Taxing authority any government entity that is authorised by law to assess, and collect taxes. An approved body that has administrative power to control the collection of taxes; (2) the person or body of persons responsible under a law of a territory, imposing tax on the income of individuals for the administration of the income tax.The term is defined in Section 4 of Taxes and Levies Approved List for Collection Act CAP T 2 LFN 2004 as the ministry, government department or any other government body charged with the responsibility for assessing or collecting the particular tax. OECD defines the term as the body responsible for administering the tax laws of a particular country or regional or local authority.
A revenue service, revenue agency or taxation authority are synonymous terms. Any government agency responsible for the intake of government revenue, such as taxes and sometimes non-tax revenue such as fees is a Taxing Authority. Generally revenue services are charged with tax assessment, tax collection, investigation of tax evasion, or carrying out tax audits.
The chief executive of the taxing authority or revenue agency is usually styled as commissioner, minister, secretary or director, director-general or executive chairman.
Many tax offices, though they are taxing authorities in their own right, do not have the word “authority” as part of their names. Nigeria is a classical example which adopts revenue service namely Federal Inland Revenue Service or State Internal Revenue Service. US adopts Internal Revenue Service. (IRS). Her Majesty Revenue and Customs (HMRC), a non-ministerial department, is the UK’s tax authority responsible for making sure that the money is available to fund the UK’s public services and for helping families and individuals with targeted financial support. Uganda adopts Uganda Revenue Authority. Examples of tax offices that have adopted the use of authority in their names.
Barbados Revenue Authority BRA
(The BRA was established on April 1, 2014, subsequent to the merger of Barbados’ various tax collecting agencies, including the Inland Revenue and Land Tax Departments, as well as the Value Added Tax Office and the Licensing Authority)
South African Revenue Authority SARS
Zambian Revenue Authority ZRA
Central Revenue Authority
Ghana Revenue Authority Ghana
(established in 2009 as a merger of the Internal Revenue Service (IRS), Customs, Excise and Preventive Service (CEPS), Value Added Tax Service (VATS), and the Revenue Agencies Governing Board (RAGB) Secretariat.)
Tanzania Revenue Authority TRA
Kenya Revenue Authority KRA
Mauritius Revenue Authority MRA
Singapore is unique as it combines Inland Revenue with Authority and the Singapore tax Office is known Inland Revenue Authority of Singapore. (IRAS). Italian Tax Authority is also known as Italian Revenue Agency. The Italian Agency of Revenue, also known as AgenziadelleEntrate, is the Italiangovernmental agency that enforces the financial code of Italy and collects taxes and revenue. With effect from 2011, Hungary adopts National Tax and Customs Administration of Hungary (NTCA).
There are three levels of tax authorities in Nigeria which are creations of laws passed by the Federal Government. The tax authorities are:
(a) The Federal Taxing Authority – Designated as the Federal Inland Revenue Service Board (FIRSB) by virtue of Sections 1, FIRS Act CAP F 36;
(b) The State Taxing Authority – Designated as the State Board of Internal Revenue (SBIR) by virtue of Section 87 of PITA CAP P. 18, and
(c ) The Local Government Tax Authority – Designated as the Local Government Revenue Committee (LGRC) by virtue of Section 90 of PITA,
Jointly, the authorities are responsible for the administration of tax laws and are also entrusted with the responsibility for advising government on all tax related matters.
Tax authorities have a responsibility for ensuring that tax administration at all levels of government is carried out in transparent manner and in accordance with statutory provisions, in order to safe guard the integrity of the tax system. In the discharge of their functions, tax authorities should obtain necessary approvals from the Ministry of Finance in respect of policy and relevant operational matters and this should be done in a manner, which would not prejudice the independence and autonomy of the tax authorities.
The National Tax Policy enumerated the roles of taxing authorities.
With respect to the Legislature, tax authorities are required to provide assistance and necessary insight in respect of new tax legislation or the review of existing legislation being considered by the Legislature. Tax authorities shall publicise proposed changes to tax laws and new legislation to taxpayers. They should provide technical input and know-how to aid the Legislature in the discharge of its functions.
Tax authorities are to ensure a cordial relationship and provide necessary information to the Legislature in the discharge of its oversight functions on tax authorities.
Tax authorities should also partner with the Judiciary in relation to training and provision of technical assistance to the Judiciary on tax matters.
Tax authorities are expected to maintain a cordial relationship with all other stakeholders in the tax system and be responsible for the provision of timely and up to date information on developments in the tax system. They shall also, along with the Ministry of Finance and other relevant government organs, provide information to tax payers on the allocation, disbursement, expenditure and utilisation of tax revenue.
It shall be the responsibility of tax authorities to carry out proper tax payer education and public enlightenment along with other gvernment agencies such as the Ministry of Education and Information. They shall also provide guidance to the public on all aspects of tax compliance and other issues relating to the tax system in the form of information circulars, bulletins, handbills, media adverts or newsletter.
In creating a sustainable tax culture in Nigeria, tax authorities shall partner with educational institutions and the Ministry of Education to create a workable framework for the introduction of taxation in the curricula of all levels of educational institutions in Nigeria.
Generally, tax authorities shall ensure that core tax functions namely assessment and collection of taxes are only carried out by career tax administrators, who are Public Servants, and not by ad-hoc consultants or agents. Thus, only self assessments or assessments duly issued by tax officials shall be recognized by tax authorities in Nigeria.
