Up Nepa bills
NERC Tariff Directive to DisCos; And a 50% Tit for TAT.
Hello everyone. It’s another week, and we will be talking about 3 major things this week.
NERC Tariff Directive to Distribution Companies
Tax Appeal Tribunal orders Multichoice to pay 50% off tax revenue
NERC Tariff Directive to Discos
Up Nepa! Every millennial is probably familiar with this phrase. Only this time, the thing going up is likely your Nepa bill. Adulting strikes again.
Now, the NERC - the Nigerian Electricity Regulatory Commission, is the body responsible for a lot of things that affect how your bulb lights up. Their role can be broadly described as regulating the generation, transmission, and distribution of electricity in Nigeria.
If you are interested in learning about the electricity value chain in Nigeria, my friend, Iyanujesu, did a simple breakdown of it some weeks ago. I promise it is an enlightening read.
Well, the NERC has reportedly given the 11 distribution companies in Nigeria namely; Abuja Disco, Benin Disco, Enugu Disco, Eko Disco, Port Harcourt Disco, Ibadan Disco, Ikeja Disco, Jos Disco, Kano Disco, Kaduna Disco, and Yola Disco (the DisCos), a green light to increase tariffs - the amount of money you pay for your electricity.
Though I have not seen anything on the NERC website to show that it approved a new tariff order for DisCos, the little evidence I have of it is in the tweet above by a journalist and a notice sent by Eko Disco to customers notifying them of a planned increase.
Under its MYTO (Multi-Year Tariff Order) Framework, NERC periodically determines whether Nigerians are paying too much or too little for electricity, and based on a number of factors such as the Nigerian & US inflation rate, the Naira/USD Exchange rate, and the price for natural gas.
If you are very familiar with the NERC’s activities, it regularly issues periodic (extraordinary or minor) reviews of tariffs, based on the above factors. I’m guessing this MYTO from September 2020, was the last one before the latest one the DisCos are acting on. It’s worth mentioning that the NERC may determine varying minimum tariffs for the different DisCos, so it is possible that the assessment for customers of Eko Disco, is different from that of Yola Disco.
Anyways, the impact of the extant NERC Directive means higher Nepa bills for almost everyone, going forward. From my assessment of the Eko Disco notice, the increment looks like an N2 per kWh increase across the board for most categories of customers. Maybe it is a negligible increment, as long as DisCos keep improving their services? We will see.
The increased tariffs take effect from September 1, 2021, meaning you would be likely paying higher Nepa bills by October 2021.
Tit for TAT - Tax Appeal Tribunal’s 50% Order on Multichoice
We have yet another tit-for-tat episode on our Tax Wars series. And Multichoice would certainly not like this episode.
If you recall our regulatory review in Of Peeping Toms and Taxpayers, I made mention of a nifty provision of the Federal High Court (FIRS) Civil Procedure Rules, 2021 which required taxpayers challenging FIRS’ assessments, to pay 50% of the assessed amount as a condition for their appeal. Perhaps you also remember that we condemned this provision as highly restrictive to the constitutional rights of litigators to be heard by Nigerian courts and tribunals.
While the FHC Practice Directions that we discussed then, are not applicable to the Tax Appeal Tribunal, it is interesting to note that the TAT, according to news reports, on August 26, made a decision ordering payment of 50% of the $4.4 Billion tax assessment by FIRS - N900 Billion! - before Multichoice would be allowed to proceed with its tax challenge before the TAT. P.S. I have not seen a copy of the Court’s order.
Okay then, on what basis was that order made? According to a news report by Nairametrics, the FIRS Statement stated that the decision of the TAT was based on Order XI of the TAT Procedure Rules 2010, and Paragraph 15(7) of the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act 2007 (FIRS Act).
Now, you can access a copy of the TAT Procedure Rules 2010 here. Order XI of the Rules indeed allows any application to be made by any party. But that an application is made, should not automatically mean such will be granted without legal basis?
Well, Paragraph 15(7) of the Fifth Schedule of the FIRS Act provides:
"...the Tribunal may adjourn the hearing of the appeal to any subsequent day and order the appellant to deposit with the Service, before the day of the adjourned hearing, an amount, on account of the tax charged by the assessment under appeal, equal to the tax charged upon the appellant for the preceding year of assessment or one half of the tax charged by the assessment under appeal, whichever is the lesser plus a sum equal to ten percent of the said deposit, and if the appellant fails to comply with the order, the assessment against which he has appealed shall be confirmed and the appellant shall have no further right of appeal with respect to that assessment."
Yeah, so, legal basis. So what does this mean? Essentially, the FIRS/TAT may successfully claim that they have a legal basis for the N900 Billion chokehold on Multichoice.
Does the condition of 50% assessment still make sense to me? No. But that does not really matter in the scheme of things.
Now, I know most of these things, especially involving South African companies, are sometimes a mix of politics, legality, and a little bit of anyhowness, but seeing that the total market value of the Multichoice Group is just around 9.9 Billion Rands (which is roughly 276.5 Billion Naira) and putting that into the context of the tax claim from the Federal Government, Multichoice may go under if it were to pay $4.4 Billion (1.8 Trillion Naira) in tax returns to the FG.
My guess though is that either FIRS or Multichoice would blink soon and they would come to a much fairer settlement. It is important to note that this kind of dispute is not the first of its kind. Last year, MTN passed through its own version of the tax wars and succeeded in getting some of the assessments overturned.
That’s all for today.
See you on Friday when we continue our Quick Take Series on the Petroleum Industry Act, 2021.