Interesting insights, a detailed perspective from both operational and legal wings, critique of tax reforms, implications of interesting tax occurrences during the period under review, and more were some of the key highlights from Taxmobile’s August 2021 Panel Discussion hosted Thursday 5th via its Telegram channel.
The 2 hour-long interactive session featured tax experts with many years of industry experience. These experts took turns to analyze trends in the tax administration and offer recommendations for an effective tax regime.
In case you couldn’t be part of the live conversation, worry less as we bring you detailed talking points of the monthly discussion graced by Mr. Glenn Ubomhe, a practicing tax professional; Bar. Emeka Ihebie, a legal tax practitioner and the Founder of Taxmobile, Mr. Olatunji Abdulrazaq doubled as the discussion’s moderator and one of the panelists.
It is pertinent to state that in the tradition of examining five consequential tax updates that made headlines in the forgone month, the August edition focused on issues around the opinion of tax practitioners in a major publication that labeled withholding tax as more of a collection tool to increase tax compliance rather than a type of tax.
The other four updates discussed include; the launch of FIRS’ new TaxProMax tax filing platform; the proposed partnership of the Chartered Institute of Taxation of Nigeria (CITN) with the federal government to improve the tax system; Move by FIRS to impose the payment of 50% disputed sum by tax defaulters before the court hearing and the intention of the federal government to tax technology giants.
Let us take a look at the crux of these matters as discussed by the panelist below.
Withholding Tax and Matters Arising
.Recall, the basis of this discussion is deduced from publications by major news media outfits in the country, interviewing tax experts that referred to the withholding tax as more of a tool that increases tax compliance.
The moderator, Mr. Olatunji Abdulrazaq in this regard, referred to the withholding tax beyond checking compliance, as one of the smartest ways developed by the tax authorities to bring in more eligible taxpayers into the tax net to expand the tax base by increasing revenue for the relevant tax authorities.
In his take, Mr. Glenn Ubomhe agreed that indeed, withholding tax has helped to boost revenue generation, regarding it as a major source of revenue for governments across the globe to provide human and infrastructural development. Diving deep, he explained that withholding tax though with its peculiarity should not be misconstrued for another form of as it is more or less an advance payment of tax that is conceived to prevent tax evasion, increase collection efficiency and reduce the cost of tax collection.
Glenn emphasized that there is a psychological dimension to withholding tax due to its nature of upfront deduction which may go unnoticed by the taxpayer, hindering them from laying future claims when it is time to clear tax debts.
From his submissions, legal backings to the Withholding Tax include Section 40 of the FIRS Establishment Act, Company Income Tax Act, Petroleum Profit Tax Act, Personal Income Tax Act. He made it important to note that the withholding tax comes with different rates that differ from individuals and corporate entities. For instance, for technical services, corporate entities are to pay 10 percent while individuals and enterprises will pay 5 percent. Consultancy and Professional Service for a Corporate entity is 10 percent and 5 percent for an individual.
For Glenn, contentious issues regarding the withholding tax are the legal grey areas of contracts, agency arrangements other than Sales in the Ordinary Course of Business, and its general administration, citing the importance to automate the process.
On the flip side of the law, Bar. Emeka Ihebie disagrees that withholding tax ensures tax compliance, taking a critical look at the fairness principle of taxation which he thinks the withholding tax lacks. He explained further that if the government uses the taxpayer’s advance payment as withholding tax, the taxpayer should be duly compensated in form of interest for affording the government this possibility.
Detrending the purpose of introducing withholding tax which is to tax passive incomes and not active incomes, Emeka expressed dissatisfaction on how withholding tax has become a transactional tax as it is capable of discouraging investment in the long run.
A tax practitioner, Mr. Tajudeen Ayinla who connected to the live session in asking his question, recommended that the FIRS take a look at workable ways to harmonize its withholding tax system for better efficiency especially when it has to do with currency disparity.
One office shouldn’t handle Dollar transactions while another deals with Naira.
Issues Surrounding New Tax filling Platform; TaxProMax
It is no longer news that a few months ago, the FIRS has launched TaxProMax; a new all-encompassing online platform that allows the easy filing of tax returns, verify the authenticity of tax certificates among other functionalities. The FIRS has since carried out a widespread enlightenment programme on the platform’s usability.
Lending a voice to matters arising from the new platform, unanimously; the panelist expressed hiccups experienced with the new platform peculiarly with server downtime and slow connectivity.
On the legal implications of the new online platform as the sole means of filing tax returns, Bar. Emeka while commending the foresight of going digital, cautioned that the TaxProMax may attract several legal tussles especially from aggrieved taxpayers frustrated by downtimes as extant constitutional provisions do not recognize the online method.
TaxProMax is a good initiative but as it stands, there is no legal provision that will allow it to thrive. Our lawmakers must rise to the occasion and ensure that our laws catch up with society.
In his words, Glenn regarded the complaints with TaxProMax as teething problems due to the infancy of the platform, cutting the FIRS some slack for its forward-thinking.
CITN’s Proposed Professional Partnership with FIRS
On Mr. Adesina Adedayo’s arrival as the new president of CIT, he had proposed to the FIRS chairman the need for the professional group to partner with the government agency for better revenue capture.
Unanimously, the panelists agreed to the need for professional partnership in the tax system, calling on the government to create room not just to entertain private or corporate inputs but to implement appropriately.
Debate on FIRS’ Directive to Fine Tax Defaulter 50% of the Disputed Sum Before Court Hearing
In what would be the climax of the panel discussion, this FIRS policy from a Federal High Court practice direction generated a lot of comments to think on, mostly on its legality.
Beyond being a bad or good policy, for the moderator, the emphasis is doing things the right and legal way as at no point in any of the tax laws is the taxpayer permitted to pay any percentage of a disputed sum.
In his words
This will create a lot of cash flow issues. For me, I think this move is unfair to taxpayers and won’t help our tax system at all.
Glenn took time to read out the provisions of Section 33 of the FIRS Establishment Act where tax payment can only be made when the assessment has become final and conclusive. He, therefore, raised fundamental facts that question the legality of this practice direction.
Excerpts of his Submission,
Since the direction wants 50 percent of the disputed sum paid into an interest-yielding account of the federal high Court, at what rate of interest will this payment be? What if a taxpayer is cash-constrained?
Giving the issue a proper legal view, Bar. Emeka regarded the practice direction as ‘unnecessary’.
The FIRS already has powers to distrain under the Company Incom Tax Act, why limiting its powers? What FIRS needs to do is after an assessment is final and conclusive, issue the certificate and get the disputed sum. By this practice direction, why will you freeze the account of a businessman for 14 days?
Taxing Giant Tech Firms not Physically Present in Nigeria
Explaining the possible rationale for the government making this move, the moderator detrended that the move is in line with some of the reforms of particularly the Finance Act of 2019 to boost revenue generation, placing a premium on the economic presence and not physical presence.
On the peculiarity of the digital economy, Glenn highlighted that the digital world a created a shift in some nexus rules in dealing with international tax. For example, the replacement of physical presence with a digital presence, a permanent establishment for a virtual permanent establishment.
For him, the emphasis should be on the value derived from a particular country by these digital giants as countries like the UK, France, and India are already keying into this global shift to increase revenue.
As always with a legal perspective, Bar. Emeka cautioned that such a move should take a multilateral approach as, without this, the success of the move may be in jeopardy. It is important to have double tax treaties with countries where these tech giants emerge.
Drawing the curtain on this issue, the panelist jointly expressed worries about the implementation of this policy in the real sense.