Many taxpayers were welcomed into this week with messages from their bankers, notifying them that the Federal Inland Revenue Service (FIRS) has placed a lien on their bank accounts for certain estimated amounts of unpaid taxes.
Upon our inquiries, we gathered from the FIRS that businesses affected currently are those which:
1. Have had an annual banking turnover of between NGN100 million and NGN999 million
2. Have not paid tax at least from 2015 to date.
To unfreeze these accounts, the FIRS will require the following:
a. Submission of audited financial statements and tax returns/ payments from at least 2015 to 2017 b. Where the above is not readily available, part or full payment of the liability estimated by FIRS for which a lien is placed on the bank account; afterwards, submission of outstanding tax returns.
You may contact us at Vi-M for further help (as we are currently helping a number of businesses) if your business or some other business you know happens to fall into this category.
Taking effect immediately with respect to the filing of employer annual returns for 2018 is the recently launched e-filing platform by the Lagos State Internal Revenue Service (LIRS), as there would be no acceptance of hard copies/ physical submissions.
On or before 31 January every year, all enterprises, companies or incorporated trustees in Nigeria are expected to voluntarily file their annual returns under the Personal Income Tax Act (PITA) Cap P8 LFN 2004 (as amended). Failure to file these returns within the stipulated time attracts a penalty of NGN500,000 for companies and NGN50,000 for individuals.
The new LIRS’ e-filing platform for filing of annual returns can be accessed via www.lirs.gov.ng. Once the webpage opens, the user should click on the pop-up form displayed and follow the self-explanatory prompts until the returns are uploaded and submitted. Please note that the user would need his or her organisation’s RC/BN/IT number or LIRS issued taxpayer ID, to login or register on the platform.
The platform basically requests for upload of information (using the templates provided) on the following:
Annual return form H1
Income projections for employees for the new fiscal year
Pay-As-You-Earn (PAYE) payment schedule for 2018 or the past year (or form G)
Withholding tax payment schedule (this is a new addition to the hitherto required submissions but is a good opportunity for organisations which have defaulted in withholding tax remittances for 2018 to make good their tax records.)
For further guidance on how to use the e-filing platform, please click here.
Considering the imminence of the tax filing deadline of 31 January, and the bottlenecks that are sometimes associated with getting used to a totally new system, we at Vi-M can help your organisation navigate the new e-filing process.
Also, as information uploaded on the platform cannot be changed after submission, we at Vi-M can assist your organisation carry out a quick pre-filing review of your tax payments (or information to be uploaded) for 2018, to ensure that any tax shortfall/ oversights or excess payments are remedied before submission of the returns.
As Nigeria is fast embracing technology, the online filing platform is one good initiative that will simplify compliance in this regard. We look forward to the full automation (in an easy-to-navigate manner) of all other tax payment/ filing processes by the LIRS and all other tax authorities.
Question 1 What happens when a taxpayer`s payment is posted to a wrong tax office?
Answer This can only be possible if the taxpayer does not have a TIN or the bank`s branch teller entered a wrong TIN which is either for another taxpayer or the TIN does not even exist. The system administrator, if informed officially, will reclassify the tax office or such payment. In cases where the taxpayer does not exist in the database, the registration officer will create the taxpayer and the system will generate a valid TIN for the taxpayer. Also, in cases where the TIN was wrongly assigned to a tax office, the TIN can be redirected to the correct office.
Question 2 How does FIRS prevent issuance of multiple receipts for same payment?
Answer The automated receipts and credit notes issuance will eliminate issuance of multiple receipts.
Question 3 If a taxpayer gives a cheque to a bank 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 4 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 5 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 6 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 7 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 set-off future tax.
Question 8 Why does it take more than two weeks to issue TCC even if the taxpayer pays tax in cash?
Answer 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 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 application for TCC with the Tax office and not from the date of payment of taxes to the Banks.
Question 9On 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:
Where taxes have not been paid
ii Where penalties or interest is still outstanding
iii. Where outstanding returns have not been filed
Where there are outstanding issues arising from tax queries, audit or investigation.
Where the case is with the Tax Appeal Tribunal (TAT) for hearing and part of the tax has not been paid as required
TCC once rejected cannot be said to be still under processing, but it is kept on hold until issues outstanding have been resolved or sorted out by the taxpayer with the relevant office.
Question 10 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 11 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, TCC request is rejected where the taxpayer still has outstanding liability to pay.
Question 12 What is Tax avoidance and Tax evasion?
Answer Tax Avoidance: – This is considered as a way of identifying the loop hole in the tax law and then taking advantage of such loop hole to reduce the tax payable
Tax Evasion: – This is a deliberate and illegal act of the taxpayer not to pay the correct tax
Question 13 What is Accounting year and Accounting period?
Answer Accounting Year: – This is a twelve (12) months 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 14 Is inclusion of Taxpayer Identification Number (TIN) on a Contractor’s quotation necessary?
Answer: Yes, it is mandatory.
Question 15 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:
DUE DATES OF FILING TAX RETURNS
TYPES OF TAX RETURNS
a) For old companies, six (6) months after the end of the company`s accounting year.b) For new companies, eighteen (18) months from the date of incorporation or six (6) months after the end of the company`s first accounting period whichever is earlier.
