Enhancing VAT voluntary compliance

Similarly, a taxable person who fails to collect tax is to pay 150 percent of the amount not collected plus 5 percent interest above the Central Bank of Nigeria rediscount rate.

Concept of voluntary compliance

FIRS encourages voluntary compliance instead of the use of coercion. Tax compliance relates to the degree to which a taxpayer complies (or fails to comply) with the tax rules of a country, for instance, by declaring income, filing returns and paying the tax due on or before the due date.

Voluntary tax compliance is a situation where a taxable person or entity files returns without the tax authority resorting to using the instruments of the law and force to ensure compliance.

It is voluntary when a taxable person discharges the statutory obligation of tax payment on self-conviction and as a call to duty without notice or reminder within the time line allowed by law.

FIRS’ means of enhancing voluntary compliance

· Through education and sensitisation of operators.

· Business owners should have open anmind and seek clearance from FIRS when in doubt and seek further legal advice when not satisfied.

· Regular monitoring/audit visitations to check compliance and enlighten taxable entities on their roles and responsibilities.

· FIRS ensures that the principle of know your tax payer (KYTP) is adhered to, so that it would be easy for taxpayers to reach schedule officers for information and guidance/assistance.

· Regular provision of VAT forms 002 for monthly rendition of returns.

· Encourage voluntary compliance to avoid infraction of the law.

· Consistency and civil enforcement of the provisions of the tax law

· Imposition of interest and penalties and enforce compliance where default occurs.

· Improvement in the work process of the tax office to make compliance easier.

· Compliance with the Taxpayer Identification Number requirements by business owners.

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· Monthly rendition of returns and payments on or before 21st of each month in arrears, to the nearest FIRS office.

· Proper documentation and record keeping of VAT charges taken at source, returns and payments vi-a-vis correct profiling of income sources.

· Businesses should note that they are not the party suffering the VAT, but a mere agent of collection and remittance.

· It is better to charge wrongly and remit to FIRS, than not to charge at all, because when the actual liability is established, it is owner of the business that would bear the entire burden.

Consequences of non-compliance

Out of the entire VAT Act, of 47 sections, about one third of the provisions are on offences and penalties.

Statute based consequences are highlighted from section 25 to 37 of VAT Act Cap VI, 2004 as amended in 2007. Some examples of offences and penalties are: failure to submit returns attract a fine of N5,000 for each month the failure continues.

Failure to collect tax attracts penalties of 150 percent of the amount not collected plus 5 percent interest above CBN rate.

VAT evasion attracts N30,000 or twice the amount of tax evaded whichever is greater or imprisonment for a term not exceeding three years.

Failure to keep proper records of accounts would attract N2,000 fine for every month the failure continues.

Failure to issue tax invoice attracts fine of 50 percent of the cost of goods and services for which an invoice was not issued.

Offences by body corporate: Every officer, manager, secretary and other similar officer including partner in partnership shall be severely guilty of an offence under the act, etc.

Reputational implication

· Second categories of consequences of non-compliance are reputational and reporting risks. Apart from reputational damage arising from actions by FIRS to enforce compliance via distrain, search and seizure, and litigation, amongst others.

· Reporting risk involves the imposition of interest and penalties.

· All the interest and penalties imposed on any of the aforementioned offences would be enforced.

FIRS tries to avoid enforcing compliance because of the Service’s slogan,“Taxpayers are King” except on recalcitrant taxpayers. It is necessary to once again emphasize that nightclub and event center activities are not exempted from VAT.

Consequently, taxpayers are encouraged to embrace voluntary compliance since the consequences of non-compliance are enormous; ranging from statute based sanctions to reputational damage/reporting risk.