Taxation of Companies: FIRS direct taxpayers to submit Certificate of Acceptance on Fixed Assets.
On 9th May 2022, the Federal Inland Revenue Service (FIRS) in Nigeria issued a Public Notice directing companies that incurred Qualifying Capital Expenditure (QCE) worth ₦500,000 and above between 2016 and 2021 years of assessment to submit the Certificates of Acceptance of Fixed Assets (“CAFA’’) issued by the Industrial Inspectorate Division (IID) of the Federal Ministry of Industry, Trade and Investment to the tax office where their respective tax file is domiciled. This is pursuant to Section 5(1) of the Industrial Inspectorate Act, Cap. I8, LFN 2004 (“the Act”).
The deadline for submission of the CAFA by the affected companies is 31 October 2022, failing which the capital allowance claimed on such QCE granted between 2016 and 2021 years of assessments may be withdrawn.
Citing the provisions of Section 26 of the FIRS (Establishment) Act and Section 60 of the Companies Income Tax Act, the FIRS emphasized its authority to request the submission of any document, record, or information from taxpayers. On this basis, the FIRS requires all the affected companies to submit the Certificates for past purchases and, henceforth, provide the Certificate on new fixed asset purchases worth ₦500,000 and above to the relevant FIRS tax office.
Comments
Usefulness of CAFA to Claim of Capital Allowances and reduction of tax liabilities
Certificate of Acceptance of Fixed Asset (CAFA) is generally issued to evidence an approval from IID for the purchase of assets valued at ₦500,000 and above, while capital allowance is granted to companies that have incurred qualifying capital expenditure for the purposes of a trade or business to generate taxable income.
FIRS may request for CAFA as part of evidence to determine the value of any assets specified under the IIA. Where the CAFA is not provided, it is within the powers of the FIRS to refuse to grant capital allowance unless the taxpayer is otherwise able to substantiate the value and ownership of the asset as stipulated under the second schedule of CITA.
While it is acknowledged that Industrial Inspectorate Act requires companies to obtain CAFA for purchase of QCE worth ₦500,000 and above, there is no specific provision in the law enabling the FIRS to withdraw capital allowances claimed by taxpayers for failure to present the CAFA within a stipulated timeframe.
Certificate of acceptance is no longer relevant in achieving the objective for which it was designed and therefore should be expunged from the law. However, FIRS has the right to request for CAFA as corroborative evidence of the value of relevant assets but not solely as the basis for granting capital allowance on such qualifying capital expenditure.
Process of Obtaining CAFA under IIA
The processes of obtaining CAFA are as highlighted below:
- Capital expenditure must not be less than ₦500,000
- A notice must be given by the person incurring additional capital expenditure in the format specified in the First Schedule to the Act.
- The notice shall be verified by the Director of IID by conducting a physical check on the site of any undertaking, inspection of any building, plant, or machinery and requesting for document relating to the purchase of such assets. In the case of second-hand equipment, additional information relating to the history of the equipment will be demanded for.
- Upon satisfaction, the Director shall prepare and forward to the person incurring additional capital expenditure a certificate of acceptance of fixed asset (CAFA).
For further enquiries, please contact:
Dr. Adebola Olubanjo, FCCA, FCA
adebola@sobanjointernational.com
0807 717 7037, 0802 290 7640
www.sobanjointernational.com