What is the job of a tax administrator and how do they go about carrying out their functions. This article provides all you need to know on tax administration in Nigeria. Read on below:
The task of a tax administration is to collect all tax revenues due to the government. It is expected that tax administration perform their tasks in a fair and efficient way so as to save costs for taxpayers and the tax administration itself.
An efficient tax administration needs to ensure the following:
- that taxpayers comply with the rules
- that the adequate resources (well-trained staff, IT, budget) are put in place to ensure people pay their taxes
Tax is a compulsory payment levied by the government on individuals and corporate organizations in a country. The payment of tax does not attract any compensatory benefit for the taxpayer. This means that no one can boast of receiving some special services from the government because he or she pays a greater amount of tax. As mentioned above. It is the job of a tax administration to make sure citizens and organizations pay their taxes. Hence, the tax administration enforces laws and regulations to ensure taxes are paid as at when due.
Tax Administration in Nigeria
Taxes are primarily used as a tool to raise funds for the government. Other purposes of tax aside revenue generation includes:
- Redistribution of the nation’s wealth and economic regulation: Tax rates are a major economic tool to help with redistributing the wealth of a nation. For example, the rate of personal income tax depends on how much the taxpayer earns. This means that the more one earns, the more tax to be paid.
- To control inflation and regulate consumption
- Encourage savings: Payment of taxes encourages the savings culture amongst citizens of a country which in turn helps the economy of the nation as a whole.
Tax authorities in Nigeria are:
- The Federal Board of Inland Revenue (FBIR)
The Federal Board of Inland Revenue (FBIR) taxes the income of corporate bodies, individuals, members of the Army, Air force, Navy and other external affairs officers for the federal government
- State Board of Internal Revenue (SBIR)
The State Board of Internal Revenue (SBIR) administers taxes to partnerships and individuals who are resident in any state.
- Local Government Revenue Committee (LGRC)
The Local Government Revenue Committee (LGRC) administers levies, rates, and fees to businesses and individuals who are resident within a local government area.
Taxes due to the Federal Government are administered by the Federal Inland Revenue Service (FIRS). Taxes due to the state governments are administered by the State Boards of Internal Revenue (SBIRs) which are present in the thirty- six states of the Federation. Local Governments also administer rates and levies through their various councils.
There are taxes paid by business owners and workers in Nigeria. Taxes paid in Nigeria include:
- Companies’ income tax
- Personal income tax
- Capital gains tax
- Value-added tax
- Education tax
- Technology tax
- Stamp duties
- Withholding tax
The tax administrators impose penalties on those who do not pay taxes as at when due.
A Tax Clearance Certificate
A tax clearance certificate is issued by a tax authority. A business can demand for a tax clearance certificate when it has paid its taxes in full for the three years immediately preceding the current year of assessment. A Tax Clearance Certificate is usually required in many business transactions and contracts with Government Ministries, Departments, and Agencies (MDAs).
Taxable period
The taxable year is the fiscal year, which runs from 1 January to 31 December
Tax returns
A business must file its returns with the relevant tax authority within 90 days of the end of the fiscal year (31 December)
Note: Taxpayers with an income of NGN 30,000 or less are not required to file tax returns. Ideally, it is the job of employers to file a return of all emoluments paid to its employees not later than 31 January of every year.
Payment of tax in Nigeria
Pay-As-You-Earn (PAYE) tax must be remitted to the relevant tax authority, on or before the 10th day of the month following the month in which salaries were paid.
Tax audit process
The State Board of Internal Revenue (SBIR) is empowered by law to collect taxes on income of individuals.
The Federal Inland Revenue Service however, is empowered by law on the following individuals
- Persons employed by the Nigerian Army, Navy, Air Force, and Police Force and officers of the Nigerian Foreign Service (any work other than in a civilian capacity)
- Every resident of the Federal Capital Territory
- Persons not resident in Nigeria but who derive income or profit from Nigeria.
Apart from the above, no other organ or tier of government has legal authority to impose tax on the income of individuals.
The major tax laws which have been existing in Nigeria as of September 2003 and the related amendment include the following:
- Personal Income Tax act of 1993
- Companies profits Tax of 1990
- Petroleum profits tax act of 1990
- The Petroleum tax act of 1990
- Value-added tax act of 1990
- Education Tax Act of 1993
- Capital gain act of 1990
- Customs and Excise management Act of 1990
- Minerals and mining act of 1999
- Stamp duties act of 1990
- Nigerian Taxand Fiscal Law (Amendment) Bill 2019
Tax laws are usually amended, sometimes with the annual budget. This is done to correct loopholes and to promote the use of taxes as an economic management tool.
Key taxes chargeable in Nigeria
Companies Income Tax (CIT): 30% of total profits of a company minus allowable deductions. The Companies Income Tax is governed by the Companies Income Tax Act
Capital Gains Tax (CGT): 10% of gains realized after disposal of a chargeable asset. The Capital Gains Tax is governed by the Capital Gains Tax Act
Value Added Tax (VAT): 5% on the supply of goods and services. Value Added Tax is governed by the Value Added Tax Act
Education Tax: 2% of assessable profits of a company. Education tax is governed by the Education Tax Act