TAX SERVICES

Only recently, business owners were awakened to cruel bank transaction notifications running into millions of naira undertaken without their consent. On further enquiries from their respective banks, they were shocked to learn that the Federal Inland Revenue Service (FIRS) had issued fiat to financial institutions to put lid on accounts of suspected tax defaulters. “We just woke up, saw notifications from our banks that the FIRS told them to put a lien of an outrageous amount in taxes we are owing; that was about a N100 million,” one of the affected business owners told THISDAY on conditions of anonymity. The Executive Chairman, Federal Inland Revenue Service (FIRS), Mr. Tunde Fowler, recently disclosed that the sum of N23 billion had been recovered from 45,000 tax defaulters, who had over N100 million as turnover in their respective bank accounts. He further hinted that a new batch of 40,000 millionaires would be targeted in this year. However, the latest mode of clampdown on businesses, which had failed to comply with their tax obligations have been severely criticised in some quarters, including FIRS staff and renowned tax and audit authorities. A source further told THISDAY that some staff of the revenue agency had even urged affected individuals to seek legal redress as the move by Fowler was unprecedented, with grave implications for the growth of small enterprises which are critical for economic development. Famous audit firm KPMG, had promptly questioned the FIRS move, describing it as “draconian”. It stated: “We note and salute the FIRS’ objectives to bring delinquent taxpayers into the tax net and consequently increase the federal government’s tax revenue. “However, the current practice whereby the FIRS issues fiat to freeze taxpayers’ bank accounts generally and to demand that SBs pay alleged outstanding tax liabilities from customers’ bank balances without recourse to affected persons, is draconian. “This will cast doubt on the federal government’s drive to improve the ease of doing business in Nigeria, diminish the credibility of the Nigerian tax system, and erode investors’ confidence in the Nigerian economy.” The company also called on taxpayers to “ensure that they fulfill their civic obligations by paying the right amount of taxes and filing relevant tax returns with the tax authorities, as and when due”. Apparently, under pressure from critics over its unpopular actions to compel compliance through seizure of accounts, Fowler had within the week halted the freezing of bank accounts of tax defaulters for 30 days. According to him, the directive became necessary in view of the large number of taxpayers, who had besieged its offices in their bid to regularise their tax positions, coupled with the inconveniences they encountered during the process.But in spite of the criticisms bedevilling the FIRS measures, particularly the seeming lack of due process in freezing bank accounts, the service appears unperturbed and has maintained that it possessed powers under its Establishment Act to take the steps. Justifying its actions, FIRS spokesman, Mr. Wahab Gbadamosi, responding to THISDAY enquiries maintained that “tax is anchored on law, the basis of tax is law in the first place” stressing that the FIRS Establishment Act (FIRSEA), Company Income Tax Act (CITA) among others already provided the basis for its actions. Quoting relevant sections of the Act, Gbadamosi said, “The Service may require any person to give information as to any money, fund or other assets, which may be held by him for, or of any money due from him to, any person. “Also note that Section 49 of CITA further empowers FIRS to take all the steps we have taken with respect to recovery of tax debts from billionaire and millionaire tax defaulters.” What Gbadamosi does not seem to understand is that a country tax regime is one of the factors potential investors consider in choosing where to invest their funds. Nevertheless, KPMG, in its position paper released in February, argued that the revenue collection agency had overstepped its bound in a bid to expand its tax revenue base. The firm added that contrary to FIRS’ claim, “nothing in the CITA or FIRSEA authorises the FIRS to impose a freeze order on a taxpayer’s bank account beyond the amount of tax proven to be due and payable by that taxpayer.” As the argument over the legality or otherwise of the FIRS actions persist, particular attention should be paid to the negative impact it would have on the investment atmosphere, especially at a period when the federal government is working hard to improve the ease of doing business in the country, which had been a point of concern to wooing foreign investment into the country. The freezing of companies’ bank accounts at will further calls to question the non-disclosure obligations the banks themselves owe to customers, especially