VENTURES AFRICA – The management of FBN Holdings Plc expressed delight at the timely resolution of tax issues which has engendered an equitable taxation regime for Bank Holding Companies in the nation.
The Bank Holding Companies emerged in compliance with the Central Bank of Nigeria’s Regulation on the Scope of Banking Activities & Ancillary Matters, No. 3, 2010 requiring the separation of commercial banking business from other financial services businesses. They include FBN Holdings Plc, Stanbic IBTC, UBA, and FCMB.
Speaking on the issue, the CEO of FBN Holdings Plc, Mr. Bello Maccido said the holding companies at inception faced a major concern over possible interpretation of existing tax statutes that would lead to the double taxation of dividends. There was also a concern about the magnitude of transaction costs that would be incurred by the banks in responding to the change in regulations.
“It was therefore necessary for Bank holding companies to seek mitigation of some of these costs through waivers and concessions from the regulatory authorities. It was very clear that without government’s intervention, the companies would have faced possible challenges in this regard,” he added.
Nigeria’s Financial Services Regulation Coordinating Committee (FSRCC) is reported to have created the platform for the Bank Holding Companies to table their tax and transaction costs issues to regulators and supported the idea of creating an industry working group.
Maccido said Nigeria’s Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala in concert with the Federal Inland Revenue Service team was very instrumental to ensuring that the tax issues were heard and resolved in good time to meet the CBN deadline.
He noted that the Securities & Exchange Commission, Nigerian Stock Exchange (NSE) and Central Securities Clearing System (CSCS) were equally very receptive to discussions on reduction of transaction costs for Bank Holding companies.
According to Maccido, the leadership of the Federal Ministry of Finance and the FIRS had through the resolution of the tax issues demonstrated their commitment to ensuring greater good of the economy and stimulation of economic activity.
“We salute the professionalism and insight of Okonjo-Iweala, and the FIRS team for the progress so far recorded,” he added.
Industry experts said the tax statutes as at 2010 did not contain any specific provisions for taxation of pure non-operating holding companies as envisaged by CBN. The tax issues that came up for discussion include: Avoidance of Double Taxation on Dividends Received by the companies, Minimum Tax, and Administration of Withholding Tax (WHT) amongst others.
The fear of double taxation on dividends received by holding companies is due to the potential conflict between section 80 (3) of CITA which treats dividend received after deduction of Withholding Tax (WHT) as franked investment income of the recipient company and shall not be charged to further tax as part of the profits of that company whereas the provisions of section 19 of CITA declares that where dividend paid to shareholders by a Nigerian Company exceeds its total profits then the company shall be charged to tax at the rate prescribed in section 40 (1) of CITA as if the dividend is the total profits of the company for the year of assessment. Thus, where the dividend distributed to shareholders exceeds total profits of a Holdco the implication is that despite having suffered WHT the Holdco shall be liable to pay tax on dividend distributed to shareholders. FIRS clarifies that dividend received by Holdcos from its subsidiaries shall not suffer double taxation and the applicable tax rule is section 80 (3).
In 2009, the erstwhile First Bank of Nigeria Plc reviewed its governance structure within the context of the group’s vision and strategy, resulting in the formation of a holding company which comprises four broad “business groups”, namely Commercial Banking, Investment Banking & Asset Management, Insurance and Other Financial Services.
Maccido said the holding company structure would enhance the group’s competitiveness, streamline and coordinate various operations across non-bank financial services, and further exploit opportunities for synergies between subsidiaries. “We now have a structure that has the capabilities to exceed customers’ expectations, and deliver superior values to shareholders’ through retention of good investments,” he stated.
FBN Holdings Plc is one of the largest financial services group in Nigeria. The holdings company emerged from the erstwhile FirstBank Group in November 2012 to effectively ring-fence the commercial banking business from other businesses in tandem with regulations of the Central Bank of Nigeria.