In addition, the tax authorities should create a conducive tax atmosphere and environment which will engender tax payer confidence at all levels of tax administration; tax payers, shall be provided adequate time and space to review, challenge and appeal every tax assessment or demand made by the tax authorities and every claim, objection, appeal, representation or the like made by any taxpayer must be sufficiently considered.
Where the tax authorities diligently carry out their functions as set out above, it will ensure taxpayer confidence in the tax administration and create a workable and sustainable tax system to benefit of all stakeholders. (National Tax Policy Document)
Some of the Tax Authorities are semi-autonomous revenue authorities (ARAs), organisationally distinct from Ministries of Finance, with some real operational autonomy, and with staff paid at rates substantially higher than those in comparable public sector jobs.
Quite a number of countries have establishedsemi-autonomous revenue authorities, moving tax collection out of theMinistry of finance into a separate entity. In Nigeria, the FIRS, Edo State Internal Revenue Service, Lagos State Internal Revenue Service ,Taraba State Internal Revenue Service and a few others are fully autonomous in their operations. Some others are in different stages of getting the status.
Relevant tax authority
A related term most commonly used in Nigeria is Relevant Tax Authority (RTA)
The relevant tax authority in relation to the following class of tax payers is defined in Section 108 (a) to (d) of PITA to be:
In the case of an individual, the relevant tax authority for a year of assessment, is the tax authority of the territory or State in which the individual is deemed to be resident in that year.
The relevant tax authority in relation to an executor, ‘‘is the tax authority of the territory in which the deceased individual was last deemed to be resident or would have been deemed to be resident if the provisions of this Act had been in force prior to the date of his death.’’
For a trustee of a trust or settlement, the relevant tax authority is:
(i) where all the income of the settlement or trust for a year of assessment arises in one territory, the tax authority of that territory; or
(ii) where the income of the settlement or trust for a year of assessment arises in more than one territory, or in any other case (where the relevant tax authority cannot be determined under any of the foregoing provisions), the Federal Board of Inland Revenue.
For a partnership, the relevant tax authority is the territory in which the principal office or place of business of the partnership in Nigeria is situated on the first day of that year, or is first established during that year.
(e)Village or Community
A village or other indigenous community, the tax authority of the territory in which that community is to be found.
(f)Defined in Regulation 35 (f) of the Self-Assessment Regulation 2011 as ‘the Federal Inland Revenue Service or the State Internal Revenue Service as specified in the provisions of the relevant tax laws.’’
Enhancing VAT voluntary compliance
The operation of the tax law is universally administered. Every person (corporate or individual) is a taxable entity no matter how, when and what method is used to conduct the business.
The Federal Inland Revenue Service (FIRS) has adequate mechanisms to assess and bring all taxable entities into the tax net. Among these methods is cordial dialogues with stakeholders during enlightenment drives to achieve mutual understanding and promote voluntary compliance.
Registration by taxable persons
Section 8(q) of the Federal Inland Revenue Service Establishment Act, 2007, directs the Service to issue a taxpayer identification number to every taxable person in Nigeria in collaboration with State Boards of Internal Revenue and the Local Government Revenue Boards. Section 8(1) of the Value Added Tax Act (VATA) Cap V1 LFN, 2004 as amended in 2007 also requires taxpayers (individuals, enterprises or corporates) to register for VAT.
However, when the tax identification number (TIN) is generated, it suffices and covers all the tax types as no other registration number for any tax type will be required.
Reference to Section 8(1) of the VATA as amended, it is specifically stated that “A taxable person shall, within six months of the commencement of the Act or within six months of the commencement of business, whichever is earlier, register with the Board for the purpose of the tax (VAT).”
The phrase whichever is earlier, that specifies the time for registration, has caused a lot of pain for taxpayers in VAT administration. It is not practical to expect that a business just recently incorporated (say in 2011) to have registered in 1994 for the purpose of the tax. Hence, a business incorporated after 1994 is expected to register within six months of the commencement of business.
Therefore, penalties (and other sanctions) for late registration for VAT would start counting immediately after the six months of commencement of business if the taxpayer fails to register for VAT and not six months from the commencement of the VAT Act when the business was probably not in existence.
Historical antecedents of VAT
· VAT was first introduced as consumption tax in 1919 in Germany, France (1954), UK 1973, etc.
· Introduction was occasioned by the impacts of 1st and 2nd World Wars.
· The adverse effects of direct taxation on the economy, individuals and businesses.
· The introduction of consumption tax was later modernized into VAT.
· The high point of VAT is that it has no noticeable impact on the taxpayer because of its indirect nature.
In arriving at what constitutes a VATable income, all income from sales, rentals, charges and fees relating to activities enjoyed by customers are VATable and should be charged with VAT. The law did not make provision for any activities or services that is non-VATable in the industry.
First Schedule of the Act stated Goods and Services Exempt from VAT in Nigeria.
The implication of the schedule is that any other business activity in the form of buying and selling or rendering of services or enjoying any rights which are not stated in the schedule are liable to VAT.
Duration of remittance
All VAT charges should be remitted to an FIRS office within 21 days in arrears on a prescribed form 002. This is supported by Section 15 of the Act.
Meanwhile, a taxable person who does not remit the tax within the time specified above, will be liable to 5 percent penalty and interest at commercial rate, added to the tax and the provision relating to collection and recovery of the unremitted tax, penalty and interest shall be employed.
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.
· 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.
· 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.