How Corporate Nigerians Can Maximize On The Provisions Of Tax Incentives For Private Sector Contribution To Sports Development In Nigeria

Presented At The National Sports Commission Stakeholders Conference

By

Ifueko Omoigui Okauru, MFR

Executive Chairman

Federal Inland Revenue Service

on the 26th of January, 2009

at

The Congress Hall, Transcorp Hilton

Abuja

 ++++++++++

Protocols

I       Introduction

Regardless of race, religion, age, gender, social class or ability, sporting activities and therefore its development, truly meets the needs of persons from all backgrounds. Beyond this it is one unifying activity that affects the political, economic and socio-cultural environments.  

One may ask, why would the tax man or woman be interested in supporting sports and related activities? Apart from the fact that we are all sports lovers, the reality is that tax men and women see the tax revenue potential even when incentives are being granted.

Sports, ladies and gentlemen, is big business and the more successful the industry, the more tax revenues can be generated. This presentation is therefore not as altruistic as it sounds!

II     Definitions

Definition - Sports

Sports means all forms of physical activity which through casual or organized participation, is aimed at expressing or improving physical fitness and mental well-being, forming social relationships or obtaining results in competitions at all levels.[1] It is an active diversion requiring physical exertion and is usually governed by set of rules and customs. Sport is an organized, competitive and skillful physical activity requiring commitment and fair play.

Sports will, thus, include learning of skills, acquisition of knowledge, organization and management of structures, establishment of infrastructure and above all investments to aid its development.

The sports industry is composed of several components and includes:

1.                      Sporting goods - equipment manufacturers, sports retailers

2.                      Facility management, provision and maintenance – stadiums and other sporting facilities, camps, sports and leisure clubs and centers

3.                      Sports Coaching

4.                      Sports Tourism/Marketing - packages for fans attending the World Cup matches, Olympics, or other such international, national or regional events; sponsorships, endorsements, promotion, and fan clubs

5.                      Sports development - sports development initiatives, governing bodies for various sports, local authority sports development officers

6.                      Sports-related gambling/betting

7.                      Professional sports services – players, agents, managers, financial service providers, et al

8.                      Health and fitness - Health clubs, General Practitioner referral schemes, Personal Fitness trainers

9.                      Sports Medicine - Sports injury clinics, physiotherapists et al

10.                 Outdoor and adventure activities - mountain biking, climbing, canoeing etc

11.                 Sports Media – Newspapers, Magazines, Columnists, Reporters, etc

Each of these components can play a part in the wide range of sporting activities available – not just football, including – Table Tennis, Lawn Tennis, Golf, American Football, Rugby, Cricket, Volley Ball, Basketball, etc. In the Summer Olympic held in Beijing China in 2008, 28 summer sporting activities were contested for!

This industry therefore contains thousands of jobs in, sporting events, trade shows and meetings, sport sponsors, sport related media, sport facilities, sport retailers and manufactures, and professional sport services, amongst others.

Definition – Incentives

Incentives are things that motivate or encourage action, work or performance such as extra money paid to a worker to increase his level of productivity.[2] Tax incentives should therefore be seen as deliberate acts of government to motivate or encourage action as would support the development of an industry, in this case the sports industry.

The reality of tax incentives in Nigeria is that 1) not many people truly take advantage of the incentives that exist, and 2) even when they do, past trends have suggested an individual corporate approach rather than an industry-wide approach. This is why one must commend the Ministry of Sports, and in particular the Minister and the various leadership in the Ministry and its parastatals, for this workshop and other such initiatives aimed at approaching incentives from an industry perspective. For incentives to be effective, resulting in its intended effect, it must apply to the industry as a whole and there must be an organ of government monitoring the application of such incentives to ensure that the desired results are achieved.

III    Tax Incentives that exist today

For quite a while, government has realized the importance of the Sports Industry and has enacted various legislations designed to truly ensure the development of this and other such emerging industries. Some relevant aspects of our laws are presented below:

a)      Section 23(1) of the Companies Income Tax Act, Cap C21, LFN 2004 – Profits Exempted from Tax

ii)       Section 25 of the Companies Income Tax Act (CITA), Cap C21, LFN 2004 as amended  - Deductibility of donations

In this section as amended, donations by Corporate Organizations are allowable deductions to the extent of being listed in the Fifth schedule of the CITA and subject to applicable rules. Item #22 of the fifth schedule referred to this act, has listed the National Sports Commission and its State Associations. Accordingly, donations to the NSC and its State Associations are allowable tax deductions under the law. Other institutions listed which may be relevant include:

#5 – any educational institution affiliated under any law with any university in Nigeria, or established under any law on Nigeria and any other educational institution recognized by any Government in Nigeria

#7 – any hospital owned by the Government of the Federation or of A State or any University Teaching Hospital or any hospital which is carried on by a society or association, otherwise than for the purpose of profits or gains to the individual members of that society or association

#20 – a public fund established and maintained exclusively for providing money for the acquisition, construction, maintenance or equipment of a building used or to be used as a school or college by the Government of the Federation or a State, or by a public authority or by a society or association which is carried on otherwise for the purpose of profit or gain to the individual members of that society or association

