Understanding residents’ obligation in tax fee

Over the years, many taxable individuals have been unable to properly pay their tax which has had a pass through effect on tax revenue. In this piece, BENJAMIN UMUTEME, enlightens tax payers on what they need to know as they pay their taxes.

Experts have said that tax is to a country what oxygen is to an individual. Without it, many nations would not survive. For that reason, countries across the globe ensure that its citizens pay their taxes.

Taxes help foster economic growth and development. Governments need sustainable sources of funding for social programs and public investments. Programs providing health, education, infrastructure and other services are important to achieve the common goal of a prosperous, functional and orderly society.

What in itself is tax? Tax is a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions.

In Nigeria, we see that in various forms such as the Pay As You Earn (PAYE), Company Income Tax (CIT), Value Added Tax (VAT), Capital Gains Tax, amongst others.

Taxpayers’ Obligations

If it is expedient for the government to judiciously use tax revenue to develop the country, it equally behooves citizens to pay their tax in the right and proper way.

Taxpayers’ obligation requires that they are morally or legally bound to pay their tax without needing anybody to remind them or be prompted as the government through the Federal Inland Revenue Service has had to do in time past.

By virtue of the Nigerian tax law, a taxpayer in the country is under obligation to register and obtain a Tax Identification Number (TIN). The process involves obtaining an application form from the nearest FIRS Tax Office close to the registered business address or from the Taxpromax solution on the FIRS website. 

It is important to note that bothregistration process and the TIN itself are free, there is no ground whatsoever to pay money to anybody before a taxpayer can be registered on the tax net   

For any tax payer, voluntary disclosure is critical, 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.

Also, a taxpayer is expected to maintain business record and proper books of account to facilitate voluntary compliance.

In addition, a taxpayer is expected to complete and sign tax returns. This means that all Tax Return Forms should be duly completed and signed by the taxpayer even in a case where a tax agent/consultant has been engaged by a taxpayer for the purpose of filing tax returns.

I must understand that in case a tax return is filed by an individual, the form must be signed by the taxpayer in person. And 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.

Furthermore, filing Tax Returns to FIRS and accompanying filing with 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’ houses using the Taxpromax Platform. This is done on or before the due date for the payment of the tax.

Rights of Taxpayers

Taxpayers are the most important stakeholders in the Nigerian tax system and that is why the FIRS call them KING. The taxpayers has rights which includes: The right to be informed, assisted, and heard; The right to be given Taxpayer Identification Number (TIN) which is free; The right to object to a tax assessment that is not in agreement with its business activities as provided in the tax law

Others have the right to appeal against the decision of the tax authority. It is important that 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.

The right to pay the correct amount of tax: The Taxpayers are not to pay more tax than is required by the tax laws and their incomes; The right to certainty requires that the amount of tax, when to pay, where to file tax returns and consequences of failure to comply should be certain to taxpayers; and he 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.

Tax obligations of NGOs

Most Nigerians are of the belief that Nongovernmental organisations are not under any obligation to pay taxes.

In the first place, what is an NGO? Maybe a better understanding of what an NGO is will suffix.  

An NGO is 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 object of advancing a given public good and not to carry on business for the purpose of making profits for distribution to their members.  

NGOs include organisations, institutions and companies engaged in ecclesiastical, charitable, benevolent, literary, scientific, social, cultural, sporting or educational activities of a public character. In addition, any organisation registered under any law within the Federation as a co-operative society is accorded similar treatment as an NGO.

Registering with FIRS for tax purposes

It is expected that all NGOs should register with the FIRS for tax purposes and obtain a unique Taxpayer Identification Number (TIN).

However, before that can be done, they are required to have the following documents; A copy of registration certificate issued by Corporate Affairs Commission (CAC) in Nigeria or other instruments of incorporation issued to the foreign NGO (or copy of approval exempting it from incorporation in Nigeria): Certified True Copy (CTC) of Memorandum and Articles of Association; Constitution or Rules and Regulations governing the NGO; List and Profiles of the Trustees/Board Members nominated; and Other relevant documents (to be specified at registration point, if any). 

With these in their possession, they can proceed to the tax body.

Reliefs, obligations under Companies Income Tax Act 

The NGOs should note the following as their obligations under the Companies Income Tax Act (CITA), Cap. C21, LFN 2004 (as amended): 

Filing of Returns  

In line with Section 55(1) of 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; Such particulars as may be required in such form for the purpose of the Act with respect to such profits, allowances, reliefs, deductions required;  A declaration to be signed by a trustee, director, secretary, or any authorised person of the organisation that the information contained in the return is “true and correct”, and The period for filing returns shall be as 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.

Liability to Companies Income Tax 

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 released from launchings, etc. However, 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 the same to the relevant tax authorities in the currency of transaction.