NGOs pay taxes too ……

Non-Governmental Organizations which are set up for purely charitable, not for profit purposes are generally exempted from paying Companies Income Tax. The knowledge of this fact in addition to the erroneous belief that they generally enjoy little or no regulatory oversight/scrutiny have played a role in the frequency of their incorporation by individuals with “impure motives”, who set them up only to get disappointed shortly after. 

On today’s #Fridayfive, we thought to show you five reasons why these associations are not the shield/escape route you thought they would be.

1. A not-for-profit organization will pay income tax if profits are derived from a trade or business. They also pay Value Added Tax (VAT) on goods and services consumed except those purchased exclusively for humanitarian projects. It is still mandatory for every non-profit organization to obtain a Tax Identification Number (TIN) and file its tax returns. It is therefore clear that the activities and financial records will matter regardless of the description/nomenclature used to cover or hide them. On the bright side, they enjoy Capital Gains Tax exemptions (excluding business gains disposals) and exemptions under the Land Use Charge Law of Lagos State.
2. Distribution of monies/profits made among members is prohibited. Even upon winding up, any available balance must be donated to another association with similar objects, and cannot be shared among members.
3. NGOs are also required to keep detailed accounting records, which are to be submitted alongside their annual returns.
4. In addition to the requirements for filing annual returns, the 2020 Companies and Allied Matters Act 2020 has introduced controversial new provisions that affect them. E.g. the Corporate Affairs Commission (CAC) is empowered to suspend the activities of Incorporated Trustees and appoint interim managers in their stead. Furthermore, the CAC may also dissolve an association and direct a bank to transfer monies from the association’s dormant account to another account.
5. As a result of non-profit organizations being used as a conduit for money laundering, the Special Control Unit against Money Laundering (SCUML) of the Economic and Financial Crimes Commission (EFCC) is charged with monitoring and supervising Designated Non-Financial Institutions (DNFIs), and this category includes Not for Profit organizations.

They are required to register and cooperate with SCUML. A certificate would then be issued to show that the organization’s operations have been subjected to anti-money laundering and combating financing of terrorism laws. The certificate must be displayed at a conspicuous location in the organization’s place of business. The Money Laundering Act and Prevention of Terrorism Act also apply to NGOs.

In summary, if one is able to ignore the rigorous and significantly more expensive registration procedure, the continuing compliance obligations, especially with respect to reporting should be borne in mind. The government is interested in all organizations, including the Non – Governmental” ones.

*In this article, “Non-Governmental Organization”(s), “not-for-profit organization(s)” and “association(s)” are used interchangeably.