Taxation Realities in Nigerian Sports: Legal Considerations and Recommendations

CONTRIBUTED BY ELIOT OKOSUN ESQ.

Introduction

Tax can be seen as one of the most important tools used by the government as a means of generating revenue for the country, as tax can be defined as a monetary charge imposed by the government on persons, entities, transactions, or property to yield public revenue^[1].

Athletes are widely known to be among the highest earners worldwide due to the diverse sources of their income. These sources include appearance and performance fees, sponsorship image rights royalties, tournament entry fees, and more. The wide range of income channels within the sports industry poses challenges when it comes to accurately reporting taxes. As a result, it is not surprising that both advanced and developing nations have implemented specific tax frameworks for individuals in this category, regardless of their residency status. The objective of these frameworks is to ensure a thorough assessment and collection of potential tax revenues, leaving no opportunity for tax evasion^[2].

Nigeria has continuously attained worldwide triumph in sports over the years, resulting in significant economic benefits from diverse sport-related endeavours. Nevertheless, it is imperative to recognize the obstacles in efficiently evaluating and collecting relevant taxes and take critical steps to correct them. This article analyses the taxation scenario in Nigerian sports, illuminating its legal implications.

Overview of Taxation in Nigeria

Structure and Classification of Tax

The Nigerian Tax System is structured to address the categorization and various types of taxes in Nigeria. In this regard, Nigerian taxes are systematically classified based on methods or burden, incidence or subject, and tax base.

Classification by methods includes:

1. Under a proportional tax system, the taxpayer is assessed at a flat rate on their entire accessible income.
2. In a progressive tax structure, elevated tax rates are applied to each incremental increase in the taxpayer’s income.
3. A regressive tax, on the other hand, results in a reduction in the tax payable as the taxpayer’s income rises.

Classification by incidence includes;

1. Direct taxation: This pertains to a group of taxes that are directly imposed on individuals or entities who are anticipated to shoulder the tax responsibility. This classification includes taxes imposed on properties, individuals, businesses, incomes, and other entities that are legally bound to fulfil their tax obligations. Notable examples of direct taxes include Personal Income Tax, Capital Gains Tax, and Companies Income Tax^[3].
2. Indirect Taxes: Indirect taxes are levies that are imposed to transfer the burden to another party. These taxes are applied to goods before they reach consumers and are ultimately absorbed by those responsible for them. Examples of indirect taxes include Value Added Tax (VAT), stamp duty, excise duty, customs duty, and sales or purchase tax. Although not perceived as taxes by the end consumers, these taxes are considered integral components of the market price of commodities. It is important to recognize that indirect taxes can affect the cost of living, as consumers bear the impact of these taxes when purchasing goods^[4].

Classification by Perspective of Tax Base:

Taxes in Nigeria can be categorized based on the nature of the subject being taxed. The prevailing bases include:

1. Capital Base: Encompassing Capital Gains Tax, this pertains to the sale of capital goods, specifically non-current assets.
2. Income Base: Encompassing Personal Income Tax, Petroleum Income Tax, and Company Income Tax, this category involves the taxation of government income derived from various sources.
3. Consumption Base: Notable instances in this category are Value Added Tax, Stamp Duties, and Excise Duties, which are levied in connection with consumption-related activities.

Tax Laws in Nigeria.

The tax structure in Nigeria operates as a three-tier system, comprising the Federal, State, and Local Governments. The authority to impose taxes on individuals and organizations is vested in the government by Section 4 & 150 item D of part II of the second schedule of the Nigerian 1999 Constitution as amended. To ensure the efficacy of taxation, the imposition of taxes must be supported by legislation enacted by the legislature^[5].

Decree No. 21 of 1998, under the Laws of the Federation of Nigeria (LFN), encompasses the approved list of taxes and levies sanctioned by the Federal Government, which may be collected by the three tiers of government. In 2015, an additional harmonized schedule was introduced through the Taxes and Levies (Approval List for Collection) Act, Amendment Order 2015. The primary objective of this amendment was to prevent the duplication of taxes and mitigate conflicts among the three tiers of government^[6].

