2021 - Taxaide

Tax Compliance: What You Need To Know

The meaning of tax compliance in its most basic form is generally defined as the degree to which taxpayers comply with the tax laws.

There is the question whether ‘compliance’ refers to deliberate or obligatory conduct. In the event that taxpayers ‘agree’ simply because of critical dangers or provocation or both, this would not give off an impression of being a proper compliance regardless of whether 100% of the tax were raised in accordance with the ‘tax gap’ idea of noncompliance. All things being equal, it very well may be contended that effective tax administration expects taxpayers to comply willingly, without the requirement for enquiries, investigations, or the danger of utilization of legal or administrative sanctions. A more suitable definition of tax compliance might therefore be the taxpayers’ ability and willingness to comply with tax laws which are determined by ethics, legal environment and other situational factors at a particular time and place.

FIRS TAX AUDIT: WHAT YOU NEED TO KNOW

THE FIRS

The Federal Inland Revenue Service (FIRS) is an establishment of the Federal Government of Nigeria, saddled with the responsibility to administer taxes and collect the taxes due from all registered companies (either domiciled in Nigeria or offshore) that generate revenue from Nigeria. That said, all registered companies are obliged to file all relevant tax returns and remit all taxes (Corporate Income Taxes and Transactional Taxes) to the Federal Government of Nigeria through the FIRS.

IMPACT OF TAXPROMAX ON TAXPAYERS WITH RESPECT TO TAX FILINGS

The initiative by the FIRS to ensure Taxpayers file their annual returns on FIRS’ TaxPro-Max barely a month to the deadline for CIT filing, which was due on June 30, 2021, leaves a bittersweet taste on the lips of taxpayers despite having the intention to provide taxpayers with a seamless return filing and tax remittance process. The TaxPro-Max website was designed with the sole purpose of tax filings (value added tax, withholding tax, withholding vat and companies’ income tax), remittances, and a database for evidencing Taxpayers’ Withholding Tax (WHT) credit position

The State Internal Revenue Service (SIRS) is an establishment of the relevant State Government across Nigeria (including FCT) which is saddled with the responsibility of collecting income and employment taxes as well as enforcing tax laws at the state levels. All employers of labour are obliged to deduct, remit and file Personal Income Taxes (PAYE) in the case of employment taxes and also file transactional and consumption taxes such as Withholding tax (WHT) and Hotel Occupancy and Restaurant Consumption (HORC) to the Government through the SIRS. The due date for remittances of PAYE is the 10^th of every month following the month of deduction. While the due date for filing of Annual Tax Returns(PAYE) is January 31st of every year.

IRS Tax Audit

What is SIRS Tax Audit?
1.1 State Internal Revenue Service (SIRS) tax audit is a review or an examination of a taxpayer’s records to ensure information reported by the Taxpayers are in compliance with relevant tax laws and provisions as well as verifying income tax returns filed with the SIRS for the assessment year.

2. Why SIRS Tax Audit?
2.1 To verify if the correct taxes have been deducted from individuals in paid employment by their employers and have been remitted to the State Government where they reside.

2.2 To ascertain those self-employed individuals, partners in partnerships and executive directors of limited liability companies have remitted taxes due from their taxable earnings to the relevant state tax authority.

2.3 To ensure that all expatriate employees’ resident in individual states have paid their taxes to the State Government (If applicable);

2.4 To verify if the employers of labour and, the registrars of companies have complied with the Withholding Tax provisions under the relevant laws and regulations.

3. Types of Assessments.
3.1 Original Assessment: The first or main assessment of a particular year of assessment is called the original/Initial assessment. Where a taxpayer has filed its returns, the individual state tax authority (SIRS) may make an assessment based on the profits declared by the tax payer if the returns are unsatisfactory. Also, the SIRS may raise a best of judgement assessment where no returns have been delivered or where they have been rejected.

3.2 Revised/Amended Assessment: This can be issued as a replacement of the original assessment. Where a compromise is reached between the taxpayer and State Tax Authority on the current amount of tax payable, the assessment will be amended accordingly, and a notice of amended assessment will be served on the taxpayer. Where an objection has been made by the taxpayer and the tax authority fails to agree on tax payable, the company will be given a notice of refusal to amend the assessment.

3.3 Final and Conclusive Assessment: An assessment becomes final and conclusive on the following grounds:

(a). When a taxpayer fails to appeal to the disputed assessment within 30 days of service of notice of assessment;

(b). When a taxpayer fails to appeal to the Tax Appeal Tribunal (TAT) within 30 days of receipt of refusal to amend the assessment from the tax authority;

(c ). When a tax payer does not file notice of appeal within 30 days of receipt of the judgement of the Tax Appeal Tribunal

(d). When a tax payer does not get a favorable judgment from the court of higher jurisdiction

4. Objection Process
4.1 Within 30 days, objections to disputed assessments must be made from the date of service of notice of assessment. The objection must be based on the followings:
4.1.1 The assessment is not based on the taxpayer’s returns but on the tax authority’s best of judgement;
4.1.2The assessment is considered excessive (higher than expectation) by the taxpayer.

