October 24, 2023
In Nigeria, as in most developing or developed nations, taxation is a vital source of revenue for all levels of government. Taxpayers are obligated to comply with the provisions of the applicable laws in relation to computations, filings and payment of tax; while the tax authorities are charged with the administration of Local Government, State and Federal taxes. The manner by which taxes are administered has a direct impact on the business operations of taxpayers. Hence, over the years, taxpayers have clamored for better tax administration processes by addressing challenges encountered in order to ease compliance. For taxpayers, it is essential that tax authorities address these challenges and concerns if there is to be a mutually beneficial relationship.
Thankfully, the newly appointed Executive Chairman of the Federal Inland Revenue Service (FIRS) has hit the ground running as evidenced from the FIRS’ recent public notices on compliance exercises, operational tours etc. The general expectation is that the FIRS under his watch, would also focus on ensuring that tax compliance processes are efficient and seamless for taxpayers and that this attitude will cascade down to the State and Local Government revenue authorities. This article therefore outlines some issues and challenges in the tax administration processes of the FIRS as typically experienced by taxpayers and suggests solutions for a better taxpayer experience.
The general characteristics of a good tax system include equity, transparency, convenience, simplicity and administrative ease. These drive the ease of compliance by taxpayers and ensures minimal cost of collection and administration for the government. It is arguable that the Nigerian tax system fails to meet some of these characteristics as taxpayers experience various challenges in the course of compliance. We have highlighted below, a few of the challenges relating to compliance with federal taxes.
The TaxPro Max platform is a tax administration solution, launched by the FIRS in June 2021 to simplify tax compliance and digitalize federal tax process in Nigeria. Its introduction has been generally acknowledged as being a step in the right direction, however, there are still difficulties (such as technical glitches, system downtime, slow loading/ processing times etc.) in navigating the platform for filing and making payments, leading to delays which often result in penalties, once the deadline for filing has passed even when it is due to no fault on the part of the taxpayer.
Whilst the TaxPro Max platform provides digitalization of filing and payment process, the platform does not have sufficient user-friendly interface that will enable users to correct input errors. In addition, there are instances where incorrect assessments (which inhibit the processing of tax clearance certificates), arising from non-recognition of tax remittances, automatic computation of capital allowances which may not align with the amount claimable, etc., are shown on taxpayer’s profile on the platform. Taxpayers are expected to report these to the FIRS for correction to be effected back-end. However, corrections are not timely and direct assistance from designated tax officials may not be readily available, due to the large number of request and shortage of technical staff to address the issues.
There are various Tax Offices and Coordinating Departments within the FIRS. The Tax Offices, which are located across the entire country, serve as the control/oversight hub for taxpayers within their respective jurisdictions. The Coordinating Departments meanwhile, have specific functions and are generally focused on monitoring/ensuring taxpayer’s compliance with specific obligations.
From our experience, there are instances where taxpayers receive multiple tax audit notifications concurrently, from various offices of the FIRS. The notifications typically cover audits for similar period or a previously audited period. Recently, the FIRS issued a public notice on the commencement of value added tax (VAT) and withholding tax (WHT) compliance monitoring exercise notwithstanding the fact that compliance with VAT and WHT are typically reviewed during routine tax audits conducted by the Tax Audit Department.
Furthermore, there are instances where an application for a tax clearance certificate or the usual submission of annual tax returns by a taxpayer triggers what the FIRS refers to as ‘desk review’. These desk reviews could be as extensive as an audit (contrary to the initial concept of tax desk reviews) with several man hours spent to respond to the issues; yet during audit, the same issues will be reviewed again by the Tax Audit Department. This leads to inefficient use of the tax payers resources and most times distracts them from their core business activities and makes the entire tax administration system cumbersome.