The Nation Newspaper

Category: Taxation

  • Taxation: The Swivel of the economy (2)

    The Nigerian Tax System

    The Nigerian tax system has undergone significant changes in recent times. The tax laws are being reviewed with the aim of repealing obsolete provisions and simplifying the main ones. Taxation in Nigeria is within the administrative purview of the three tiers of government, i.e. federal, state, and local governments as stated in the constitution, with each having its tax space delineated by the Taxes and Levies (Approved List for Collection) Act.

    In pursuing a vibrant tax fiscal policy, the Nigerian government has since 2002 embarked on series of tax reforms at the federal level. Beginning with the Federal Inland Revenue Service (FIRS) Establishment Act, 2007, the drive has been on institutional reforms and modernisation of the Nigerian tax system at the federal level. These reform efforts cut across tax policies, tax laws and tax administration.

    Tax Policies

    Tax policies are general statements of procedure, which guide the thinking and action of all concerned towards the realization of the stated tax objectives. The tax policies of Nigeria are to:

    a)            pursue a low tax regime which aims at reducing individual tax burden and thereby encouraging savings and investments;

    b)            move from the traditional coercive method of taxation to voluntary compliance;

    c)            engage in taxpayer education through public enlightenment;

    d)            deliberate movement of emphasis from income tax to consumption tax which is less prone to tax evasion;

    e)            introduce self-assessment to encourage taxpayers participation in the tax assessment process which is more realistic in approach and democratic in nature; and

    f)             reduce tax evasion and avoidance using the due process of law and the mechanism of an efficient tax administration.

     

    In an effort to consolidate and achieve the objectives above, the Federal Inland Revenue Service collaborated with the Ministry of Finance and the Joint Tax Board to launch the National Tax Policy in 2012. The National Tax Policy is a document that will revolutionize the Nigerian tax system and place it at par with global practice. It is a big step in the modernization of the Nigerian tax system and provides a firm basis for tax legislation and improve the efficiency of tax administration by laying down guidelines and regulations. It also enhances the climate for doing business in the country.

    Tax Laws

    The various legal instruments put in place to ensure the realization of the tax policy objectives of the government have also been undergoing series of reviews and amendments. The notable ones are: PITA CAP P8 LFN 2004 (as Amended in 2011), Transfer Pricing Regulations, 2012, and currently, the redrafting of all tax laws in plain English which is on-going.

     

    Tax Administration

    There has been a repositioning of tax administration system ranging from tax campaigns, automation of processes, to entrenching a vibrant tax refund mechanism. The Integrated Tax Administration System, ITAS is the biggest of the repositioning efforts. It is a revolutionary tax administration system that will ease tax payment as well as administration.

    ITAS is designed to increase revenue yield on a phenomenal scale. It is to be implemented with the Standard Integrated Government Tax Administration (SIGTAS) software solution- a solution designed to meet the needs of developing countries that wish to increase their control over state revenue. The specific objectives of ITAS is to make operations faster, increase voluntary compliance, increase revenue generated for national development and improve the efficiency and skills competence of employees in the FIRS.

    Overall taxation as a concept should be viewed as a pivot, if not the pivot of economic development and the platform upon which fiscal policies are developed and implemented. In this regard, expenditure being the other plank of fiscal policy must always be tied to revenue and, given the general consensus that expenditure should as much as possible be based on available and sustainable resources, taxation provides the best option for achieving this harmony between revenue and expenditure especially in developing countries. In this way, taxation would play a key – if not the central role in sustaining fiscal policy in any economy.

     

    It is therefore pertinent to look at the objectives of fiscal policy with a view to analyzing how taxation impacts these objectives and helps to attain them. By and large, fiscal policy in Nigeria is focused on addressing the major developmental challenges of providing revenue for sustainable expenditure and also ensuring that expenditure is productive i.e. channeled towards areas, which will in turn stimulate growth and development in the economy and provide additional avenues for raising revenue through taxation. Some of the ways in which taxation has impacted fiscal policy in Nigeria include:

     

    Taxation of resource revenue to develop other sectors of the economy: Nigeria has a significant source of resource wealth, such as oil, gas and natural and solid minerals. Although resource wealth is usually easier to realize in the short term, it is generally not viewed as a sustainable source of revenue. It can however be used as a platform for developing other sustainable sources of revenue by utilizing revenue from such areas to stimulate growth and production in other areas of the economy, which are more stable and sustainable than resource wealth. Taxation in this regard, can be used to raise higher revenue from the identified sectors, which is then ploughed back into other areas through a conscious policy which government seeks to develop in the long and short term.

     

    Use of tax revenue for sector focused development:This is closely related to the option above, but different in that, under this option, tax revenue from a particular source is utilized only in a particular area. This means for example that as fiscal policy, taxes from the oil and gas sector will only be utilized on capital or infrastructural expenditure, while taxes on personal income will be utilized only for recurrent expenditure. In this way, government is able to regulate its expenditure as it can only utilize what is available from the specified source for expenditure. A positive spin-off on this is that it would ultimately lead to improvement in each revenue source as government seeks increased revenue to fund the beneficiary sector.

     

    Use of consumption/indirect taxes to raise revenue and to encourage or discourage consumption: Consumption and indirect taxes such as Value Added Tax (VAT) and other forms of sales tax are usually viewed as a more efficient means of taxation and also as more effective tools for regulating taxpayer behavior. Fiscal policy could therefore be focused on consumption taxes i.e VAT, which have a potentially wider tax base and could be more easily collected and accounted for. Other than raising revenue, consumption taxes could also be used to manage expenditure by government and taxpayers alike, by imposing higher or lower rates on specific items depending on the applicable policy to be implemented.

     

    Use of tax incentives and special dispensations to attract and retain investments and stimulate growth in a particular sector– Over time, governments, especially in developing nations have had to grant tax incentives to investors in order to encourage such investors to make or retain investment in their economies. Incentives could be sector based or granted on individual basis, although it is preferable that incentives are always sector based and granted on some clearly defined basis rather than to individual companies or investors. Such incentives are effective tools for managing and sustaining fiscal policy, especially where the benefits are carefully monitored and measured to ensure there is an overall positive impact on the economy and on government fiscal policy.

     

    Use of tax policy and legislation to shape fiscal policy: Tax policy and legislation being integral parts of taxation and indeed the major planks on which it rests are key tools, which can be utilized to develop and sustain fiscal policy. Tax policy provides the general framework and guidelines for the tax system, while legislation makes specific rules and regulations for implementation. A combination of the two will put in place a definite framework, which is backed by force of legislation and must be observed by Government. Examples of such policy and legislative directives could include periodic review of tax rates, tax incentives and provision of rules for regular review and amendments of tax laws amongst others.

     

    From the foregoing, it becomes immediately clear that the role of taxation cannot be over-emphasized. Indeed without taxation, there cannot be a fiscal policy, seeing as it is the second of the two legs that constitute fiscal policy. One important thing to note is that, careful and diligent implementation of effective and proactive tax policy can have a measurably beneficial effect on the economy in particular and development in general.

