Month: Apr 2021

INSURANCE: ANOTHER FORM OF GLORIFIED GAMBLING; TRUE OR FALSE?

Law & Awareness Series (Issue 1)

By: Emmanuel Omotayo Johnson

INTRODUCTION

So, I was having a discussion with one of my day one buddy the other time. We haven’t seen in a long while, so there was plenty to gist about. I remember at a particular point, he began to query why people buy insurance. According to him, it is not moral to do so as it is a form of gambling. Well, as someone who fully appreciates the dichotomy between insurance and gambling, I tried my possible best to purge him of his ignorance. My friend even stressed that he does not see himself ever buying any insurance whatsoever because his religion does not approve of gambling – he can be so brassbound but, trust me, I tried my best. Well, aside that we actually had a great time before we parted ways.
While I tried to ruminate over our argument and my friends surprising ignorance of insurance and the purpose it serves, I considered it worthwhile to write on the topic. I believe it will do a lot help to educate many people out there who still hold the same view as my good friend.

WHAT IS INSURANCE?

All law lexicons define insurance as “a contract whereby a person called the insurer or assurer, agrees in consideration of money paid to him, called the premium, by another person, called the insured or assured to indemnify, the latter against loss resulting to him on the happening of certain events”.
In simple terms, insurance means protection or security against the happening of certain events or the effects of certain future losses. Emphasis on the word “certain”. “Certain” here is used to mean a particular identifiable event (e.g. death, accident, fire outbreak etc), and not to denote the surety of the occurrence of the event.
It is a kind of contract by which one party called the “insurer” or “assurer” assumes the risk faced by another party called the “insured” or “assured” in return for a money consideration called the “premium”, and undertakes to pay money or do something of value upon the occurrence of the particular risk.

WHAT IS GAMBLING?

Gambling on the other hand is simply the profession of opposing views upon the issue of a future uncertain event, on the mutual agreement that one shall win and take the stake upon the occurrence of the future uncertain event, with no insurable interest in the stake. Emphasis on the word “uncertain”.

INSURANCE IS NOT GAMBLING, THEIR DISTINCTIONS

(1) Meaning

Insurance: Insurance is generally a contract of indemnity against an undesirable contingency. The insurer assumes the risks of the contingency in consideration (return) of payment of a premium, so that the insured, who suffers the damage or loss, will be compensated in return. This position is better described by Lawrence, J., in Lucena v. Crawford,(1806) 2 Bos & PNR 269 as “a contract by which one of the contracting parties charges himself with the risk of the fortuitous accidents to which something is exposed, and oblige himself to indemnify the other for the loss which those accidents may occasion in case of their happenings, in consideration of a sum of money which the other contracting party gives as a price with which e is charged”.
Gambling: The description made by Hawkins, J., in Carlill v. Carbolic Smoke Ball Co, (1893) EWCA Civ 1 best captures the meaning of gambling. He described wagering contracts as “one by which two persons professing to hold opposite views touching the issue of a future uncertain event, mutually agree that dependent upon the determination of that event one shall win from the other, and that the other shall pay or handover to him a sum of money or other stake; neither of the contracting parties having any other interest in the contract (or event) than the sum or stake he will win or lose, there being no other real consideration for making of such contract by either parties. A game of chance for winning in money or money’s worth”.

(2) Insurable Interest

Insurance: Insurable interest is the legal and enforceable right that the insured has in relation to the subject matter of the insurance contract (that is recognised at law), so as to be able to enforce the contract. That is to say, the insured person must be the legal owner of the subject matter to be able to enforce an insurance contract. For instance Mr. A the son of Mr. B cannot insure Mr. B’s car because he does not have insurable interest in it, only Mr. B can. Insurance contract is illegal and void without insurable interest – without it, it is a gambling contract and gambling contracts cannot be enforced.
Gambling: In gambling, the interests are limited to the stake to be won or lost, and are not recognised at law. There is no relationship between the event betted upon and the gambler. Gambling is speculation is speculation on events which the parties have no legal interest.

(3) Indemnity

Insurance: In insurance, risks are existing, they may occur at any time. For example, death, fire, marine perils, accident, etc, may occur at any time. The person will suffer at the occurrence of these events, but if insurance is taken against these risks, the insurer will provide a fixed amount or indemnify the amount of loss incurred due to the insured risk. Thus, insurance is fundamentally for indemnity i.e. to indemnify the insured of loss suffered as a result of the occurrence of the contingent insured against. It is not for profit making and cannot be deemed as such. It is taken to protect existing interest or ownership and to get replacement in case of loss. In absence of insurance the property owner will suffer the risks.
Gambling: In the case of gambling, risk does not exist, it is merely created for a game or amusement of which one will suffer and another will make profit. In absence of such game, nobody will suffer as there is no risk. Each party goes into gambling with singular objective of making gain and the loser cannot be indemnified.

(4) Utmost Good Faith

Insurance: Insurance is a contract of utmost good faith, and the parties are required by law to fully disclose material information in respect of the contract.
Gambling: Gambling is not a transaction that requires good faith. Full disclosure is not a necessity in gambling.