Company`s Income Tax (CIT) Filing Date
As in the case of CIT
Education Tax (EDT)
As in the case of CIT
National Information and Technology Development Levy (NITDL) (for applicable companies only)
Two (2) months after the commencement of the company`s accounting period
Estimated Petroleum Profit Tax (PPT) Returns
Within five (5) months after the end of the company`s accounting period
Final PPT Returns
Personal Income Tax (PIT)
Annual Returns of Pay As You Earn (PAYE) (By Employers)
Answer: Withholding Tax is basically an advance payment of income tax which may be used to offset or reduce tax liabilities. It is an advance payment [to be deducted by every taxpayer, who is an agent of WHT (see Question 10 below) at the point of settling suppliers’ bills] to be applied as tax credit to settle the income tax liability of the years of assessments to which the income that suffered the deduction relates (which is the income of the supplier of goods/ services, from which tax was deducted in advance). Withholding tax is not a tax but a prepaid tax.
Question 2: What is the due date for remitting WHT returns?
Answer: The due date for remitting WHT returns is 21st day of every month following the month in which the deductions were made.
Question 3: What is the rate of Withholding Tax for companies and individuals on transactions?
Answer: Rates of WHT for corporate and individuals on transactions are as follows: –
Contract of Supplies
Contract of Construction
Hire, Charter, Lease
Question 4: What is the content of remittance schedule of Withholding Tax Returns?
Name and address of the Agent/Depositor.
TIN of the Agent/Depositor.
The name and address of the Taxpayer/Beneficiary.
TIN of the Taxpayer/Beneficiary.
The nature of the transaction.
The gross value of the business on which WHT is being deducted.
The applicable rate of WHT.
The amount of WHT deducted.
The period covered.
Question 5: What is Withholding Tax Credit Note?
Answer: This is the document issued by the Tax Authority showing that a taxpayer has suffered tax deduction at source.
Question 6: What are the contents of Withholding Tax Credit Note?
Answer: Withholding tax credit note will generally include the following information.
Credit note number.
The name of the agent/taxpayer who deducted and remitted the Withholding Tax.
The name of beneficiary from whose income WHT was deducted.
The nature of transaction.
The date of the transaction.
The name of the bank through which remittance was effected.
The amount deducted.
The period covered.
Question 7: Can WHT Credit note be used to offset late returns penalty (LRP)?
Answer: No, WHT Credit Note cannot be used to offset LRP. Penalty is not Tax: WHT Credit Note can only be used to offset income tax due.
Question 8: Why does it take longer time to confirm WHT Credit Notes issued by the same FIRS?
Answer: Confirmation of WHT Credit Notes took longer time because of the manual process involved. Confirmation will now be done on-line with the FIRS web-portal.
Question 10: Who are the agents of WHT?
Answer: The agents of WHT are;
Corporate bodies (companies).
Individuals, firms and sole traders.
A statutory body, a public authority and other institutions or organizations.
Government Ministry, Department or Agency and Local Government.
Question 11: Is there any exemption from Withholding Tax?
Answer: Yes, there are certain transactions that are exempted from WHT, such as;
Direct purchase across the counter.
Direct purchase of raw materials from supplier as distinct from contract of supplies.
Sale in the ordinary course of business.
All imported goods.
Income exempted from income tax.
Claims in insurance business.
Interest on bonds.
Dividends redistributed by Holding Companies.
Question 12: What are the relevant documents required for filing WHT Returns?
Answer: Relevant documents for filing WHT includes**:
Evidence of payments to an authorized banks’ e-ticket.
Schedule of WHT deducted showing:
Name of supplier.
Address of supplier
Nature of supply.
TIN of agent making remittance.
TIN of beneficiary (taxpayer).
**The FIRS is responsible for collection of WHT in respect of limited liability companies, individuals and unincorporated entities operating in the Federal Capital Territory (FCT) and non-resident individuals and companies, while the Tax Authority of the relevant State, where an individual or unincorporated entity (operating outside FCT) who suffers withholding tax is resident, is responsible for collection of WHT deducted from payments due to those individuals or unincorporated entities.
All goods manufactured/ assembled in or imported into Nigeria, except those specifically exempted under the law. Examples of VATable goods include jewelleries, shoes, bags, television etc.
What are VATable services?
All services rendered by a person in Nigeria except those specifically exempted under the law. Examples of VATable services are; services rendered by Lawyers, Engineers, Accountants, Contractors and Consultants etc.
What are exempted goods under Value Added Tax (VAT) Act?
Exempted goods are those goods which are not subject to VAT. These include:
All medical and pharmaceutical products;
Basic food items;
Books and educational materials;
Fertilizer (locally produced), agricultural and veterinary medicine, farming machinery and farming transportation equipment;
Plant and machinery imported for use in the export processing zone or free trade zone; provided that 100% production of such company is for export;
All commercial aircraft and aircraft spare parts imported for use in Nigeria;
Amorphous pet chips (H S Code 3907.6000.00)
What are exempted services under VAT Act?
