...as implementation begins
By AYOOLA OLAOLUWA
Bank depositors have besieged banks to withdraw their life savings as the new policy on tax, the Tax Identification Number, TIN, came into effect last week following its signing by President Muhammadu Buhari. ATM galleries and banking halls of most banks were quite business last week as depositors ensured that they were caught unaware.
In fact the insistence of the Accountant General of the Federation Mr. Ahmed Idris, that full implementation of the new Finanel Act will begin immediately.
There were conflicting signals from the government last week as the Minister of Finance, Mrs. Zainab Ahmed and the Idris held different positions on the implementation. While Ahmed said that the implementation will be begin after further discussion and selective, Idris insisted that the law has taken effect and will be implemented immediately. By weekend, the 7.5 percent VAT was already being implemented.
It would be recalled that the finance bill, which seeks an amendment of Nigeria’s tax laws, was presented by President Muhammadu Buhari alongside the 2020 Appropriation Bill to a joint session of the National Assembly on 8 October 2019; it was subsequently passed by both the Senate and the House of Representatives in December 2019.
According to Business Hallmark findings, the passed bill, which was signed last week by the president, specifically seeks to amend Nigeria’s tax provisions and make them more responsive to the tax policies of the Federal Government, among other things.
Some of the important changes in the Finance Act are: Excess dividend tax to apply only to untaxed distributions other than profits specifically exempted from tax and franked investment income; small businesses with turnover less than N25m to be exempted from Companies Income Tax; a lower CIT rate of 20% to apply to medium-sized companies with turnover between N25m and N100m; commencement and cessation rules modified to eliminate overlaps and gaps to avoid double taxation and complication during commencement and minimum tax provisions amended to 0.5% of turnover and exemption only applies to small companies (less than 25m turnover), so non-resident companies will now pay minimum tax.
Others are: Insurance companies can now carry forward tax losses indefinitely, deduct reserve for unexpired risks on time apportionment bases while special minimum tax for insurance has been abolished; bonus of 2% of tax payable (medium-sized companies) and 1% for large companies for early payment of CIT.
Any expense incurred to earn exempt income now specifically disallowed as a deduction against other taxable income; dividend distributed from petroleum profits now to attract 10% withholding tax; email correspondences to be recognised for communicating with tax authorities; introduction of VAT reverse charge on imported services; VAT increased from 5% to 7.5%; VAT registration threshold of N25 million turnover in a calendar year to be introduced. Remittance of VAT now to be on cash basis, that is, difference between output VAT collected and input VAT paid in the preceding month; stamp duty on bank transfer to apply only on amount from N10,000 and above and banks to request for Tax Identification Number (TIN) before opening business bank accounts for individuals, while existing account holders must provide their TIN to continue operating their accounts.
Meanwhile, in spite of the many amendments and provisions in the new bill, two of the amendment that appear to have caught the interest of many Nigerians are the provision that henceforth, individuals would be required to produce their Tax Identification Numbers (TINs) before they can operate new or existing bank accounts in Nigeria, as well as the rise in VAT from 5% to 7.5%.
While speaking in December 2019, the Minister of Finance, Mrs. Zainab Ahmed, said the bill when signed into law will take effect from the 2nd of Jan 2020. However, the controversy that trailed the passing of the bill had stalled its signing by the president. It was later signed into law despite some objections raised by some Nigerians against it.
BH learnt over the weekend that the Central Bank of Nigeria (CBN) might compel all commercial banks to implement the requirement for them to obtain tax identification number (TIN) from customers. Banks would be now required to obtain TIN from corporate customers as a pre-condition for opening or maintaining bank accounts.
Some Nigerians who spoke with our correspondent voiced the concern that their accounts could be frozen and eventually seized by the government if they failed to produce their TIN. While some said they will go ahead to obtain their TINs from their state internal revenue service, others disclosed that they might be forced to withdraw their funds from their banks before the hammer falls.
“Why would they do that? I am just a small time trader. What do they mean by TIN? They first came with BVN and now with TIN. They should just leave us alone to live our lives. Every day, I pay N500 to the agberos at the park where I trade. I pay security fees, pay local government council officials. At the end of the day, I hardly go home with N1, 500. And they still want to collect that from me”, lamented Mrs. Olabisi Adebolu, a trader at the Agege/Pen Cinema Motor Park.
BH also gathered that the Federal Inland Revenue Service (FIRS) will soon go after the bank accounts of defaulting taxpayers who are raking in billions in Nigeria and are not paying taxes.
According to FIRS, most of such taxpayers, who have between N1 and N5 billion in their accounts have no taxpayer identification number, TIN, and have not filed any tax returns as taxpayers. FIRS, through all banks in the country, will start doing substitution on accounts for such identified taxpayers.
FIRS however, clarified that banking turnover does not mean that is the turnover of a business.
“First of all, banking turnover simply means the money that has gone in and out of your account, and not the turnover of your business.