as this is not yet a criminal case until proven by a court of law, and could dampen the confidence of small and medium enterprises, which are struggling to grow under an already harsh business environment. According to a source who had his accounts frozen and later released, what they (FIRS) are doing is illegal and abnormal without following the law. There was nothing like consulting the taxpayers, telling them of their discrepancy and issues in their taxes-absolutely nothing like that. “Somebody sits down, calls the bank, looks at your turnover and slams you a tax, without confirming whether you have paid or not, whether you are in compliance or not, whether you are in breach or not and without even going through your TIN because they are the custodian of who is an active tax payer or not.” The resultant development had seen those who had no issues in their tax filing suffer unnecessarily during the siege on their accounts by the FIRS, which requested affected clients to show up at its headquarters in Abuja to reconcile their tax records. Although, FIRS deserves commendation for embarking on innovations that had seen tax receipts grow in recent times, its new approach to enforcing compliance poses a grave concern, which if not addressed

As a result of complaints by Nigerians and industry experts, the Federal Inland Revenue Service (FIRS) has written to banks, directing them to lift the lien on tax defaulters’ bank accounts for 30 days. The directive, which takes immediate effect, was contained in a letter from the Chairman, FIRS, to bank Managing Directors. FIRS, however, made the announcement in a statement posted on its official Twitter account Friday night. The agency explained that it issued the directive because of the large number of taxpayers, who have besieged its offices in their bid to regularize their tax positions and the inconveniences they are going through. It should be remembered that the FIRS recently issued Letters of Substitution, pursuant to Section 49 of the Companies Income Tax Act (CITA) 2004 and Section 31 of the Federal Inland Revenue Service Establishment Act (FIRSEA) 2007, to banks in Nigeria, appointing them as tax collecting agents for certain listed customers maintaining bank accounts with such banks. The FIRS, in the said Letters of Substitution, alleged that the affected companies have breached their tax obligations by failing to pay tax to the FIRS, as and when due, and provided the SBs with an indication of a specific amount owed by each said company. The SBs were directed to set aside the indicated sums and pay such over to the FIRS in full or partial payment of the alleged tax debt. KPMG advisory services had on Thursday stated that FIRS have gone draconian by giving fiats to banks to freeze accounts of suspected tax defaulters. “The current practice whereby the FIRS issues fiats to freeze taxpayers’ bank accounts generally and to demand that SBs pay alleged outstanding tax liabilities from customers’ bank balances without recourse to affected persons, is draconian. This will cast doubt on the Federal Government’s drive to improve the ease of doing business in Nigeria, diminish the credibility of the Nigerian tax system, and erode investors’ confidence in the Nigerian economy,” the for wrote in an explanatory note. It, however, stated that taxpayers must also ensure that they fulfil their civic obligations by paying the right amount of taxes and filing relevant tax returns with the tax authorities, as and when due.   Source: Tribune

SEVERAL years ago, fourth President of the United States of America, James Madison said that the power of taxing people and their property is essential to the very existence of government. Similarly, Franklin D. Roosevelt, the only US President to serve three terms also underscored the importance of tax when he asserted that: “Taxes, after all, are dues that we pay for the privileges of membership in an organised society.” Roosevelt relied on taxes, particularly from rich taxpayers, to fund programmes designed to pull the country out of the Great Depression. The various New Deal revenue acts in the mid-1930s substantially boosted the tax burden on the wealthy, raising the effective income tax rate on the top one per cent from 6.8 per cent in 1932 to 15.7 per cent in 1937. Scholars of development economics have written a lot on the issue of taxation and its import to economic development. Amidst the penumbrae of arguments, the central tendency is that taxation is the price people pay for government services. Most often, because of the inherent tendency of people to resist payment of tax for essential services, taxes are compulsory payments individuals make to government. Tax The element of coercion is justifiable in that legitimate government activities can hardly be carried out without fiscal resources. These activities include