Exempted services are services that are not VATable. i.e. not subject to 5% VAT. These include:
Services rendered by Community Banks;
People’s Banks and Mortgage Institutions;
Plays and performance conducted by the educational institutions as part of learning;
All exported services.
What is Zero-rated VAT?
Zero-rated VAT means whereas the goods are VATable, the applicable rate is zero percent (0%).
Which transactions are zero-rated?
The following transactions are zero-rated:
Goods and services purchased by diplomats
Goods and services purchased by humanitarian donor-funded projects
What is the due date of filing VAT returns?
The due date for filing VAT is 21st day of every month following the month of transaction.
When a contractor/ supplier supplies goods that are exempted from VAT, should VAT be paid?
Goods exempted from VAT are not VATable.
Are entertainment services VATable?
Yes. They are VATable services except as contained in the exempted services list.
Are catering services VATable?
Yes. Catering services are VATable.
Can Ministries, Departments, Agencies (MDAs) exempt foreign investors from paying VAT?
No. Ministries do not have statutory powers to exempt a taxpayer from payment of tax or to amend the tax laws.
Who is a VATable person?
A VATable person under the VAT Act is “a person (other than a public authority acting in that capacity) who independently carries out in any place, an economic activity as a producer, wholesaler, trader, supplier of services (including mining, and other related activities) or person exploiting tangible or intangible property for the purpose of obtaining income by way of trade or business”. In other words, a VATable person is one who trades in VATable goods and services for a consideration.
Is it compulsory for a VATable person to register for VAT?
Every VATable person has an obligation to register for VAT payment.
Who is a VAT agent?
VAT Agents are agents of revenue collection with regards to Value Added Tax. They facilitate the deduction and remittance of VAT to the Revenue Office e.g. Ministries/ Government Agencies/Parastatals and Oil companies.
Is VAT registration for individuals or corporate bodies?
It is for all so long as they are trading in goods and services as defined by law.
What are penalties for non-registration of VAT?
Failure or refusal to register with the Board within the specified time, the taxpayer shall be liable to a penalty of N10,000 for the first month in which the failure occurs and N5,000 for each subsequent month in which the failure continues. If this persists, the premises where the business is carried on shall be sealed up.
What are the penalties for non-deduction of VAT?
Non deduction of or failure to collect tax by a taxable person attracts a penalty of 150% of the uncollected tax plus 5% interest above the CBN’s rediscount rate.
What are the penalties for non-remittance of VAT?
Failure to remit tax shall attract a penalty of a sum equal to 5% per annum plus interest at a commercial rate payable within 30 days of notification by the tax authority.
Why is VAT on certain goods and services paid in foreign currency?
Taxes are to be paid in the currency of transaction.
Should Ministries issue contractors with receipts for VAT payment in place of FIRS receipt?
No. Receipt acknowledging payments is only issued by FIRS.
Most times, organisations make part payment to contractors. When should VAT be deducted?
For any payment made, the corresponding VAT should be deducted and remitted.
Does FIRS grant refund on VAT to non-citizens who are leaving the country?
Section 23 of FIRS Establishment Act allows for refunds. Goods consumed in the country for which VAT was paid is not refundable.
How is VAT on goods sold treated?
VAT element on goods sold is deducted and remitted to the FIRS through any of the approved collecting bank or before the 21st day of the month following the month of sales.
What does “VAT Inclusive” mean?
VAT inclusive means that VAT is already included in the cost of transaction (i.e. goods and services contract). However, the term is being discouraged as it is always advised that VAT be isolated and not included as part of the total invoice value.
Some contractors charge 10% for VAT. Is it allowable?
No. The 10% charged as VAT is wrong. The correct rate is 5%. The contractor should not assume 10% to mean 5% for VAT and 5% for Withholding Tax (WHT). The two should be treated separately. WHT is deducted from the contract sum and therefore paid by the contractor, while VAT is paid as an addition to the contract sum by the consumer of the goods/services.
What is input VAT?
Input VAT is VAT paid on raw materials or goods and services used for production purposes or goods for resale or goods imported directly for resale.
What is output VAT?
Output VAT is charged by taxable persons on goods and services supplied. Where output VAT is more than the input VAT, the difference is paid to FIRS. But where input VAT is more than output VAT, the taxable person claims a refund.
How can input/output VAT be resolved at the Ministry or Parastatal level?
The issue of input/output VAT cannot be resolved by Government Ministries/ Department/ Agencies. However, for further clarification, FIRS should be consulted.
Are the services of a motor mechanic VATable?
Service provided by mechanics are VATable. Even the motor or vehicle spare parts used for the services are subject to VAT.
Do Mortgage Institutions pay VAT?
VAT is exempted only on the primary duties of mortgage institutions. Any other activity (e.g. contract execution) outside their primary banking function attracts VAT.
What happens in the case of electricity consumption? Who deducts VAT and How?
VAT is charged on the consumer by PHCN or the electricity company and is collected also by the company who is expected to remit same to FIRS.
Is VAT a multiple taxation?
No. VAT is not a multiple taxation, but a multi-stage tax. It is a consumption tax.
When should a Taxable person register for VAT?