  • Taxation: The Swivel of the economy (1)

    In 1651, Thomas Hobbes during Britain’s Civil War, published a legal theory based on the ‘social contract’. According to him, prior the to social contract, man lived in a state of nature – man’s state of nature was one of a chaotic condition of constant fear and life in the state of nature was solitary, poor, nasty, brutish and short. To overcome these hardships, man entered into two agreements:

    • Pactum unionis
    • Pactum subjectionis

    Under the pact of unionis, men sought protection of their lives and properties. This resulted in the formation of a society where people undertook to respect each other and live in peace and harmony. With the second pact of subjectionis, people united together and pledged to obey an authority and surrendered the whole or part of their freedom and rights to an authority in exchange for a guarantee of protection of life, property, social amenities and to a certain extent, liberty. Thus, the authority of the government or the sovereign or sate came into being. This authority also includes making policies, one of which is the fiscal policy.

    Fiscal policy describes two actions by the government. The first is taxation- by levying taxes the government receives revenue from the populace. Taxation is a transfer of assets from the people to the government.The second action is government spending. This is in fulfilment of pactum subjectionis and may take the form of wages to government employees, social amenities, security, roads, free or discounted health care, education, transportation or electricity.When the government spends, it transfers assets from itself to the public. Since taxation and government spending represents reversed asset flows, it is nearly given that taxation is the swivel for a sustainable, efficient and effective economy.

     

    History and Principles of Taxation in Nigeria

    The history of taxation in Nigeria goes back to pre-colonial rule. There was a system of taxation in existence in the form of contribution of compulsory service, money, farm produce, goods and labour, which were essentially meant to support the various monarchies. Mainly, these taxes were levied in the form of ground rent, palm fruit tax, farm produce tax, cattle ownership tax, etc.

    The modern tax system in Nigeria was first introduced in the year 1904 by Lord Lugard as community tax in the then Northern Nigeria. He later made changes, which resulted, to the Native Revenue Ordinance of 1917 in Northern Nigeria. The ordinance was extended to the eastern part of Nigeria in 1929. During colonial rule, taxes were imposed on individuals and corporate entities through a series of promulgations by the colonial power. In 1940, two major legislations were passed; these were the Direct Taxation Ordinance No. 4 of 1940 and the Income Tax Ordinance No. 3 of 1940. The Direct Taxation Ordinance of 1940 applied to all citizens except those in Lagos Township. The Income Tax Ordinance No. 3 of 1940 applied to expatriates and to Nigerians living in Lagos.

    The Income Tax Ordinance was passed in 1943 repealing the 1940 Ordinance. The 1943 Ordinance together with the Direct Taxation (Amendment) Ordinance 1943 continued to apply until 1956. In 1956,the Eastern Region passed the Finance Law No. 1 of 1956. The basis of computation of tax provided in the Finance Law No. 1 of 1956 was basically the same as in the Ordinance of 1943. In 1956 tax allowances were provided for married taxpayers, and additional allowances for families with up to a maximum of three children. It also introduced the Pay-As-Your-Earn (PAYE) system of taxation. The Eastern Region Finance Law number 1 became operative in the region on April 1 1956, thus abrogatingthe application of Direct Taxation Ordinance in the Region. Another law was passed in 1962 repealing the 1956 Law. The Western Region departed from the Direct Taxation Ordinance by passing the Income Tax Law in 1957. The PAYE system was introduced in the region by the Income Tax (Amendment) Law 1961.

    To ensure uniformity in both the application and incidence of taxation on individuals throughout Nigeria, the Income Tax Management Act (ITMA) was enacted in 1961, thus repealing all previous laws applicable to individuals, and making the main provisions applicable to all individuals throughout Nigeria. In the same vein, the Companies Income Tax Act (CITA) of 1961 was also promulgated. Subsequently, ITMA 1961 was repealed and replaced by Personal Income Tax Act (PITA) 1993, which came into being through Decree No. 104 of 1993, while the CITA of 1961 was repealed by the enactment of the CITA of 1979. The tax Acts which went through series of amendments, reassessments and reviews, are now included in the Laws of the Federation of Nigeria, 2004. Thus, codifying them as PITA CAP P8 LFN 2004 and CITA CAP C21 LFN 2004.

    Principles of Taxation

    These are the rules, qualities, conditions, standards or yardsticks by which the quality of a tax system is measured and by which a good tax policy can be formulated. Adams Smith was noted to have been the first person to mention the principles of taxation, which he called the canons of taxation in his book “The Wealth of Nations” in 1776. Although Adams Smith mentioned only four principles, scholars that came after him made some generally accepted additions. Some of these principles include the following:

     

    Principle of Equity: This principle states that a good tax system should be as just as possible by ensuring that all persons who ought to pay the tax are covered by the tax and that each taxpayer pays exactly what is just and equitable considering his circumstance and ability. There are two types of equity i.e. vertical and horizontal equity. Vertical equity is the unequal treatment of taxable persons with varied taxable income. While horizontal equity is the equal treatment of taxpayers with the same taxable income.

    Principle of Economy: This principle states that the cost of collecting tax should not be too high so as to outweigh the benefits derivable from the imposition of tax. For example if it costs a government N9 million to collect tax revenue of N10million, the tax system is said to lack economy.

    Principle of Certainty: This principle states that the amount to collect as tax, the time of payment, the mode of payment and the place of payment must be made clear to the taxpayer, so that the taxpayer is not left at the whims and caprices of the tax authorities. In other words, the taxpayer should be fully informed about taxes to be able to arrive at a conclusion as to the amount of tax payable by him with reference to the provision of the tax law, as well as, to prevent him from being subjected to cheating by unscrupulous people and dishonest tax officials.

    Principle of Convenience: This principle states that tax should be imposed at a time, in a manner and at a place that the taxpayer is in position to pay, so that collection of tax would be easy for the tax administrators.  For example, a salary earner should be asked to pay tax when he receives his salary and not at the middle or the end of the month when the salary may have been exhausted.  This is why PAYE is deducted at source, because it is more convenient than requiring the taxpayer to pay after collection of salary. A farmer should be asked to pay tax when he harvests his crops and not when he is doing the planting or clearing the farm.

     

    Principle of Simplicity: This principle states that a good tax system and the tax law should be as simple as possible, both in interpretation and application. This requirement is particularly important in developing economies where the rate of illiteracy is high and where the culture of record keeping has not been imbibed by most small scale entrepreneurs.

     

    Principle of Neutrality: This principle states that a good tax system should neither distort the consumption habits nor the production decisions of a taxpayer. In other words, a good tax system should not interfere with people’s willingness to work, produce, consume, save and invest.

     

    Principle of Efficiency: This principle states that a good tax system should make it difficult for tax evasion (i.e. should make it difficult for non-payment of tax or illegal reduction of one’s tax liability).

     

    Principle of Flexibility: This principle states that a good tax system and tax law should be such that it can be easily amended when the need arises, without unnecessary protocol.

     

     

     

     

     

  • E-tax payment… Promoting transparency in Tax Payment System

    E-tax payment… Promoting transparency in Tax Payment System

    Electronic-Taxpay is an online self-service tax payment system which gives taxpayers the opportunity to pay their taxes through their banks’ online payment portals. It is an initiative of FIRS in collaboration with Nigerian Interbank Settlement System (NIBSS). It is meant to facilitate payments of taxes from the comfort of taxpayers’ offices or homes. Taxpayers can pay using the electronic channels provided by their banks such as the banks’ internet banking platform, branches and mobile banking platforms.

     

    Conditions to be met by taxpayer before using e-Taxpay platform

    • Register and obtain your Taxpayer Identification Number (TIN)

    • Have an account with any bank of your choice and subscribe to the internet banking function of your bank.