5. Factors that determine SIRS Tax Audit
5.1 The home: Where a person physically resides and maintains a family. In this case, the individual is deemed to enjoy some economic and infrastructural benefits like water, electricity, roads, hospitals, sanitation etc. Payment of tax in this case is therefore seen as a compensation for the use of these facilities;

5.2 The concept of the relevant day: The relevant day for the determination of residence shows exactly when the jurisdiction of the relevant tax authority becomes established during the year. In this case, 1st January is the relevant day. That is why workers fill the personal emolument forms as at 1st January of every year. However, where the person changes his employment mid-year or sometimes within the year, then 1st January no longer exist as the relevant day but the new date when the person takes up the employment. In this case, for the remaining period within the year, then new place of residence (employment) assumes jurisdiction with respect to PAYE;

5.3 Place of Performance of Service:
Where the task of the employment are wholly or partially carried on in Nigeria as at 1st day of January, then such employee is deemed to be resident in Nigeria and the tax must be paid to the respective State tax authority of residence.

6. The documents submitted for a state tax audit include:
(For a PAYE Audit)

Employee’s Payroll (Expatriate (if applicable), and Nationals);
Copy of Employer’s Annual Declaration Form (Form H1) filed for the years.
Audited Financial Statements;
Breakdown of staff cost per Audited Financial Statement
Schedule of Salary Payment Instruction to bank
Sample of staff employment letters
Sample of Staff Pay slips
Evidence of tax paid for the year (PAYE and WHT)
Schedule and evidence of employee’s pension remittance
Schedule and evidence of employee’s NHF remittance
Schedule and evidence of employee’s Life Assurance (RSA Statement preferably);
Schedule of Benefit-in-kinds/quarterly bonuses/allowances paid to staff
Contract Agreements with Vendors/Suppliers/Contractors
Breakdown of Operating Expenses (OPEX);
Payment Vouchers, third party invoices and receipts.
Schedules of WHT (Monthly)

(For an Expatriate Audit)

Contract/Terms of Employment
Expatriates’ Resident Rent Agreements
Company’s Expatriate Quota Grant/Permit
Registration/Renewal of Combined Expatriates Residence Permit & Alien Card (CERPAC)
Monthly Expatriates Returns to Immigration
Evidence of Salary Payment in Nigeria and Outside (Home Country)

All the above-mentioned documents are the most salient information taxpayers will provide to the respective State Tax Authority during the course of the audit.

For more enquiries, please contact: Angela Apeh (a.apeh@localhost, +234 902 206 6961), Adekunle Adekojo (a.adekojo@localhost, +234 70 618 2513), Deborah Balogun (d.balogun@localhost, +234 903 206 9093) or Ayodeji Mustapha (a.mustapha@localhost, +234 808 885 3534),

THE TAXAIDER NEWSLETTER VOL 3, ISSUE 6 (June 2021)

First Thoughts: Midway point Reflections

How do you feel when you get to the midway point of a journey? Do you look back and smile when you consider how far in the journey you have come? Do you look back and wish you had not started the journey at all? Do you look forward and visualize the end of the journey and how far you still have to go before arriving at your destination? Do you look forward and smile, knowing that you are no longer where you used to be and if you could have come far enough to the midpoint, you would definitely find strength to get to the finish point?

Company Income Tax: What you Need Know

One of the components of the various tax structures in Nigeria is Company Income Tax (CIT). In this tax structure, taxes are payable on the earnings of a company accumulated from, brought into, or got in Nigeria or any exchange or business for whatever timeframe the exchange or business may have been completed. The current rate of company’s income tax is 30% of assessable income.

Tax Auditing: Understand its Benefits

“For every operation audited, know the mission … the purpose… the reason for being.”Larry Sawyer

Tax audit is an autonomous assessment of records, tax returns, tax installments and different records of a taxpayer to affirm compliance with tax laws, rules and regulations and precision of tax paid and adhering to relevant accounting standards and norms.

Generally, an audit will inspect the issues seen as generally important to accomplishing an exact appraisal of a taxpayer’s tax responsibility. Commonly, these issues will incorporate any signs of critical unreported pay or possibly over-asserted allowance; things that might be evident from an assessment of a taxpayer’s return. On account of business audits, public law regularly requires a business to comply with certain accounting and bookkeeping guidelines. The audit may likewise include actual enquiries, like assessment of merchandise in stock, premises and so on. Tax auditing has several benefits, and they include:

Taxation of Non-Resident Companies in Nigeria (Part 2)

In our previous post, we shared our view on the taxation of Non-Resident Companies (NRCs) in Nigeria, it is worthy of note that further to the introduction of Significant Economic Presence (SEP) vide the CITA (as amended by the Finance Act 2019), the scope of NRCs has been amended to include digital activities.