The following is a list of some tax laws currently in force in Nigeria;

1. Federal Inland Revenue Service (Establishment) Act No. 13 of 2007.
2. Companies Income Tax Act (CITA) CAP C21 LFN, 2004 (commencement 1st Jan, 1958)
3. Personal Income Tax Act (PITA) CAP 8 LFN, 2004 (as amended).
4. Petroleum Profits Tax (PPTA) CAP 13 LFN, 2004
5. Deep Offshore and Inland Basin Production Sharing Contracts Act
6. Value Added Tax Act (VATA) CAP D1 LFN, 2004.
7. Education Tax Act CAP E4 LFN 2004.
8. Capital Gains Tax Act (CGT) CAP c1 LFN, 2004.
9. Stamp Duties Act CAP S8 LFN, 2004.
10. National Information Technology Development Agency Act (NITDA).
11. Nigerian LNG (Fiscal Incentives, Guarantees & Assurances) Act.
12. Industrial Development (Income Tax Relief) Act.
13. Industrial Inspectorate Act.
14. Investment and Securities Act, 2007.
15. Insurance Act of 1997 (as amended).
16. Finance Act 2023.

Sport Taxation in Nigeria

Acknowledged globally, athletes consistently secure top positions among high earners, leveraging diverse revenue streams. The complexity arises from the fact that these incomes are often generated across multiple jurisdictions, posing challenges in accurately reporting taxes^[7]. In Nigeria, the income of individual entertainers and sportspeople can be broadly classified as follows:

1. Income earned within Nigeria by resident entertainers and sportsmen, such as fees acquired for local appearances or performances.
2. Income originating from other jurisdictions by residents, including fees earned for international performances.
3. Income derived from Nigeria by non-residents, exemplified by fees earned by visiting international performers in Nigeria.

In Nigeria, there exists no distinct tax system exclusively tailored for athletes; rather, athletes are subject to the same tax regime applicable to other individuals. However, certain frameworks specific to tax conditions for athletes are in place. For instance, a resident athlete in Nigeria is obligated to pay taxes on their global income within the country. The assessment, collection, and utilization of these taxes are administered by the relevant State Internal Revenue Service corresponding to the athlete’s place of residence. Similar principles extend to other facets, including benefits. Notably, a rebate is applicable when income earned abroad is repatriated into Nigeria through an approved foreign exchange channel and subsequently deposited into a local debit account. Nonetheless, the resolution of tax obligations for non-residents earning income in Nigeria through personal activities remains unresolved. Income derived from the private activities of these non-residents seems to elude assessment and collection, presenting potential significant revenue leakages. Addressing these issues may necessitate further amendments to the Personal Income Tax Act (PITA) to provide clarity and regulation regarding the taxation of non-resident athletes beyond speculative considerations.^[8]

Challenges of the of the Nigerian Tax System

The Nigerian tax System over the years has been plagued with numerous challenges which include:

1. Multiplicity of tax rates, resulting in the imposition of taxes on the same income by two or more jurisdictions. This situation arises when a person is subjected to taxation more than once. The term ‘multiple taxation’ is not formally recognized in the field of taxation; however, it appears to be a unique expression within Nigerian tax lexicography^[9]. Companies and taxpayers alike frequently express concern about the recurring effects of triple taxation^[10].
2. Ineffective tax administration management is one of Nigeria’s main tax issues^[11] and this results in a lack of transparency in the way taxpayer funds are managed^[12]. Major issues with tax administration in emerging nations, such as Nigeria, are typified by tax evasion^[13].
3. The obsolete and insufficient methods of tax collection, the lack of a database containing all taxable individuals, and the instrument for assessment^[14] are issues that need to be addressed with a tax structure that works. There are no attempts made to gather or examine the scanty data that is now available, much less to preserve it, to assess the information that is recovered^[15]. This largely suggests that the Nigeria Tax System needs to be improved to meet the needed requirements.
4. Insufficient authority to handle several taxes. Selecting the proper revenue authorities to manage the different taxes and charges that are collected by the Federal, State, and Local Governments has proven to be challenging.