    • Have ufficient funds in the account to cover the tax liability/transaction.

     

    Steps to take to make payment through e-Taxpay platform

    Having registered and received a TIN, an active internet banking account and sufficient funds, then;

    • Decide the channel to use;

    • If you decide on internet banking channel, log on to your bank’s internet banking platform e.g.GTBank Online Banking, FirstOnline, etc;

    • In the case of GTBank Online Banking, select the “Payment” option in the menu;

    • Then select “NIBSS E-Bills payments” under the “Payment” option;

    • Select the account to debit from, to continue;

    • Once inside the NIBSS E-Bills payments, select “New Request” to start a new payment. This will take you to the NIBSS platform;

    • Then select “FIRS e-Taxpay” from the displayed list services that the NIBSS platform provides, in order to start the tax payment in particular;

    • You then enter your TIN (FIRS/JTB-TIN) or the TIN of the taxpayer you want to pay for;

    • Click “verify” to validate that the TIN belongs to the taxpayer making the payment;

    • A pop-up will appear with the TIN details. If ok, then go to the next stage;

    • Select the tax type (e.g. Company Income Tax, Pre-Operation Levy, Value Added Tax, etc.);

    • Enter the amount to be debited (tax sum being paid);

    • Accept service charge for the bank (if applicable);

    • Confirm that all the information provided are correct and valid;

    • Submit the request.

     

    After a successful transaction, the system will generate an ‘e-acknowledgement’ which can be printed online, or sent to a specified e-mail address. The ‘e-acknowledgement’ is a confirmation of the transaction of payment of tax to FIRS which would be presented to FIRS field office for the issuance of statutory FIRS receipt to the taxpayer. A TAXPAYER SHOULD PLEASE ENSURE THE ‘e-acknowledgement’ IS SUBMITTED TO THE TAX OFFICE OF DOMICILE TO GET A GOVERNMENT TAX RECEIPT FOR THE PAYMENT MADE.

    Real time notifications: The platform also notifies the taxpayer and FIRS through SMS alert and real time email. FIRS can view payment transactions and reports online, in real time.

     

    Tax types that can be paid using the e-Taxpay channel:

     

    e-Taxpay can be used to pay all tax types and levies collected by FIRS. They include:

    • Petroleum Profit Tax (PPT)

    • Education Tax (ET)

    • Companies Income Tax (CIT)

    • Value Added Tax (VAT)

    • Personal Income Tax (PAYE for residents of FCT and non-Residents)

    • Withholding Tax (WHT). This requires a schedule to be uploaded on the platform;

    • National Information Technology Development Fund Levy (NITDEF)

    • Capital Gains Tax (CGT)

    • Pre-Operation Levy (POL)

    • Stamp Duties (SD) and late filing penalty

     

    Documentation required when the taxpayer wants to pay tax:

     

    • Compute tax payable

    • Fill the relevant self-assessment forms

    • Prepare the relevant schedules

    • Make the payment (CIT/PAYE/WHT/VAT).

     

    Benefits of using e-Taxpay

    • Promotes transparency in tax payment system;

    • Boosts taxpayer confidence and trust in the tax system;

    • Promotes voluntary compliance by taxpayers;

    • Convenience, time and cost saving for the taxpayers as they can do it themselves within the confine of their offices without going to the banking hall.

    • The platform is safe and secure.

     

    Security of the e-Taxpay Platform

    The e-Taxpay service is safe and secure. The e-Taxpay platform leverages on the security measures provided by the service channels of the banks in addition to that of NIBSS and FIRS.

     

  • Penalties for late filers, ABC of tax returns (3)

    Penalties for late filers, ABC of tax returns (3)

    As a follow up to last week’s publication, below is a continuation of the article that highlights the requirements for filing returns, due dates and penalties for late filing of returns as it pertains to various tax types.

    Last week’s edition focused on Company Income Tax (CIT), Education Tax (EDT), National Information and Technology Development Levy (NITDL), Estimated Petroleum Profit Tax (PPT), FinalPPT, Personal Income Tax (PIT).

    This week’s edition wraps up the article as it centres on Annual Pay as You Earn (PAYE), Monthly Pay as You Earn(PAYE), Withholding Tax (WHT) and Transfer Pricing (TP).

     

    7. Requirements for filing annual returns of Pay-As-You-Earn (PAYE) (by employers)

    Section 81 (2) of PITA (as amended) and Regulation 10 of the Operation of PAYE Regulations provide that an employer shall render to the relevant tax authority a return on each employee showing total emoluments of each employee during the year, the tax relief, if any, and the total tax deducted from the employee. This is to be done on a Form H1 or such other form as may be approved or prescribed by the relevant tax authority.

     

    Due Date

    Annual PAYE returns should be filed not later than 31st of January in respect of all employees of the employer in the preceding year.

     

    Penalties for late filing of annual returns of PAYE (by employers)

    Section 81 (3) of PITA stipulates a penalty of N500,000.00 for corporate bodies and N50,000.00 for individuals upon conviction.

     

    8. Requirements for filing monthly PAYE returns (by employers)

    The schedule to be attached to the payment and evidence of remittance should contain the following information:

    a) Taxpayer information (employer):

    I.        Taxpayer/agent name and address

    II.      Taxpayer/agent TIN

    III.     Transaction amount

    IV.     Transaction date

    b)Employees’ information:

    i.        Staff TIN

    ii.       Staff name

    iii.      Basic salary

    iv.      Allowances

    v.       Transaction date (DD/MM/YY)

    vi.      Tax amount

    vii.     Period covered

    Due Date

    • Evidence of remittance should be filed not later than 10th of every month

     

    Penalties for late filing of monthly PAYE returns (by employers)

    • Penalty for non-deduction and failure/late remittance under Section 40 of the Federal Inland Revenue Service (Establishment) Act 2007 applies.

    • Upon conviction, the penalty is at 10% per annum of the tax not remitted and interest at the prevailing Central Bank of Nigeria re-discount rate and imprisonment for period of not more than three (3) years.

     

    9. Requirements for filing Withholding Tax (WHT) returns

    Regulation 4 of the Companies Income Tax (rates, etc. of tax deducted at source (WHT)) regulations as well as Regulation 3 of PIT (rates, etc. of tax deducted at source (WHT)) regulations provide that a person who deducts tax from a payment shall, when the payment is credited or paid, whichever is earlier, submit, to the relevant office of FIRS, the evidence of remittance made to the designated bank of the tax deducted. The submission shall be accompanied with a statement containing the following information:

    • The name and address as well as the TIN of the person from whom the tax was deducted.

    • The nature of activity or service in respect of which the payment was made.

    • The gross amount paid or payable.

    • The amount of tax deducted.

    • The period to which the payment relates.

    Similar provisions can be found in Sections 78, 79 & 80 of CITA as well as Sections 69, 70, 71 & 73 of PITA.

     

    Due Date

    Evidence of remittance should be filed not later than thirty (30) days from the date the tax was deducted or the time the duty to deduct the tax arose.

     

    Penalty for late filing of Withholding Tax (WHT) returns

    WHT only has penalties for non-deduction and failure/late remittance of deduction.

    Upon conviction, the penalty is 10% per annum of the tax not remitted and interest at the prevailing Central Bank of Nigeria re-discount rate and imprisonment for period of not more than three (3) years (Section 40 of the Federal Inland Revenue Service (Establishment) Act 2007).

