Every new year, amidst joyous gratitude for surviving the old year, we still experience a feeling of anxiety because we are uncertain about what the new year holds. Only little baby steps of faith, with careful planning, execution and the determination to succeed, one day at a time, can see us through the mist.
As part of our careful planning for the year, let us remind ourselves of a few routine business requirements:
- Tax Clearance Certificate (TCC): Our business and personal TCCs are renewable every year, to account for the taxes that were paid in the immediate past year of assessment (and two preceding years before that). There is only a three-month window to 31 March during which we can still make use of our prior year’s TCC, after which it expires. Thus, we need to begin early enough to make preparations for applying for, and renewing our existing tax clearance certificates. Amongst other uses, such as in dealing with government, obtaining facilities or visas, every tax paying law abiding ‘person’ in Nigeria is expected to possess a valid tax clearance certificate.
- Preparing for audits of financial statements and submission to relevant regulatory bodies, where applicable: This is a task that many finance people find very unpleasant. For entities with 31 December year end, this exercise is already due. Using the one-day-at-a-time approach, we can begin by contacting our external auditors, completing and putting all accounting books and documentations in order and holding pre-audit planning meetings to guide us through the daunting process of preparing for and executing the final audits of our financial records.
- Provisioning for tax and planning for other corporate tax compliance requirements: As we tidy up our accounting books and records (for 31 December year end companies), we need to also provision for our business tax liability based on the profits for the year. The initial tax estimates should be prepared based on management accounts, thereafter, revisions can be made based on draft audited accounts and subsequently, final draft audited accounts.The Self-Assessment Regulations of 2012, requires companies to file their tax returns, not later than the due date of six (6) months after their financial year end, with little or no room for extension of filing deadline. The Regulations only allow for installment payments without interest charges when they are made before the filing deadline. Installment payments can be granted after the filing deadline under the Regulations but only to a maximum of 3 installments with interest at the CBN minimum re discount rate. Therefore, any company (with 31 December year-end) that would prefer to make payments in 6 monthly installments should compute their taxes based on management accounts for the year, and start paying by end of January after duly notifying FIRS of its intentions to settle in installments. We recommend that you read our detailed article on preparing/filing an International Financial Reporting Standards (IFRS) based tax returns and the deferred tax intricacies/ considerations.
- Transfer pricing (TP) documentations and filing: The TP Regulations were issued in August 2012, requiring every company in Nigeria operating within a group structure or involving in related party (or controlled) transactions to comply with its requirements. This involves completing and filing disclosure and declaration forms along with the corporate tax returns. But before then, the company must have completed its contemporaneous annual (meaning it has to be updated yearly) TP documentations in line with the prescribed guidelines/provisions of the TP Regulations. The full documentation is also expected to be submitted within 21 days once FIRS requests it of any company. It is therefore advisable to begin early enough in the year to prepare or update the TP documentations, as the case may be, since FIRS may demand for it any time.
- Tax audits/TP audits (where applicable): It is a common practice of the tax authorities (particularly the State tax authorities) to carry out tax audits every new year. Last year, FIRS communicated its intention to commence joint tax audits in collaboration with the State tax authorities. This proposed practice is yet to commence as FIRS has not issued an operational guideline in this regard. It is expected that this guideline would be released later this year. However, to assist us in planning for any eventual tax audit, we recommend our detailed article on preparation for tax and TP audits.
- Employer annual statutory returns: Section 81 (2) of the Personal Income Tax Act (PITA) requires every employer to file a return with the relevant tax authority, of all emoluments paid to its employees in the previous year, not later than 31 January of every year. Penalty for non-compliance for incorporated businesses is N500,000, while that of unincorporated entities is N50,000. For the purpose of this directive, annual forms H1 (employers annual form) and form G (employers’ remittance card) are to be completed and filed with the tax authorities of the employees’ states of residence.
- Returns by all taxable persons (employees, self-employed persons and unincorporated entities): Section 41 (3) of the Personal Income Tax Act (PITA) requires every taxable person to submit a return of income from all sources earned in the preceding year, any deductions, reliefs or allowances pertaining to such income(s) and the tax assessments on such income(s) as computed in line with the PITA. This return is to be submitted on or before 90 days from the beginning of the year (31 March). For the purpose of this directive, form A (Income Tax Form for Returns of Income and Claims for Allowances and Reliefs) is to be completed and filed by/for each taxable person (employees and self-employed persons) annually within the stipulated time window.
- Review of employee related taxes: A review of the employee related taxes for the previous year would help ascertain the accuracy of the payroll information to be submitted and ensure that any over/under deducted taxes can be recovered/remedied.
- Review of business processes generally: General high level review of tax/regulatory compliance and other business processes such as front desk/customer care, sales/marketing/brand eminence, human resource/talent management, finance, information technology/risk, procurement, logistics etc. (depending on the industry in which one operates) might be advisable. This is to ensure that where there are documented policies/best practice guidelines, they are strictly adhered to in order to avoid leakages or liabilities of any kind. Where there are no such documented procedures/guidelines, considerations can be made for putting them in place or reviewing/updating existing ones.
A stitch in time, saves nine…