TAX EVASION – TIPS OF TAXES IN NIGERIA

Business owners, service providers, individuals, companies, partnership and various organizations are subject to tax payment. No one can escape from the tax of the country. To support this, there is an interesting statement mentioned by Benjamin Franklin “nothing is certain except death and taxes”. This statement confirmed that every citizen should be subjected to the law of tax, and they are obliged to pay the tax from their income. To build large dams, constructing transportation infrastructures, and providing quality social services for the community, will be made possible by collection of taxes from

Tax can be categorized as either direct or indirect tax, direct taxes are collected from the profit of the companies and the incomes of individuals while indirect taxes are collected from the profit of the companies and the incomes of individuals while indirect taxes are taxes collected from consumers such as value added tax

social system of the country.
Tax evasion is done intentionally by taxpayers. It involves avoiding payment of taxes and hiding different documents from the tax collection authorities. it is an illegal act. It involves avoiding payment of tax at all or reducing the true amount of tax to be paid. Tax evasion is a criminal offence that distorts the the overall economy, political and
social system of the country.

Reasons for Tax Evasion

The following are some of the reasons for evading tax in Nigeria;

 Lack of knowledge of civic responsibility by the citizens
Many citizens are unaware of the constitutional obligation that they must pay tax. It is caused by little or no tax education or no creation of awareness by the tax authorities.

 Deliberate act by tax payers
Sometimes individual and companies fail to remit taxes that have been deducted to tax authorities.

 Mismanagement of public fund
Tax payers refuse to pay as a result of corruption and magnitude of mismanagement of public funds within the country.

Consequences of tax evasion
Tax evasion is a criminal offence in which one can be fined or imprisoned or both. In Nigeria, tax evasion is punishable under Section 40 of Federal Inland Revenue Service Act. In addition to this, it is also a criminal offence under Section 41 of the Act to hinder or assault any authorised tax officer in the performance of his duties.
Tax rates and penalties Company Income Tax
 Companies with annual gross turnovers of N25m or less are regarded as small companies and as such are exempted from Company Income Tax.
 Medium-sized companies are companies with gross annual turnovers greater than N25m but less than N100 million , tax rate is 20%.
 Large companies are Companies with annual gross turnovers higher than N100m, tax rate is 30%

A company’s return must be filed within 6 months of the company’s accounting year end. A new company’s return must be filed within 18 months from the date of incorporation or 6 months after the end of its first accounting period, whichever is earlier.

Late filing of tax returns attracts a penalty of ₦25,000 for the first month in which the failure occurs and ₦5,000 for each subsequent month in which the failure continues. The officer of the company responsible for this may be liable to a fine of
₦100,000 or 2 years imprisonment or both.

Companies are expected to make payment of tax due on or before the due date of filing in one lump sum or in instalment. As regards instalments, the taxpayer is expected to write, with evidence of the first instalment and obtain the approval of the revenue authority before making such instalment payments and the final instalments must be paid on or before the due date of filing.

Value Added Tax (VAT)

 The rate for VAT is 7.5% of the value of goods and services

Penalty for failure to collect VAT is 150% of the amount not collected, plus 5% interest. Penalty for failure to file VAT returns is N5,000 for every month in which non filing occurs.

Withholding tax (WHT)

Below are the different withholding tax rates

Types of payment WHT for companies (%) WHT for individuals (%)

Dividends, interest, and rents 10 10
Directors fees N/A 10
Hire of equipment 10 10
Royalties 10 5

Commission, consultancy, technical, service fees

10 5

Management fees 10 5
Construction (roads, buildings, and bridges) 2.5 5
Contracts other than sales in the ordinary
course of business 5 5

WHT must be filed within 21 days after the duty to deduct arose for deductions from companies or individuals. The penalty for failure to deduct or remit tax is 10% of the amount not deducted/remitted.

Conclusion

Irrespective of the reasons for tax evasion, business owners, service providers, individuals, companies, partnership and various organizations can be penalised for tax evasion. A company can be free from the above penalties by promptly paying its taxes. This can be done by outsourcing the tax services to an expert who has years of experience in dealing with tax matters in order to avoid wrong computation of these taxes.