Thread by @BeckleyConsultn

We are now underway in our 1-Day free seminar on "Understanding Taxation for SMEs" at our office at 19, Ire Akari Estate Road, Isolo, Lagos.

The purpose of this training is to improve the level of knowledge on taxation among small business managers and owners.

Any person or company that earns income has a legal duty to pay tax in one form or the other, though paying taxes is not really what anybody enjoys doing.

This seminar is designed to help understand the bases & types of taxes applicable to entrepreneurs & the benefits of tax compliance

Attempt will be made in this presentation to simplify the concepts of Withholding Tax (WHT) & Value Added Tax (VAT) as business-related taxes

According to the new national tax policy 2017, tax is a compulsory payment to government imposed by law on individuals, companies and organisations without direct benefit or return of value or service whether it is called tax or not.

The primary purpose of tax is to provide funds for government’s social and development programmes for the well being of citizens.

Tax can be imposed by all three tiers of government in Nigeria – Local Government, State Government and the Federal Government.

Examples of taxes in Nigeria include:

Local Government:
Tax
Shop and kiosks rates
Market levies

State Government Tax:
Personal income tax (P.A.Y.E.)
Business Premises Registration

Federal Government Tax
Company income Tax
Value added tax
Withholding tax – State and Federal.

Tax is a major source of revenue for funding government activities such as roads, health, schools, defence, elections etc. Imagine Lagos State without income from tax!

Tax is used to redistribute wealth by taking more taxes from high income earners and spreading it on...

...services which benefit low income earners to maintain desired level of economic stability.

Tax is used to discourage consumption of goods which are considered undesirable to the society or dangerous to health.

Personal Income Tax is a tax payable on the incomes of individuals including employees and partnerships.

PIT is the most common type of tax in Nigeria, and is applicable to workers, business owners, professionals, artisans, traders, etc...

A lot of people, including micro and small business owners, do not pay taxes on their income, and this is wrong.

PAYE is an acronym for “Pay as You Earn”. It is a method of collecting personal income tax from employees’ salaries and wages through deduction at source by an employer.

Under the scheme, the employer is regarded as an unpaid agent of the Tax Authority,

and as such is expected to deduct taxes on salaries, wages, bonuses, allowances and benefits in kind. Tax deducted is paid to the tax authorities by the employer.

Benefit-In-Kind (B.I.K) may be defined as those benefits or perquisites that accrue to a person by reason of the office and/or position he/she occupies.

Benefits in kind include such benefits as official car, official accommodation, cooks, gardeners, security etc.

The amount treated as B.I.K in the hand of the officer that enjoys the benefit is added to his income in arriving at his/her gross/consolidated income that is assessed to tax.

The Personal Income Tax Act (PITA) as amended provides for Consolidated Relief Allowance (CRA) of N200,000 or 1% of gross income whichever is higher, plus 20% of gross income. The balance shall be taxable in accordance with the tax rates in Schedule Six (6) of the Act.

Value Added Tax (VAT) is a consumption tax payable on the goods and services consumed by any person, whether government agencies, business organizations or individuals.

The target of VAT is consumption of goods and services and unless an item is specifically exempted by law, the consumer is liable to the tax.
It can also be defined as a tax on spending/consumption levied at every stage of a transaction but eventually borne by the final consumer.

VAT is levied at the rate of 5%. Oil & gas companies & government agencies are required to remit.

VAT on their purchases directly to the FIRS rather than pay it over to their vendors.
VAT payment is expected to be filed not later than 21st day of month following the transaction

Companies typically include 5% VAT on an invoice for services rendered or for sale of goods.
For example, Kunle buys a Television set at N60,000 and 2 LCD players at N20,000 each from a retail outlet - Taiwo Supermarket. How much will Kunle pay in total?

Kunle will be given an invoice that shows N100,000 total costs of items purchased plus N5,000 VAT (5%) which will bring the total payable by him to N105,000.

The VAT of N5,000 (105,000 – 100,000) payable by Kunle to Taiwo Supermarket is part of the cost of the items to him because the items are for his own use.

VAT is a consumption tax ultimately paid by the consumer. Therefore increase in VAT rate is increase in cost to be passed on to the consumer.
VAT is compulsory. If you do not include VAT in your invoice, or if VAT included in your invoice is not paid, you are liable to pay it.

