Tax Benefits of Donations

Donations in support of causes, charities or designated funds for charitable purposes go a long way in building communities and supporting the less-privileged in our society. Today, there is a global consensus by well-meaning corporations to support governments and health agencies leading the response to the COVID-19 pandemic. Nigeria is not an exception. Nigerian companies have donated cash and materials such as isolation centers, medical supplies and equipment to the COVID-19 relief effort.

These donations have tax benefits if done according to the provisions of the relevant tax laws. Donors who may be interested in such tax benefits should structure their affairs accordingly

Benefits

By virtue of the provisions of Section 25 of the Companies Income Tax Act (CITA), donations made by companies to designated funds, bodies or institutions in Nigeria are tax deductible subject to certain conditions. Paragraph 35 to the Fifth Schedule of the CITA, specifically provides that donations to any public fund established or approved by the Federal or State government in aid or relief for any national disaster will be tax deductible.

Section 25 of CITA provides the conditions or circumstances under which donations made by companies shall be tax deductible as follows:

• the donation is made out of the profits of the company and is not expenditure of a capital nature;

• the deduction shall not exceed 10% of the total profits of that company for the year of assessment in which the donation is made;

• the public fund, statutory body/institution, ecclesiastical, charitable, educational or scientific institution receiving the donation must be established/incorporated in Nigeria and specified in the Fifth Schedule to CITA (the Minister of Finance may by order amend the Fifth Schedule from time to time);

• donations made by a company should not include any payments made by the company for valuable consideration;

• Donations may be tax deductible notwithstanding the fact that such donation is revenue or capital in nature, where such donations are made to tertiary institutions and the deductions do not exceed an amount which is equal to 15% of the total profits or 25% of the tax payable in the year of the donation whichever is higher.

Proposed Treatment of COVID-19 Donations

In the ministerial press statement titled Fiscal Stimulus Measures in Response to the COVID-19 Pandemic & Oil Price Fiscal Shock (the press statement) issued on 6th March 2020, the Minister of Finance announced that the charitable donations made by companies to the Federal Government’s efforts against the COVID-19 pandemic will be tax deductible.

The Minister in the press statement, also announced that she would make an order or issue a circular to amend the list of funds, bodies and institutions already identified under law to whom tax deductible donations may be made so as to include recipients of donations made towards the COVID-19 response in Nigeria. This is to ensure, without a doubt, that donations made by companies for this purpose will be tax deductible, subject to the conditions stated in Section 25 of CITA.

Conclusion

We hope that the Minister of Finance will issue the much-awaited order or circular in accordance with Section 25 of CITA in order to provide certainty that donations made in support of the efforts against the COVID-19 pandemic will be tax deductible.

Unfortunately, the Personal Income Tax Act does not contain similar provisions that would make donations by individuals an allowable deduction. We urge the National Assembly to quickly look into this.