Introduction
The Nigerian tax system has undergone several
reforms geared at enhancing tax collection and administration with minimal
enforcement cost. The recent reforms include the introduction of TIN, (unique
Taxpayer’s Identification Number), automated tax system that facilitates
tracking of tax positions and issues by individual taxpayers, e-payment system
which enhances smooth payment procedure and reduces the incidence of tax
touts.
reforms geared at enhancing tax collection and administration with minimal
enforcement cost. The recent reforms include the introduction of TIN, (unique
Taxpayer’s Identification Number), automated tax system that facilitates
tracking of tax positions and issues by individual taxpayers, e-payment system
which enhances smooth payment procedure and reduces the incidence of tax
touts.
The tax authority now has autonomy to assess,
collect and record tax.
collect and record tax.
This enabling environment which came into being on the
strength of the Act[1][1]
has led to an improvement in tax administration in the country.
However, there are still subsisting challenges in
the Nigerian taxation system, which this brief article seeks to highlight and
recommend possible solutions.
the Nigerian taxation system, which this brief article seeks to highlight and
recommend possible solutions.
Meaning
of Tax
of Tax
According to business dictionary, taxation is the
means by which governments finance their expenditure by imposing charges on
citizens and corporate entities[2][2].
Taxation is also the legal demand made by the Federal government or State
government for its citizens to pay money on income, goods and services.
means by which governments finance their expenditure by imposing charges on
citizens and corporate entities[2][2].
Taxation is also the legal demand made by the Federal government or State
government for its citizens to pay money on income, goods and services.
Challenges
Facing Taxation and Possible Solutions
Facing Taxation and Possible Solutions
There are so many challenges facing the Nigerian
taxation system, but this paper will be restricted to few of those challenges.
taxation system, but this paper will be restricted to few of those challenges.
1. Multiplicity
of taxes: This means paying similar taxes on the same or substantially
similar tax base. Examples of multiple taxes include Companies Income Tax,
Information Technology Tax, Education Tax, Nigerian Content Development Levy,
all of which are based on income or profits. Also, Value Added Tax, Sales Tax
and Hotel Consumption Tax all based on sales. Multiple taxes should be
distinguished from numerous taxes which mean many but different taxes on
different tax bases. To address multiple and numerous taxation, approved list
of taxes should be streamlined and adhered to by all tiers of government.
of taxes: This means paying similar taxes on the same or substantially
similar tax base. Examples of multiple taxes include Companies Income Tax,
Information Technology Tax, Education Tax, Nigerian Content Development Levy,
all of which are based on income or profits. Also, Value Added Tax, Sales Tax
and Hotel Consumption Tax all based on sales. Multiple taxes should be
distinguished from numerous taxes which mean many but different taxes on
different tax bases. To address multiple and numerous taxation, approved list
of taxes should be streamlined and adhered to by all tiers of government.
2. Separate source of income: Section 25(1) of Companies Income Tax Act (CITA)
states that the profits of any company for each year of assessment from such
sources of profits shall be the profits of the year immediately preceding the
year of assessment from each such source[3][3].
states that the profits of any company for each year of assessment from such
sources of profits shall be the profits of the year immediately preceding the
year of assessment from each such source[3][3].
Section 27(2) of the same Act
goes further to restrict the losses that may be relieved in any year to the
assessable profits from the trade or business in which the loss was incurred[4][4].
The combined effect of these sections could be interpreted to mean ring fencing
of different sources of income to the effect that losses from one line of
business cannot be used to offset profits from other lines of business by the
same company.
goes further to restrict the losses that may be relieved in any year to the
assessable profits from the trade or business in which the loss was incurred[4][4].
The combined effect of these sections could be interpreted to mean ring fencing
of different sources of income to the effect that losses from one line of
business cannot be used to offset profits from other lines of business by the
same company.
This practice is not equitable
and it seems to punish genuine businesses for incurring real losses. The
separate taxation of income should be abolished in line with global best
practice as many countries have even gone beyond this level to permit group
consolidated tax returns.
and it seems to punish genuine businesses for incurring real losses. The
separate taxation of income should be abolished in line with global best
practice as many countries have even gone beyond this level to permit group
consolidated tax returns.
3. Tax refunds:
Although there are specific provisions in the tax laws especially under the FIRS
Establishment Act, 2007 for tax refunds this is yet to be fully functional.
There should be appropriate funds allocated or retained out of tax collection
to cater for tax refunds both at the federal and state levels[5][5].
Although there are specific provisions in the tax laws especially under the FIRS
Establishment Act, 2007 for tax refunds this is yet to be fully functional.
There should be appropriate funds allocated or retained out of tax collection
to cater for tax refunds both at the federal and state levels[5][5].
The FIRS Act requires the tax
authorities to pay a tax payer’s refund claim within 90 days of the application
subject to appropriate audit. These audits are usually slow and time consuming
sometimes running into several years. Fairness and equity requires that cash
refunds be made promptly to deserving tax payers. Failure to pay refund within
the stipulated timeframe should attract commercial interest.
authorities to pay a tax payer’s refund claim within 90 days of the application
subject to appropriate audit. These audits are usually slow and time consuming
sometimes running into several years. Fairness and equity requires that cash
refunds be made promptly to deserving tax payers. Failure to pay refund within
the stipulated timeframe should attract commercial interest.
4. Tax clearance certificate: Taxpayers are required to obtain a tax clearance
certificate (TCC) annually which is often needed to conduct many business
transactions. Tax officials often use this as a tool to harass taxpayers by
bringing up issues outside the period covered or contrary to the provisions of
the law regarding TCC. For instance, the CITA requires that TCC must be issued
within 2 weeks of application otherwise the tax authority must explain. TCC
should be issued automatically within 2 weeks of every new calendar year
provided a taxpayer has no outstanding undisputed tax liability on the last day
of the previous year of assessment.
certificate (TCC) annually which is often needed to conduct many business
transactions. Tax officials often use this as a tool to harass taxpayers by
bringing up issues outside the period covered or contrary to the provisions of
the law regarding TCC. For instance, the CITA requires that TCC must be issued
within 2 weeks of application otherwise the tax authority must explain. TCC
should be issued automatically within 2 weeks of every new calendar year
provided a taxpayer has no outstanding undisputed tax liability on the last day
of the previous year of assessment.
Conclusion
Taxation
affects investment decisions but the risk is not whether tax would be paid, it
is the uncertainty of what, when, how and how much. Ironically, what businesses
and investors need, as a matter of priority, is not tax incentives; it is the removal of tax
disincentives.
affects investment decisions but the risk is not whether tax would be paid, it
is the uncertainty of what, when, how and how much. Ironically, what businesses
and investors need, as a matter of priority, is not tax incentives; it is the removal of tax
disincentives.
Although
Nigeria has made some improvements to the tax system in the recent past, there
is still a long way to go and the status quo is not an option. If taxes are to
be collected effectively and fairly, both in monetary and equitable terms, for
the benefit of all Nigerians, our desired development will appear achievable;
especially with good leaders.
Nigeria has made some improvements to the tax system in the recent past, there
is still a long way to go and the status quo is not an option. If taxes are to
be collected effectively and fairly, both in monetary and equitable terms, for
the benefit of all Nigerians, our desired development will appear achievable;
especially with good leaders.
Osiri Ndukwe
Lagos based legal
practitioner
practitioner