Recommendations:

• • 1. Harmonization of Tax Rates: It is imperative to address the issue of multiple tax rates. The government should consider the harmonization of tax rates to prevent the imposition of taxes on the same income by multiple jurisdictions. This strategic move will enhance clarity and consistency in the taxation process.
    2. Enhanced Tax Administration: The improvement of tax administration management is pivotal for effective revenue collection. Strategic investments in modern technology, continuous training of tax officials, and the establishment of transparent systems can contribute to a more efficient and accountable tax administration.
    3. Database Development: The creation of a comprehensive database containing information on all taxable individuals, inclusive of athletes within and outside Nigeria is of utmost importance. This database should undergo regular updates and maintenance to facilitate accurate assessments, improve compliance, and streamline the overall tax collection process.
    4. Reform of Tax Collection Methods: It is necessary to revisit and update the methods of tax collection. The incorporation of modern and efficient approaches, such as digital platforms, can enhance the collection process, reduce loopholes, and improve overall efficiency.
    5. Empowerment of Tax Authorities: Ensuring that tax authorities at various levels possess the necessary authority to handle different taxes is vital. A clear delineation of responsibilities and empowerment of tax agencies will contribute to better tax management.

Conclusion

While Nigeria has achieved significant success in sports on the global stage, the taxation framework presents challenges that need to be addressed. The country’s tax system should evolve to accommodate the unique income structures of athletes, ensuring fair and efficient revenue collection. Implementing the recommended reforms will not only enhance the taxation process but also contribute to the overall growth and development of the sports industry in Nigeria. The government’s commitment to addressing these challenges will play a pivotal role in creating a favourable environment for athletes, fostering compliance, and maximizing revenue potential from the sports sector.

1. Blacks Law Dictionary 8th Edition. ↑
2. McBANKYDUFF LEGALS TAX MATTERS JOURNAL M.T.M.J. VOL. 05. 2023. ↑
3. Ibid. ↑
4. Ibid. ↑
5. This principle is incorporated into the Companies Income Tax Act by virtue of section 9 and 40. ↑
6. Godwin Emmanuel Oyedokun, Tax Management and Compliance in Nigeria Overview of taxation and Nigeria Tax system (OGE Business school, 2020) at page 15. ↑
7. Deloitte Nigeria, Taxation Of Entertainers And Sportsmen In Nigeria – What, How And Where? (2017) Available at https://www.mondaq.com/nigeria/tax-authorities/592370/taxation-of-entertainers-and-sportsmen-in-nigeria–what-how-and where#:~:text=Nigeria%20does%20not%20have%20a,playwright%2C%20musician%2C%20artist%20etc. accessed February 2024. ↑
8. Ibid. ↑
9. Sanni, Abiola, Multiplicity of taxes in Nigeria; Issues, Problems and Solutions. (2012) (3)(17) International Journal of Business and Social Science; 229-236. ↑
10. Daniel Simeon Edori, Iniviei Simeon Edori and Alapuberesika Robertsldatoru, ‘Issues and challenges Inherent in the Nigerian Tax System’ (2017) (2)(4) American Journal of management Science and Engineering at page 54. ↑
11. Hadacolarl, ‘The Importance of income Tax in South-East Western Nigeria’ 2008 (7)(10) Journal of Economic and Financial Mirror; 11-13. ↑
12. B.D. Kiabel & M.N. Nwikpasi, ‘Selected Aspect of Nigeria Taxes’ (Springfield Publishers, 2010) ↑
13. K.P. Modugu & AS. Omoye, ‘Appraisal of personal income Tax Evasion in Nigeria’ (2014) (4) (10) Asian Economic and Financial Review; 33-40. ↑
14. J. Olabisi, ‘An Assessment of Tax Invasion and Tax Avoidance in Lagos State’ (2010) (8) (1) Jonal Reaserch in National Development. ↑
15. L.M Leyira, E Chukwuma & A.U Asian, ‘Tax System in Nigeria – Challenges and way forward’ (2012) (3) (5) Research Journal of Finance and Accounting; 9-15 ↑