WHY FIRS (OR FEDERAL INLAND REVENUES SERVICE) FREEZES THE BANK ACCOUNTS OF SOME COMPANIES IN NIGERIA
By Anayo M. Nwosu
Some business men especially big time traders and those in logistics or clearing and forward agencies have complained that Federal Inland Revenues Service (FIRS) had frozen their bank accounts for unknown reasons. No, the reason is known. It is because the companies which are limited liability companies have not paid tax at all or have not paid enough tax.
In Nigeria, the Corporate Income tax rate is a tax collected from companies. Its amount is based on the net income companies obtain while exercising their business activity, normally during one business year. Revenues from the Corporate Tax Rate are an important source of income for the government of Nigeria.
Every registered company in Nigeria by law must pay company tax to FIRS and the tax rate is currently 30% of your profit before tax which must be paid every year. FIRS also collects VAT or value added tax which is calculated as 5% of total sales made or services rendered by a company or an enterprise.
FIRS has many ways of finding out that you have not paid taxes apart from storming your offices and conducting investigations by examining your financial books. Incidentally the storming of tax defaulters' premises used to be efficient until business people started using residential building or unmarked apartments for business.
Now, FIRS has devised a way to catch tax evaders. And the most effective way is to attack where they keep their money that's -their bank accounts.
When your account is clamped or frozen by the FIRS then you will be forced to report to their office for discussion and pay the tax before your account is unfrozen.
Recall that no bank is allowed by law to open new bank account for any company in Nigeria without a tax identication number (TIN) issued by the tax authorities. When linked to the company's registration number, the Bank Verification Numbers (BVN) and National Identity Number (NIN), no tax payer can hide any longer.
With the tagging or convergence of all the identifications numbers of companies and their owners, every citizen's buying, spending and paying patterns can be plotted and understood.
Do you know that tax authorities know the profit margins of all types of businesses in Nigeria and the maximum costs incurable in those businesses and therefore can project the amount tax each business can pay?
FIRS knows that most contractors make between 15-40% per supply. They know that a recharge card seller makes as little as 5% profit margin but does high volumes or turnover just like most fast moving consumer goods.
Do not wait for FIRS to clamp down on your bank accounts.
Engage an accountant albeit on a part-time basis to help you prepare your annual financial accounts with comprehensive details and submit same to the FIRS for assessment and payment of your annual tax.
Also ensure that you charge VAT from your clients and remit same promptly to the tax authorities.
Those in clearing and forwarding agency business as well as in logistics should engage the FIRS to understand that the huge turnovers in their bank account's statements are not sales but payments by their principals to clear or supply goods or move goes for them. This can only be better explained to them by a chartered tax accountant or a finance person experienced in tax matters. There are many tax consultants that can help you engage the tax authorities.
The rate at which personal and company identification information are converging, there is little or no hiding place for tax evaders especially those trading under limited liability companies. Hiding by not using sign boards or removing your business address from your product labels don't work anymore.
On a light mode, I suspect that the all important herdsmen that gloat around have not yet beem fully captured in this category. FIRS should be encouraged to make them pay tax.
The Nigeria law allows FIRS to access and view the turnover and balances of all bank accounts in Nigeria. They can now use the tax identification number or BVN to ascertain how much tax you have paid and compare same to your account turnover. How can someone with annual turnover as high as ₦100mn pay ₦30,000 as tax?
You can now see that wahala dey?
Following "go back to your state" warnings by some anti-progressive and tribe preservative forces, some business people have started abandoning the use of limited liability companies. They now use their personal names or Sole Proprietorship names to carry out their businesses and operate their bank accounts.
Some aggrieved tax payers in Lagos are changing their contact and residential addresses to their states of origin.
The implication is that they are now liable to pay income tax or pay as you earn tax (PAYE) to their own states of origin. Proof of residence as the basis of where to pay PAYE is neither here not there. They would have to contend with Land Use or Business Premises Charges in Lagos.
Seriously speaking, if your business is a small or medium enterprise whereas you don't intend to truly invite others to invest in your business, why operate with as limited liability company?
Why not register an Enterprise and manage your tax liabilities better?
I reckon that the major aim of trading with a limited liability name is to limit the liability or loss upon bankruptcy of your company in that only the assets or property owned by your company or are in the name of the failed company shall be used to settle the company's creditors while nobody touches those assets or property acquired using the names of the owners of the business.
Out of creativity, banks have protected themselves against the limitation of liabilities of debtor companies.
Banks ensure that the directors or owners of a borrowing company give their personal guarantees to any loan borrowed using their limited liability companies so that when the companies fail to pay, the banks will go after the personal assets of the owners of the failed company.
An unpatrotic person may want to know the amount tax paid or contributed of each of those states whose high votes decide who rules in Nigeria.
Another unpatrotic person would ask the tax contributions of majority of the states of origin those appointed, elected or selected to manage the resources others regarded as 5% people majorly contribute.
In a restructured Nigeria, states will manage the taxes they generate and not to consume more than other states that generate more. Restructuring would force states to make their states more inviting for non indigenes to come and do business that will generate more tax income and employment that will generate more PAYE tax income.
Finally, in a restructured country, no state that doesn't consume alcohol would receive tax income generated from alcohol consumption as is the case now.
At that time, a state government will drastically clamp down on any group that rises to tell their internal or foreign investors and other tax paying residents "go away and leave our land!" This is because the economic consequences are dire.
Nigeria we hail thee!