     

    10. Requirements for filing Value Added Tax (VAT) returns

    Section 15 of the VAT Act (VATA) Cap. V1 LFN 2004 (as amended) requires taxable persons to render returns of all taxable goods and services purchased or supplied by him during the preceding month to FIRS.

    The Service has prescribed the use of VAT Form 002 for filing the monthly VAT returns.

     

    Due Date

    Returns should be filed not later than 21st day of the month following that in which the purchase or supply was made.

     

    Penalty for late filing of Value Added Tax (VAT) returns

    Section 35 of VATA stipulates a penalty of N5,000.00 for every month in which the failure to make returns continues.

     

    11. Requirements for filing Transfer Pricing returns

    Regulation 6 of the Income Tax (Transfer Pricing) Regulations No.1, 2012 provide for the filing of Transfer Pricing returns and the documents required to be filed. The provisions under the regulations refer to companies which have relationship with any other company (i.e.) through control, management or ownership.

     

    The following are the content of Transfer Pricing returns:

    • TP Declaration Form (required only in the first year but must be updated should there be material changes in the information provided)

    • TP Disclosure Form (annually whether or not there are controlled transactions)

    • Copy of audited financial statement

    • Copy of Self-Assessment Form

    • Copy of income tax computations (including all relevant schedules)

     

    The taxpayer should write a covering letter for the Transfer Pricing returns; package all the documents into a separate envelope and mark the envelope “TP RETURNS”.

    The package containing the TP returns should be delivered to the tax office (where the taxpayer’s file is resident) along with the annual income tax returns and obtain acknowledgement of submission at the tax office.

     

    Due Date

    Same due date with CIT/PPT returns and must be filed when filing CIT/PPT returns.

     

    Penalty for late filing of Transfer Pricing returns

    Regulation 13 of the Income Tax (Transfer Pricing) Regulations specify same penalty as specified for failure to file CIT/PPT returns.

    v Please note that apart from penalty for late filing of returns, many of these tax types also have separate penalties for late remittance.

     

  • Penalties for late filers, ABC of tax returns (2)

    Penalties for late filers, ABC of tax returns (2)

     

    Penalty for late filing of Final PPT Returns

    • Section 51(1) of the PPTA provides for a penalty of N10,000.00 and N2,000.00 for every day the failure continues.

    6. Requirements for filingPersonal Income Tax (PIT) Returns

    In line with Section 41 of Personal Income Tax Act (PITA) Cap. P8 LFN 2004 (as amended), a taxable person shall, for each year of assessment, file self-assessment return in the prescribed form (Form A in the case of filing with FIRS), with the tax authority of the State in which the taxable person is deemed to be resident. This is together with a true and correct statement in writing containing:

    a)         The amount of income from every source for the preceding year, computed in accordance with the provisions of PITA

    b)         Particulars that may be required under PITA with respect to any such income, allowance, relief, deduction or otherwise as may be material for that purpose i.e. particulars that will serve as proof.

    Due Date

    Returns should be filed within ninety days (90) days from the commencement of every year of assessment i.e. not later than 31st of March.This is in line with Section 41(3) of PITA.

     

    Penalty for late filing of Personal Income Tax (PIT)

    • Section 94(1) of PITA (as amended) stipulates a penalty of N5,000.00 on conviction, plus N100 for every day in which the failure continues. Where the taxpayer default in the payment of the penalty, he shall be liable to imprisonment for six months.

     

    7. Requirements for filing annual returns of Pay as You Earn (PAYE) (By Employers)

    Section 81 (2) of PITA (as amended) and Regulation 10 of the Operation of Pay As You Earn (PAYE) Regulations provide that an employer shall render to the relevant tax authority a return on each employee showing total emoluments of each employee during the year, the tax relief, if any, and the total tax deducted from the employee. This is to be done on a Form H1 or such other form as may be approved or prescribed by the relevant tax authority.

    Due Date

    Annual PAYE Returns should be filed not later than 31st of January in respect of all employees of the employer in the preceding year.

    Penalties for late filing of annual returns of Pay as You Earn (PAYE) (By Employers)

    Section 81 (3) of PITA stipulates a penalty of N500,000.00 for corporate bodies and N50,000.00 for individuals upon conviction.

     

    8. Requirements for filingMonthly PAYE Returns (By Employers)

    The schedule to be attached to the Payment and Evidence of Remittance should contain the following information.

    a) Taxpayer Information (Employer):

    I.           Taxpayer/Agent Name And Address

    II.         Taxpayer/Agent Tin

    III.        Transaction Amount

    IV.        Transaction Date

    b)Employees’ Information:

    i.           Staff TIN

    ii.         Staff Name

    iii.        Basic Salary

    iv.        Allowances

    v.          Transaction Date (DD/MM/YY)

    vi.        Tax Amount

    vii.       Period Covered

    Due Date

    • Evidence of Remittance should be filed not later than 10th of every month

     

    Penalties for late filing of monthly PAYE returns (By Employers)

    • Penalty for non-deduction and failure/late remittance under Section 40 of the Federal Inland Revenue Service (Establishment) Act 2007 applies.

    • Upon conviction, the penalty is at 10% per annum of the tax not remitted and interest at the prevailing Central Bank of Nigeria re-discount rate and imprisonment for period of not more than three (3) years.

    9. Requirements for filingWithholding Tax (WHT) Returns

    Regulation 4 of the Companies Income Tax (Rates, etc. of Tax Deducted at Source (Withholding Tax)) Regulations as well as Regulation 3 of Personal Income Tax (Rates, etc. of Tax Deducted at Source (Withholding Tax)) Regulations provide that a person who deducts tax from a payment shall, when the payment is credited or paid, whichever is earlier, submit, to the relevant office of FIRS, the evidence of remittance made to the designated bank of the tax deducted. The submission shall be accompanied with a statement containing the following information:

    • The name and address as well as the TIN of the person from whom the tax was deducted

    • The nature of activity or service in respect of which the payment was made

    • The gross amount paid or payable

    • The amount of tax deducted

    • The period to which the payment relates

    Similar provisions can be found in Sections 78, 79 & 80 of CITA as well as Sections 69, 70, 71 & 73 of PITA.

     

    Due Date

    Evidence of Remittance should be filed not later than thirty (30) days from the date the tax was deducted or the time the duty to deduct the tax arose.

     

    Penalty for late filing of Withholding Tax (WHT) returns

    WHT only has penalty for non-deduction and failure/late remittance of deduction.

    Upon conviction, the penalty is 10% per annum of the tax not remitted and interest at the prevailing Central Bank of Nigeria re-discount rate and imprisonment for period of not more than three (3) years (Section 40 of the Federal Inland Revenue Service (Establishment) Act 2007).

    10. Requirements for filingValue Added Tax (VAT) returns

    Section 15 of the Value Added Tax Act (VATA) Cap. V1 LFN 2004 (as amended) requires taxable persons to render returns of all taxable goods and services purchased or supplied by him during the preceding month to FIRS.

    The Service has prescribed the use of VAT Form 002 for filing the monthly VAT Returns.

    Due Date

    Returns should be filed not later than 21st day of the month following that in which the purchase or supply was made.

     

    Penalty for late filing of Value Added Tax (VAT) returns

    Section 35 of VATA stipulates a penalty of N5, 000.00 for every month in which the failure to make returns continues.