All companies/ organizations that have been in existence before the VAT Act came into operation in 1993, were expected to register for VAT within six months from the date of commencement of the Act. New companies that came into operation after the commencement of the Act are expected to register for VAT within six months of commencement of the business.
Should VAT be paid on commercial rent?
Yes, VAT at 5% should be paid by the tenant on rent paid for use of property for commercial purposes.
Is VAT payable on non-oil product export?
All exports are zero rated i.e. tax rate applicable is 0%. This means that all input VAT incurred in the production process up to the point of export is refundable.
Value Added Tax (VAT) is a tax levied on goods and services consumed. It is an indirect tax wherein the burden of the payment is borne by the final consumer of the goods and services. The tax was created by the VAT Act No. 102 of 1993 which became effective from January, 1994. The tax is collected only by Federal Inland Revenue Service at the rate of 5% of the value of the goods and services supplied. The VAT rate in Nigeria of 5% is said to be among the lowest in the world and has remained unaltered from commencement of the Act till date. From inception to date, the tax has proven to be a strong source of revenue to the government. Consequently, few attempts had been made to push up the rate to about 10% but were jettisoned by the public resentment against the proposed increase.
All proceeds of VAT flow into the VAT pool account which are distributed monthly to the Federal, States (including Federal Capital Territory) and Local governments in the proportion of 15%, 50% and 35% respectively (with consideration for derivation principle).
Importance of Value Added Tax
The drop in oil prices, which has led to dwindling revenues for Government in Nigeria, has once again brought into sharp focus the need to diversify the source of Government revenue away from oil and more toward taxation. This is because, apart from being a major source of revenue for Governments world over, taxation has the remarkable effect of stimulating economic growth and job creation through its impact on investment and capital formation in the economy. In other words, the more tax revenue a country generates, the greater developmental growth it attains.
Federal Inland Revenue Service, (FIRS) recently released its proposed tax collection targets for 2016, showing that Value Added Tax (VAT) will account for N2 trillion (40%) of the N4.957 trillion target for the year. This informs the importance both the Service and Federal government place on VAT as a dependable source of government revenue.
Furthermore, VAT is designed to be borne ultimately by the final consumers of the goods and services. The operating mechanism therefore allows for output-input adjustment to take care of taxpayers in the chain of distribution that are not consumers of the goods they deal in.
Another unique feature of this tax type is that its cost of collection is low as an indirect tax. Business owners are made compulsory agents (non-commission-earning agents) to the Federal government in the collection and rendition of the returns.
How is VAT Computed and Paid?
The VAT Act (VATA) requires all taxable persons to register for VAT within six months of the commencement of the Act (in 1993) or within six months of the commencement of business, whichever is earlier, with the Board for the purpose of the collection of the tax. All taxable persons are required to register for VAT notwithstanding that they may be dealing in exempt items. In this connection, it should be pointed out that exemption status as contained in the VAT law are conferred on goods and services and not on persons or institutions.
The 5% of the value of goods and service sold is called the output VAT while 5% of the goods bought for resale is called the input VAT. The following principles must be observed in the computation:
The input VAT to be allowed as deduction from the output tax shall be limited to the tax on goods purchased or imported directly for resale and goods which form the stock-in-trade used for the production of any new product on which output tax is charged.
VAT incurred on administrative expenses or overheads does not qualify as allowable input VAT. Such VAT are expensed in the profit and loss account with the related expenditures
VAT paid on purchases of capital items or assets does not qualify as input VAT, rather they are capitalized (taken as part of the capital expenses of the business and capital allowances claimed).
There is no provision in the VAT Act for input tax claims on supplies of services.
VAT on inputs for the production of exempt goods are written off to profit and loss accounts.
VAT on input for the production of zero-rated products are reclaimed from FIRS through refund claims application.
Reimbursable expenses (where applicable) not forming part of the fees should be clearly and separately disclosed on the invoice and VAT would not be applicable to it.
VAT rendition and payment is monthly and this has to be done not later than the 21st day of the month following the month in which the transaction occurred. In any month there is no transaction, the law requires that a nil return is rendered.
VAT is invoiced-based. That is, the computation and payment of VAT is not done on cash receipt but rather on the total invoices raised with other cash receipts. If any portion of the invoices are not received ultimately, adjustments are done for bad debts.
Nigeria operates a VAT exclusive system. This system requires that the VAT element of transaction is openly stated on the face of the invoice. The tax authority frowns at anything to the contrary notwithstanding that VAT is being paid.
VAT Exempt Items
The Value Added Tax Act (VATA) specifically exempts certain goods and services from Value Added Tax (VAT). The list of exempt goods and services are:
Basic foods items
All medical and pharmaceutical products sold/ supplied
Books and educational materials
Locally produced fertilizer, agricultural and veterinary medicine, farming machinery and farming transportation equipment
Plant, machinery and goods imported for use in the free trade zones
Plant, machinery and equipment sold to oil and gas companies in the downstream sector for utilization of gas.
