Taxes are critical to government spending on social services such as security, education, power, health and other development initiatives that improve the welfare of citizens. In Nigeria, the major source of government income is crude oil whose price has consistently remained unstable and unreliable. Therefore, the unpredictability of the market makes it imperative for the nation to have an improved tax system to lessen reliance on crude oil revenues and increase funding for government to meet its obligations to the people.
The Federal Inland Revenue Service (FIRS) has been contributing significantly in the funding of the Nigerian budget over the past years. In 2021, the total budget of the country was N13.6 trillion. The Service contributed N6.40 trillion, which was more than 40 per cent to fund the budget. In 2020, FIRS contributed over 46.7 per cent of the budget, 54.6 per cent in 2016, 55.2 per cent in 2017, 58.3 per cent in 2018, and 59.0 per cent in 2019.
The Executive Chairman of FIRS, Muhammad Nami, at the recent 2nd Annual National Tax Dialogue in Abuja, said the Service contributed over 59.49 percent of the revenue shared by the Federal Account Allocation Committee (FAAC) monthly in 2021.
Looking at the contributions of FIRS to the funding of the Nigeria budget, it is obvious that the Service has become an important pillar of development in the country.
The FIRS has digitalised most of its processes for easy accessibility. Two months ago, the Service introduced an online platform called the ‹Self-service stations. While introducing the platform, FIRS explained that the stations would enable taxpayers to file tax returns, pay taxes, apply for and validate tax clearance certificates among other services, by themselves using an online platform located in FIRS tax offices across the country.
FIRS noted that the TaxPro Max Solution is “part of the Service efforts to enhance voluntary tax compliance, make it more convenient for the taxpayers to access FIRS services” as the self-service stations have designated officers readily available to assist taxpayers with any technical difficulty or concerns that may arise. The Service enjoined taxpayers to take advantage of the self-service stations in fulfilling their tax obligations.
Taxpayers’ obligations
Under Nigerian Tax Law, the Taxpayer has the obligation to first register and obtain a Tax Identification Number (TIN) for free at FIRS office. Then it is required by law for every taxpayer to make full and voluntary disclosure of all transactions (income and expenditure) for a given period under the relevant tax law. A taxpayer is expected to maintain business record and proper books of account to facilitate voluntary compliance. A taxpayer is expected to complete and sign tax returns: All Tax Return Forms should be duly completed and signed by the taxpayer even in the case where a tax agent/consultant has been engaged by a taxpayer for the purpose of filing tax returns.
The Law further states that, in case a tax return is filed by an individual, the form must be signed by the taxpayer in person. Where the tax returns are filed by a Company, the form must be signed by the chairman or managing director of the Company and Company Secretary.
In filing Tax Returns to FIRS, the following documents are required by Law; Audited Accounts, Tax Computation, Capital allowances computation, Schedule of fixed assets, evidence of the whole or part payment of tax, any other document as may be specified. This can be done at the comfort of taxpayers’ house using the Taxpromax Platform. This is done on or before the due date for the payment of the tax.
Rights of taxpayers
According to the National Tax Policy, taxpayers are the most important stakeholders in the Nigerian tax system and FIRS calls them King. The taxpayers’ have the right to be informed, assisted, and heard. The right to be given Taxpayer Identification Number (TIN) which is free, and the right to object to a tax assessment that is not in agreement with its business activities as provided in the tax law. Under the law, taxpayers also have the right to appeal against the decision of the tax authority. Taxpayers are free to contest and appeal against administrative assessment they are dissatisfied with; they have the right to due process of redress as provided in the tax laws. They also have the right to pay the correct amount of tax.
Taxpayers are not to pay more than what is required by the tax laws and their incomes. The right to certainty, the amount of tax, when to pay, where to file tax returns and consequences of failure to comply should be certain to taxpayers.
Again, the taxpayers have the right to be issued with Tax Clearance Certificate upon settlement of all tax liabilities within two weeks of application or be given reasons for non-issuance.
NGOs and their tax obligations
Under Nigerian Tax Law, a Non-Governmental Organisation (NGO) is recognized as a not-for-profit association of persons incorporated as a company limited by guarantee under PART A of the Companies and Allied Matters Act (CAMA) 2004 or registered under PART C of the Act, or under any other law in force in Nigeria, or registered under the laws of a foreign jurisdiction and approved as such in Nigeria. Such entities are incorporated or registered with the objective of advancing a given public good and not to carry on business for the purpose of making profits for distribution to their members.
Similarly, any organisation registered under any law within the Federation as a co-operative society is accorded the same treatment as an NGO. All NGOs are expected to register with FIRS for tax purposes and obtain a unique Taxpayer Identification Number (TIN).
In line with Section 55(1) of Companies Income Tax Act (CITA), it is mandatory for every NGO to file tax returns every year and such return shall contain: The audited accounts, tax and capital allowances computations and a true and correct statement in writing containing the amounts of its surplus from each and every source computed in accordance with the provisions of CITA.
