Here Are Taxes You Are Obliged to Pay as SMEs

To Avoid Payment of Penalty and Interest pt1.

It is a fact and very true that so many owners and managers of micro, small, and medium enterprises do not know the types of taxes they are obliged to pay, when to pay, and how to pay them. This is making these business owners and managers run afoul of the law and tax regulations thereby resulting in the payment of huge penalties and back duty assessment (i.e. taxes not paid in previous years up to six years).

It is in the light of this we want to enlighten these business owners and managers as to what tax to pay when to pay it, and how to pay it.

1. Companies Income Tax (CIT): All resident and non-resident companies incorporated in Nigeria are to pay company income tax. This is following the provisions of the Companies Income Tax Act. The tax authority empowered to administer the Company Income Tax in Nigeria is the Federal Inland Revenue Service (FIRS). This tax is paid once a year to the designated FIRS bank and you are to pay it the latest by six months after your year-end.  For instance, if your accounting year-end is December 31 of every year, you are expected to make payment by filing your company income tax returns by June 31 of the following year. Filing your company income tax returns means submission of your audited financial statement, tax computation, self-assessment form, and evidence of payment to the FIRS office where your file is domiciled (or where you registered your company). Before filing the company income tax returns, the law expects the company to have invited their external auditor to examine their books and come up with the audited financial statement which will be used by the auditor or tax consultant to compute the Company Income Tax Liability.  The statutory audit exercise will bring out two essential documents needed to make payment and file the returns. They are the Audited Financial Statement and Tax Computation Sheet.

   Before the enactment of Finance Bill 2020, all companies regardless of size are assessed to tax at the rate of 30%. But the Finance Bill has categorized companies into three with varied rates according to turnover thus:

   Turnover	Company Income Tax Rates
   < N25m	0%
   N25m  –  N100m	20%
   >N100m	30%

   The Finance Act provides that companies with a turnover of less than N25 million are not to pay Company Income Tax, but they are expected to file their company income tax returns.

   Failure to file a Company Income Tax return attracts a penalty of N25,000 for the first month and N5,000 for each subsequent month of default. While the late payment of company income tax attracts a 10% penalty and interest at the commercial rate.

2. Value Added Tax (VAT):  Value Added Tax is a consumption tax on a certain category of goods and services as laid down by the Value Added Tax Act. In other words, it is a tax paid by any person or individual, corporation, enterprise, or organizations who consume or buy any taxable product or service as stated in the Act.
   There are some goods and services that are exempted from Value Added Tax by the Act. The Federal Inland Revenue Service administers the Value Added Tax Act. An entity whether a limited liability company or an enterprise that deals in goods and services that are vatable becomes an agent for collection and remittance of value-added tax on registration with the Federal Inland Revenue Service.  This placed responsibility for rendering monthly returns on such an organization. Finance Act 2019 exempts firms or companies with less than N25m turnover from charging VAT on their goods and services and also filing monthly returns.VAT returns involve the submission of a VAT form which shows the output VAT collected and input VAT paid together with the net amount and other adjustments. It is the net amount that is remittable. The e-ticket from the bank as evidence of payment to the designated bank by FIRS must be attached to the form.VAT monthly returns are required to be filed no later than the 21^st day following the month of the transaction. Failure to file monthly VAT returns attracts a penalty of N5,000 for every month in which the failure to make returns continues.Before February 1, 2020, the value-added tax rate was 5%, however, with the enactment of the Finance Act 2019, the rate is now 7.5%

3. Personal Income Tax (PIT): Personal Income Tax is imposed on individuals, communities, families, executors, and trustees. The personal income tax in Nigeria is administered by each State Internal Revenue Service (formerly Board of Internal Revenue) under the Personal Income Tax Act. Personal Income Tax concerning individuals can be categorized into:
   • Direct Assessment of Self-employed Persons: Everyone working for him/herself is obliged under the Personal Income Tax Act to pay his/her income tax once a year and also file his/her income tax return on or before March 31 following the year the income was earned.
   • Pay As You Earn for employees. It is the responsibility of the employer to deduct and remit employees’ personal income tax every month. This must be remitted on or before the 10^th of the following month. It is paid to the designated bank of the State Internal Revenue Service.

   Apart from this, the employer also has the responsibility to render an Employee Income Tax Return on or before January 31 of the following year. Failure to do this attracts a penalty of N500,000 for a limited liability company and N50,000 for an enterprise

4. Withholding Tax (WHT): Withholding Tax is an advance payment of tax-deductible at source on specified transactions. It is usually applied against the income tax or refunded to the taxpayer where there is more than the income tax. Withholding Tax is governed by relevant provisions in CITA, PITA, PPTA, and Withholding Tax regulations.
   Withholding Tax is administered both by the Federal Inland Revenue Service (FIRS) and State Internal Revenue Services (SIRS). The FIRS administers the withholding tax deducted from incorporated entities while the SIRS administers the ones deducted from unincorporated entities like individuals, enterprises, non-profit making organizations, and others. These are the items on which Withholding Tax is applicable responsibilities for deductions and remittances of withholding taxes rest with companies and organizations or establishments that operate Pay As You Earn. The return for withholding tax should include the schedule of vendors’ Tax Identification Numbers, names and addresses, type of contract, rates applied, amounts, and evidence of payment. Withholding Taxes deducted from limited liability companies are to be remitted to the Federal Inland Revenue Service (FIRS) within 21 days after the duty to deduct arose. Withholding tax deducted from individuals, enterprises, and non-profit making organizations are to be remitted to the State Internal Revenue Service (SIRS) within 30 days after the duty to deduct withholding tax arose.Failure to remit withholding tax due to FIRS attracts a penalty of 10% per annum and interest at the CBN lending rate. While SIRS, attracts a penalty of 10% of tax due, in addition to the principal tax and interest at the CBN monetary policy rate.

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