    11. Requirements for filingTransfer Pricing Returns

    Regulation 6 of the Income Tax (Transfer Pricing) Regulations No.1, 2012 provide for the filing of Transfer Pricing Returns and the documents required to be filed. The provisions under the Regulations refer to companies which have relationship with any other company(ies) through control, management or ownership.

    The following are the content of Transfer Pricing returns:

    • TP Declaration Form (required only in the first year but must be updated should there be material changes in the information provided)

    • TP Disclosure Form (annually whether or not there are controlled transactions)

    • Copy of audited financial statement

    • Copy of Self-Assessment Form

    • Copy of income tax computations (including all relevant schedules)

    The taxpayer should write a covering letter for the TP returns; package all the documents into a separate envelope and mark the envelope “TP RETURNS”.

    The package containing the TP returns should be delivered to the tax office (where the taxpayer’s file is resident) along with the annual income tax returns and obtain acknowledgement of submission at the tax office.

    Due Date

    Same due date with CIT/PPT returns and must be filed when filing CIT/PPT returns.

    Penalty for late filing of Transfer Pricing Returns

    Regulation 13 of the Income Tax (Transfer Pricing) Regulations specify same penalty as specified for failure to file CIT/PPT returns.

    v Please note that apart from penalty for late filing of returns, many of these tax types also have separate penalties for late remittance.

     

  • How to file your tax returns on the FIRS electronic Platform

    How to file your tax returns on the FIRS electronic Platform

    Requirements for e-filing

    The Taxpayer must have registered and obtained TIN before accessing the e- filing platform.

    • A duly completed access form obtainable from the FIRS site or the Tax Office where the taxpayer affairs are handled must be completed and submitted.

    • The access creation takes cognisance of the type of access rights given to User by the Chief Executive Officer [CEO] or Managing Director [MD] or Principal Officer of the Company. The User’s credentials/profile in this case would have been spelt out on the access form that was completed by the CEO/MD or Principal Officer of the Company. The User may include an employee and or a Tax Consultant.

    • The access right delegated to the User may be withdrawn through notification to the Tax Office by the CEO/MD or Principal Officer of the Company.

    • Upon submission of the access form, the assigned officer of the Taxpayer Service Unit in the Tax Office creates the User using the User’s profile stated on the access form.

    • The details on the access form is used to generate User ID[i.e. Username and Password]

    • It is required that the Password is instantly changed upon first log in.

    • The information given in the access form will determine which of the access rights the user is entitled to. These include

    – View only

    – Declare (i.e file returns)

    – TIN Validation

    – Submission and upload of supporting documents (tax and non-tax related)

    – TCC Validation

    • It requires access to internet gateways such as; internet explorer not below 10, google chrome or any fire fox etc.

    Steps to filing tax returns

    1.Download the e-filing access application form from http://www.firs.gov.ng/Tax-Management/Pages/ITAS-e-Filing-Platform.aspx

    2. Complete the form and indicate your desired access right.

    3. Return completed form to the FIRS office where your tax matters are treated.

    4. Obtain your username and password from the tax office having used the information on your form to generate it.

    5. log on to e-filing platform either from the FIRS site stated above or through the addresshttps://efiling.firs.gov.ng.

    6. Change your password upon initial log in.

    7. Upon successful log in, you are positioned on the e-filing page to file any declarations/returns which need to be filed.

    8. To start your declaration, click on the “View all declarations to be filed” hyperlink or on the “Taxpayer Service” tab to select the tax types you want to file and double click on the plus (+) sign.

    9. Click on the “File now” hyperlink.

    10.On the tax return form displayed, identify relevant Line Details to complete or schedule to upload.

    11. Enter the amounts for the required form lines in the filing currency previously authorized for the tax account for which you are filing or you can upload csv filefor both the formlines and/or schedule. The upload from csv file is explained in note 1 after step 18 below.

    12. Click on the “Submit declaration” button.

    13. Verify and ensure that the amounts entered are correct,if not click “back” to go back and make corrections.

    14 Click on “Yes” for the returns to be submitted.

    15 Click on “End Declaration Process” hyperlink.

    16. View Filed Declaration page which gives you a summary of your declaration; the document number is displayed at the top right hand corner.

    17. Copy the document number which is required at the bank to settle the tax liabilityor you print the submitted declaration by clicking the print button for you to see the filed declaration with document number on it.

    18. Contact itas.change@firs.gov.ng; itasproject@firs.gov.ng; 08115900301; 08115900021 for further enquiries.

    Note:

    A.      CSV configuration for shedule upload in SIGTAS and E-filing

    The schedule prepared in excel file must be saved in CSV file

    • The CSV – Comma Separated Value is used to import information or data in excel to the system.

    • Before saving any excel file for CSV upload, the computer system must be in decimal separator configuration.

    • To configure a system to decimal separator, you click file at the menu bar, click on options and select advance on the second screen.

    • Check the decimal separator box and enter a comma ( , ). The system is now on decimal sepeaator. This is done only once for a system

    • There and then you save the excel with csv dos[disc operating system], comma delimited and others excluding Macintosh. This is the only csv version that does not work with SIGTAS.

    • The CSV can work with or without labels. If it is with labels, it means information to be uploaded must have headings at first column and first row, but where labels are not checked in, it will exclude the first row and first column that carry the headings.

    B. System requirements for e-filing        

    • Internet Explorer not below 10

    • Google Chrome and

    • Any Fire Fox

    C. Truncated declaration process

    This may be caused either by network/power failure, session time out or the e-filer who may discontinue the declaration process to seek further clarification or gather additional information. In either case, the e-filer can relog-in and continue from where he/she stopped by clicking on “in progress” and complete the declaration.

    Taxes that can be filed using e-filing Platform for now

    • Petroleum Profit Tax

    • Education Tax

    • Companies Income Tax

    • Value Added Tax

    • National Information Technology Levy

    • Capital Gains Tax

    Documentations required when making e-filing

    Beside system requirements earlier mentioned, the following documents are required when conducting e-filing:

    • Relevant Tax Returns

    • Relevant Excel Schedules saved in appropriate CSV file

    Benefits of e-filing

    E-filing platform provides the following benefits:

    • Self-service Platform using a personal computer, laptop, tablet or any device with a connection to the internet, from the comfort of your home, work or any place that is convenient to you.

    • It saves your time and money as the returns are filed online. You do not need to produce hardcopy returns and transport yourself to tax office to submit tax returns.

    • Promotes voluntary compliance due to its convenience.

    • Keep your information secure and confidential. The e-filing environment is secured and safe with your User ID and password, ITAS/SIGTAS platform will ensure that your tax information will be safe and confidential.

    • The system takes all submissions by taxpayers as self assessment

    • The system does the calculation at back-end for you. The Declaration [Tax Return] Forms are system driven, that is the formlines are linked to back-end computation and helps taxpayers to avoid common errors like using wrong rates and committing arithmetical mistakes.

    • Promotes transparency and boost taxpayer confidence and trust in the system

    • Saves taxpayer the rigours of going to tax office to confirm TIN and apply for TCC

    • Taxpayer can update her profiles without going to tax office to do so

    • Taxpayer can use message centre to make enquiries and receive instant reply for tax office

    • Tax account balance can easily be queried from the e-filing environment before taxpayer applies for Tax Clearance Certificate (TCC)

  • Filing returns based on self assessment regime

    Filing returns based on self assessment regime

    The Self- Assessment Regime requires the concurrent filing of tax returns and payment of tax due on or before the due date.

