, according to an FIRS statement signed by its spokesperson, Johannes Wojuola.

“When implementation or compliance is difficult, there would be a high cost of implementation.

“Another issue was that the economic impact assessment that was carried out on Pillar 1 and 2 were founded on an unreliable premise.

“The country-specific impact assessment that was done was top-down. Somebody just looked at the GDP of Nigeria and says Nigeria’s GDP is this much and then they should be able to buy this number of shoes and things like that,” he said.

“And you and I know, in that kind of postulation, the margin of error is usually very wide. That exactly was what happened with this. Particularly for Nigeria, when we ran the numbers it was way off the figures that the OECD gave us.

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“And the final issue most developing countries had was that the developed world, within the inclusive framework, was very indifferent to the concerns expressed by most developing countries.

“This you can see from the outcome, with respect to the complexity, issues of the high cost of implementation and on the issue of revenue accruable to developing countries. When you look at the bulk of the money that would accrue from the project, if any, 70 per cent – 80 per cent will go to the developed countries. Almost nothing comes to the developing countries,” he said.

While noting that while the whole project started out to find solutions to the challenges of a digitalised economy the outcome was completely different.

“The statement required the withdrawal of unilateral measures by countries. Which Nigeria does not have a problem with (Nigeria does not have any unilateral measure targeted at digital services companies).”