Tractors, ploughs, agricultural equipment and implements sold to farmers
Services rendered by community banks, people’s bank and mortgage institutions
Plays and performances conducted by educational institution, as part of learning
According to the VAT modification order gazette of January 2012, all government bonds, government securities and corporate bonds
Goods and services purchased by diplomats or embassies
Goods purchased for use in humanitarian donor funded projects
The law requires that a taxable person who makes a taxable supply shall in respect of that supply, furnish the purchaser with a tax invoice containing the following: the taxpayers tax identification number, name and address, VAT registration number, date of supply, name of client or customer, gross amount of transaction and tax charged.
Where goods and services are supplied to government ministries, departments or agencies, or companies operating in the oil and gas sector, the VAT charged which should ordinarily be paid to the supplier is required to be withheld by these organizations and remitted by them on behalf of the taxpayer in the prescribed format.
VAT on imported goods are levied at the point of importation and payment of customs duties is based on the original costs of such goods plus all costs incurred in bringing the goods to the port or place of importation into Nigeria. These costs include all other taxes, duties, levies, transportation, shipping, insurance, parking and commission.
VAT on imported services are to be withheld by the Nigerian company having a subsisting contract with the foreign company (which carries on business in Nigeria) and remitted on behalf of the non-resident company using the Nigerian company’s own address and in the currency of the transaction.
VAT returns are done on VAT form 002, available in all FIRS tax offices.
There are several penalties for the different non-compliance offences under the Value Added Tax Act. Taxpayers are therefore urged to embrace voluntary compliance to the obligations of VAT, which holds significant potential for raising government revenues.
 Exported service in this case means a service performed by somebody or company residing in Nigeria to a person outside Nigeria. Note the condition of residency for the service supplier, and the condition that the service must be rendered to a person outside Nigeria. Services performed and consumed in Nigeria, on the order of non-resident persons, therefore, do not qualify as exported service.
The Personal Income Tax Act 2011 (PITA 2011), is the basis for calculating, deducting and remitting the monthly employee taxes and direct assessment for individuals in Nigeria.
The PITA 2011, requires all employers to file a return with the Relevant Tax Authority (RTA) of all emoluments paid to its employees, not later than 31st January of every year – this is called the Employers Annual Declaration and Certificate (Form H1) and Employers Remittance Card (Form G). Failure to file these returns within the stipulated time attracts a penalty of N500,000 for companies and N50,000 for individuals.
Furthermore, every taxable person is required to file with the RTA a return within 90 days from the commencement of every year of assessment (31st March) – this is called Income Tax Form for Return of Income and Claims for Allowances and Reliefs (Form A). There is no penalty for failure to file this return.
Based on the provisions of this Act, all employers (for persons in employment) and the taxable persons are saddled with the responsibility to prepare and file these returns within the stipulated time in the states where the respective employees reside or where the taxable persons are resident.
It is a known fact that there are numerous Payroll and Human Resources software aimed at assisting employers calculate and determine the taxes on employee earnings. However, we still see a number of companies failing to meet these deadlines. Even when they do, it is our experience that the returns are not accurate and as such leads to a lengthy tax audit exercise when the RTA comes knocking at their offices.
Filing of these returns are mandatory and not voluntary. The RTA is not obliged to issue a notice or demand to render these annual returns. It is therefore expedient that these returns are rendered timely and accurately.
The season to render these returns is upon us. It is time to balance your accounts, remit and file your returns to the RTA before the respective deadlines (31st January 2019 for Forms H1 & G and 31st March 2019 for Forms A). A template of these forms can be obtained from your respective tax stations or tax officers.
Below are some tips on how to go about ensuring that you meet the deadlines and that your returns are accurate, so as to avoid penalty and interest charges arising from inaccurate returns:
Obtain the monthly master payroll schedules and annualize same. Thereby ensuring that the name / details of employees who may have left your business within the year under review are included in the returns. This would include any terminal of final payment made to such employees that may have been treated outside of the payroll software.
Conduct a manual tax computation and compare same with the monthly tax remitted to the RTA on or before the 10th day of each of the month. If there is a shortfall, it is to your advantage that this is paid over to the RTA immediately. If, however, you have over paid, you may have the chance to claw this back in the December tax payment (if you have not already done so). If you have paid the December taxes already, you would have to track this and seek a credit or refund from future taxes due to the RTA.
Ensure that you have copies of all of your monthly PAYE receipts from the beginning of the year (January through to December). This would have been issued to you by the collecting agents, typically the banks. You would require copies to support the preparation and filing of your Forms G.
Also ensure that you have paid your development levy (N100 for all employees on your payroll in the year) and business premises levy (N10,000 for new registration and N5,000 for renewals). Copies of evidence of payment of these levies would be required to support your respective filings.
It is our opinion that you should prepare and file the Forms A along with the Forms H1 & G. This would save you a lot of administrative time and effort.
Filing of accurate returns saves you tax audit disputes as you can comfortable rely on these returns in the event of future tax audits, if any, to the extent that you ensured that your returns are accurate.
In conclusion, it pays for every employer, company or individual to file their tax returns promptly. It affords you the freedom to concentrate on your core business operations as you would have discharged one of your annual responsibilities to the State.
Finally, section 45 of PITA 2011, grants a bonus of 1 percent of the tax payable to persons (employers or individuals) who files his/her returns early. Why not seek to take advantage of this and file your returns early!
