16 September 2007

Nigeria: The New Tax Laws


Lagos — The recent amendment to the Federal Inland Revenue Service (FIRS) Act is bound to add fresh impetus to tax administration in Nigeria where taxation is still seen by many citizens as a distant obligation unrelated to their wellbeing.

The new Act which establishes the FIRS as an autonomous agency was signed into law in April this year by former President Olusegun Obasanjo alongside amendment to two other tax related bills, namely an Act to amend the Company Income Tax Act and an Act to amend The Value Added Tax (VAT), all geared towards strengthening tax administration in the country.

One of the highlights of the new law is the provision that limits the period of tax refunds to three months. This is an improvement to the old system which did not specify time limit for tax refund of excess tax to payers. According to the Act, the Accountant - General of the Federation (AGF) is to open a dedicated account where such refund shall be held for auditing and eventual transfer to the beneficiaries.

We believe this development will undoubtedly encourage greater compliance to tax payment by businessmen and individuals. But it also imposes greater challenge on all stakeholders in tax administration. this calls for improved manpower and technical capacity on the part of the FIRS to meet its obligation to the taxpayers if the Service is to comply with the time limit. Individuals also need to take seriously the process of completing tax forms in order to provide officials of the FIRS with the requisite data for appropriate tax assessment.

But more fundamental is the stiff penalty for illegal production, issuance and use of tax certificate entrenched in the new Act. The criminalization of the use of fake documents for any transaction under the act will check the rampant production and use of fake tax clearance certificate (TCC) which is a handy tool for tax evaders, especially among private businessmen. Section 43 of the Act which deals with counterfeiting documents prescribes three years imprisonment or a fine of N200, 000 or both for any offender.

Enforcement is crucial to the efficacy of any legislation and the new law is no excemption. However, the removal of the power to issue search warrants and seizure warrants from the Chairman of the FIRS is likely to slow down enforcement process given the usual slow pace of the judicial process in Nigeria. The new law vests this authority on a judicial officer, who could be the Chief Justice of the Federation, the President of the Court of Appeal, Chief Judge of the Federal High Court, Grand Khadi or Khadi of the Sharia Court of Appeal of the Federal capital Territory or of a state and the President or judge of the Customary Court of Appeal or of a state. This is a cumbersome inclusion which will hinder expeditious prosecution of tax defaulters.

Ancillary to the new laws is the debate on the propriety of state governments using tax consultants for tax drive which was brought to the front burner at the 117th meeting of the Joint Tax Board by the boss of the FIRS, Ms Ifueko Omoigui. One of the aberrations of the military's adventure on governance, it has become the norm among many states of the federation. But Omoigui's revelation that consultants are taking over the functions of tax officers, which includes tax assessment, collection and accounting of taxes is quite disturbing. More startling is the fact that these consultants retain as much as 40 percent of taxes collected.

This is conceptually wrong and it brings distortion into the system. Taxation is the authority of the state defined by law. The implementation must be according to the law. The Taxes and Levies Act of 1998 confers the powers to assess and collect taxes on the State Board of Internal Revenue (SBIR). The use of consultants for tax assessment and collection is thus clearly illegal.

We urge states still involved in this practice to desist from it. Indeed the challenge before the states is to upgrade their tax collection machinery to effectively cope with the demands of effective tax administration.

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