Good evening great leaders and industry leaders
Thank you for having me here…
Today we shall be looking at “Tax as it affects our business”
Tax is a levy imposed on individuals and businesses by the government for the provision of social amenities.
Tax is civic responsibility and obligation to all citizen of Nigeria
It is best as a startup you start the planning of tax early and incorporating tax in your business
Existing businesses who are yet to incorporate tax in their system should do so because the tax policy in Nigeria is becoming funny daily
Let me start with some terms I believe we help
TIN: is available to individual and business
Tax Evasion: is a criminal offense with jail term in Nigeria
Tax Avoidance: is not a criminal offense and it is legal. I will talk about this but not evasion
Most politicians, multinationals and high net worth individuals use tax avoidance to pay less tax
If you want to know more about the evasion, let PC after now but at a higher cost
PAYE: pay as you earn: it is a tax on employees in any firm whether SMEs to large firms
VAT: is value added tax. It is in charge of goods and services. 5% is the current charge
But I do advice there is a procedure for charging vat eg. If you sell goods, you buy the goods from the seller may have charge vat on those goods. But when you are reselling, you have to charge your own vat as well. So if you buy a phone from seller A for 10k assuming vat of 5% is inclusive, when you want to sell, you will charge 5% as well on the 10k worth of goods
So if you are selling to B at 12k + 5% = N12,600 as the real selling price to customer B.
Remember you vat is N600(5% of N12,000)
So deduct the 5% of the N10000(N500) from seller A from the N600. That leaves us with N100.
This the actual vat you will send Tax office (FIRS), N100
Instead of 600
CIT: company income tax: This is paid to by limited liability companies (private and public)
Direct assessment: is a tax for enterprise (business name). It is a 1% charge on the total gross income of an enterprise.
For limited liability firms, the tax is 30% on the net income after expenses.
But be informed that there allowable expenses that the tax office will not allow and will be added back to the profit/net income.eg. depreciation, donations to non approved NGO of foundations, family or relatives drawings, etc.
To avoid tax, you have to work with your accountant or tax adviser who will study them and look for tax holes.
Ways of avoiding tax:
- Create a foundation or NGO eg. Tony Elumelu Foundation, Nzube NGO for less privilege
- Have a CSR policy that provides social solutions eg. Donation of free books to schools, etc
- The tax advantage of pioneering status incentive created by the government for new and existing businesses
- Add more money to your pension and other statutory incentives for personal income tax
Invest in export businesses and foreign business
Your foundation should be tied to the business eg. TEF and UBA, Dangote foundation and Dangote group of companies.
One of the advantages is that as a business, the govt will grant you tax holiday for some years because of the social or economic probs you are solving.
Dangote is fixing some roads in Nigeria and supporting IDPs in the north because of these, the govt granted him over 5-10years tax holiday. So he will not pay tax for those periods, just imagine how much he will make by not paying tax
- Invest or build a business in tax trade free zones eg lekki trade zones. There is no way any business will pay tax
Dates for tax filing;
Every individual and business owners are to adhere to dates for filing tax other penalties will follow suit
It is not advisable to allow the tax office to determine your tax either for the first time or they come to your office to carry tax audit.
Because their judgment of the amount of tax will be high compared to what you will calculate through your accountant
When you are speaking to any tax officer as regarding your tax, ensure your tax adviser is with you or carried along
These dates will help
10th of every month is for PAYE or direct assessment
21st of every month is for filing VAT
If your accounting year is Dec ending, you file the following year
Pls if you don’t know anything about filing DONT GO TO THE TAX OFFICE YOURSELF
Next is keeping records:
One way to avoid tax issues is keeping proper business records and documents
If you have a bank account for the business, please don’t pay any money that does not relate to the core purpose of the business into the account, otherwise, you will pay more tax
It is better you file a nil account as vat or cit to the tax officer than paying tax for money that is not meant for the business eg.i have a company with bank account name as keceph. If I pay any money, that does not involve service incomes to the account maybe my personal account money. The tax officer will ask to pay vat or tax on that money otherwise I provide convincing evidence that it is not meant for the business.
Remember you TIN is an account number in the eye of the tax office just lime your bank account number because they are linked.
The tax office knows every detail of transaction that occurs in your account on a daily basis. I am only referring to corporate account holders, not an individual savings account. That’s is why the bank will ask for TIN before opening your account.
Please, keep every receipts, invoices, letters, account books eg. Sales, purchases, expenses, journals, account receivables and payables, cash/bank books.
A bank statement is very much important to the tax officer.
Do not spend anyhow
A tax certificate is given when you have met all requirement in tax.
You should have paid your CIT, VAT, Education tax, WHT, etc.
Every business owner needs to have a Tax clearance certificate yearly so you have used it to evade issue that may arise with the govt or any agencies.
Now the process of getting it is becoming easy, online
I will take questions now but let me summarise:
- Startups should first seek to advise from an accountant in the tax matter
- Existing businesses not paying tax should quickly start incorporating tax system into it because when you register your business with CAC, the tax office have your records and they monitor everything you do by sending agents as possible customers, etc to understudy your activities
- Keep proper business records both online and offline, if possible get an accountant to manage your books. What can save you for tax liabilities is the proper record keeping and documentation you have
- Take advantage of tax incentives and opportunities from the government
- Avoid unnecessary spending that does not relate to the business. Not all expenses of the business are allowable by the tax office. Otherwise, they will add it back to your profit and calculate your tax which will be higher than what it should be.
- Don’t pay any money or talk with your tax people alone, involve your tax adviser.
- Ensure you keep to dates of filing, failure to do so amount to a penalty
- There are various ways of avoiding tax but no one should evade tax, please
- Taxes to be paid to which agencies are:
FIRS: Company Income Tax (CIT), Value Added Tax (VAT), WHT for professional services, directors of limited liability, etc. Education tax, Petroleum Profit Tax, Personal Income Tax (only Abuja residence and military or security agencies
FIRS: Federal Inland Revenue Services
**Internal or inland
State Internal Revenue Service e.g. LAGOS STATE INTERNAL REVENUE SERVICE (LIRS)
LIRS: Personal Income Tax (PAYE), WHT, premise development levy, direct assessment, land use charge, etc.
Thank you, I am ready for your questions
Question 1: Sir you mentioned a couple of taxes. which of them should startups focus on or should they pay all?
Answer: It depends on the legal status of the startup.
If you register as a business name, your tax is limited to only direct assessment or PAYE(LIRS), WHT(LIRS) and VAT(FIRS). The business name is an individual and not separate from the owner of the business.
But, if you register with limited liability with CAC, then taxes die to you are CIT, VAT, WHT, education tax, etc.
Personal income tax is N200,000 + 20%/1% of B+H+T.
1% of BHT is based on your income being below N300,000 per annum