The period for filing returns is stipulated in the relevant tax laws. NGOs are required to file their annual tax returns at FIRS designated Medium Tax Offices (MTOs) covering their locations.
Section 23(1)(c) of CITA, exempts the profits of any statutory, charitable, ecclesiastical or other similar associations from Companies Income Tax, provided that such profits are not derived from any trade or business carried on by such organisation or association.
Examples of income covered under the exemption includes subscription fees by members, donations, grants, zakkat, offerings, tithes, funds realised from launchings, etc. However, the Act states that where an NGO engages in any trade or business, or invests its assets in any institution, the profit or income derived (active or passive) is liable to tax appropriately. As such, income or profits liable to Companies Income Tax include the following: Profits derived from trade or business carried on by the organisation/institution such as proceeds from sale of goods or merchandise, provision of consultancy, professional or other services for a fee, investment Income such as interest, rent, royalty, dividend or similar income. Accordingly, the payer of this income to the NGOs has the obligation to deduct Withholding Tax (WHT) from the payments as stipulated in the WHT Regulations.
Meanwhile, the NGOs have the obligation to deduct WHT on contracts awarded to suppliers and contractors, as well as other qualifying payments, and remit same to the relevant tax authorities in the currency of transaction.
In addition to the income tax exemption granted to NGOs under CITA, Section 25 of CITA provides tax relief to any company making donations to an organisation listed under the Fifth Schedule to CITA provided that: The donation is made out of its profits for that year of assessment.
The Act states that “the total donation shall not exceed 10 per cent of the total profits of that company for the said year of assessment; and such donation is not of capital nature, except where the donations are made to universities or other tertiary or research institutions or any developmental purpose, which should not exceed 15 per cent of total profits or 25 per cent of tax payable in line with the provision of Section 25A of CITA. An NGO requiring to be listed under the Fifth Schedule to CITA may apply to the Minister of Finance for enlistment, through the Federal Inland Revenue Service. The procedure and requirements for enlistment, are contained in the ‘Requirements for Funds, Bodies or Institutions (Under the 5th Schedule to the Companies Income Tax Act) Regulations 2011.”
Personal income tax obligation under NGOs
Section 19(1) and Paragraph 13 of the Third Schedule of Personal Income Tax Act (PITA), Cap. P8, LFN 2004 (as amended), exempts profits of any organisation engaged in ecclesiastical, charitable, benevolent or educational activities of a public character from income tax, provided that such profits are not derived from a trade or business carried on by the organisation.
However, the Act provides that the income of individual promoters and employees of NGOs are not exempt from tax. As such, the following incomes are liable to Personal Income Tax: Emoluments of promoters (from all sources – including the NGO); fees, other remuneration or benefits-in-kinds paid to trustees and guarantors; and salaries or other remuneration of employees.
NGOs are required, under the PAYE obligation, to deduct tax at source from salaries and other emoluments of employees, directors, officers, etc. and remit same to the relevant tax authorities in the currency of payment of the emoluments.
Capital Gains Tax under NGOs
In line with Section 26 of the Capital Gains Tax Act (CGTA), Cap C1 LFN 2004 (as amended), gains from the disposal of chargeable assets of NGOs are exempted from tax, where the gains are not derived from the disposal of any assets acquired in connection with any trade or business carried on by the organisation; and the gains are applied purely for the purpose of the activities of the organisation.
However, the Act grants that gains from disposal of chargeable assets of NGOs are liable to CGT where the gains are derived from disposal of assets acquired in connection with any trade or business carried on by the institution or where the gains are not applied purely for the purpose of the organisation.
Value Added Tax (VAT)
VAT on goods purchased by NGOs for use in humanitarian donor-funded projects is at zero rate under the Value Added Tax Act, Cap V1, LFN 2004 (as amended). However, it should be noted that the NGO itself is not exempt from VAT. As such, where the organisation procures contracts or purchases goods that are not directly used in humanitarian donor-funded projects, VAT shall apply at the prevailing rate.
Under the Act states, any service procured or consumed by NGO is liable to VAT at the prevailing rate, except where such service is exempt under the Act. NGOs are required to charge VAT on all taxable goods and services supplied and remit same to the FIRS as and when due. Where an NGO procures goods or services from persons not liable to charge VAT or from non-resident suppliers, it shall self-account for the VAT and remit same to the FIRS.
Pursuant to Section 15 of the VAT Act, VAT returns shall be filed with FIRS, on or before the 21st day of the month following that in which the purchase or supply was made.
The government exists to respond to the needs of the people but requires steady and adequate financial resources to sufficiently do this. It comes from a transparent and efficient system of tax administration that minimizes tax evasion and avoidance, the type that the FIRS seeks to engender.
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