The analysis, views or information expressed above are our interpretation of the applicable laws and general practices of RTA’s. This article is also expected to provide a general guide to the reading public on the subject matter. Therefore, you should engage a professional services firm (www.vi-m.com) to review your specific circumstance and provide you a more detailed and tailored opinion as it affects your business operations or person.
President Muhammadu Buhari, on Monday the 8 October 2018 signed a new Executive Order (008), tagged Voluntary Offshore Assets Regularization Scheme (VOARS) and targeted towards curbing money laundering and tax evasion by Nigerian taxpayers. The Scheme took effect from 8 October 2018 and will remain effective for a period of 12 months.
The full details of the Executive Order is yet to be made public, however, President Buhari’s spokesperson, Garba Shehu has explained its main provisions as follows:
“Any taxpayer who truthfully and voluntarily complies with the conditions of the scheme, pays a one-time levy of 35% on the total offshore assets or pays all outstanding taxes, penalties and interest after forensic audit of their offshore assets and income, shall obtain immunity from prosecution for tax offenses and offences related to offshore assets, among others”.
“Equally, failure of any defaulting taxpayer to take advantage of this scheme shall, at the expiration of the scheme result in investigation and enforcement procedures concerning offshore assets anywhere in the worldpursuant to information now readily available through automatic exchange of information between Nigeria and foreign countries”. (Please note that the Automatic Exchange of Information would take effect in 2019).
This Scheme and its attendant immunity, is open to all persons, entities and their intermediaries holding offshore assets and in default of their tax obligations as long as they are NOT already being investigated by law enforcement agencies in Nigeria or any other country or charged with any such related crimes. A VOARS office and a Fund (Nigeria Infrastructure Fund) for the implementation of the Scheme would also be set up in Switzerland for all categories of defaulting taxpayers.
This Scheme is similar to the United States’ Internal Revenue Service’ (IRS) Offshore Voluntary Disclosure Programme (OVDP) which had run for several years including 2009, 2011 and 2012 up to 28 September 2018.
The Federal Government hopes that by this Order, Nigerians who have been shifting monies abroad (illegally) without paying taxes on such monies and acquiring assets/ establishing offshore businesses (particularly in offshore tax havens) with them, would come forward, declare such assets and incomes and pay due taxes on them.
We would communicate the modalities for declaration, including tax periods covered by the Scheme once the full details of the Order is made public.
6,772 is the net number of businesses in Nigeria [as identified by the Federal Inland Revenue Service (FIRS)], making an annual banking turnover of NGN 1billion and above in the past 3 years, have Tax Identification Numbers (TIN), but have no records of tax payment(s). The FIRS has vowed to freeze the bank accounts of these identified businesses or appoint their bankers as ‘agents’ to pay up all outstanding taxes from the monies held on their behalf in the banks.
In addition to applying this power of substitution of taxable persons by appointed ‘agents’, the FIRS also intends to distrain and even sell off properties owned by these businesses in order to recover taxes owed.
Section 31 of the Federal Inland Revenue Establishment Act (FIRSEA) 2007, empowers the FIRS to substitute taxable persons by appointing ‘any person’ (in this case, their bankers), to be the ‘agent’ of a taxable person and to pay any tax payable by the taxable person from any money which may be held by the ‘agent’ of the taxable person. The same section also empowers the FIRS to request for full disclosure of any monies or assets held on behalf of the taxable person by the ‘agent’.
The same provision of the law however allows for objections and appeals to any such notice of substitution given. We therefore strongly recommend the following for all businesses in the same category as the 6,772 identified by FIRS:
Urgently carry out a tax risk review exercise, at least for the past 6 years of operation to identify the tax risks/ liabilities (and tax assets of the business), take strategic steps towards remedying defaults in order to secure the business from serious tax consequences. *Installment payments of tax liabilities and waivers of accrued penalties can also be agreed with the FIRS if tactically pursued*.
Put their bankers on alert on this new development from FIRS and ask to be notified immediately such ‘notices’ are received on their account.
Make valid objections/ appeals to FIRS if affected by such ‘notice’ of substitution and request for time to reconcile any differences/ disputes on any assessed tax liabilities, with the FIRS.
* Vi-M professional Solutions can assist with strategic tax risk reviews, tax dispute resolutions, remedial actions with the appropriate tax authorities and curtailment of grave tax consequences to the business.
The Federal Inland Revenue Service (“FIRS” or “the Service”), has published the Income Tax [Transfer Pricing (TP)] Regulations, 2018 (“TP Regulations” or “the Regulations”) in an Official Gazette of the Federal Republic of Nigeria, with a retrospective commencement date of 12 March 2018, to replace the Income Tax (Transfer Pricing) Regulations of 2012.
The new TP Regulations have wider scope, wider coverage, much more detailed documentations requirement and very steep penalties for non-compliance. With the new TP Regulations, Multinational Entities (MNEs) and ‘Connected Persons’ carrying on business in Nigeria would have little or no hiding place from tax.
