Still no improvement one year later (2)A NEW Paying Taxes report released by the World Bank, International Finance Corporation (IFC), and PwC on November 10, 2011 shows that governments all over the world continue to reform their tax systems. In all, 123 out of 183 economies measured have made significant regulatory changes since 2006 to ease tax burdens for small and medium-sized firms, as governments seek to increase investments and relieve the impact of the global economic downturn. The new report finds that 33 economies made it easier and less costly to pay taxes from June 2010 through May 2011. The most common tax reform was the increased use of online systems to facilitate tax compliance, introduced in 23 economies. Electronic filing and payment reduces the amount of paperwork, allows a more targeted and risk based approach to audit and compliance, and can help eliminate corruption. Governments have it in their control to develop tax systems that foster business investment and make the private sector an engine for economic growth and prosperity. The question is ' why is Nigeria not doing enough' In continuation of our Top 50 Tax Issues in Nigeria, we consider the second top 10 issues in this publication.Deduction of VAT at source ' Otherwise known as withholding VAT, the deduction of VAT at source by government and companies in the oil and gas sector from payments to their vendors leaves such vendors with claimable input VAT without adequate output VAT thereby resulting in a perpetual refund position. The obligation for government agencies and oil companies to deduct VAT at source should be removed and compliance by vendors should be enforced using information provided in the VAT and withholding tax returns of the service recipients/customers.Tax refunds - Although there are specific provisions in the tax laws especially under section 23 of the FIRS Establishment Act 2007 for tax refunds this has yet to be fully functional. There should be appropriate funds allocated or retained out of tax collection to cater for tax refunds both at the federal and state levels. The FIRS Act requires the tax authorities to pay a tax payer's refund claim within 90 days of the application subject to appropriate audit. These audits are usually slow and time consuming sometimes running into several years. Fairness and equity requires that cash refunds be made promptly to deserving tax payers. Failure to pay refund within the stipulated timeframe should attract commercial interest.Tax technology ' Without fully embracing technology it will be difficult to realise Nigeria's dream of becoming one of the largest economies in the world by 2020. Online filing and tax payment should be introduced to reduce the compliance time and the associated cost. It will also help reduce human interaction between the taxpayers and tax officials which could also help in checking sharp practices. Nigeria should embrace technology in tax administration to support electronic remittances and filing of returns which will reduce the burden on taxpayers and make doing business easier.Withholding tax credit notes - Tax payers are required to file WHT returns monthly and then follow up with the tax authority to obtain credit notes for their vendors. This process is expensive, time consuming and inefficient. There should be a robust electronic system where vendors can log on to see if tax withheld from them has been remitted to the tax authority which should be automatically credited to the beneficiary's tax records. It will therefore not be necessary for taxpayers to specifically apply to utilise their credit notes. In the meantime, taxpayers should be allowed to issue credit notes to their vendors and account for the remittance to the appropriate tax authority as a precondition for granting credit to the vendors. This is already provided for in the Companies Income Tax [Rates etc of Tax Deducted at Source (Withholding Tax)] Regulation 1997 as amended. Also, it should be possible to carry back withholding taxes or offset against other taxes.Tax evasion ' Nigeria is one of the few countries in the world where it is fashionable to evade tax. The various structures which are required to work together to make tax evasion difficult are not properly coordinated. For instance, it is possible for a company to register with the Corporate Affairs Commission (CAC) without registering with the FIRS when it could have been one of the conditions in the company registration process. Enforcement of tax compliance should be given adequate attention and various government agencies (land registry, CAC, vehicle registration department, immigration etc) should collaborate and share information to reduce tax evasion.Deemed income and deemed profit tax ' It is often the case that tax authorities, both federal and states, insist on deemed income for a non resident company or an expatriate even where information supporting tax on actual basis has been provided. Tax officers should aim to assess all taxpayers based on actual profit unless it is difficult or impracticable to do so. Deemed income or deemed profit tax should only be a fallback option not the first consideration. Focus should be on collecting the right amount of tax, not the maximum amount of tax.Unutilised tax losses ' CITA specifically limits the carry forward of tax losses to 4 years for insurance companies which appears to have been removed for all other companies. This does not create a level playing field and is capable of impeding the development of the insurance sector. Before 2007, tax losses incurred by any company other than those in agricultural business and upstream petroleum industry can only be carried forward for a maximum period of 4 years. This restriction was removed in 2007 for all companies except insurance but another subsection appears to have retained a restrictive clause regarding carry forward of losses thereby creating ambiguity. The tax law should be applied as enacted and interpreted in line with the legislative intent to permit indefinite carry forward of tax losses.Personal reliefs and allowances ' The Personal Income Tax Act (PITA) provides for a number of tax reliefs and allowances but most of these are unrealistically low such as Children Allowance of N2,500 per child subject to a maximum of 4 children, Utility N10,000, Entertainment N6,000, Transport Allowance N20,000, Rent Allowance N150,000, Meal Subsidy N5,000, and Dependant Relative N2,000. Reliefs and allowances should be reasonable and in tune with current reality. As much as possible, allowances should be a percentage of earnings rather than an absolute amount which has the risk of becoming unreasonably low with time due to inflation and slow reviews and amendments to tax laws in Nigeria. The PITA amendment bill recently passed by the National Assembly should be promptly signed into law to address some of the identified issues.Determination of residence for individuals - The definitions of 'place of residence' and 'principal place of residence' per the First Schedule, Paragraph 1 of PITA are unnecessarily complicated often leading to clashes between tax authorities and potentially double taxation for individuals. This rule should be simplified to minimize conflicts between tax authorities and to reduce the incidence of double taxation for individuals. One way of simplifying the rule could be to pay the employment income tax of employees to the state where their place of work is located. Individuals not in employment should pay their taxes to the state where they have their permanent home or other relevant proxies.Tax dispute resolution and due process ' Where a taxpayer is aggrieved, there is no recourse in most cases especially at states level where there is no body of appeal commissioners in place. Also the tax appeal tribunal at the federal level is yet to be up to speed in addressing tax disputes. Notwithstanding the due process clearly laid down in the tax legislation, many tax authorities especially at the state and local government levels rarely follow due process in their activities. They often harass and intimidate taxpayers without regard to the provisions of the law. Appeal tribunals and body of appeal commissioners should be constituted and fully functional at all times. It is critical for due process purposes to establish and enforce a tax assessment and appeal procedure that is independent, fair and efficient to all taxpayers. Speedy resolution of tax disputes is a key factor which must be addressed urgently. The slow pace of tax adjudication in Nigeria makes tax compliance more difficult and exposes the taxpayer to a higher risk of penalty and interest. Government should consider issuing a Taxpayer Bill of Rights or Taxpayers' Charter to include taxpayer obligations, as well as a commitment to professional and legitimate behaviour by tax consultants and tax officials.To be continued'..Taiwo Oyedele is a Partner in the Tax and Corporate Advisory Services Unit of PwC Nigeria and a regular paper presenter on professional tax matters - taiwo.oyedele@ng.pwc.com.About PwCPwC firms help organisations and individuals create the value they're looking for. We're a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at www.pwc.comIn Sub-Saharan Africa, we're the largest provider of professional services with firms in 31 countries and 7,700 people. In the Africa Central sub-region, our nine firms operate in Angola, Ghana, Kenya, Mauritius, Nigeria, Rwanda, Tanzania, Uganda and Zambia and we offer services in Burundi, Djibouti, Eritrea, Ethiopia, Liberia, Seychelles, Sierra Leone, Somalia and Sudan. Combining global expertise with local know-how, our 1,950 people in Africa Central can help you grow and manage change.
Click here to read full news..
