PricewaterhouseCoopers (PwC) Nigeria says the federal government's request that the education sector should pay Companies Income Tax (CIT) will hurt the operators. The audit giant's view is contained in its latest review of the new Finance Act 2021. President Muhammadu Buhari 31 December 2021 signed the Finance Act 2021 into law alongside the 2022 Appropriation Act themed "the Budget of Economic Growth & Sustainability".
The Finance Act 2021 makes it three through which the federal government, over the last three fiscal years, has consistently reviewed the tax and fiscal regulations. The current Finance Act 2021 (FA21) which amends 13 different tax and fiscal legislation, was enacted by Nigeria's macroeconomic policy reforms to stimulate revenue mobilization for budget implementation. Other key reform areas include tax administration, international taxation, financial sector reforms & tax equity and public financial management reforms. In the PwC report entitled, "What the removal of tax exemption for educational institutions means for education in Nigeria",' the audit firm stated that with Nigeria's 2022 budget deficit at about N6.3 trillion, the federal government seems to be keen on raising revenue from various sectors of the economy as much as possible.
However, the PwC Nigeria report noted that given the challenges facing the education sector and the need for human capital development, the introduction of income tax on educational activities may discourage potential investors in the sector, increase the cost of education while generating increased revenue for the government.
PwC feels CIT payment will worsen the state of education in Nigeria given that the government has not been able to meet the public demand in terms of quality and access to education. The audit firm report coincides with a January 2022 report by the United Nations International Children Emergency Fund (UNICEF) which noted that "35 per cent of Nigerian children who attend primary school do not go on to attend secondary school.
Half of all Nigerian children did not attend secondary school in 2021" PwC hence noted, "Given the deletion of educational activities from the list of exempt profits in section 23 (1) of CITA, companies carrying out educational activities in Nigeria may be subject to income tax regardless of their registration or incorporation status, even though some schools may still be able to argue that the exemption could still apply to them on the basis that they are a charitable organisation especially if their educational activities do not constitute a business." For the report, PwC Nigeria surveyed 60 private secondary schools that are registered with the Corporate Affairs Commission.
Its findings showed 71.7 per cent were registered as companies (limited by shares and limited by guarantee), 21.7 per cent registered as Incorporated Trustees and 6.7 per cent were registered as Business Names. "In like manner, we surveyed and analysed the incorporation status of 135 tertiary institutions in Nigeria. The result showed that 73 per cent of the institutions surveyed are registered as companies limited by shares, 26 per cent as companies limited by guarantee and 1 per cent are registered as business names. The report continued, "Based on the survey, the results show that a significant number of educational institutions were already liable to income tax before the FA 2021 amendment. Hence the legislative change is expected to impact less than 30 per cent of educational institutions".
Some schools which are set up as limited liability partnerships or sole proprietorships generally took the position that they are exempt from income tax in practice, this results in a compliance gap that may not be addressed by a change in the law, but taxpayer education and enforcement." Citing the practice in other jurisdictions, the PwC Nigeria started that, in Ghana, private Universities are exempted from taxes, provided that 100 per cent of their profit is ploughed into the business. Similarly, South Africa exempts certain research-oriented private universities from income tax. In Uganda however, 30 per cent of the annual profit of private schools are subjected to income tax.
Individual taxpayers in Germany get a tax rebate of 30 per cent of the school fees paid to private schools on behalf of dependent children with the exclusion of the price of accommodation's, supervision and meals. Finland adopts a more socialist policy to fund basic education. The state government and municipalities have the principal responsibility of providing basic education to citizens. This is not so in Nigeria whose recent assessment of its educational systems by the World Economic Forum (WEF) ranked Nigeria 25th out of 38 African countries and 124th of 140 countries on the global scale.
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