(5) Contract Enforceable at Law

Insurance: Insurance contracts must comply with all the essential requirements of a valid contract and is enforceable at law.
Gambling: Gambling on the other hand is generally illegal, and therefore, null and void ab initio. No action can be brought to recover money relating to gambling.

(6) Regulation

Insurance: Insurance business is regulated mainly to protect the consumers or insuring public. In Nigeria, the insurance industry is regulated by the National Insurance Commission (NAICOM), established in 1977.
Gambling: ordinarily, gamblers deserve no protection as gambling is regarded as morally reprehensible. However, as we have it, in Nigeria gaming houses, lotteries and casinos are licensed to regulate the activities and limit the evil of gambling, and majorly for tax purposes.

CONCLUSION

Insurance is not gambling. Although, similar in nature they are essentially different in form and purpose.
When one buys insurance one transfers the risks to which one is exposed, to the insurance company. It is like relieving oneself of burden of worries. You have peace of mind and latitude to concentrate on productive activities.

Buy insurance today, protect your future. It is absolutely legal.

DISCLAIMER!

This publication does not in itself constitute legal advice or recommendation to any individual, group and/or the general public. It is solely for public education.

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TAXATION OF DIGITAL ACTIVITIES: AN EVALUATION OF THE NIGERIAN APPROACH IN A GLOBAL CONTEXT

By: Emmanuel Omotayo Johnson

1.0 INTRODUCTION


The term “Digital” means “the display” or “displaying the data electronically on a monitor”.(1) In this sense, all of the electronic activities that are performed in the electronic environment through a computer can be classified as “digital activities”. Therefore, all kinds of goods and services offered via the internet as part of economic activity through mobile devices (mobile phone, tablet, etc.), particularly the computers, are included in the scope of digital activities/economy. The concept of taxation of digital activities has gained a new dimension especially with the upsurge of technological development. While the extent of the trade carried out through internet, amongst others economic activities have reached dramatic levels annually, the problems encountered in taxation of the digital economy manifest themselves both nationally and internationally.(2) This study is an attempt to examine how the digital economy is captured under the Nigerian tax regime, while juxtaposing it with international trends and comparative law.

2.0 A CURSORY LOOK AT OECD’s/G20 “UNIFIED APPROACH” AND SOME SELECTED JURISDICTIONS APPROACH


As part of its ongoing work to address tax challenges arising from the digital economy (i.e. BEPS Project)(3) the Organisation for Economic Cooperation and Development (OECD) to which Nigeria is a member state, released a new outline on the “unified approach” to ensure that certain multinational enterprises pay tax in countries where they have consumer-facing activities but do not have a physical presence in the new outline.(4) According to the OECD, the tax regime would apply to “automated digital businesses” such as: online search engines, social media platforms, online gaming, digital content streaming etc., and “consumer-facing businesses”.(5)
According to the OECD TFDE, in its earlier publication in January 2019; proposed four thresholds to be explored on a “without prejudice” basis one of which is “significant economic presence” (SEP).(6)
In Israel, the Israeli Tax Authority (ITA) has issued a circular that provides that where a company relies significantly on the internet to provide its services, its activities will constitute its fixed base. In Colombia, a 19% VAT is imposed on digital services which are collected by the banks processing payments before sending out the proceeds.(7)

3.0 AN EVALUATION OF THE NIGERIAN APPROACH


Before the Finance Act of 2019


Prior to the advent of the current tax regime, Section 13 of the Company Income Tax Act(8) subjected a Non-resident Company (NRC) to tax liability in Nigeria only if such company had a fixed base in Nigeria and the taxable profit was the profit attributable to that fixed base.(9) Hence, the nexus for taxing profits derived by a foreign company in Nigeria was based on physical presence in Nigeria.(10) In the well celebrated case of Shell International Petroleum BV v. Federal Board of Inland Revenue (FBIR),(11) the Supreme Court of Nigeria defined a “fixed base” to be a place where a company has carried on business for a long time, notwithstanding that it is not the owner of the place.
This obsolete requirement of “fixed base” or “permanent establishment” cost Nigeria to lose billions of tax revenue annually. The biggest beneficiaries of this unintended oversight are digital companies like Facebook, Netflix etc., who do not require a base in Nigeria before carrying out their operations.(12)


