For self-assessment filers, the “due date of payment” is determined as follows:
•For companies with accounting year ending on 31st December, the due date of payment is 30th June of the succeeding year;
•For companies with accounting year ending on 30th September, the due date of payment is 31st March of the succeeding year;
•For companies with accounting year ending any time between January 1 and June 30, the due date of payment is 1st January of the succeeding year; and
•For all other cases the due date of payment is six months after the accounting year end.
Under the self-assessment system, a corporate taxpayer is expected to attach a draft/cheque for the tax payable to the returns filed. However,under the provisions of theAct, it has up to two months from the due date of payment within which to settle the assessment. This latter arrangement applies to lump sum payments only. Self-assessment filers who file their assessments promptly and attach drafts/cheques may be granted, on application, the concession to pay the remaining tax due in not more than five monthly instalments commencing from the month immediately following the due date of payment. Such payments may not extend beyond November 30 of the year the assessment and the tax payable relate.
Undisputed government assessment
Government-assessed tax will continue to be payable within two months from the date of the assessment. However, where the two-month period expires after December 14, such tax must be paid not later than that date.
Example 1
ABC Limited was assessed on July 1, 1992 for 1992 current assessment for N500,000.
Comment
The assessment is expected to be paid between July 1, 1992 and August 31, 1992 and not by December 14, 1992.
Example 2
ABC Limited was assessed on December 1, 1992 for 1992 current assessment for N1m.
Comment
The company has two months within which to pay the assessment but since the two-month period expires after December 14, 1992, the last date for the payment of the tax should be December 14, 1992.
Disputed assessment
An amount payable in connection with a determined formal objection or appeal must be settled within one month from the date on the notice of amended assessment, but where the one month period expires after December 14; such tax must be paid not later than that date.
Terms of Payment:
Lump sum payment
All assessments and the provisional tax are payable in one lump sum.
Instalment payments
A taxpayer may arrange with the Service the payment of the current self-assessment by instalments. The maximum number of six monthly instalment payments may be enjoyed by a self-assessment filer provided the taxpayer remits at least one instalment with the self-assessment tax return. However, where the period of the instalment payments expires after the 30th November of the year of assessment, the balance of the payments must be paid not later than that date otherwise interest at commercial rate is payable on the balance.
Government assessment
Government assessments are payable in one lump sum only except where interest at commercial rate is payable for deferment of payment.
Qualification for instalment concession
Granting instalment payment concessions is not automatic. It is at the discretion of the Service. It must be applied for and approved in writing. To qualify for the grant, a company must prove to the satisfaction of the Service that the payment of the tax due in one lump sum will impose financial hardship on its operations. In other words, the company should convince the Service that it is unable to pay the whole tax due in one lump sum. The application must also be lodged with the relevant office of the Service before the due date of payment. Additionally, an application for instalment payments not backed up with at least the first instalment as evidence of cooperation may not be considered.
Example 3
ABC Limited was assessed N100,000 on July 1, 1989 for 1989 year of assessment. 50 per cent was paid at the end of that year and the balance remained unpaid till June 30, 1992.
Comment
Penalty starts to count from the date the notice of assessment was issued.
1/7/89 – 31/12/89- 6 months
1989 100,000 at 10% for 6 months =5,000
1990 50,000 at 10% for 1 year = 5,000
1991 50,000 at 10% for 1 year =5,000
1992 50,000 at l0% for 6 months =2,500
Total penalty due on 30th June, 1992 17,500
Self Assessment, Provisional Tax and Penalty
A self-assessment filer is exempted from the payment of provisional tax. However, a company that is so exempted but fails to file the self-assessment on the due date of filing or having filed, fails to pay on the due date of payment, will be required to pay the provisional tax together with the statutory penalty.
Interest
The interest is to compensate the government for the use, by the taxpayers, of the funds that legally belong to it. It is also to prevent the creation of an unfair financial advantage for those who do not pay their taxes as and when due.
Interest will therefore accrue fewer than two conditions:
•Where penalty is payable (i.e. where the payment of government assessment, self -assessment or provisional tax is late); and
•Where the taxpayer has the formal approval of the Service to defer the payment of the tax.
In the first case, the interest is charged together with the penalty for late payment. In the second case, only the interest is chargeable for the period of the deferment.
Reckoning of Interest
Interest is due from the date of reckoning. The date of reckoning is determined as follows:
Self Assessment
The reckoning of interest starts from a day after the due date of payment.
Government Assessment
The reckoning of interest would start a day after the date the assessment was issued.
Collection procedure (2)
Interest & Penalty for Late Payment
The interest is not an alternative to the penalty. Interest is for late and deferred payments while penalty is charged for late payment of tax. Interest is therefore charged in addition to the penalty in cases of late payment.
Self-Assessment
Penalty starts to count from the due date of payment but interest starts to count from a day after the due date of payment.
Government assessments
Penalty is charged from the date the assessment was issued but interest is reckoned from a day after the assessment was issued.
Example 4
A company was served a notice of amended assessment for N500,000 to replace a disputed government assessment on May 1, 1992. The tax remained unpaid till October 31, 1992.
Comment
Penalty for late Payment
Note:
1/5/92 to 31/10/92 6 months
Penalty = 6/12 of 10/100 of 500,000 =N25,000
Interest
Due date of payment – 01/05/92
Day of Reckoning – 02/05/92
Interest rate – 20% per annum
02/05/92 to 31/10/92 – 183 days.