    (ii) A taxpayer must compute his/her tax liabilities, pay the tax/taxes due and file the relevant returns with evidence of payment of the tax/taxes on or before the due date.

    (iii) The relevant tax authority, FIRS shall accept all tax returns submitted by the taxpayer. The Tax

    Authority shall carry out necessary checks to ensure that all required information have been appropriately entered into the tax return forms.

    (iv)Failure by a taxpayer to submit the tax returns forms on or before the due date is a breach of these Regulations and the Taxpayer shall be liable to pay such fines together with interests as may be prescribed in these Regulations or under the relevant provisions of the applicable tax laws.

     

    FORMS FOR FILING TAX RETURNS

    For the purpose of filing of tax returns required under the tax laws listed above:

    (a) In the case of the Personal Income Tax Act and other taxes on individuals, the tax return forms shall be as may be prescribed by the Board of FIRS;

    (b) In the case of taxes on companies, the tax return forms shall be as may be prescribed by the Board of FIRS;

    (c) In the case of the tax return forms required under the Value Added Tax Act, the forms shall be as

    may be prescribed by the Board of FIRS;

    (d) In the case of all other taxes not covered by paragraphs (a) – (c) of these Regulations, the tax return forms shall be authorized by the relevant tax authorities responsible for the collection of such taxes.

     

    MODE OF FILING RETURNS

    (i) A taxpayer must file tax returns under the Self- Assessment Regime in person or engage the services of accredited Agents to file returns on his behalf.

    (ii) For an Agent to carry out the services required under this Regulation, the Agent must be fully certified by any one of the under listed Bodies:

    • The Association of National Accountants of Nigeria;

    • The Chartered Institute of Taxation of Nigeria; and

    • The Institute of Chartered Accountants of Nigeria.

    (iii) For the Agent to render the services under this Regulation, the Agent must have the accompanying seals of any of the Bodies listed in (ii) above.

     

    SIGNING OF FORMS WHERE AGENT IS ENGAGED BY THE TAXPAYER:

    Where an Agent has been engaged by a taxpayer for the purpose of filing of tax returns:

    (i) In the case of filing returns for Personal Income Tax Act, the forms must be signed by the taxpayer in person;

    (ii) In the filing of returns under the Companies Income Tax Act, the forms must be signed by a Director or the Company Secretary.

    (iii) In either (i) or (ii), the Agent shall sign alongside any of the signatories mentioned in (i) and (ii) above.

     

    LISTING AND DELISTING OF AGENTS BY RELEVANT TAX AUTHORITY:

    The FIRS in the exercise of its responsibilities under these Regulations may:

    (i) Compile annually a list of agents upon being satisfied that they are knowledgeable in the provisions of the applicable tax law, rules and regulations; and

    (ii) Remove from such list, in consultation with the relevant professional body, any agent who fails to satisfy the standards referred to in these Regulations.

     

    TIME FOR FILING RETURNS:

    1. For Personal Income Tax Act- The due date for the filing of self- assessment returns under the Personal Income Tax Act shall be on or before the 31st day of March of every year.

    2. For Companies Income Tax Act- The tax due for filing self-assessment returns under the Companies Income Tax Act shall be six months from the end of the accounting year;

    3. For Petroleum Profits Tax Act- Under the Petroleum Profit Tax Act, a company shall file a return of its estimated tax for an accounting period within two months after the commencement of each accounting period while instalment payment shall commence not later than the third month of the accounting period and the final return shall be filed within five months after the end of the accounting period with evidence of payment of the final instalment.

    4. For Value Added Tax Act- Taxable persons and agents of Ministries, Departments and Agencies of government subject to Value Added Tax (VAT) shall render a return of activities of the preceding month and remit VAT due on or before the 21st day of the month after the month of transaction with evidence of payment.

     

    EXTENSION OF TIME FOR MAKING RETURNS:

    (1) For the purpose of filing income tax returns, a taxpayer may apply in writing to the Board of the FIRS for an extension of time within which to file returns provided the taxpayer:

    a. Makes the application before the due date of filing returns; and

    b. Shows good cause of its inability to comply.

    (2) The Board may in writing grant the extension of time for making returns to such time as it may

    consider appropriate.

    CONDITIONS FOR GRANTING EXTENSION OF TIME FOR MAKING RETURNS:

    (1) In granting any extension, the Board of the FIRS shall take the following into consideration:

    a. in the case of an individual taxpayer, on the death of the taxpayer within the period of filing of the returns;

    b. in the case of a company, on the death of any principal officer of the company, such as the

    Chairman, Managing Director or Company Secretary, within the period of filing of the returns; and

    c. Where the company experienced a fire or natural disaster within the period of filing.

    (2) The company must provide verifiable evidence of the fire or natural disaster or of the death of the principal officer of the company.

     

    CONSEQUENCE OF LATE FILING UNDER THE PERIOD OF EXTENSION:

    Where an extension is granted, any late filing outside the period of extension whether accompanied by payment of tax due or not shall be penalized for late filing under these Regulations.

     

    APPROVAL TO EXTEND TIME NOT TO ALTER TIME FOR PAYMENT OF TAXES:

    Any approval granted by the Board of the FIRS under 14 of these Regulations shall not be construed as to alter the time within which payment of taxes shall be made under any applicable tax law provision. The filing of returns for VAT is excluded from this extension.

     

    INSTALLMENT PAYMENTS OF TAX:

    (1) A taxpayer may make instalment payments of tax due by commencing payment in the relevant year of assessment in a manner that the final instalment payment shall be made not later than the due date provided that:

    (a) The taxpayer notifies the FIRS of his intention to make instalment payments; and

    (b) The taxpayer files returns on or before the due date with evidence of payment of the final

    Instalment.

    (c) The FIRS shall not approve more than three instalment payments from the due date.

    (d) The payment of VAT is excluded from instalment payments.

     

    PAYMENT OF TAX DUE

    Where a tax falls due and is not paid under any enactment by any person from whom it is due, whether or not the payment of such tax is secured by a bond, the tax due shall be paid on demand by the FIRS or by delivering the demand notice in writing to his place of abode or business or through his agent, registered post or approved courier service.

     

    ADMINISTRATIVE ASSESSMENT FOR FAILURE TO FILE RETURNS:

    (1) For the purpose of this Regulation the term “Administrative Assessment” means an assessment

    raised by the Board of FIRS where a taxpayer has failed to file returns and pay taxes due on or

    before the due date or where there is an understatement of tax in the returns filed.

     

    ADMINISTRATIVE ASSESSMENT NOT TO RELIEVE A TAXPAYER FROM OBLIGATION TO FILE RETURNS

    A determination of the tax payable through Administrative Assessment shall not relieve taxpayers from the obligation to file tax returns of their businesses, in the case of a company or full disclosure of income from all sources in the case of an individual.

    Administrative Assessment shall include penalties and interests imposed as part of the liability due, effective from the time the returns became due.

     

    FAILURE TO FILE RETURNS AFTER EXTENSION OF TIME

    Where a taxpayer, agent or employer fails to file the tax returns for an accounting period after the time extended by the Service, the taxpayer, agent or employer shall be liable to pay prescribed penalties for late filing of returns from the due date of filing.

