The Federal Inland Revenue has made it clear to businesses in Nigeria that it has serious about tackling tax evasion. Since the new Chairman of the FIRS, Tunde Fowler took over at the helm of the tax agency, he has promised to increase tax collection as a percentage of Gross Domestic Product.
Mr Fowler was notably successful in increasing tax collection in Lagos State throughout the period he was at the helm of the Lagos State Inland Revenue. For those who know how he operates, his foot soldiers are very aggressive with tax collection and do not hesitate to seal up companies who do not pay tax. Some of his methods are said to be high-handed and often detrimental to small business but it has largely worked as Lagos State leads other states in terms of internally generated revenue. The State’s IGR has grown from about N149 billion in 2010 to about N268 billion in 2015. Mr Fowler is now set to replicate some of the methods he used in driving IGR collection in Lagos State at the Federal Level.
Relying on some of the news reports we have gathered and experiences of some of affected companies, we fairly now understand what they do before they seal up any organization.
- They give you an assessment of what you owe – Before the tax authorities seal up your premises, they first send you a tax assessment of what you owe. Tax assessments can be done in two ways. It’s either they assess your tax liabilities after obtaining your financial records or they pass a Best of Judgement Assessment (BOJ). A BOJ is an assessment done without relying or partly relying on your financial records. Once an assessment is done, they send a letter to your registered address or the most visible location of your offices. The FIRS often gives a period of two weeks or less for response.
They send you a demand notice – If after sending you a notice of assessment for how much tax you likely owe and you do not respond, they send you a demand notice. A demand notice can also be sent if negotiations breakdown between you and the tax authority. A demand notice is basically a letter of demand that you pay tax to the FIRS. The demand notice will include the estimated tax liabilities computed against your company as well as any penalty or charges that may have incurred due to your inability to pay your tax within the allowable period. A demand notice in some cases have a one month period for the tax payer to respond to.
3. Seal up offices – After the period of Demand notice has elapsed and no agreement has been reached, the tax authority will now get their enforcement unit to seal your office premises. We have seen instances where the enforcement unit can actually seal up offices even when negotiations are on going. The order to seal up offices often comes from the FIRS HQ, which makes it difficult for the local offices to reverse.
We often advise Startups or Companies to try to pay up a part of what you feel is your tax liability once you receive an assessment notice. After making payments follow-up with self instigated meetings with the Inland Revenue. We also advise that you go with a qualified and experienced Tax Consultant.