Upon the Finance Act of 2019


On 13 January, 2020, His Excellency, President Muhammadu Buhari, GCFR, signed the Finance Bill, 2019 into law to become the Finance Act, 2019; an Act purported to amend and consolidate the Nigerian tax regime.
One of the major novelties introduced by the Act is the idea of “Significant Economic Presence” (SEP) as the yardstick for taxing of the digital economy of Nigeria. By virtue of Section 4(a)(ii) of the Finance Act, 2019, which amended Section 13 of the CITA, a foreign company “if it transmits, emits or receives signals, sounds, messages, images or data of any kind from cable, radio, electromagnetic systems or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic, commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity .”(13) …would be subject to and taxable under the Companies Income Tax Act (CITA).
Under the present tax regime, digital activities in the country are captured using the (SEP) to affix the affected companies with a fixed base in Nigeria. In consequence, the affected NRCs(14) in e-commerce, filming, computing, ride-hailing, media, etc., who previously had no fixed base in Nigeria under the conventional rules, and no Nigerian tax obligations, will be liable to Nigerian company income tax provided they meet the SEP threshold to be set by the Minister of Finance.(15) Also, such NRCs may be required to register for taxes and file income tax returns in Nigeria in line with Section 55 of CITA.(16)
Without much ado, the Federal Government of Nigeria has started to exploit the SEP initiative. In a recent news reported by Punch Nigeria Newspaper, on June 7, 2020 “the Federal Government plans to tax Netflix, Facebook, others”.(17)
With regards to indirect tax, one way digital activities have been captured is the charge of stamp duties on electronic receipts. Section 54 of the Finance Act introduced a new Section 89 to the Stamp Duties Act(18) which revises and replace the erstwhile Section 89. The new section 89 (3) provides that notwithstanding any other provisions of the SDA, electronic receipt for money deposited with any bank (to a third party account) in the sum of N10,000 and upwards will be chargeable with a singular one-off duty of N50.

4.0 CONCLUSION


The trend towards digitalisation has increased the urgency of efforts to remedy the weaknesses of current international tax system.(19) To this end, international community is working on solutions (one of which is the OECD’s/G20 BEPS Project) which are to be presented by the end of year 2020.(20) Although the ‘unified approach” for taxation of the digital economy is still a proposal awaiting the acceptance of the required numbers of member states, it appears that Nigeria had already used it as a template for taxation of activities in her digital economy, as evidenced by some of the provisions of the Finance Act of 2019, particularly, the concept of (SEP) and expansion of the scope of digital activities to include “automated digital businesses” provided in Section 4(a)(ii) of the Act.
Under the regime of “fixed base” the profits derived by non-resident digital businesses from online activities such as, advertising, movie streaming, online gaming stores, e-commerce, etc., from their users/subscribers in Nigeria were outside Nigeria’s tax net. The direct consequence of this was tax revenue leakage for the Nigerian Government.(21) But, with the introduction of (SEP) the leakages are reduced as more activities in the digital economy will be brought into Nigeria tax net.

5.0 RECOMMENDATION


It is recommended that:
There should be imposition of valued added tax (VAT) on digital companies who engage in “customer-facing” businesses which will be collected by the payment services operators such as Interswitch, Paga etc., as practiced in Columbia.

ENDNOTES

(1) See, http://www.tdk.gov.tr. Last accessed 20 of August, 2020.

(2) Ozgur Biyan and Gunes Yilmaz, ‘A Taxation Problem caused by Digital Economy: Definition of Virtual’, Current Perspectives in Public Finance, Peter Lang, © 2018, page.13.

(3) Base Erosion and Profit Shifting.

(4) KPMG, Digital Economy – OECD Clarifies Unified Approach, TaxNewsFlash, Canada, page.1.

(5) Ibid, page.3.

(6) home.kpmg/xx/en/home/insights/2020/01/etf-423-oecd-releases-outline-of-architecture-for-the-unified-approach-and-a-revised-programme-ofwork.html. Last accessed on 20 August, 2020.

(7) See: http://www.ictd.ac/blog/taxation-of-digital-companies-facebook-as-a-casestudy/, Last accessed on 20 August, 2020.

(8) C4. Laws of the Federation (LFN) 2004 (as amended) (Hereinafter referred as the “CITA”).

(9) A fixed base may be created by the physical presence of an NRC’s employees in Nigeria, an arrangement with a dependent agent who executes transactions on behalf of the NRC in Nigeria, the execution of a single contract for surveys, deliveries, installations or construction by the NRC in Nigeria, or existence of an artificial or fictitious transaction involving related parties in Nigeria.

(10) Emanuel Omotayo Johnson, ‘Tax Implications of the Finance Act of 2019’, page.4.

(11) (1996) LPELR-SC.87/1994.

(12) According to Ovum, a UK-based research and analytic firm, from 2012 to 2018, OTT (Over-The Top) service providers; including Facebook would have gained over 109 trillion naira from Nigeria, untaxed
See: http://www.ictd.ac/blog/taxation-of-digital-companies-facebook-as-a-casestudy/, Last accessed on 20 August, 2020.

(13) Section 4(a)(ii) Finance Act, 2019.

(14) Non-Resident Company.

(15) See, Section 4(c), Finance Act, 2019.

(16) Ibid.

(17) See, https://punchng.com/fg-plans-to-tax-netflix-facebook-others/. Last accessed on 20 August, 2020.

(18) S8, LFN 2007.

(19) Dieter Brauninger, “Taxing the Digital Economy: Good Reasons for Scepticism”, Deutsche Bank Research, 2019, page.1.

(20) Ibid

(21) KPMG, ‘Finance Act, 2019 Analysis’, page.26.

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