The COVID-19 pandemic which is currently affecting countries across the world has once again shown how inter-connected the global economy is. What started as an outbreak in a province in China has now become a global pandemic that has impacted stock markets, global oil prices, the airline and hospitality industry and generally slowed down the global economy. Governments have therefore had to react to the crisis by introducing stimulus packages, increased funding to health and other allied sectors and providing palliative measures to citizens.

Nigeria has been doubly impacted by this crisis. The fall in crude oil prices (trending at sub- $30 per barrel1) has significantly reduced the Federal Government's foreign exchange earnings and its budget which was premised on a crude oil benchmark price of $57 has been cut. Additionally, the Government is now faced with extra-budgetary expenditure that it did not envisage at the start of the year, which it requires to upgrade medical facilities, buy testing kits and personal protective equipment and provide palliatives to Nigerians, who have been restricted from going about their normal economic activities in response to the outbreak.

Novel situations like the one presented by the COVID-19 pandemic require a creative approach and strategy. In this regard, the Government has had recourse to donations and interventions by the private sector to obtain additional funds for its response to the crisis. Most of these donations have come in cash and kind from large companies in the banking, manufacturing and oil and gas sectors amongst others. As at 9th April 2020, the cash donations were estimated at about ₦21.58 billion2. Given the urgency required to address the challenges created by the current situation, there has been little or no discourse about the tax implications and treatment of these donations for the companies and Government.

This article discusses the tax treatment of donations from stakeholders in the Nigerian private sector and the need for the Government and the tax authorities to track donations and issue guidelines on their tax treatment in order to ensure certainty and encourage more donations.

Issues Surrounding the Tax Treatment of Donations in the fight against Coronavirus (COVID-19)

  1. Donations Made by Companies By virtue of Section 25 of the Companies Income Tax Act (CITA) and Items 7 and 35 of the Fifth Schedule to the CITA, donations made to a Government owned hospital (State or Federal) including a private hospital established not for profit and a public fund established by the Federal or State Government in aid or relief of drought or any other national disaster in any part of the federation are tax deductible. The donation must, however, be made only out of the profits of the company and should not be of a capital nature. Additionally, the amount to be deducted must not be greater than 10% of the total profits of the company (for that year) unless the President directs otherwise by an order in the Federal Gazette.

Given the above, some pertinent questions arise what is the definition of public funds under Section 25 of CITA and who designates it as such.?

Originally Published 21 April, 2020

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