blog-02-june-week1

It Pays To Pay Your Taxes

In the bid to deal with the effects of dwindling income, stakeholders in the government and tax industry have encouraged efforts to promote tax compliance in the country. From the 2015 global ranking of “Ease of paying taxes”, Nigeria’s position as the 3rd most difficult economy shows why the country is not earning as much […]

In the bid to deal with the effects of dwindling income, stakeholders in the government and tax industry have encouraged efforts to promote tax compliance in the country. From the 2015 global ranking of “Ease of paying taxes”, Nigeria’s position as the 3rd most difficult economy shows why the country is not earning as much as it should. However, efforts are being made to make it a more conducive system in order to get people to comply. There are also pointers to a more aggressive pursuit of tax remittance this year as the Executive Chairman of FIRS has voiced a desire to see a sharp increase in the revenue generated as evident in the target given for this year.

Therefore, it is important as entrepreneurs to understand the tax compliance requirements and avoid violating the law. Ignorance is no longer an excuse, so you should ensure you keep abreast of tax developments and comply as effectively as possible.

What does it mean to be tax compliant? It simply means making tax payments and submitting the necessary information to tax authorities in a timely and required format. The FIRS defines it as “Obeying the provisions of Tax laws willingly without being forced; Registering yourself, enterprise, company, Non- Governmental Organization with the tax authority; Keeping proper records, preparing tax returns, filing and payment of taxes.”

SME’s are required to pay a number of taxes which are classified under Federal or State depending on the sector they operate in.   These taxes are:

Any business registered as a company and doing business in Nigeria is liable to pay the Companies Income Tax (CIT) while enterprises, partnerships, Ventures are liable to pay the Personal Income Tax (PIT). There are 2 forms of taxes administered under the PIT namely- PAYE (Pay-As-You-Earn) taxes from employment (employees) and Taxes from self-employed persons.

Why You Should Pay Your Taxes

  • It promotes a culture of patriotism and social responsibility
  • It provides a means of sustainable finance and funding for national development through the provision of basic infrastructure such as roads, schools, hospitals etc.
  • It gives you the moral and legal right to demand for a culture of accountability
  • It serves as a gauge for measuring the level, growth and health of economic units and activities
  • As a business, it enables you obtain Tax Clearance Certificates when required as in the cases of bidding for contracts, application for government loans etc.
  • You get to avoid the consequences and penalties of non-compliance

Steps To Ensure Tax Compliance

  • Registration with the appropriate tax authority (Federal Inland Revenue Service or State Inland Revenue Service).
  • Obtaining your TIN. As a business, TIN is very important. The TIN is a unique number issued by the Tax authority and used to identify every taxpayer. It is used for every transaction with the tax authority and also a requirement for opening an account with any bank in Nigeria. The TIN is only issued when the relevant documents have been presented to the tax authority. TIN is issued free of charge.
  • Obtain the due dates and required taxation information from the authorities such as filing of tax returns and payments
  • Integrate good bookkeeping records. This is required by the tax laws and helps you to prepare tax returns correctly
  • You can engage tax consultants to guide you. Also attend tax management trainings/seminars to help you understand more.

The Documents Required for TIN to be issued are:

  • Duly completed Application Form
  • Certificate of Incorporation or Business Name Registration
  • Memorandum and Article of Association
  • Documents that contain the following information:Registered address of the company/enterprise, Principal location of business, Date of commencement and Accounting year end of the business, Name of bankers, auditors and tax consultants
  • Valid email address and telephone number

For a more comprehensive understanding of taxation and compliance requirements for SME’S, visit the FIRS and LIRS website. You can also watch the video lecture below.