You need to be cautious of the effect of VAT when negotiating prices with customers who may not want to pay the VAT element of your invoice.
Always consider VAT as part of your invoice because you are not the one paying eventually if you are not the final consumer.

Companies Income Tax (CIT) is a tax on the profits of incorporated entities in Nigeria.
The basis of assessment of a company is on preceding year basis.

This means tax is charged on profits for the accounting year ending in the preceding year of assessment.

The tax is paid by limited liability companies inclusive of the public limited liability companies. It is commonly referred to as corporate tax.

Upon registering your company, a tax identification number (TIN) is assigned to you. This unique code is used to identify your company as a tax payer in every tax transaction.

Your company’s TIN is included in returns to FIRS for WHT tax deducted from your invoice at source thereby reporting the transaction to the tax authorities.
Note that the company is a separate legal entity and can pay tax in its name.

As the owner or director of the Company, you are expected to pay your tax separately from that of the company. Your tax will be under personal income tax and not company income tax.

The due date a company must file its returns is within six month of the company’s accounting year end for an existing company; and for a new company within 18 months from the date of incorporation or 6 months after its first accounting period whichever is earlier.

The rate of CIT is 30%.
There is a further 2% Education Tax on assessable profit.
In filing for Companies Income Tax, audited financial statement are statutorily required.

This necessitates the engagement of External Auditors to prepare and/or certify the accounts to be submitted. Tax computations are also required.

Withholding Tax is basically an advance payment of income tax which may be used to offset or reduce tax liabilities.

It is an advance payment [to be deducted by every taxpayer, who is an agent of WHT at the point of settling suppliers’ bills] to be applied as tax credit...

to settle the income tax liability of the years of assessments the deduction relates.
The purpose is to bring prospective taxpayer into the tax- net thereby widening the income tax base.

Interactions with our participant reveal that most Nigerian businesses and startups do not pay taxes and most are not even aware of what is required of them.

The following are some reasons why businesses do not pay taxes;

Complexity
Cost
Ignorance
Lack of patriotism

We assure participants that paying taxes represent the following:
Evidence of good citizenship,
Sign of integrity and willingness to do the right thing,
Access to funds from financial institutions,
Requirement for business with government agencies and reputable companies...

... Good reputation which can lead to growth in business through collaboration and assistance,
Justification to comment on how government resources are managed, and Keeping of accounting records.

There are various penalties for not paying tax, every single tax evaded carries its own punishment.
Generally, under Section 66 of the Companies Income Tax Act; tax collectors have the power to seize/auction off the goods.

.... and even lock down premises of defaulting taxpayers to recover monies owed. It is perfectly legal for the authorities to seize assets if taxes are not paid.

Section 40 of the 2006 @firsNigeria Act deals with ‘Failure to deduct or remit tax’ and states that;
“Any person who being obliged to deduct any tax under this Act or the laws listed in the First Schedule to this Act, but fails to deduct,...

or having deducted fails to pay to the Service within 30 days from the date the amount was deducted or the time the duty to deduct arose, commits an offence, and upon conviction will be liable to pay the tax withheld or not remitted in addition to a penalty of 10 percent...

... of the tax withheld or not remitted per annum at the prevailing Central Bank of Nigeria minimum re-discount rate and imprisonment for a period of more than 3 years”.

We have so far enlightened our seminar participants that Tax is compulsory levy imposed by law with punishments for non-compliance for both individuals and companies.

That the government is not doing enough for citizens is not an excuse for non-compliance, because tax is not based on benefits or returns from government, though government accountability may encourage voluntary compliance.

Tax authorities now have access to bank accounts & a lot of information about individuals & companies through collaboration with relevant government agencies
It is important to pay the correct tax, more so that it is no longer possible to hide information from tax authorities.

As an entrepreneur and patriotic citizen, you and your employees have a right to some government facilities and programmes which you may be denied off because you are not tax compliant- e.g. enrolment into secondary school or application for grants and assistance.

Tax clearance certificate is always a requirement for accessing loans from financial institutions for your business.

It pays to pay tax- pay your tax…..