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Meeting the Tax Man

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“In this world nothing can be said to be certain, except death and taxes” – Benjamin Franklin.

 

By Asiata Atinuke Agboluaje

The above quote still rings true today as it did over 200 years ago when it was originally written, despite the expansiveness of tax provisions and increased enforcement initiatives. Considering the certainty of tax payment, the reality is that ease of compliance (covering time taken to comply, frequency of payment, number of taxes, waiting time, convenience and cost) contributes to how easy it is to do business in any economy.

The Nigerian government, committed to enhancing the country’s business environment and competitiveness, set up the Presidential Enabling Business Environment Council (PEBEC) in 2016. Led by the Vice President, PEBEC’s objectives are to reduce the time, procedures and cost for setting up and doing business in Nigeria, thus  improving the ease of doing business in Nigeria.

The contribution of an effective tax compliance framework to an improved business environment is recognised by the World Bank in its annual report (The Report) on ease of doing business, covering 190 economies including Nigeria, and focusing on certain key indicators which include “Ease of Paying Taxes”.

Over the past three years, Nigeria has fared arguably well under this indicator, moving up by 25 places. The 2019 DBI ranking on paying taxes indicates that it is now easier to pay taxes in Nigeria than it is in at least 33 other countries/territories in the world, as opposed to just 8 countries in 2017.

 

Ease of paying taxes 2017 2018 2019
Global ranking 182/190 171/190 157/190
Ranking in Sub-Saharan Africa 42/48 35/48 28/48

Source: 2019 World Bank Ease of Doing Business report

 

Nigeria’s improved ranking in paying taxes is attributable to, amongst other things, reforms pushed by PEBEC, aimed primarily at simplifying tax payment, tax compliance and tax administration in Nigeria by leveraging technology. These reforms were implemented in collaboration with tax authorities such as Federal Inland Revenue Service (FIRS) and the Internal Revenue Service of some states. Key highlights of the reforms are set out below:

 

 

  • Automatic creation of Tax Identification Number (TIN) upon incorporation of companies

 

All Nigerian companies are required to register for taxes and obtain a unique TIN. PEBEC’s reform on ease of setting up businesses resulted in a collaboration between the Corporate Affairs Commission and Federal Inland Revenue Service. With this collaboration, newly incorporated companies are automatically registered for taxes, doing away with the erstwhile manual process.

Automatic generation of TIN improves the timeliness of obtaining other permits as TIN is usually a prerequisite for opening bank accounts to ease the ability to inflow capital and commence business, as well as for compliance with other tax obligations such as Value Added Tax, with the attendant probability of increased tax revenue.

 

 

  • E-filing platforms and the simplified interface

 

Online platforms have been introduced for rendering a number of electronic tax services, which were hitherto completed via manual processes. This is coupled with a simplified schedule dealing with various tax types.

With the introduction of the electronic services, taxpayers can now register for taxes, make tax payments (covering all tax types), file tax returns, generate tax receipts and obtain tax clearance certificates (TCC) electronically, from the comfort of their  offices, without having to be physically present at tax offices.

This has reduced the stress hitherto associated with the manual nature of tax compliance. It has increased the speed with which tax can be administered, while reducing the cost as well. Another inherent benefit in this reform is the increased transparency, which has the propensity to enhance the culture of voluntary compliance amongst taxpayers.

 

 

  • Regular stakeholder engagement

 

Recognising that feedback and stakeholder engagement are two of the most impactful tools in achieving set goals, PEBEC organises regular sessions to engage key stakeholders – taxpayers and tax advisers. This is in a bid to communicate reforms, monitor progress and measure performance on ease of paying taxes. These sessions have helped PEBEC obtain first-hand feedback from taxpayers on progress recorded with relevant aspects, as well as in identify areas of improvement.

 

 

  • Recommended timelines for completion of corporate income tax (CIT) audit

 

Tax audit exercises are routine checks on taxpayers’ records to ascertain the level of tax compliance. PEBEC, taking cognizance of the fact that tax audit is one of the most protracted processes in the tax payment/compliance ecosystem, recommends an average time for completion of CIT audit – 63 days.

Notably, one of the key drivers for achieving this timeline is taxpayers’ co-operation and tax authorities’ selection process. Essentially, closure of tax audit depends largely on many human factors ranging from timeliness of document provision by taxpayers to tax authority’s review process and reconciliation meetings. Thus, PEBEC’s recommended timeline may not be achieved in practice – at least not at the present.

Nonetheless, the timeline sets a benchmark that taxpayers may work towards and hold tax authorities to – subject to resolution of the other human factors noted above. It is expected that the efficiency of the automated tax payment and compliance system would impact on the audit process too with attendant simplification, to shorten the timeline from commencement to conclusion.

 

 

  • Private sector assistance

PEBEC also recognises that continuous stakeholder engagement and assistance from the private sector would go a long way in achieving the objective of a better tax payment and compliance culture in Nigeria, thus it reaches out to stakeholders for assistance. Deloitte, one of the foremost full breadth professional services firms in Nigeria has consistently provided support to PEBEC in different capacities, ranging from human resources to ideas generation and feedback on implementation support for PEBEC’s ultimate objective. Feedback on counter-productive provisions of existing laws, advisory on setting up an adherence framework to the creed of the National Tax Policy, as well as recommendations to combat harmful tax practices inherent in the tax system have also been offered.  All these are geared towards working in collaboration to ease the business environment for local and international investors doing business in Nigeria.

 

The above initiatives underscore PEBEC’s efforts towards driving ease of paying taxes and ultimately doing business in Nigeria. However, Nigeria’s position as the 28th out of 48 Sub-Saharan African countries covered in the Report (2019) on Ease of Paying Taxes shows, as with anything in life, that there is room for improvement. There is a need for continuous and concerted efforts to improve on the implementation of the initiatives, and to ensure sustainability based on feedback received at the stakeholder engagement sessions. Some of these may include an e-platform enhancement for an improved taxpayer experience, simplified audit selection procedures, and adopting a risk-based approach to tax audit exercises.

 

Editor’s Note: This article was originally published in The Spark Magazine. Find the magazine here to read other articles.

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