According to this Act, except to such extent (if any) as the President may by order in the Federal Gazette otherwise direct, any deduction to be allowed to any company under subsection this section shall not exceed an amount which is equal to 10 percent of the total profits but only, if, the donations are made out of the profits of the company, and not expenditure of a capital nature. Beyond this however, the CITA Amendment Act, 2007 further provides that, where the donation is to a university, and other tertiary or research institution for research and developmental purposes or as an endowment out of the profits of the period by the company, except as the Minister with the approval of the Federal Executive Council may, by order in the federal gazette otherwise direct, any deduction to be allowed to any company under subsection this section shall not exceed an amount which is equal to 15 percent of the total profits or 25 percent of the tax payable in the year of donation whichever is higher notwithstanding that the donation is of a revenue or capital nature.[3]   

iii)      Section 26 (3) of the Companies Income Tax Act (CITA), Cap C21, LFN 2004 as amended  - Deduction for Research and Development

Companies and other organizations engaged in research and development activities for commercialization shall be allowed 20% investment tax credit on their qualifying expenditure for that purpose

(iv)                       Industrial Development (Income Tax Relief) Act, Cap 17, LFN 2004. – Pioneer status

This is the legislation that guides the granting of pioneer status on a company – where the President is satisfied that a) any industry is not being carried out on a scale suitable to the economic requirements of Nigeria or at all, or there are favorable prospects of further development in Nigeria of any industry or it is expedient in the public interest to encourage the development or establishment of any industry in Nigeria by declaring the industry to be a pioneer industry and any product of the industry a pioneer product.

In such instances, s (10) provides that a three (3) year tax holiday is available for companies that are granted pioneer status, and upon application, subject to satisfactory performance on such status, an additional two years may be granted to the company.

In most cases, companies are freed from tax obligations in this period. All the capital expenditure incurred within the period will be available for capital allowance at the post pioneer period of the company. 

Also during the pioneer period, the aggregated loss incurred (if any) will be available for relief in the first year of the post pioneer of the company while the dividend paid out of profit will also be tax free during the same period.

Concerted efforts should be made to ensure sports development activities are categorized as special or preferred sector of the economy by the government in order to qualify the sector for preferential concession.

These are just a few of the available tax incentives which interested companies can take advantage of. What organizations need to do to access these incentives is to legitimately put in place adequate tax planning structures to attain maximum benefits within the existing fiscal framework.

IV      Beyond Tax Incentives

Corporate organizations can also view their involvement in sports from the perspective of Corporate Social Responsibility, that is, away from available incentives, to where their contributions to sports is seen as giving something back to the society that has enable their businesses to thrive.

In the long run, the benefits go a long way in ensuring that there are adequate sports infrastructure at all levels of engagement, high level research input into sports, and private sector commitment to the development of this sector of the economy.

If development in any system involves the attainment of sustainable social change in all spheres of endeavour,  then sports development will mean changes that include the availability of modern and well maintained sporting infrastructure, necessary manpower development, provision of sporting equipment, effective management of sports, adequate funding and investment, research into sports and implementation of sporting policies.

V      Why Sports should be supported and developed

Let me briefly summarize the major benefits associated with sports and sports development general.

a)    Sport is capable of providing direction and purpose for the people and the society;

b)   Sports teaches morals, it teaches lessons of endurance, of winning and of losing, of team-play and of crowd management;

c)    Sports has the capacity to build confidence and self esteem, the capacity to challenge, inspire and most of all, the capacity to provide endless hours of enjoyment and fun;

d)   Sports is a unifying factor, in the community and among communities, in the nation and also among nations. It bridges social, cultural and ethnic divides.

e)    Sports creates jobs for the teeming unemployed population of Nigerians who crave to be gainfully employed

f)      Sports helps the country to harness her resources, making the best use of the limited resources and providing integrated opportunities in a coordinated manner for people to progress at their own pace

g)   Sports provide an avenue for foreign capital inflow into the economy and has the capacity to lift a nation’s image and economy.

h)   Sports provide a major source of additional tax revenues even with all the incentives currently available!

Today, Exxon Mobil is sponsoring the Mobil track and field athletics, Shell Petroleum is sponsoring the Shell cup, the Globacom Nigeria, the Nigerian league and the half marathon, Nestle Plc, the Milo lawn tennis and the Milo marathon and MTN, the MTN marathon.  Corporate organizations in Nigeria have started well but a lot more can still be done.

VI      What Federal Inland Revenue Service, FIRS, Commits to do

The Federal Inland Revenue Service is the revenue agency of the government charged with the responsibility to assess, collect, account and enforce payment of taxes as may be due to the government or any of its agencies. The Service is expected, in collaboration with other ministries and agencies, to review the tax regimes and promote the application of tax revenues to stimulate economic activities and development in the country.

 FIRS also collates and continually reviews all policies of the Federal Government relating to taxation and revenue generation and undertakes a systematic and progressive implementation of such policies.

If corporate organizations come together to push for improved policy directions towards sports development, the FIRS will always be available to help channel such policy positions to the Federal Ministry of Finance, who is ultimately responsible for determining the tax policy for the country.

If also corporate organizations want to pursue changes or amendments to existing legislations, FIRS will also be available to help push their case at the National Assembly through the Ministry of Finance and the Presidency.

The FIRS is guided by existing legislation and we cannot act otherwise. And as corporate organizations and other legal persons look to the FIRS for support, let us also be mindful of other revenue agencies at the States level and the Joint Tax Board, which together provide a common front to government on tax matters.

The private sector should provide the lead, seize the initiative for sports development and view their financial contributions to sports as money well spent. It is about interest and sacrifice for a greater tomorrow.

Thank you all for listening and God bless.