By Christian N. Onyegbule
The Constitution of the Federal Republic of Nigeria has provided a leeway for implementation of self assessment, in section 24 (f), it was stated as follows:-”that it shall be the duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his tax promptly”
The self-assessment tax system was introduced in the Nigerian tax laws in 1991 with operational effect in 1992 and initially restricted to a threshold of taxpayers and extended to the rest in 1998. However it was not until 2011 that its implementation became effective, through a Project based system.
The Nigerian self assessment system requires that:- The taxpayer accurately calculate his tax liability, pay the tax due at designated bank to collect e-ticket and file self-assessment return on or before the statutory(due) date for filing such tax return; Tax returns are accepted, by the tax authority, as filed, subject to on-the-spot simple checks to ensure that tax return forms are correctly completed.
The returns are later subjected to further administrative processing including risk assessment of all tax returns and audit, where necessary, determined by risk-based case selection; Where the taxpayer fails to meet his obligations, late returns penalty and interest imposed, as the case may be.
The tax authority exercises its right under the law by issuing administrative assessments on taxpayers who fail to file tax returns on due date. Information for such assessments are obtained by an on the spot audit of the taxpayer’s records and from third-party sources.
It is noted that ahead of due dates for filing tax returns, taxpayers are reminded about their obligation to file and pay taxes due.
The Tax Authority relies heavily on post-filing controls such as risk-based audits, collection enforcement measures, et cetera to elicit compliance. The filing and payment requirements of the different tax types are discussed as follows;- Taxpayers filing petroleum profits tax returns are expected to do so not later than five months after accounting year end; In the case of companies income tax, returns are due within six months of accounting year end; Tax returns for value added tax are due for filing within twenty-one days following the month in which the transaction was made; and Individuals filing personal income tax returns do so on the thirty-first of March each year.
The Federal Inland Revenue Service in its efforts to make compliance easier for taxpayers and make tax payments convenient for them and for ease of administration, integrated its tax offices from 2005 and segmented them to date as follows: Large taxpayer offices, oil/gas and non-oil); for companies with 1billion turnover and above; Medium taxpayer offices; for companies with 200 million to 999million turnover; Micro and small taxpayers offices; for companies with less than 200 million turnover, and Individual and enterprise offices. For; Residents of FCT. Armed Forces, Nigeria Police and Foreign residents Taxpayer segmentation guide the taxpayers to identify the relevant offices to file their respective tax returns and for the Tax Authority to tailor taxpayer education according to the needs of the specific taxpayer groups.
The various tax laws which the Tax Authorities operate for various tax types being administered all contained provisions for the Self Assessment Tax System. Hence, all taxpayer segments file their tax returns in line with self-assessment system requirements.
A summary of the legislation guiding the implementation of the self assessment system in Nigeria are summarised as follows: Constitution of the Federal Republic of Nigeria 201;, Federal Inland Revenue Service (establishment) Act 2007; Tax Administration (Self Assessment) Regulations, 2011; Company Income Tax Act 2007 (Sections 52 (2)and 53); Personal Income Tax Act 2011(Sections 41 and 44); Petroleum Profit Tax Act 2007(Section 30); Value Added Tax Act 2007 (Sections 15 and 16).
The Laws listed above are contained in the Laws of Federation Nigeria (LFN) Revised Edition (Laws of the Federation of Nigeria) Act 2004 Updated to 31st Day of December 2010. The implementation of self-assessment tax system as re-invigorated since 2011 has brought about changes that resulted from a re-designed work-flow processes, which gave the taxpayer his full right to assess himself/herself, eliminated the 100% examination of tax returns that was hither-to in practice now replaced by risk based case selection for audit, the self assessment Regulations gazetted on December, 2011 has strengthened and clarified existing provision in the tax laws. These efforts have positively impacted on tax administration in the following ways:
Man-hours spent on issuance of assessment notices and associated human activities which culminated in misplacement of files, challenges of whether assessment notices were issued or not , delays in service of notices of assessment have reduced; Disputes arising from issuance of inappropriate notices and its associated cost of litigation have reduced; Taxpayers now see themselves as key stakeholders in the determination of their tax liabilities; Imposition of frivolous best-of-judgment assessments without recourse to taxpayer’s books has reduced tax arrears; Tax authority now focuses more on tax returns that will yield optimum revenue.
There are adequate provisions for sanctions in the extant tax laws to address any form of breach of laws or non compliance with the provisions of the law; particularly false declarations or deliberate attempts to reduce liability to tax under the Self-Assessment System.
The sanctions include: rejection of tax returns and recourse to administrative assessment and imposition of additional tax. The additional tax is imposed on the basis of information derived from taxpayer’s records and third parties; Fine or imprisonment or both fine and imprisonment; Interest shall be charged for the amount of tax under-declared with effect from the date when the liability became due; and Principal Officers of the company stand the risk of being imprisoned as individuals for failure to ensure compliance.
Self assessment implementation has greatly increased collection due to the fact that returns are filed with evidence of payment, while filing of returns has also greatly increased because of enablement given to taxpayers by the tax authority.
The self-assessment system guarantees payment of taxes due on due date in concurrence with filing of tax returns thus ending the era of bogus ‘’best of judgment assessments”, reduced the accumulation of uncollectable arrears and builds mutual trust/ effective partnership of taxpayers and tax officers.