In 2022, the Federal Inland Revenue Service (FIRS) took a significant step by issuing the Non-Interest Finance (Taxation) Regulations 2022. Fast forward to 2024, these regulations have had a notable impact on the taxation landscape for institutions offering non-interest financial products and services in Nigeria.

The journey began with the issuance of the revised Guidelines by the Central Bank of Nigeria (CBN) in June 2022, setting the stage for a uniform regulatory framework. The FIRS Regulations, effective from April 1, 2022, under Section 61 of the Federal Inland Revenue Service Establishment Act (FIRSEA), aimed to ensure parity between conventional and non-interest financial services.

Structured into seven parts, the Regulations delineated twelve non-interest financial instruments (NFIs) and their corresponding tax treatments. The following are some key highlights from these Regulations:

1. Sale-based products: These include Murabaha, Istisna or Parallel Istisna, and Salam or Parallel Salam. The Regulations outlined tax implications, treating markups as interest subject to withholding tax (WHT) while exempting certain components from value-added tax (VAT), stamp duties, and capital gains tax (CGT).
2. Equity-based products: Noteworthy instruments like Musharakah and Diminishing Musharakah underwent classification as loans, with profits deemed as interest and subject to tax. The Regulations also addressed Mudarabah, treating profits akin to conventional return on investment.
3. Lease-based products: Ijarah wa iqtina (Finance lease) and Ijarah (Operating lease) were handled in line with their conventional counterparts, with lease payments subject to VAT and WHT.
4. Fee or Agency-based products: Takaful arrangements saw VAT implications on management fees and investment returns distributed to participants, underscoring the Regulations’ thoroughness.
5. Other investment products: Sukuk arrangements were aligned with conventional bonds, with tax exemptions delineated based on the issuing authority. Islamic Fund Management and Islamic Real Estate Investment Trusts also received specific tax treatments mirroring conventional equivalents.
6. Supplementary and General Provisions: The Regulations ensured comprehensive coverage, subjecting income from NFIs to existing tax laws while addressing nuances like rebates and documentations under VAT, WHT, and stamp duties.

Looking back, stakeholders commended the FIRS’ initiative, yet identified areas necessitating refinement. Concerns included potential clashes with legislative boundaries, oversimplification of complex transactions like Musharakah, and nuances in Mudarabah and Takaful taxation.

These retrospective insights underscore the ongoing evolution and fine-tuning required in regulatory frameworks. As we progress, the call for continued dialogue and amendments echoes, ensuring a robust and equitable taxation environment for both conventional and non-interest financial institutions in Nigeria.

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