“But what the tax law says is that ‘If you do not file your returns and you are in constant default we use turnover as a basis of estimating your tax liability’. For example, if your turnover is N100 million we assume that 20% of that is profit and we tax that at30%”, FIRS stated in statement in December 2018 during the implementation opf the VAIDS tax exemption policy..
However, an economist and finance professional Mr. Yinka Ogunnubi, allayed the fears of Nigerians who are scared of the consequences of the new bill.
“TIN is a requirement of every taxable individual in Nigeria. A taxable individual is anyone that earns an income and/or is paid an income by an organization irrespective of age. This includes foreigners working in Nigeria as well.
“TIN doesn’t take away your tax relief or exemptions. It is just a confirmation of registration of the individual for tax purposes. The TIN only confirms that you are a registered tax payer in Nigeria, it is not a deduction of tax from source nor does it confer on you any accreditation that you have paid your tax,” he explained.
Speaking on how the implementation of the new Act will affect Nigerians, Ogunnubi said there is the likelihood that banks will start asking customers to provide their TIN from the date the law comes into effect.
“This has the potential of disrupting the normal flow of business activities as we can imagine that bank ATM cards of those who have not compiled will not work and withdrawals or deposits can’t be made.
“In other not to shut down the system, there’s likely to be a grace period that will be given to allow individuals to obtain the TIN. How long this grace period would be is any one’s guess.
“But if you have a bank account, it is important that you pay attention and ensure you are ready and not caught off-guard. It must however be stated that this will not be an issue for Corporate Accounts because the provision of TIN is already a mandatory requirement for operating Corporate Accounts”, he said.
He allayed the fears of employees and consultants, explaining that employees of organizations that remit PAYE already have some form of tax identification from the State Internal Revenue Service.
On consultants, he said: “If you are a consultant and you have done business with government or any organization where WHT (withholding tax) was deducted, then it means you must have at some point provided a TIN because the system now is automated. What they should do is to make efforts to verify their number to be sure it is still valid”, Ogunnubi said.
He however advised Nigerians that are self-employed or live in the diaspora to immediately obtain their TIN as they will still be required to obtain it.
Meanwhile, contrary to fears by some customers that failure to TINs would result in automatic lost of the accounts and savings, they have been advised not to panic as they would not lose their savings and accounts with their banks.
One of the customer service representatives of a 1st-tier bank on Oba Ogunusi Road, Ojodu/Berger, Lagos, who would not want his name in print since he was not authorized to speak on it, assured customers that there was no need to panic.
According to him, no accounts will be blocked permanently, but customers might be denied access to their monies until they settle tax notices issued by appropriate tax authorities after the evaluation of their statements of account over a period of time.
He added that the government may react to criticisms by being selective in its implementation.
“Though, the government is expected to rake in billions from the expected tax income from average Nigerians, the real targets are the high net worth Nigerians who must convince tax agents that the tons of money that pass through their accounts are not incomes.
“That is where their headache will come from. For example, if someone buys a car valued at N56million for personal use and only paid N100, 000 as tax in a whole year, he has a lot to explain. There are properties that go for as much as N500m and a billion naira. And most are paid for in a one-off deal.
“To acquire state of the art automobiles or properties, you must deal in huge funds which are almost impossible to be done without going through a financial institution. One way or the other, it must pass through a financial institution.
“Tuition fees are also paid into banks accounts of schools now. No school worth its salt will collect cash. Some secondary schools in the country are charging as much as three million naira. So how do you explain paying several millions of naira in acquiring houses, automobiles, school fess and holidaying, abroad and only pay a token as tax to government”, the bank official asked.
“You can only escape if you pay bills through education insurance, mortgages and consumer loans. Even with that, you won’t get a loan except the risks assessment department is sure that you have ready flow of income to repay the loan. You must pay back at the end of the day, only that it would be staggered,” he noted.
Accounting firm, Deloitte & Touche Nigeria, formerly Akintola Williams Deloitte, commended the Act, noting that it is a welcome development in the tax landscape of Nigeria. The firm made its views known in a report: ‘Nigeria’s Finance Bill 2019- Key Changes and Implications’ made available to Business Hallmark in Lagos.
“It proposes provisions that have the capacity to boost the economy by stimulating the growth of small and medium scale enterprises and enticing foreign direct investment into Nigeria.
“Nonetheless, we urge stakeholders to be aware of the underlying challenges and procedures to counter such challenges.
“For example, tax authorities and relevant government parastatals may commence preparation of administrative notes, enlightenment guides, effective compliance aid and other implementation guides. The National Assembly should also include transitional provisions to aid movement from the old regime to the new one.
“Ultimately, the proposed amendment is a good step towards achieving the objectives of PEBEC with respect to paying taxes. The ‘GAME’s rules’ will change. Therefore, taxpayers cannot afford to be caught ‘offside’ in their tax planning and compliance efforts. As a matter of urgency, taxpayers are advised to evaluate how the Bill would impact their operations, review their tax compliance requirements and strategize for effective tax planning,” the firm noted in the report.