     

    DETERMINATION OF PENALTIES AND INTERESTS

    The determination of penalties and interests shall be as prescribed under the relevant tax laws, rules and regulations issued by the Service from time to time.

    DISPUTE RESOLUTION

    APPEAL PROCEDURE

    Where a taxpayer is dissatisfied with any administrative assessment levied on him under the established Self-Assessment Regime, he may seek redress as follows:

    (a) Lodge an appeal with the appropriate tax office of the Service responsible for the assessment;

    (b) If dissatisfied with the decision of the appropriate tax office of the Service, he may appeal directly to the Executive Chairman

    (c) In the event that the assessment complained of remains unresolved, the taxpayer may appeal directly to the Tax Appeal Tribunal;

    (d) Any further appeal from the Tax Appeal Tribunal may be lodged at the Federal High Court for resolution; and

    (e) Time within which to appeal or raise objection shall be as prescribed by the relevant tax law.

  • Tax Clearance Certificate (TCC), due dates for filing returns…

    Tax Clearance Certificate (TCC), due dates for filing returns…

    Over the years, questions have been raised on issues regarding Tax Clearance Certificates (TCC), due dates for filing returns, accounting year, accounting period and other tax related issues. The following questions and answers seek to shed some light on these matters.

     

    Question 1   

    If someone lives in Kaduna and pays his tax there, can he obtain his TCC in Abuja?

     

    Answer

    No, one can only obtain his/her TCC from the tax authority where the person is registered for tax purposes and has been paying his taxes in compliance with the rule of residence as contained in the tax law.

     

    Question 2   

    Why does it take more than two weeks to issue a TCC even if the taxpayer pays tax in cash?

     

    Answer         

    A TCC can only be issued only after all taxes payable by the taxpayer for the past three preceding years have been paid. The statutory standard of issuing a TCC within two weeks is still in force. However, the two weeks start to count only after all taxes have been paid and from the day the taxpayer files an application for a TCC with the tax office and not from the date of payment of taxes to the banks.

     

    Question 3  

    Why does FIRS still refuse to issue TCC after PAYE has been deducted from the staff salary?

     

    Answer

    FIRS does not deny issuance of TCC to any taxpayer who has paid his tax liability in full. However, a TCC request is rejected where the taxpayer still has an outstanding liability to pay.

     

    Question 4

    On what basis will an application for TCC be rejected after two weeks and still be under processing?

     

    Answer

    TCC can be rejected on the following grounds:

    a.     Where taxes have not been paid.

    ii     Where penalties or interest is still outstanding.

    iii.   Where outstanding returns have not been filed

    iv.   Where there are outstanding issues arising from tax queries, audit or    investigation.

    v.   Where the case is with the Tax Appeal Tribunal for hearing and part of the tax has not been paid as required.

     

    TCC application once rejected cannot be said to be still under processing, but it is kept on hold until outstanding issues  have been resolved or sorted out by the taxpayer with the relevant office.

     

    Question 5  

    Is installment payment no longer allowed for self-assessment filers?

     

    Answer          

    The tax law still recognizes the granting of installment payment to self-assessment filers. However, this can only be granted on application by the taxpayer to the tax office.

     

    Question 6 

    If a taxpayer gives a cheque to a banker in his office without going to the bank, how can the taxpayer know whether payment has been made to FIRS account?

     

    Answer

    The taxpayer should insist on the bank delivering the e-ticket to him which will indicate the date and time payment was captured into FIRS’ account by the bank.

    Question 7   

    Is medical allowance taxed?

     

    Answer

    Yes. If it is paid directly to the hospital, Withholding Tax (WHT) should be deducted and if it is given to an employee in the form of allowance, it is taxed under PAYE.

    Question 8   

    Can a taxpayer pay to any collecting bank branch?

    Answer

    Yes. There are no designated bank branches for any tax offices or tax types. All approved lead/collecting banks can collect for all offices and tax types.

     

    Question 9   

    What is the process involved in getting back tax payment erroneously credited in the name of the depositor instead of the taxpayer?

     

    Answer

    Any tax paid in error can be reversed by the collecting bank within 24 hours if the bank is put on notice within the period. However, if the error was not detected on time, refund can be made by FIRS on request through e-payment platform with the option to use it to off-set future tax.

     

    Question 10 

    What is tax avoidance and tax evasion?

     

    Answer           

    • Tax Avoidance: – This is a way of identifying loopholes in the tax law and then taking advantage of such loopholes to reduce the tax payable.
    • Tax Evasion: – This is a deliberate and illegal act by the taxpayer not to pay the correct tax.

     

    Question 11   What is accounting year and accounting period?

     

    Answer          

    • Accounting Year: – This is a twelve (12) month period over which an entity‘s financial accounts are made-up.
    • Accounting Period: – This simply means the period with reference to which financial accounts of an entity are prepared.

     

    Question 12  

    Is inclusion of Taxpayer Identification Number (TIN) on a contractor’s quotation necessary?

    Answer

    Yes it is mandatory.

     

    Question 13   

    What is the meaning of due date?

     

    Answer          

    Due date is the date prescribed by law for filing of tax returns and making of tax payments by taxpayers. All tax types have their different due dates as provided by the relevant tax laws.

     

    Due dates for other tax types are as shown below:

  • Enhancing VAT voluntary compliance

    Enhancing VAT voluntary compliance

    The operation of the tax law is universally administered. Every person (corporate or individual) is  a taxable entity no matter how, when and what method is used to conduct the business.

    The Federal Inland Revenue Service (FIRS) has adequate mechanisms to assess and bring all taxable entities into the tax net. Among these methods is cordial dialogues with stakeholders during enlightenment drives   to achieve mutual understanding and promote voluntary compliance.

     

    Registration by Taxable Persons

     

    Section 8(q) of the Federal Inland Revenue Service Establishment Act, 2007, directs the Service to issue a taxpayer identification number to every taxable person in Nigeria in collaboration with State Boards of Internal Revenue and the Local Government Revenue Boards. Section 8(1) of the Value Added Tax Act (VATA) Cap V1 LFN, 2004 as amended in 2007 also requires taxpayers (individuals, enterprises or corporates) to register for VAT.

    However, when the tax identification number (TIN) is generated, it suffices and covers all the tax types as no other registration number for any tax type will be required.

    Reference to Section 8(1) of the VATA as amended, it is specifically stated that “A taxable person shall, within six months of the commencement of the Act or within six months of the commencement of business, whichever is earlier, register with the Board for the purpose of the tax (VAT).”

     

    The phrase whichever is earlier, that specifies the time for registration, has caused a lot of pain for taxpayers in VAT administration. It is not practical to expect that a business just recently incorporated (say in 2011) to have registered in 1994 for the purpose of the tax. Hence, a business incorporated after 1994 is expected to register within six months of the commencement of business.

     

    Therefore, penalties (and other sanctions) for late registration for VAT would start counting immediately after the six months of commencement of business if the taxpayer fails to register for VAT and not six months from the commencement of the VAT Act when the business was probably not in existence.

     

    Historical Antecedents of VAT

    • VAT was first introduced as consumption tax in 1919 in Germany, France (1954), UK 1973 etc.

    • Introduction was occasioned by the impacts of 1st and 2nd World Wars.

    • The adverse effects of direct taxation on the economy, individuals and businesses.

    • The introduction of consumption tax was later modernized into VAT.

