This article focuses on the self-assessment requirements for filing of tax returns. We also examined what constitutes a dishonest tax return as introduced by the FA 2020
The Finance Act 2020 (FA 2020) was enacted in furtherance to the Federal Government's progressive reform of the business climate in Nigeria. This was born from the need to modify the tax system to align and conform with international best practices as well as respond effectively to the changing socio-economic landscape.
The primary aim of the legislation includes boosting government revenue, preventing tax leakages, streamlining areas of regulatory conflicts and clarifying ambiguities in extant laws and regulations, as well as providing fiscal reliefs to entities involved in key or priority areas of the economy, among others. Whilst the Finance Act 2020 amended some provisions of the Finance Act 2019, it is important to note that it did not expressly annul the Act. The reasonable expectation is that the provisions of the Finance Act 2019 that were not amended by the 2020 enactment shall continue to apply alongside the provisions of the Finance Act 2020.
What is Self-Assessment?
Self- assessment is an assessment system that aims at shifting the duty of computing the tax payable in any year of assessment to the taxpayers. Under this system, the taxpayer is expected to file his income tax returns together with a duly completed self-assessment notice and evidence of tax payment to the Federal Inland Revenue Service (FIRS) through an appropriate designated collecting bank. Specifically, section 53 (1) of the Companies Income Tax Act (CITA) requires every company to compute the tax payable for the year of assessment and forward the evidence of payment of the tax computed.
The self-assessment regime was initially introduced in 1991 and it became effective in 1992. The self-assessment obligation was only applicable to taxpayers above certain threshold. This was however extended to all taxpayers in 1998. The self-assessment regime became fully effective in 2011 with the enactment of the Tax Administration (Self-Assessment) Regulations 2011.
Constituent of Self-Assessment Returns
Section 55(1) of CITA requires a company to file a self-assessment tax return with the Service in a prescribed form at least once a year and such return should include the company’s audited accounts, tax and capital allowance computations for the year of assessment, a true and correct statement in writing containing the amount of profit from every source computed, a duly completed self-assessment form and evidence of payment of the whole or part of the tax due to a designated bank for the collection of Company income tax.
Books of Account to be Maintained by Taxpayers
The FA 2020 introduced a new Section 63 of CITA which repeals the previous provisions regarding books of account to be maintained by taxpayers including companies granted exemption from incorporation. Based on the FA 2020, the following requirements should be considered by taxpayers:
- Every company is required to maintain books or records containing sufficient information or data of all their transactions.
- The books of account must be maintained in English language. Where for any reason they are prepared in another language, they must be translated into English language by the taxpayer to make it readable by the FIRS.
- Any taxpayer that fails to provide books of account as and when required by the FIRS shall incur a penalty of N100,000 for the first month and N50,000 the subsequent months the failure continues.
- The books of account must be maintained for at least 6 years after the year of assessment in which the incomes relate. This conforms with the statute of limitation.
- Penalty and interest following the provisions of CITA or relevant laws would be imposed on taxpayers who deliberately file dishonest returns from the date the tax is due in addition to payment of the tax due on the dishonest return.
What Constitutes a Dishonest Return?
Filing a dishonest return is generally perceived as illegally/ deliberately avoiding the payment of taxes owed, which may be construed as tax evasion. Tax evasion occurs when an individual or business entity willfully or intentionally falsifies information on a tax return to limit the amount of tax liability. Tax evasion essentially entails cheating on a tax return to avoid fulfilling part or the entire tax obligation.
A company or taxpayer can be guilty of tax evasion in the following ways:
- Understating income declared in the tax returns to reduce tax liability
- Overstating expenditure to reduce profit/income on which tax is payable
- Making false claims of allowance and reliefs
- Omission from income tax returns of chargeable income
- Claiming personal expenses as business expenses
- Willfully and intentionally falsifying information on a tax return to limit the amount of tax liability
- Misrepresented or wrongly characterized the actual state of his affairs to falsely claim tax deductions or tax credits
- Prepared and filed a false return
In a bid to discourage taxpayers from these acts, the new Section 53 of CITA introduced by the FA 2020 provides that any additional outstanding tax liabilities arising from a deliberate and dishonest declaration of the profits or tax payable by companies will now attract penalties and interests. By extension, any additional tax liabilities established by the FIRS during desk audits, field audits and investigation exercises will also attract penalties and interests. The penalty and interest will accrue from the date the incorrect returns were filed. Therefore, based on these provisions in the amended sections 53 & 55 of CITA, Companies are to ensure that the financial statements and other information to be submitted contains honest and accurate information to avoid penalties and interest.
While the FA 2020 seeks to minimize the occurrence of tax evasion, it also raises the question on how the FIRS is able to distinguish between a deliberate act of non-compliance and a Company’s honest implementation of its accounting policy. Consequently, companies should be aware of their tax obligations and exercise necessary care to ensure tax returns filed are free from errors and misstatements to avoid penalties that may accrue from any of such misstatements or errors.