FIRS grants 45 days amnesty to tax defaults

The Federal Inland Revenue Service (FIRS) has released a publication announcing that it would waive all penalties and interests due on tax defaults for three tax years.

According to the publication, the tax waiver is available to any taxpayer that declares its unpaid tax between October 5, 2016 and November 24, 2016 (45 days), adding that the waiver covers only tax due for the years 2013 to 2015.

It was further noted that the taxpayer when making the declaration is required to make a full or part payment of at least 25 per cent of the unpaid amount and present an instalment plan for any remaining balance.

The publication made available by financial auditors PricewaterhouseCooper explained that Section 32 of the FIRS Establishment Act (FIRSEA) holds the relevant provision of the law that generally empowers the FIRS to impose penalties and interest for unpaid taxes. The Section also allows the Board of the FIRS to waive (in part or in whole) the applicable penalties and interest where good cause is presented. The waiver is therefore in line with the law.

“The approved tax waiver is a commendable initiative in a time when a lot of businesses are struggling to discharge their tax obligations. From a tax administration perspective, it may lead to significant recoveries of previously undisclosed tax debts and ultimately expansion of the tax base,” PwC said.

From the perspective of the taxpayers, the notice is quite short which means taxpayers have to complete their internal reviews and tax health checks very quickly. Given that the waiver does not cover principal, the impact on income tax remediation will be minimal going by the Tax Appeal Tribunal (TAT) decision in the Weatherford case of 11 December 2014, where the TAT held that interest and penalty on overdue income tax should start to run when the taxpayer neither objects nor appeals an additional assessment within two months (and not from the date the tax should have been paid).

It is not clear if the period covered is accounting or tax years and also, whether taxpayers who are already undergoing audit can take advantage of the window.

Additionally, taxpayers are keen to know what position the FIRS will take regarding outstanding tax liabilities that fall within the statute of limitation but outside the specified period covered by the tax amnesty.

The Revised National Tax Policy recommends a framework for tax amnesty and it seems the FIRS is fully supportive of this and showing more commitment to encourage voluntary compliance. After the expiration of the window, the FIRS may take an aggressive stance (including prosecution of key officers) if it is established that an entity failed to come clean for the periods between 2013 and 2015 in relation to any undeclared or unpaid tax obligations.