    • The high point of VAT is that it has no noticeable impact on the taxpayer because of its indirect nature.

     

    VATable Income

     

    In arriving at what constitutes a VATable income, all income from sales, rentals, charges and fees relating to activities enjoyed by customers are VATable and should be charged with VAT. The law did not make provision for any activities or services that is non-VATable in the industry.

    First Schedule of the Act stated Goods and Services Exempt from VAT in Nigeria.

    The implication of the schedule is that any other business activity in the form of buying and selling or rendering of services or enjoying any rights which are not stated in the schedule are liable to VAT.

     

    Duration of Remittance

     

    All VAT charges should be remitted to an FIRS office within 21 days in arrears on a prescribed form 002. This is supported by Section 15 of the Act.

     

    Meanwhile, a taxable person who does not remit the tax within the time specified above, will be liable to 5%  penalty and interest at commercial rate, added to the tax and the provision relating to collection and recovery of the unremitted tax, penalty and interest shall be employed.

    Similarly, a taxable person who fails to collect tax is to pay 150% of the amount not collected plus 5% interest above the Central Bank of Nigeria rediscount rate.

     

    Concept of Voluntary Compliance

     

    FIRS encourages voluntary compliance instead of the use of coercion. Tax compliance relates to the degree to which a taxpayer complies (or fails to comply) with the tax rules of a country, for instance, by declaring income, filing returns and paying the tax due on or before the due date.

     

    Voluntary tax compliance is a situation where a taxable person or entity files returns without the tax authority resorting to using the instruments of the law and force to ensure compliance.

     

    It is voluntary when a taxable person discharges the statutory obligation of tax payment on self-conviction and as a call to duty without notice or reminder within the time line allowed by law.

     

    FIRS’ Means of Enhancing Voluntary Compliance

    • Through education and sensitization of operators.

    • Business owners should have open anmind and seek clearance from FIRS when in doubt and seek further legal advice when not satisfied.

    • Regular monitoring/audit visitations to check compliance and enlighten taxable entities on their roles and responsibilities.

    • FIRS ensures that the principle of know your tax payer (KYTP) is adhered to, so that it would be easy for taxpayers to reach schedule officers for information and guidance/assistance.

    • Regular provision of VAT forms 002 for monthly rendition of returns.

    • Encourage voluntary compliance to avoid infraction of the law.

    • Consistency and civil enforcement of the provisions of the tax law

    • Imposition of interest and penalties and enforce compliance where default occurs.

    • Improvement in the work process of the tax office to make compliance easier.

    • Compliance with the Taxpayer IdentificationNumber requirements by business owners.

    • Monthly rendition of returns and payments on or before 21st of each month in arrears, to the nearest FIRS office.

    • Proper documentation and record keeping of VAT charges taken at source, returns and payments vi-a-vis correct profiling of income sources.

    • Businesses should note that they are not the party suffering the VAT, but a mere agent of collection and remittance.

    • It is better to charge wrongly and remit to FIRS, than not to charge at all, because when the actual liability is established, it is owner of the business that would bear the entire burden.

     

    Consequences of Non-Compliance

    • Out of the entire VAT Act, of 47 sections, about one third of the provisions are on offences and penalties.

    • Statute based consequences are highlighted from section 25 to 37 of VAT Act Cap VI, 2004 as amended in 2007. Some examples of offences and penalties are: failure to submit returns attract a fine of N5,000 for each month  the failure continues.

    • Failure to collect tax attracts penalties of 150% of the amount not collected plus 5% interest above CBN rate.

    • VAT evasion attracts N30,000 or twice the amount of tax evaded whichever is greater or imprisonment for a term not exceeding 3years.

    • Failure to keep proper records of accounts would attract N2,000 fine for every month the failure continues.

    • Failure to issue tax invoice attracts fine of 50% of the cost of goods and services for which an invoice was not issued.

    • Offences by body corporate:  Every officer, manager, secretary and other similar officer including partner in partnership shall be severely guilty of an offence under the act, etc.

     

    Reputational Implication

     

    • Second categories of consequences of non-compliance are reputational and reporting risks. Apart from reputational damage arising from actions by FIRS to enforce compliance via distrain, search and seizure, and litigation, amongst others.

    • Reporting risk involves the imposition of interest and penalties.

    • All the interest and penalties imposed on any of the aforementioned offences would be enforced.

     

    FIRS tries to avoid enforcing compliance because of the Service’s slogan,”Taxpayers are King” except on recalcitrant taxpayers. It is necessary to once again emphasize that nightclub and event center activities are not exempted from VAT.

    Consequently, taxpayers are encouraged to embrace voluntary compliance since the consequences of non-compliance are enormous; ranging from statute based sanctions to reputational damage/reporting risk.

  • Electronic Filing of Returns, An Outcome of the Integrated Tax Administration System (Itas) (2)

    Electronic Filing of Returns, An Outcome of the Integrated Tax Administration System (Itas) (2)

    PROCEDURES FOR e-FILING AT A GLACE

    STAGE A

    1. Obtain “e-filing Access Application Form” from any FIRS Tax Office nearest to you or download from FIRS website: www.firs.gov.ng

    2. Complete the form by nominating Officers or Agent that will represent your organization on tax matters

    3. You will indicate on the form the access the nominee should have either to declare (file returns), view only or declare and view rights.

    4. Upon returning the completed form to FIRS Tax Office where your tax matters are handled, the FIRS will use the information on the form to issue system generated Username and Password

    5. The username and password are the only key that gives you access to the e-filing site to transact tax business with FIRS.

    6. You are required to change your password upon first log-in

    7. The platform is user-friendly, hence you will be promptly able to navigate your way through to filing completion

    8. You can check your account balance, change relevant registration details and connect to tax office using customer centre to make enquiries.

    Note: FIRS e-filing works best on google chrome or any version of internet explorer not less than version.

    STAGE B    

    1. After a successful login, you are positioned in your Home page in which you can see a summary of the declarations (i.e. tax returns) which need to be filed.

    2. You are required be in custody of either hard or softcopy of the return you want to file.

    3. To start your declaration, you have two choices:

    4. On the Home page either click on the View all declarations to be filed hyperlink or on the Taxpayer Service tab

    5. The Tax Declaration page opens by default in the collapsed form

    6. Click on “view all tax declaration” then click on the tax type for which you want to file and the tax period which are yet to be filed are displayed.

    7. The expanded form is displayed and the “File now” hyperlinks are shown, for the relevant tax period

    8. Click on the “File now” hyperlink,

    9. The return page opens and relevant form lines are displayed. Then, Enter Line Details.

    10. In this page you can enter the amounts for the required form lines in the filing currency previously authorised for the tax account for which you are filing or you can upload csv file

    11. When you finish, click on the “Submit declaration” button. This brings you to a confirmation step where you can verify whether the entered amounts are correct or not.

    12. If you are sure, then click on “Yes”. For the returns to be submitted

    13. Following this action, your declaration will be submitted to the tax office and the page showing “End Declaration Process” step is displayed.

    14. Click on the hyperlink “here” and you are led to the View Filed Declaration page which gives you a summary of your declaration and

    15. Document number is displayed at the top right hand corner.

    16. Copy the document number which is required at the bank to settle the tax liability.

    For more Information on e-filing, please contact:

    • itas.change@firs.gov.ng
    • itasproject@firs.gov.ng

    • 08115900301

    • 08115900021