As part of measures to sanction tax defaulters and enhance voluntary/ timely compliance to taxes, the Federal Government, on 22 May 2017, announced it would from July 1, 2017, impose additional 5 per cent interest charge above the monetary policy rate of 14% (making a total of 19%) on all firms that fail to pay their taxes as and when due in 2017.
According to the Minister of Finance, Mrs. Kemi Adeosun, who announced the new interest rate spread on unpaid taxes for the year 2017, this revised interest rate was approved by her, based on the provisions of Section 32(1b) of the Federal Inland Revenue Service (Establishment) Act 2007 that empowers her to do so. She explained that the review of interest rates on unpaid taxes is one of the necessary measures adopted by the Federal Government to enhance tax compliance, minimise tax evasion and deter late payments.
She had emphasised that with a tax to GDP ratio of only 6 per cent, one of the lowest levels in the world, the country has had to intensify effort at tax collection in order to build a sustainable revenue base that will deliver inclusive growth. She stated that the focus of the Federal Government in 2017 is to improve tax revenue through ensuring voluntary and timely compliance with the tax laws and ensuring that taxpayers understand that there are financial consequences for late payments of taxes.
The Federal Inland Revenue Service (FIRS) has accordingly been directed to commence the implementation of the new interest rate on all unpaid taxes from July 1, 2017.
Taxpayers should recall that there is a difference between payment of tax and filing of tax returns. Filing of tax returns involves submission of requisite documents on or before certain specified due dates and these documents must include evidence of payment of such taxes being filed. Payment of tax on the other hand, involves remittance of funds into the appropriate tax accounts.
Interest charges (that is, the proposed 19%) apply only to defaults in tax ‘payments’. For default or delay in tax filing, what applies is usually ‘penalty’ and not ‘interest’.