Tax
For Nigeria to attract more foreign investments, government must minimise tax uncertainties, by ensuring that it plans tax reforms such that the content and timing is clearly communicated to tax payers, while maintaining the high investment returns.
This would enable the country to be continually identified by business leaders as an investment destination and the future hub for West Africa.
Indeed, Nigeria was a leading destination for Africa-bound investments and enjoyed significant growth, but uncertainty around the tax and other variables, have caused many potential investors to adopt a conservative approach to investments.
The Partner and Head, Transfer Pricing Sevices of Andersen Tax, Dr. Josh Bamfo, while speaking at the Transfer Pricing Thought Leadership Publication, in Lagos, said Nigeria has consistently been ranked first in sub-Saharan Africa in terms of opportunity and higher returns, but rated the worst in terms of perceived risks and uncertainties.
Transfer price is the price at which divisions of a company transact with each other, such as the trade of supplies or labor between departments.
Transfer prices are used when individual entities of a larger multi-entity firm are treated and measured as separately run entities. A transfer price can also be known as a transfer cost.
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According to Bamfo, tax uncertainties, which are typically institutional flaws in process, as well as unclear rules, like in Nigeria, would continue to impact negatively on the country’s investment, trade and compliance level.
“FDI goes to environment where there is high returns and certainty. Everybody knows that in this part of the world, there are high returns, but the challenge is the perceived risk. As long as we can bring our risk down, with those higher expected returns, there is going to be more FDI.
“Clarity in terms of transfer pricing regulations is very important to a taxpayer – a tax payer wants to minimise cost, while tax administrator wants to maximise revenue. If there is no clarity, there will be uncertainty, which is the risk, and foreign investors would not come in a jurisdiction where there is uncertainty of regulations.
“Multinationals who want to come into this sub-region would put into considerations the level of certainty and clarity of tax because this would help them to plan compliance. As long as there is clarity in terms of transfer pricing regulations and our tax administration is fair, there will be inflow of more FDI in Nigeria.
“This is because we happened to be the last jurisdiction or region that investors need to take advantage of in terms of opportunities. All the neighbouring countries have been explored,” he said.
The Chairman of AndersenTax, Seyi Bickersteth, said if government fails to structure its tax obligations in a manner that depicts clarity and certainty, the country would suffer erosion of tax revenue because investors would move funds to a more favorable jurisdiction.
“It means that the countries would loose their revenue because it forces the multinational companies to look at their own policies to be able to benefit,” he said.