‘Persons’ who should pay close attention to the Revised TP Regulations include:
Connected persons– both juridical and natural persons
Connected persons taxable under the Companies Income Tax Act (CITA), Value Added Tax Act (VATA), Capital Gains Tax Act (CGTA), Personal Income Tax Act (PITA) and the Petroleum Profits Tax Act (PPTA)
Connected persons engaging in over NGN 300million total value of transactions with related persons
Connected persons changing their group structure through mergers, acquisitions, sale or any such arrangement
Connected persons changing directors (appointment or retirement)
Connected persons trading in export or import commodities
Connected persons charging for low-value intra-group services (that is, where no actual service is rendered; or service rendered does not add economic or commercial value; or a third party would not be willing to pay for such service, and if at all, not at the amount stated)
Connected persons engaging in transactions involving exploitation of intangibles (other than the actual transfer of ownership of that intangible)
Companies with huge capital base for funding of connected persons, but with little or no capacity to manage the risks involved in the activities they are funding (described as ‘Capital-Rich, Low-Function Companies)
Recall that the Organization for Economic Cooperation and Development (OECD) issued a revised edition of its Transfer Pricing Guidelines (TPG) for Multinational Enterprises and Tax Administrations in July 2017 (see our newsletter on the revised TPG here). Nigeria’s Transfer pricing Regime was also profiled by the OECD as at October 2017, in line with the OECD’s TP Guidelines (click here to see the full profile). It therefore became pertinent for the Nigerian tax authority to amend/ revise its TP Regulations in line with the OECD TPG, being a member country. The 2018 TP Regulations is also in consonance with the publication of the African Tax Administration Forum (ATAF) on the “Suggested Approach to Drafting Transfer Pricing Legislation”.
We highlight the major revisions in the 2018 Transfer Pricing Regulations as follows:
1.Laws Covered:The new TP Regulations now gives effect to the relevant provisions of the Personal Income Tax Act (PITA), Companies Income Tax Act (CITA), Petroleum Profits Tax Act (PPTA), Capital Gains Tax Act (CGTA) and the Value Added Tax Act (VATA). CGTA and VATA were not covered in the 2012 TP Regulations.
2. Objectives and Scope of the Regulations:The scope and objectives of the Regulations now have a wider coverage with the inclusion of expressions such as ‘enterprises carrying on business in Nigeria’ instead of the hitherto ‘enterprises doing business within Nigeria’. Also, The term ‘connected taxable persons’ has now been replaced with ‘connected persons’, giving the scope a wider coverage.
3. Value of imports not at arm’s length:For the purposes of Income Tax, the Regulations provide that FIRS is not obliged to accept the value reported for customs duty purposes where the importation is not at arm’s length. No alternative approach to determining arm’s length value of such transactions was provided in the TP Regulations and this could lead to arbitrary rejection of importation costs by the FIRS.
4. Pricing of imports and exports of commodities:the TP Regulations favors ‘Quoted Prices’ of such commodities over any other Transfer Price. Where the connected persons have made any adjustments to, or are not applying the ‘quoted prices’ of such commodities, the taxpayer must provide sufficient evidence to show that the adjustment is appropriate.
5. Pricing for use or exploitation of Intangibles:According to the 2018 TP Regulations, it is imperative on an entity to have contributed to the development, enhancement, maintenance, protection, and exploitation of an intangible asset, if it is to derive benefits from such asset. Allowable tax deductions for any payments in relation to transfer of rights in intangibles must not exceed 5% of earnings before interest, tax, depreciation, and amortization (EBITDA). This pricing stipulation does NOT cover transfer of ownership rights to the intangible.
6. Returns to capital- rich, low-function companies:Such companies that do not control the financial risks associated with their funding activities will only be entitled to a risk-free return, while the profits or losses associated with the financial risks would be allocated to the entity (entities) that manage those risks.
7. Revised and more robust contents and format of TP Documentations: The TP Regulations now clearly specify the format and content of transfer pricing documentations (which is much more robust) to be prepared by connected persons. They include:
Master TP file of the group to which the ultimate holding company belongs.
Local TP File (Similar to what companies in Nigeria hitherto solely prepared as the full transfer pricing documentation, but is now much more elaborate and comprehensive).
All the relevant international, local, public, financial and operational documents/ reports and data, to support all the information contained in the Master File and the Local File.
8. Revised dispute resolution mechanism:Taxpayers aggrieved by TP Assessments can now only object to the FIRS (through the Head of the Transfer Pricing Function) and not directly to the Decision Review Panel (DRP) as was earlier practiced under the TP Regulations of 2012. The decision of referring such objection to the Decision Review Panel (DRP) now lies with the Head of the Transfer Pricing Function of the FIRS. Taxpayers may follow the Appeal process as provided for in the relevant tax legislation(s) if not satisfied with the decision of the DRP, which according to the TP Regulations, would represent the final position of the FIRS.
9. Revised safe harbor provisions:Connected persons can only be exempted from the requirements to prepare and submit TP documentations as and when required, if the transactions are priced in accordance with specific guidelines that may be published by the FIRS for that purpose from time to time. This provision removes and automatically lays to rest, the former Safe Harbor Provisions of the 2012 TP Regulations and the controversies surrounding it.
