As the January 31 deadline for filing annual corporate tax returns approaches, tax compliance remains a top priority for employers in Lagos State. To shed light on the legal framework and operational strategies guiding this process, Taofeek Oyedokun engaged with Seyi Alade, Director of Legal Services at the Lagos Inland Revenue Service (LIRS). In this exclusive interview, Alade discussed the legal framework under the Personal Income Tax Act (PITA), LIRS’s compliance strategies, and penalties for non-compliance, while highlighting support systems available to taxpayers and the agency’s enforcement role in ensuring tax compliance across Lagos State. Excerpts:
What legal provisions govern the filing of annual tax returns by employers?
It is principally stated in section 81(2) of the Personal Income Tax Act that every employer is obliged to file a return with the relevant tax authority of all emoluments paid to its employees not later than the 31st of January in respect of the employees in its employment in the preceding year.
How does LIRS ensure compliance?
Issuing public notices and jingles to employers and all taxable individuals about the filing deadlines and requirements to file their returns Enlightening and sensitising all employers to file their returns, providing an electronic platform (e-tax) to simplify the filing process and ensure timely filing of annual returns. Taking enforcement actions against non-compliant employers by prosecuting them in court in accordance with its powers to prosecute under section 94 of PITA.
Can you outline the specific legal obligations employers must fulfil under the Personal Income Tax (Amendment) Act?
Registration with relevant tax authority: According to paragraph 1 of the Operation of Pay As You Earn (PAYE) Regulation of PITA, an employer is required to register with the relevant tax authority with or without notification by the tax authority for the purposes of deducting and remitting the taxes of his employees, and an employer who fails to do this faces penal consequences for such; paragraph 2(1) of the Operation of Pay As You Earn (PAYE) Regulation of PITA provides that such an employer commits an offence and is liable to prosecution and conviction in addition to the payment of arrears of the tax due.
Deduction and remittance of tax from emoluments: Sections 81(1) and 82 of PITA lay the background for the obligation of the employer to deduct taxes from the emoluments of employees. It is pursuant to the above section that paragraph 2 of the Operation of Pay As You Earn (PAYE) Regulation of PITA provides that an employer is obligated to deduct tax from the emoluments of his employees within six months of commencing a business. In paragraph 7 of the Operation of Pay As You Earn (PAYE) Regulation of PITA, an employer is required to remit all tax deducted under the regulation within ten days at the end of every month.
Recording of deductions: Pursuant to paragraph 3 of the Operation of Pay As You Earn (PAYE) Regulation of PITA, an employer is obliged to record either on the tax deduction card or in other form as authorised by the relevant tax authority certain particulars regarding the emoluments of his employees.
Filing of returns: As provided by section 81(2) of PITA, an employer is obligated to file a return with the relevant tax authority not later than the 31st of January of every year in respect of all employees in its employment in the preceding year.
What are the required documents for filing annual returns, and how do you ensure employers provide accurate and complete information?
Form H1: The annual return form detailing all emoluments paid to employees and the PAYE tax deducted and remitted.
Payroll records: Comprehensive records of all employees’ salaries, wages, bonuses, and other forms of remuneration.
Tax Identification Numbers (TINs): Valid TINs for all employees.
“When an employer fails to file an annual return as prescribed by section 81(2) of PITA and section 10 of the Operation of Pay As You Earn (PAYE) Regulation of PITA, they are consequently liable to a prosecution and to a monetary penalty upon conviction.”
Statutory deduction records: Documentation of statutory deductions, such as pension contributions and employee compensation schemes.
Financial statements: Audited financial statements and management accounts.
Bank statements: Statements showing the remittance of PAYE taxes to LIRS.
How do you ensure employers provide accurate and complete information?
By verifying payroll records and cross-checking them against Form H1 and PAYE remittance receipts to ensure consistency. This has been a culture of LIRS, as all the information provided is always verified monthly and during tax audit exercises:
-Making submission of supporting documents mandatory, such as receipts, audited financial statements (AFS), and employee details, when filing their annual returns.
-Continuous desk and external audits and investigative audits when the occasion requires.
-Imposing penalties for false information and enforcing sanctions for deliberate submission of inaccurate or incomplete returns as stipulated in Section 95 of PITA.
-Educating employers on the legal and financial consequences of submitting false or incomplete returns through public awareness campaigns.
How does the Legal Services Unit ensure alignment with tax-related provisions in the Companies and Allied Matters Act 2020?
Enforcement of filing obligations:
Under Sections 417–424 of CAMA 2020, companies must file annual returns with the Corporate Affairs Commission (CAC), including financial statements that disclose taxable income and other relevant data.
The legal department can ensure that returns filed by employer companies under CAMA align with relevant provisions of tax laws such as the Personal Income Tax Act (PITA).
Monitoring corporate restructuring and transactions:
CAMA governs company restructuring, mergers, acquisitions, and liquidations. The legal department ensures the settling of tax liabilities before finalising mergers or liquidations.
Tax liabilities are prioritised and fully paid during insolvency or winding-up proceedings.
Enforcement of penalties for directors who fail to comply with tax obligations during liquidation.
What penalties does the law prescribe for non-compliance with annual return filings, and how does the unit enforce them?
By virtue of section 81(3) of PITA, any employer who contravenes the provision of Section 81(2) of PITA, which mandates the filing of annual returns, shall be prosecuted and will be liable on conviction to a penalty of N500,000 in the case of a body corporate and N50,000 in the case of individuals.
How do you handle cases where employers submit false returns or engage in fraudulent activities?
