Taxes & Tariffs | |
Taxes & Tariffs | |
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Monday, June 08, 2020 / 12:48
PM / by KPMG Nigeria / Header Image Credit: BusinessKorea
The Federal Inland Revenue Service (FIRS or "the
Service") recently issued a Public Notice requesting all dormant companies to regularise
all their outstanding returns with the Service by 30 June 2020. This
follows an initial notice issued in February 2020 by the Service on the same
subject. Based on the Public Notice, the FIRS is collaborating with other
government agencies, such as the Nigerian Financial Intelligence Unit,
Corporate Affairs Commission (CAC) and Money Deposit Banks, to ensure that
taxpayers duly comply with the provisions of the tax laws.
According to the Public Notice a dormant company is "a company that has informed the FIRS of its temporary cessation of business
activities due to understandable exigencies for a minimum of one financial year".
The FIRS noted that any dormant company that fails to regularise its
outstanding tax returns by 30 June 2020 will face enforcement actions,
including delisting the defaulting company from the list of incorporated
companies and placing a lien on its bank account(s).
The FIRS further noted that dormant companies are
permitted to submit "Statement of Affairs" in lieu of audited financial
statements for the purpose of regularising their tax status.
Comments:
Enforcement of tax compliance is within the
statutory powers of the FIRS. Specifically, Section 25(1) of the FIRS
Establishment Act empowers the FIRS to "administer all the enactments listed in
the First Schedule of this Act and any other enactment of law on
taxation...". However, it is imperative that every aspect of tax
administration is carried out in strict adherence to the provisions of the
enabling extant laws.
Typically, companies are required to file value
added tax (VAT) and withholding tax (WHT) returns on a monthly basis on
qualifying transactions while companies income tax (CIT), tertiary education
tax and capital gains tax (CGT) returns are filed annually based on the
business activities for the relevant accounting year. While the FIRS' request may be appropriate for the VAT and CIT returns, as the provisions of
both tax laws do not preclude dormant companies from filing obligations, WHT
and CGT returns can only be filed when a company incurs qualifying transactions
in line with the relevant laws. Consequently, affected companies should
ensure that they utilise this opportunity to prepare and file all outstanding
VAT and CIT returns by the deadline.
However, it is doubtful if all the affected
companies would be able to meet the stipulated deadline for the exercise, as
most companies are only returning back to business following COVID-19 lockdown,
which may have delayed the preparation of the documents required to complete
the exercise. Consequently, the FIRS should consider extending the deadline
to afford companies, who would want to utilise the opportunity, more time to
collate, prepare and finalise all relevant documents required for the
regularisation exercise.
Further, the relevant extant laws already stipulate
penalties for failure to file and pay taxes as and when due. It is,
therefore, important that any enforcement action by the FIRS on defaulting
taxpayers aligns with the procedures stipulated in the extant laws, including
the prescribed process for recovery of outstanding taxes. Consequently,
where there is a need for the FIRS to place a lien on the bank accounts of
defaulting taxpayers to recover any outstanding taxes, the amount to be
attached should be in respect of only the undisputed tax liabilities.
Similarly, the Companies and Allied Matters Act,
Cap 20, Laws of the Federation of Nigeria, 2004, which empowers the CAC to
delist a company, has provided conditions that should be fulfilled before a
company is delisted. Non-compliance with tax obligations is not one of
such conditions. Therefore, it is imperative that any enforcement action
carried out by the relevant agencies is done in line with the provisions of the
relevant laws.
While the FIRS should consider the foregoing
comments, affected taxpayers should ensure full compliance with the provisions
of the tax laws in order to avoid unnecessary enforcement actions by the FIRS
that could disrupt their business.
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