Entertainment tax in Nigeria is a form of indirect taxation levied on various leisure and recreational services, including purchase of consumable goods or services in any restaurant, paid TV network subscription, internet facility, travel agency and similar public entertainment activities. The administration and implementation of entertainment tax fall under the horizon of State Government through State Internal Revenue Service (SIRS).
Entertainment Tax in Other States
Lagos State pioneered the implementation of entertainment tax which is popularly known as “Sales Tax” through the enactment of Hotel Occupancy and Restaurant Consumption Law on the 22nd June 2009. The law authorizes Lagos Internal Revenue Service (LIRS) to collect 5% tax on designated goods and services consumed within hotels, restaurants, event centers, entertainment venues. States such as Ogun, Rivers, Imo, Cross River, Delta, Edo, Enugu, Ondo and Kano have similar laws on entertainment tax, but with few individual unique provisions and nomenclature. However, entertainment tax laws and implementation in different States have faced legal challenges at different times. Till date, some of the cases are still being argued in different Court of Law.
Federal Capital Territory (FCT) Entertainment Tax
FCT entertainment tax is governed by Entertainment Act, Cap. 498 Laws of the FCT Nigeria 2007 and FCT Act Cap. F6 Laws of the Federation, 2004. However, a former Minister of the FCT, Dr Bala Muhammed made a regulation thereon called “Entertainment and Event Center Fee Regulation 2014”.
This regulation imposed on consumers who pay for the use or right to use any hotel, hotel facility, restaurant, event center, or other venues providing entertainment and related services. This includes the consumption of goods or services such as food, drinks, hall rentals, TV networks, internet facilities, traveling agencies and other personal or leisure services within the FCT. As defined in the Entertainment and Event Center Fee Regulation 2014, FCT Entertainment tax is the total cost of the facility or service provided, exclusive of Value Added Tax (VAT).
Tax Rate
- 5% of the total bill issued to the consumer.
- This rate is exclusive of VAT, meaning it is independently assessed and payable in addition to VAT.
Thus, consumers are required to pay a 5% entertainment tax on services consumed at:
- Restaurants,
- Hotels,
- Lounges and bars,
- Nightclubs,
- Event centers and halls,
- Recreational facilities within the FCT.
Compliance Requirements for Affected Businesses
The regulation identified collecting agent as “any person owning, managing or controlling any of the business or supplying any goods or services chargeable “under the regulation. Therefore, collecting agent, that is, affected business owners operating in the FCT are required to:
- Register with the Entertainment and Event Centre Fee Unit, being a Department of Economic Planning, Research, and Statistics within 30 days of commencing business or from the enactment of the law, whichever comes first.
- Collect the 5% tax from customers and remit it weekly to the FCT Administration.
- Provide evidence of registration as a prerequisite for entering into contracts with any Ministries, Departments, Agencies (MDAs), Secretariats, or Area Councils within the FCT.
- Maintain detailed records of collections and remittances.
- Operate an electronic billing and payment system practice is achieved in the FCT.
Reporting and Remittance Timeline
- The reporting period is weekly.
- All taxes collected are due and payable on or before Monday of the following week.
Tax Liability upon Transfer of Business Ownership
In the event of a sale or transfer of a business subject to this Regulation, the transferee (buyer) shall be obligated to withhold a portion of the purchase amount sufficient to cover any outstanding tax liabilities owed to the Federal Capital Territory Administration (FCTA), as stipulated by law. This obligation shall remain in effect unless the transferor (seller) provides a valid receipt issued by the FCTA confirming that all due payments have been fully settled as of the transfer date, or that no tax liability is outstanding.
Penalties for Non-Compliance
Failure to comply with the provisions of the Entertainment Tax regulation may result in:
- A 10% penalty of the amount due, plus interest as stated in the regulation.
- 5% annual interest above the prevailing Central Bank of Nigeria (CBN) Minimum Rediscount Rate (MRR) for late remittances.
- Criminal liability: Directors, managers, officers or employee of collecting agent who fail to comply may face a fine of ₦2,000,000 or six months imprisonment, or both.
- Any person who gives false information regarding the regulation is liable to six months imprisonment or a fine of N500,000 or both.
NB: Where a collecting agent fails to make remittance as required by the provision, the FCTA or its Consultant may make an estimated assessment of total amount due and may order such agent in writing to pay to the Government within 21 days of the service of the order. However, a good part of the regulation is that there is opportunity for any collecting agent to request a review, an amendment or a complete reversal of an estimated assessment within seven (7) of notice raised, subject to the final decision of the FCTA or its Consultant.
Having concluded a final assessment, FCTA or its Consultant is empowered while observing the law to carry out enforcement of payment including sealing up the collecting agent’s facility.
Implications of Entertainment Tax in the FCT
For Businesses
- It may decrease turnover due to higher final prices to consumers.
- It may result in low patronage, particularly for non-essential leisure activities.
- Collecting agents may embark on cost-minimizing measures, such as layoffs or reduced service hours.
- It may discourage investment in the entertainment and hospitality sectors.
- A collecting agent who has not invested in electronic billing systems, must now make such investment.
- The weekly compliance with the entertainment tax imposes too frequent responsibility on collecting agents. This is unlike PAYE and VAT which are monthly compliance.
For Consumers
- Higher cost of leisure, as the entertainment tax (5%) is an addition to Value Added Tax (7.5%), making a total of 12.5% passed to consumers.
- Reduction in consumption of taxed services and experiences.
- A possible shift in spending behavior, possibly toward informal or untaxed alternatives.
Conclusively, entertainment tax in Nigeria, particularly as implemented in the FCT and other States, is a crucial revenue source for subnational governments. However, it has significant implications for the hospitality, tourism, and creative sectors. To ensure sustainability and fairness, authorities must improve transparency in tax collection and utilization, prevent multiple or overlapping taxes in the name of taxing the rich, and foster dialogue with industry stakeholders to balance revenue generation goals with sectoral growth and affordability for consumers.
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Written by:
- Dr Sunday Omojuyigbe PhD, FCA, FCTI
- Bamidele Adebayo, Bsc, ACA
- Samuel Adelusi Bsc.