Pursuant to section 96(1)(a) and (b) (i-ii) of PITA, any person who, for the purpose of obtaining, set off, relief, or an overpayment in respect of tax for himself or any other person, who in a return, account, or particulars made or furnished with reference to tax, knowingly makes a false statement or false representation or aids, abets, assists, counsels, incites, or induces another to make or deliver a false return or keep or prepare false accounts concerning any income on which tax is payable under the act, is guilty of an offence and liable upon conviction to a fine of N50,000 for an individual and N500,000 for corporate bodies or to imprisonment for not more than six months.
What escalation measures are in place for employers who file returns late or fail to file at all?
When an employer fails to file an annual return as prescribed by section 81(2) of PITA and section 10 of the Operation of Pay As You Earn (PAYE) Regulation of PITA, they are consequently liable to a prosecution and to a monetary penalty upon conviction.
How does the LIRS utilise “best of judgement” assessments when employers fail to file returns within the stipulated time?
When employers fail to file their tax returns within the stipulated time, the LIRS is empowered under Section 54 (3) of the PITA to exercise “best of judgement.”. To arrive at a BOJ assessment, LIRS will rely on various available data sources to estimate the tax liability, such as previous tax returns and industry benchmarks, publicly available information, audited financial statements, etc.
What approach does the Legal Services Unit take in managing litigation cases related to tax disputes?
In cases that proceed to litigation, the Legal Services Unit develops comprehensive litigation strategies. This includes gathering evidence, preparing legal documents, and formulating arguments that align with tax laws and precedents. The unit collaborates closely with other departments within the agency to compile necessary documentation and data that support the agency’s position in court.
The unit is responsible for monitoring ongoing litigation cases and ensuring timely responses to court directives. This includes adhering to deadlines for submissions and appearances in court.
What processes are in place to update taxpayers about changes in tax laws and compliance strategies accordingly?
Public notices and announcements:
LIRS regularly issues public notices to communicate important updates regarding tax laws, compliance requirements, and available incentives. This is done through various channels, including social media platforms and official communication lines. For instance, during the COVID-19 pandemic, the LIRS issued notices outlining tax incentives and relief measures for individuals and businesses, including extensions for filing deadlines and adjustments in compliance strategies. Such public communications are disseminated through various channels, including official websites and social media platforms.
Tax talk on radio and television
Feedback mechanisms:
The LIRS encourages feedback from taxpayers through various channels, including social media platforms and official communication lines. This feedback is essential for understanding taxpayer concerns and improving communication strategies. The agency’s responsiveness to taxpayer enquiries is part of its commitment to fostering a cooperative tax environment.
What resources and support does LIRS provide to assist with the filing process?
E-Tax portal
The LIRS operates an e-tax portal that allows taxpayers to file their returns online. This platform simplifies the filing process by enabling users to submit their tax returns electronically, access necessary forms, and track their filing status. The e-tax portal is designed to be user-friendly, making it easier for both individuals and businesses to comply with tax regulations.
Customer care support
To assist taxpayers encountering difficulties during the filing process, the LIRS has established a dedicated customer care service. Taxpayers can contact LIRS representatives through the helpline 0700 CALL LIRS (0700 2255 5477) for immediate assistance. Additionally, help desks are available at various LIRS tax stations, providing face-to-face support for those who prefer in-person assistance.
Public notices and announcements
The LIRS regularly issues public notices to inform taxpayers about important updates, including changes in tax laws, compliance deadlines, and available incentives. These announcements are disseminated through various channels, including social media and official websites, ensuring that taxpayers remain informed about their obligations.
Training and workshops
To enhance taxpayer understanding of tax laws and compliance strategies, the LIRS conducts training sessions, workshops, and seminars. These educational initiatives are aimed at both individuals and businesses, providing valuable insights into new regulations and best practices for tax compliance.
Guidance materials
The LIRS provides various guidance materials, including brochures and online resources that outline the filing process, required documentation, and common deductions or credits available to taxpayers. These materials serve as helpful references for individuals seeking clarity on their tax obligations.
Feedback mechanisms
The LIRS encourages feedback from taxpayers through various communication channels. This feedback is essential for understanding taxpayer concerns and improving support services. The agency is committed to addressing enquiries promptly, with a goal of responding to complaints within 24 hours.
How can businesses reach the LIRS call centre for assistance?
Phone number:
Call the LIRS customer care hotline at 0700 CALL LIRS (0700 2255 5477). This number is available for enquiries and supports issues related to tax filing and compliance.
Email:
For written enquiries, taxpayers can send an email to [email protected]. This allows for detailed questions or issues to be communicated directly to the LIRS.
Social media:
Taxpayers can also engage with LIRS through their social media platforms, where they may find additional support and updates.
Help desks at tax stations:
For in-person assistance, taxpayers can visit any of the LIRS tax stations located throughout Lagos State. These help desks are staffed with representatives who can provide guidance on tax-related matters.
Can taxpayers initiate and manage their legal proceedings with LIRS through the eTax platform?
Taxpayers cannot initiate and manage their legal proceedings directly through the LIRS eTax platform. The eTax system primarily serves as a digital tax administration tool that facilitates a robust tax administration tool such as the filing of returns and generation of assessments, payment of taxes, etc. The management of legal proceedings requires visitation to the Legal Directorate of the Agency, especially in a situation where the taxpayer is opting for an amicable settlement of the legal matter out of court.
What additional legal measures or frameworks could improve compliance with tax laws in Lagos State?
I will say the carrot and stick approach, the agency dangles a lot of carrot; this is done through the earlier enumerated processes of engaging with taxpayers to aid enlightenment of tax laws, statutory obligations, etc. Where, however, the taxpayer decides not to be compliant, the agency will always allow the statutory penalties to take their course.
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