SEP put in simple terms means foreign entities which derive revenue especially through digital activities in Nigeria in an accounting year without having a fixed base in Nigeria. The SEP concept was first documented in the final report of Base Erosion Profit Shifting (BEPS) of the Organization for Economic Co-operation and Development (OECD) in October 2015. What SEP seeks to address are the cases where Companies or persons outside the shores of Nigeria transact businesses with Organizations domiciled in Nigeria and as a result of them not having a fixed base in Nigeria end up not being subject to tax. Prior to the amendment of Section 13 of CITA, an NRC was subjected to tax in Nigeria if such NRC had a fixed base in Nigeria and/or the taxable profit is attributable to profits from the fixed base.

However, with the constant growth and utilization of the digital space, businesses such as online advertising, movie streaming, music streaming, cloud payments, online gaming stores, e-commerce et al. were outside the purview of Nigeria’s tax net until the introduction of SEP.

With the introduction of SEP, there is a focal point for taxing profits derived by NRCs and Technical, Professional, Management or Consultancy Services (TMPCs) with respect to digital operation in Nigeria. The SEP order states clearly that “profits from any company other than a Nigerian Company from any trade or business shall be deemed to be derived from Nigeria if it transmits, emits or receives signals, sounds, messages, images or data of any kind from cable, radio, electromagnetic systems or any other electronic or wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity.”

For a foreign revenue-deriving entity to be classified as an SEP, it must meet the following requirements:

1. It derives 25million naira annual gross turnover or its equivalent in foreign currencies through the following digital activities:

Streaming or downloading services of digital contents spanning videos, music, applications and so on;
Provision of goods and services excluding those under sub-paragraph 5 of the Order, directly or indirectly through a digital interface which includes website or mobile applications;
Provision of services such as intermediation via digital platforms, websites et al which seeks to link suppliers with customers in Nigeria; or
Provision of services such as intermediation via digital platforms, websites et al which seeks to link suppliers with customers in Nigeria; or
Transmission of data collected with Nigerian users as the target sample which has been generated from the activities of such users on a digital interface such as websites or applications.

2. It uses a Nigerian domain name (for example .ng) or has a website registered in Nigeria;

3. has a sustained interaction with persons resident in Nigeria by customizing its digital platform to target persons in Nigeria. This could either be by reflecting prices in Nigerian naira or providing billing/payment options in Nigerian naira.

Exemptions of SEP

The SEP Order exempts the activities of the following foreign persons from being recognized as a SEP in Nigeria:

any foreign entity who is under a multi-lateral agreement with respect to addressing taxation challenges stemming from digitalization of the economy who would be treated under such an agreement;
any foreign company making any payment:

to its employees under contract of employment;
for teaching in an educational institution or for teaching by an educational institution (e.g. seminars); or
by a foreign fixed base of a Nigerian company.

It is important to note that the Finance Act places the Honorable Minister of Finance with the power to issue an Order on SEP.

For more enquiries, please contact: Abimbola Oyebowale (a.oyebowale@localhost, +234 908 341 1615), Emenike Ugwuanyi (e.ugwuanyi@localhost, +234 806 536 7616), Emmanuel Emereuwa (e.emereuwa@localhost, +234 806 807 1347).

THE TAXAIDER NEWSLETTER VOL 3, ISSUE 5 (MAY 2021)

First Thoughts

Thoughts for the Coming Generation

So today is Children’s Day. This is a special day celebrated all over the world to recognize children and their existence. The joy of every home is the presence of these special creatures and every moment where a child is born is always one to be celebrated. In fact, about 80% of marriages all over the world are contracted with plans for procreation, which remains a major reason among others for marriages today. The Bible also expressly states in Psalm 127 verse 3 that ‘Children are the heritage of the Lord and the fruit of the womb is his reward’. It goes further to say in the next verse that ‘as arrows are in a man’s quiver so are the children born in a man’s youth’. Don’t fret, people. I am not about to take you into a church service. However, we cannot over emphasize the importance of children who are indeed the hope for the continuity of mankind and as we like to say around here, they are the ‘leaders of tomorrow’ or ‘the coming generation’.

Taxation of Non-Resident Companies in Nigeria (Part 1)

It is no news that the Non-Resident Companies (NRCs) have been on the FIRS’ watchlist to drive revenue generation in Nigeria. Prior to the creation of the Non-Resident Persons Tax Office (NRPTO) as a separate department, the tax laws have had specific provisions for income generated by NRCs in Nigeria and as such, tax compliance by NRCs in Nigeria has been ever present. However, following the amendments by the Finance Act 2019 and creation of the NRPTO department at the FIRS, there has been an increase in tax compliance for NRCs receiving income from Nigeria which includes NRCs with significant economic presence (SEP) in Nigeria, providing management, professional and technical services in Nigeria etc.