Total Payment
Tax – 500,000.00
Penalty – 25,000.00
Interest – 50,000.00
Amount Payable 575,000.00
Deferred Payment: Interest & penalty
When a company arranges with the Service to defer the tax due, interest is chargeable but penalty may not be imposed if the application is approved. The interest is calculated on reducing balance basis.
Interest on payments in excess of approved instalments
When a taxpayer seeks to pay the tax due in a number of instalments greater than that approved for self assessment as specified above, interest is payable on the excess number of payments, also on reducing balance basis.
Example 5
XYZ Limited, with March 31 applied for the payment of the tax due, amounting to N100,000 in 10 equal monthly instalments.
Comment a.)Since the company is entitled to six instalments in the year of assessment, the first six payments terminating on August 31, 1993 will not attract interest.
However, interest will be charged on the balance of four months on reducing balance basis as follows: b.) April 1 to September 30 (6 months) N 6/12 of 40,000 x 20/100 =4,000.00
c.) Oct 1 to Oct. 31 (1 month) 1/12 of 30,000 x 20/100 =500.00
d.)Nov. 1 to Nov. 30 (1 month)
1/12 of 20,000 x 20/100 =333.33
e.) Dec. 1 to Dec. 31 (1 month)
1/12 of 10,000 x 20/100 =166.67
Table of Payment
Due Date Tax Interest Amount Payable
(Tax + Interest)
N N N
30th Sept. 10,000 4,000.00 14,000.00
31st Oct. 10,000 500.00 10,500.00
30th Nov. 10,000 333.33 10,333.33
31st Dec. 10,000 166.67 10,166.67
Default in payment of approved instalments
When a company defaults in the payment of the instalments as approved, the concession stands cancelled. Interest starts to count from the date the default occurs. The calculation of the interest is also on the reducing balance basis.
Interest on arrears
As from January 1, 1991, arrears of tax are to carry interest at commercial rate. The interest is in addition to the annual penalty and both are to be charged annually.
Lateness in filling application for instalment payments
Where a company is late in applying for instalment payment arrangement, interest should be charged from the date of reckoning (a day after the due date of payment) to the date of commencement of the payments. The accruing interest should be added to the tax and spread over the number of instalments allowable under the circumstance.
Petroleum Profits Tax (PPT)
In view of the fact that transactions in the oil industry are in dollars and the operators are allowed to keep their proceeds of sale in accounts overseas, government has directed that the estimated tax of an accounting period under the provisions of Section 27 of the PPT Act, 1959 shall be made and submitted to the Service in US dollars and when payments are being made, each monthly payment shall be in US dollars and shall be equal to one-12th of the estimated tax or of the fraction of the remaining months of the accounting year for which a revised estimated tax becomes necessary and is so estimated.
The final PPT payable, that is, the 13th instalment, shall be
ascertained as provided for in Section 38 (4) of the same Act such that so much of the amount of instalments of estimated tax that had already been paid in US dollars shall be deducted from total PPT computed in US dollars based on the annual accounts.
Litigation
As explained above, instalment or deferred payments, as the case may be, will be approved for companies with convincing proof of serious financial problems. However, where the arrangement fails to yield the desired result, legal action may be instituted against defaulters to enforce payment.
Withholding Taxes (WHT)
Payments made to companies and certain categories of individuals are to suffer deductions at source as follows:
Rates
Type of Payment Applicable WHT Applicable WHT
Companies *a Individual *b
(i)Dividend, Interest and Rent 5 5
(ii) Royalties 15 15
(iii) Commissions, Consultancy
Technical & Management 10 5
(iv) Construction 2.5 2.5
(v) Contract Supplies* 2.5 2.5
The Payment of withholding tax is now in the currency of the contract agreement.
The individuals covered by the Federal Inland Revenue Service are the non-residents, residents of Abuja, members of the Police & Armed Forces and External Affairs Officers. Other individuals are under the tax jurisdiction of the State tax authority where the individuals reside.
*The term ‘contract supplies’ covers all forms of supplies, deliveries, or the like through competitive bidding, tenders, LPOs or other arrangements, whether oral or written. The term does not cover across-the-counter cash sales or supplies in the ordinary course of sales.
WHT on Investment Income
(i) Non-Residents: WHT on dividends, interests, rents and royaltiespayable to non-resident remain the final tax.
(ii) Residents: With effect from January 1992 the provisions in the Act regardingthese payments as final tax have been amended. They are now to be regarded as payments on account.
Remittance of WHT to tax authorities
Failure of an agent of deduction to remit WHT within the statutory time-limit will attract:
(iii) Interest at commercial rate on the amount not remitted by the agent,
(iv) Prosecution of the agent for default, and
(v) Denial of Tax Clearance Certificate to such an agent.
Furthermore, where the agent is a government ministry, parastatal or department or a local government, the Service may authorise the Accountant-General of the Federation in writing to deduct such tax plus interest at the prevailing commercial rate from any allocation due to such agency.
WHT as tax credit
Withholding taxes are advance payments and they can only be applied as tax credit to settle the assessment of the year to which the income that suffered the deduction relates. Where the withholding tax credit exceeds the assessment for a given year, the excess may be carried forward as future set-off.
Refund/set-off
Where it is proved that the person who suffered the deduction is not liable to tax or that tax withheld is in excess of the assessed tax, the service will grant a refund or a carry-forward, as the case may be, after the claim has been confirmed by tax audit process.
