Taxation is one of the major sources of revenue for the Nigerian government.
On April 13, 2021, the Kano State Internal Revenue Service (KIRS) sealed five branches of Guaranty Trust Bank (GTB) over tax evasion.
According to the agency the closure was in accordance with an order issued by Kano State High Court over the bank’s failure to audit and pay its taxes between 2014 and 2019.
Legal Director of the agency, Barrister Bashir Yusuf Madobi, said the bank refused to pay the amount accumulating to N1,005,687,755.55 or release some of their audit reports.
Similarly, earlier this year, Nollywood actress Iyabo Ojo was at loggerheads with the Lagos State government for a purported evasion in paying her income Tax.
The actress drew the public’s attention to a letter she received from the Lagos State Internal Revenue Service (LIRS) accusing her of evading taxes to the tune of N18m.
What taxation means
Taxation is a means by which a government or the taxing authority imposes or levies a tax on its citizens and business entities.
Taxation is mostly statutory, as stated in sections 4 and 59 of the 1999 Nigerian constitution.
Because all government taxing agencies derive their authority from legislation, no agency can tax citizens unless permitted to do so by legitimate legislation in force.
The Nigerian taxation system has come a long way since the british colonial masters imposed several ordinances and proclamations.
Different types of taxes you need to know
In Nigeria, there are two main types of taxes: federal taxes and state government taxes.
The Federal Republic of Nigeria’s Constitution grants the Federal and State governments, the right to levy these taxes.
The Federal Inland Revenue Service (FIRS) is responsible for managing taxes owed to the federal government.
State Boards of Internal Revenue (SBIRs) of the 36 member states of the federation handle taxes owed to the state governments.
Company Income Tax
One method of collecting income tax in advance is withholding tax. Income tax is advanced and withheld at the source of certain transactions.
Rather than the income recipient, the payer of the income pays the withholding tax to the government. It is sent to the State Inland Revenue Service or the FIRS.
Value Added Tax
The Value Added Tax Act, 2007 (as modified) governs value-added tax. VAT is a consumption tax that is incurred at the time services and commodities are provided and acquired.
It is a multiphase tax that the final customer bears.
Petroleum Profits Tax
Companies engaged in petroleum operations are subject to the Petroleum Profits Tax (Upstream). The Petroleum Profits Tax Act, Cap P13 LFN 2004, governs the tax.
Personal Income Tax
The Personal Income Tax Act, of 2011 governs personal income tax. For inhabitants of the FCT and the States, the Internal Revenue Service (IRS) is in charge of administering the tax.
Individuals, corporations, single proprietorships, families, communities, trustees, and executors of settlements are all subject to the tax.
Stamp Duties
The Stamp Duties Act, CAP S8, LFN 2004, governs stamp duty. Only written paperwork is used for its administration by the Internal Revenue Service (IRS) of the States and FIRS.
While the Federal Tax Court (FTC) and the State Internal Revenue Service (IRS) evaluate and collect duties on papers completed between people or between individuals and a firm, FIRS analyzes and collects duties on documents executed between individuals, groups, or bodies of individuals.
Capital Gains Tax
The Capital Gains Tax Act, Cap C1 LFN 2004 governs capital gains tax. 10% of chargeable gains is the flat rate at which CGT is levied.
Whatever kind of property, whether or not it is located in Nigeria, is considered a chargeable asset.
Tax Evasion
This is the willful withholding of taxes or underpayment of taxes. Tax evasion is simply the unlawful act of an individual, group, or company purposefully avoiding paying their actual tax obligation.
In order to lower one’s tax liability, tax evasion entails purposefully lying to the tax authorities about one’s actual financial situation.
In Nigeria, tax evasion is illegal and several laws and regulations are in place to punish tax evaders. The penalties for tax evasion can include fines, imprisonment, or both, depending on the specific tax law violated.
Section 40 and 41 of the Federal Inland Revenue Service Act punishes offenders and stipulates that it is unlawful to obstruct or assault any authorized tax official while they are carrying out their duties.
If found guilty of this, the punishment might be three years in prison, a fine, or both.
Penalties for tax evasion may vary depending on the specific circumstances of the case and the applicable tax laws. Penalties can include fines, imprisonment, asset forfeiture, and other legal consequences.
Penalties for tax evasion
Here are some of the laws that deal with tax evasion and their associated penalties.
- The Companies Income Tax Act (CITA): Under CITA, companies that engage in tax evasion can face penalties, including additional taxes, fines, and the sealing of their premises.Section 92of the Act stipulates a N20,000 fine for any company that fails to furnish statement or keep required record and a N2000 fine daily for each day the company fail to comply.
- The Personal Income Tax Act (PITA): PITA prescribes penalties for individuals who evade their personal income tax obligations. Section 49(1) of the Personal Income Tax Act (as amended) compels individuals to provide a Tax Identification Number as a condition for opening a business bank account. The TIN will enable the FIRS track taxable persons in the habit of evading tax.
- The Value Added Tax Act (VATA): Businesses that fail to register for VAT or collect and remit VAT to the government can face penalties under this Act. Section 8 of the Act stipulates that defaulter are liable to pay the sum of N 50, 000 in the first month and N 25, 000 in the subsequent months.
- The FIRS (Establishment) Act: This Act empowers the FIRS to enforce tax laws in Nigeria. FIRS has the authority to impose penalties for tax evasion, including the prosecution of tax evaders.
- Section 27(2) of the FIRS Act provides that where a tax is not paid when due, the person in default shall, in addition to the 100 per cent of tax due and payable, also be liable to a penalty equal to the amount of tax due and payable.
- Section 68 of the FIRS Act provides that in the event of any inconsistency between the provisions of the FIRS Act and the provisions of any other enactments including CITA and PITA, the provisions of the FIRS Act shall prevail.
- State Internal Revenue Service (SIRS) Laws: Each state in Nigeria has its own internal revenue service, and these state tax authorities can impose penalties for tax evasion within their jurisdictions. The penalties may vary from state to state.
- The EFCC also joins in fighting tax evasion because it is a financial crime. The EFCC is responsible for investigating and prosecuting financial crimes. Individuals or companies involved in significant tax evasion cases may be subject to prosecution under EFCC Act.
To avoid penalties, taxpayers are to comply with tax laws, and businesses should keep accurate records and report their income and taxes honestly to avoid potential consequences.
Section 74(1) of PITA also imposes a 10% penalty on a person who is obligated to deduct tax (under sections 69, 70, 71, 72 or 73 of PITA) fails in its obligations to deduct or remit the deducted tax within thirty days from the date the amount was deducted or the duty to deduct arose.
The time for payment of tax under section 77(1) of CITA is thirty days from the date of service of a notice of assessment.
Nigeria loses $178 billion to tax evasion
On January 11, 2021, the Executive Chairman, of the Federal Inland Revenue Service (FIRS) Mr Muhammad Nami, said that Nigeria lost $178 billion to tax evasion by Multinationals in ten years.
He said this in a statement which revealed that between 2007 and 2017” Nigeria was “reported to have lost over US$178 billion.
He also cited a 2014 report by the High-Level Panel on Illicit Financial Flows from Africa, which stated that “Nigeria accounted for 30.5% of the money lost by the continent through illicit financial flows.”