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:

1. pursue a low tax regime which aims at reducing individual tax burden and thereby encouraging savings and investments;
2. move from the traditional coercive method of taxation to voluntary compliance;
3. engage in taxpayer education through public enlightenment;
4. deliberate movement of emphasis from income tax to consumption tax which is less prone to tax evasion;
5. introduce self-assessment to encourage taxpayers participation in the tax assessment process which is more realistic in approach and democratic in nature; and
6. 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.

PLANNING TO FILE YOUR RETURNS? DO IT BEFORE THE DUE DATES!

It takes more than just paying your taxes to be a good taxpayer, you must ensure you pay on or before your tax liability is due; if every taxpayer decides to pay their taxes only when they feel like, or when it is convenient for them, then they probably may not pay at all since there may never be such a time that is ‘convenient’ to pay. For this reason, the tax laws are drafted in such ways as to ensure that taxes for a particular period are not carried over to other periods.

The statutory date required for a particular tax type to be remitted or filed is called “due date”. Any taxpayer who remits or files returns after the statutory due date is considered late and this attracts certain penalties. The Federal Inland Revenue Service (FIRS) is saddled with the responsibility of ensuring that taxpayers remit and file their taxes as and when due, and also enforce penalties where there is lateness. The lax laws are actually considerate as they give adequate time to allow taxpayers prepare to make payment for each tax type.

TAX TYPES AND THEIR STATUTORY DUE DATES

Pay-As-You-Earn (PAYE): PAYE is expected to be remitted by the employer on behalf of the employee after deducting the appropriate amount of tax from the employee’s monthly salary. The deducted tax is expected to be remitted not later than 10 days after the end of the month for which the tax was deducted or duty to deduct arose, i.e. 10th of the month after the month deduction was made (Operation of the Pay-As-You-Earn (PAYE) Scheme Regulations Section 7(1)).

Annual returns must however be filed with the relevant tax authority, not later than 30 days after the end of the year of assessment – this is usually taken as 31st January of the succeeding year (Operation of the Pay-As-You-Earn (PAYE) Scheme Regulations Section 10(1)).

Failure of the employer to deduct or having deducted (failure) to pay to the relevant tax authority within the stipulated time from the day the amount was deducted or the time the duty to deduct arose, amounts to an offence under the Act.

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 in addition to the principal amount to be remitted. Section 81 (3) of PITA stipulates a penalty of N500,000.00 for corporate bodies and N50,000.00 for individuals for late filing of annual returns upon conviction.

Personal Income Tax (PIT): Due date for filing PIT is 90 days after the end of the year, this is usually taken as 31st March of the following year (PITA Section 41(3). The penalty for late filing of PIT is the same as that of PAYE as prescribed in the PIT Act in Section 82.

Value Added Tax (VAT) & Withholding Tax (WHT): FIRS Information Circular 9304 on VAT prescribes that returns should be rendered on or before the 21st day of the Month following that in which the sales/supply was made. A taxable person who fails to submit VAT returns as stipulated is liable to a fine of N5,000 for every month in which failure continues (VAT Act Section 35). The same date applies to the WHT. Failure to deduct or to remit after deduction attracts a penalty of 10% of the amount of tax to be deducted in addition to the amount itself plus interest at prevailing rate (PITA Section 74(1) as amended).

Company Income Tax (CIT) & Education Tax (EDT): CITA Section 55(3)(a & b) explains that any company that has been in existence for more than eighteen (18) months is required to file returns every year not later than six (6) months after the end of its accounting year. For a new company however, returns is expected to be filed within eighteen (18) months after the company was incorporated or not later than six (6) months after the end of its first accounting period; whichever is earlier.

A company can apply in writing for an extension of the date for filing their returns for a particular year, provided the application is made before the statutory due date and that the company shows a good cause for the inability to meet the statutory due date. The penalty for late filing of CIT as spelt out in the Section 55 (3) a & b of CITA LFN 2004 (as amended) is N25,000.00 in the first month of failure and N5,000.00 for each subsequent month.

Petroleum Profits Tax (PPT): This is peculiar to companies involved in petroleum operations. PPTA Section 30(1) prescribes that an estimated returns should be filed not later than two (2) months after the commencement of the accounting year (this is different from others that are filed at the end of the accounting year).

Section 30(2) further states that “if, at any time during any such accounting period, the company having made a return as provided for in sub-section 1 is aware that the estimate in such returns requires revision, then it shall submit a further return containing its revised estimated tax for such period”. In a case where a company has a good reason (satisfactory to FIRS) for which it cannot meet up with the timeframe stipulated in Section 30 – 33 of the PPTA, such company can write to request for an extension in the time which the Board (FIRS) may grant after necessary consideration.

At the end of the accounting year, a final tax returns is expected to be filed as stipulated by Section 30(2) of the PPTA not later than five (5) months after the accounting year end. Section 51(1) stipulates an initial penalty of N10, 000 for failure to file returns within the period stated in the Act plus N2,000 for every day the failure continues. Capital Gains Tax (CGT): This is the tax imposed on the gains made from the disposal of an asset such as a house, vehicle, machinery etc.

It is charged at 10%. The due date for filing CGT according to the CGTA Section 17(3) is the last day in that year of assessment. It should however be noted that individuals will file CGT returns with the relevant State Board of Internal Revenue while companies will file with the FIRS.