When the news of the N1.8 trillion alleged tax fraud, which the Federal Inland Revenue Service levied against MultiChoice Nigeria and its parent’s company, broke last Thursday, several people read different meanings to it.
While some believe the development is an attack on another South African company operating in Nigeria, others have lauded the efforts of the Muhammad Nami led-FIRS, for achieving a feat that his predecessor, Tunde Fowler, could not.
A source at MultiChoice Nigeria who preferred anonymity spoke to Nairametrics on the issue but painted a different picture. According to him, the alleged tax fraud was unfounded and a deliberate effort by the agency to soil the image of the company that has been paying its tax without a break.
On the allegation that the company has not been responding to the enquiries of the tax agency, he explained that every enquiry sent to MultiChoice were treated promptly by the company without any delay, except for two issues raised that were beyond the organisation.
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What were the two issues?
Our source recounted:
“FIRS alleged that our subscribers base is about 20 million and we must pay tax based on that. This was the main cause of the argument, as we told the agency that the entire subscribers base of the company in Africa is not even close to that.
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The agency has refused to understand how our market works. A lot of people do not re-subscribe as FIRS thought, as some of them only renew once in three months (in some cases).
The tax remittance is straightforward, as VAT of MultiChoice’s subscribers are paid directly (automatically) to the agency when our customers renewed their subscriptions. The company pays its own tax without any delays based on its operations as included in the Group’s financial reports.
Another issue is that the agency asked us to instruct our outlets, which are franchised private firms, across the nation to allow the FIRS to assess their books. We explained that we can only advise but not instruct a private firm to open its books for the agency to confirm whether it is paying taxes or not.
Asking MultiChoice Group to also pay tax in Nigeria after its subsidiary here is paying is counterproductive and multiplies taxation, which is illegal. Does that mean the Group will also pay tax in Ghana, Tanzania, Kenya and other countries, when the individual units in each of those nations had paid taxes?”
What experts are saying about the alleged fraud
A Chartered Accountant and a tax consultant, Timothy Bamidele, explained that FIRS’s move may be a deliberate move to get the company’s attention for a meeting and ensure whatever amount owed government as tax is paid.
“No doubt, the company must be owing some tax but not up to N1.8 trillion. All the agency expects is for the firm to say ‘No’, we are not owing that much and disclose their actual tax debt.
At that point, both parties will meet and agree on the value of the debt. It is certain that the company must pay something, for a start since the issues have reached this stage.
Also, if MultiChoice Group makes money from some of its services in Nigeria then it has to pay tax to the Nigerian government. But if it is otherwise, as the source claimed, the company is not obliged to pay tax, only the subsidiary should pay taxes,” Timothy said.
During the Nairametrics #OnTheMoney series on Saturday, Feyi Fawehinmi, an Advisory Board Member, BudgIT, explained that the development is a combination of the revenue generation drive of the government and the regulatory onslaught.
He said, “It is quite sad because everything looks like the FIRS has not done any work but just did a simple straight-line calculation of what it thinks should be the revenue of MultiChoice and released the figure to the public.
It just dumped the burden on the company and that is very annoying because I know MultiChoice has been making losses over the years and had also invested a lot in Nigeria.
I think the FIRS has resumed its regulatory onslaught and it looks like it just wants to make a splash. There is a way you expect a serious regulator to do things because it is not going to get N1.8 trillion from MultiChoice.
To come out with something as unrealistic as N1.8 trillion may mean FIRS just wants to make headlines or someone just wants to get noticed by his boss in the Villa but we all know things like this damage the confidence of foreign investors.
We are indirectly telling investors that it is better for them to have a short-term investment plan.”
Like Fawehinmi, Wale Akinrinboye, an investment analyst, believes the development is deliberate and pre-determined, as the FIRS boss had stated in his debut interview that he intends to boost government revenue by going after foreign companies that are not paying adequate taxes.
He said, “So, when I saw the MultiChoice story I was not surprised. It does not look like the regulator was serious because it based its conclusion on intelligence that cannot be proven.
Lets not forget that the said amount is supposed to be 32% of what the company generated as profit. If that is true, that means MultiChoice is easily one of the biggest companies we have in Nigeria, and I don’t think that is so.
This makes a mockery of the nation and makes us feel like a joke because nobody will take us seriously. There is a better way to handle this in a less controversial manner. It is sad because it will look like Oil is down and we are going after everyone in the system, as the Attorney General, who is not a tax consultant, also made a similar claim to MTN.
The effect of this is that the only investor coming here will be the briefcase guy, someone that will come and leave at will.”
Another panellist also observed that it appears that the current administration has a pattern of going after foreign-owned firms in Nigeria.
According to him, the first target was MTN, followed by Etisalat and not MultiChoice and he is optimistic that there are other stories that are not publicised.
He said, “There has to be a very clear message from the private sector leadership that this cannot continue in the country. That is the only way for sanity to return to the business ecosystem in Nigeria.”
Okunrinboye added that the menace is not limited to the big players in the country alone, as he claimed that FIRS also attack the fringe players too.
According to him, the agency has software that accesses bank accounts to monitor the inflow of cash.
“I have seen the FIRS looking into bank accounts, coming up with figures of revenue of companies and arriving at a profit for them to demand taxes.
I have seen FIRS sending letters to SMEs claiming they are owning about N1 trillion, does that mean the companies are generating as much revenue as a Nigerian state. There is no one with emotional intelligence to note that these are small firms can’t owe as much as that. This is like a joke or an extortion racket.”
However, a listener, simply called Perpetual agreed with other views mentioned above but explained that it is not enough for foreign firms to invest in local talents while they repatriate profit to their home nations.
She said, “I was an auditor with one of the big 4s and privileged to audit some of these multinationals.
Most times, they have inter-company structures where the parent companies charge its local subsidiary certain operation cost and by the time the company also deduct its local operational costs, it will declare a loss.”
This, according to her, is what she expects FIRS to address.
Similarly, a source in FIRS, who preferred anonymity, agreed with Perpetual. He told Nairametrics that though the N1.8 trillion alleged tax fraud may not be real deal, the agency expected the company to pay its outstanding taxes.
He said, “The company has been repatriating funds to South Africa while it has also been pleading for some taxes to be waived claiming that it has been declaring losses over the years.
Definitely, it is not owing N1.8 trillion but it should conduct its own research and pay up all outstanding taxes.”
In case you missed it
It is not the first time Nigerian authorities have tried to penalize a South African company over tax matters.
In 2018, MTN Nigeria, a South African telecommunications company, battled a $2 billion tax evasion claim from the Attorney General’s office.
The Central Bank of Nigeria (CBN) also accused MTN of failing to remit $8.1 billion in dividends.