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 10th 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),