10. Expansion of usage of TP information:Usage of information provided by any person in connection with the new TP Regulations is no longer limited to establishing arm’s length price, but can now be used for any tax purpose or as may be legally required.
11. TP declarations to be made: Connected persons are required to declare their relationships with all connected persons whether such persons are resident in Nigeria or not, and submit same to the FIRS not later than 18 months after the date of incorporation or within 6 months after the end of the accounting year, whichever is earlier. TP declarations would now be made in a form to be prescribed by the FIRS from time to time.
12. Requirement to make updated TP declaration:TP declarations are required to be updated and submitted to FIRS where there are changes in the group structure due to mergers, acquisitions (of up to 20% of ownership), sale or any such arrangement, and where there is an appointment or retirement of a director of the connected person, within six months of the end of the accounting year in which such change(s) may have taken place.
13. TP Disclosures to be made:For each tax year, a connected person is expected to make a formal disclosure (without being notified or reminded) of transactions that are subject to the TP Regulations. This disclosure is to be made in the form as may be prescribed by FIRS from time to time and is to be submitted to FIRS within six months after the end of the accounting year or eighteen months after the date of incorporation, whichever is earlier.
14. TP documentation to be prepared by connected persons:FIRS requires all connected persons to prepare and keep TP documentation in the prescribed format prior to the due date for filing income tax returns. Such documentation shall be submitted to the FIRS within 21 days of receiving the request or Notice to do so, from the FIRS. TP documentation is also expected to be ‘Contemporaneous’, that is, updated yearly, to reflect the related party transactions that occur yearly.
15. Threshold for maintaining contemporaneous documentation (that is, yearly, as related party transactions occur):FIRS has now provided that connected persons engaging in controlled transactions totaling less than NGN 300 million (in a year, perhaps) may choose NOT to maintain contemporaneous TP documentation. However, if the FIRS demands it of such companies, they must prepare and submit the document not later than 90 days from the date of receipt of the Notice from the FIRS.
16. Extension of period of submission of TP Declarations, Disclosures and TP Documentations:Connected persons may apply for, and receive extension of periods of submission of these documents to the FIRS. Full penalties would apply if the taxpayer still fails to meet up with the extended deadline.
17. Penalties for non-compliance:Penalties for non-compliance with the TP Regulations are now clearly specified and much more stringent. These include:
Failure to file TP declaration – ₦10 million in the first instance and ₦10,000 for every day failure continues.
Failure to file updated TP declaration/provide notification about directors – ₦25,000 for every day in which the default continues.
Failure to file TP disclosure – the higher of ₦10 million or 1% of the value of related party transactions not disclosed; and ₦10,000 for every day in which the failure continues.
Incorrect disclosure of transactions – the higher of ₦10 million or 1% of the value of related party transactions incorrectly disclosed.
Failure to file TP documentation upon request– the higher of ₦10 million or 1% of the value of related party transactions not disclosed; and ₦10,000 for every day in which the default continues.
Failure to furnish information/documentation upon request–1% of the value of each related party transaction for which information/document relates; and ₦10,000 for every day in which the default continues.
18. Advance Pricing Agreement (APA): A connected person may request to enter into an advance pricing agreement to cover the future pricing of specified controlled transactions of the connected person, either with the FIRS alone, or the FIRS and the competent tax authority(ies) of the connected person’s country(ies). The APA (where approved) will expire after 3 years. The hitherto transaction value materiality threshold for APAs of NGN 250 million, under the 2012 TP Regulations has also now been removed. The new Regulation seems to invite requests for APAs, regardless of the value of the controlled transaction.
This revision of Nigeria’s TP Regulations is a bold and decisive step by the apex tax body in demonstrating its renewed commitment to changing the face of taxation in Nigeria. While this is expected to increase the nations Internally Generated Revenue (IGR) from taxes, care must be taken with respect to its implementation, so as not to negate the ‘ease of doing business in Nigeria’mantra. Attention also needs to be paid to some of its provisions which may serve as disincentives to foreign investments into Nigeria.
With the recently published Country-by-Country (CbC) reporting Regulations and the introduction of stiffer penalties for transfer pricing offences, taxpayers can no longer afford to sit on the fence and play the waiting game. Recent developments have created a renewed focus on transfer pricing practices of MNEs. To combat (assumed) aggressive tax practices, there are now standard and more robust documentation requirements in place. A proactive approach by taxpayers to review all relevant documents and practices to help mitigate transfer pricing risks going forward has become a necessity.
Connected persons are defined in general terms to mean persons who have the ability to control or influence one another in making commercial or operational decisions, or there is a third person who has the ability to control or influence both persons in making financial, commercial or operational decisions.
Commodities are defined in general terms as goods where prices can be obtained at the date of transaction from an international or domestic commodity exchange market, or from recognized and transparent price reporting or statistical agencies, or from governmental price-setting agencies or any other index. Such goods include Agricultural produce, solid minerals, hydrocarbons, etc.
*This article is expected to provide a general guide to the reading public on the affected subject matter. You should engage a professional services firm – Vi-M Professional Solutions (see also www.vi-m.com/services) – to review your specific circumstance and provide you a more detailed and tailored opinion as it affects your business transaction or person.