defense, protection of life, property and individual liberty – which are fundamental rights enshrined in the Nigerian Constitution. Irrespective of the school of thought one belongs, one is doubtless bound to contribute a certain portion of his income to government for the provision of essential social services. Similarly, it is the duty of government to apply such monies in the most efficient way to improve the living standards of the people. Since the return of democratic dispensation in 1999, successive administrations in Lagos State have had to contend with the knotty issue of attempting to boost the State Internally Generated Revenue, IGR, through the implementation of a viable and sustainable tax system. With about N600 million in 1999, when Asiwaju Bola Tinubu took over, the IGR rose to between N10 billion and N11 billion by 2007 when he left office. With continuing reforms in the internal revenue system, aggressive tax drive, capacity building and professionalism of the Lagos Internal Revenue Service, LIRS, the IGR of the state had by 2015 when Mr. Babatunde Fashola, SAN, left office, risen to about N23 billion monthly. What has been the secret of Lagos’s economic growth under the current administration is a revenue enhancement reform which has achieved higher IGR and providing a sustainable financial base for bridging the huge infrastructure deficit estimated at over US$50bn. Implementation of financial policy such as widening of the State tax net, expansion of tax base, updating/upgrading of databases, improvement of administrative processes and operational efficiencies, among others has so far achieved an average monthly IGR of N34 billion in 2018 compared to monthly averages of the last three years. It could be recalled that in just two and half years, the Lagos Government constructed Abule-Egba and Ajah bridges among several other capital projects. There is vast empirical evidence that taxation correlates highly with economic growth in addition to some spill-over effect on effective service delivery. Lagos is a good example for research work in this direction. At the global level, no economy in history has ever achieved high per capital growth without a sustainable tax system. In fact the advanced capitalist economies depend heavily on taxation in running their economies. In Europe, U.S.A and Latin America, tax evasion is a punishable offence without the option of fine. The global economic power of Japan is Personal Income Tax. Taxes available to state governments to collect from the citizens across the country include: Personal Income Tax in form of Pay-As-You-Earn, PAYE, or Direct Taxation (Self-Assessment), withholding Tax (Individuals Only), Capital Gains Tax (Individuals Only), Stamp Duties on instrument executed by individuals, Pools Betting, Lotteries Gaming and Casino Taxes, Road Taxes, Business premises registration fee in respect of urban and rural areas which includes registration fees and per annum for the renewals as fixed by each state, Development Levy (individuals only) not more than 100 per annum on all taxable individuals and Naming of street registration fees in the State Capital. Other classification of taxes are: Right of Occupancy fees on lands owned by the State Government in urban areas of the State, Market Taxes and Levies where State finance is involved, Land Use Charge, where applicable, Entertainment Tax, where applicable, Environmental (Ecological) fee or levy, Hotel, Restaurant or Event Centre Consumption Tax, where applicable, Signage and Mobile Advertisement, jointly collected by the State and Local Government among others. It is, thus, surprising that today many states and local governments still give the impression that their entire operations depend on the statutory Federal allocation. It is an aberration that even the Federal Government still depends heavily on oil. In Lagos, the impacts of enhanced revenue base in development strides in the state are quite visible to all. For instance, in 2016 alone, the state government commissioned 114 roads across the state while another 181 roads were built in 2017.   In the health sector, 14 additional LASAMBUS operational points were created while 26 new ambulances for General Hospitals and LASUTH as well as 20 new Mobile Intensive Care Units were inaugurated.   With a view to bridging the housing deficit gap in the state, between February and April 2017, 500 lucky beneficiaries of the Rent-To-Own Housing Scheme were presented with keys to their home.   Similarly, numerous giant strides have been made in education, sports, transportation, food security, tourism among others. Governments across the country need to borrow a leaf from Lagos State and be committed to expanding their tax net, updating/upgrading of databases, improvement of administrative processes and operational efficiencies of their tax agencies. Source: Guardian