Quite a dismaying number of Nigerians do not pay their tax. A 2016 report put it at 80% of Nigerian Small and Medium Enterprises. Some of the time, it might not be that they do not really want to, but that they are honestly stumped by the entire concept of tax, in the first place. We bet if you asked 10 start-up entrepreneurs about tax, you would get twenty-two and a half definitions!
The good news is that the Federal Inland Revenue Service, Nigeria’s apex institution saddled with the primary responsibility of collection and payment of Federal government taxes across Nigeria, together with the different States’ Inland Revenue Service, has made understanding and paying tax easy- especially for micro-enterprises (you are a micro-enterprise if your turnover is less than N1m per annum).
If you fall in this category, you should get registered for Turnover Tax. It replaces the bulk of forms and returns that you have to fill and send in to FIRS every year, such as Income Tax, VAT, Provisional Tax, Capital Gains Tax and Dividends Tax.
Some state taxes include, Personal Income Tax, Business Premises Tax, Development Levy (for employees), and Withholding Taxes (Individual and unincorporated entities). On the other hand, Federal taxes include Value Added Tax, Withholding Tax (Incorporated entities), Company Income Tax, and Education Tax. Despite their seeming high-sounding names, they are, for the most part, not very expensive.
If you do not pay taxes- either because you are clueless as to how to go about it, or because you willfully evade taxes, there are punishments. You may find that your goods and even your premises can be seized and auctioned off, if you are a tax-defaulter.
But that is not all. If you were to pay a monthly tax of N5,000, for instance, if you do not pay by the end of the year, your cumulative should be N60,000, right? Wrong! Because missing your taxes comes with Compound Interest, by the end of the year, you would be paying close to N400,000! You do not want that, do you?
Here are three other quick facts to help you better understand tax.
- Once you register your business name, a Tax Identification Number (TIN) is assigned to you and you are eligible to begin paying taxes. This unique code, TIN, is instrumental to the tax paying process. However, to help you acclimatize with the business environment and better understand the processes, you are given 18 months Tax Exempt Window. Start-ups must utilise this window, not only to maximize profit-making, where it is possible, but also to learn as much as they can about taxation.
- If you do not understand how to navigate the ocean of taxes, you may get a professional to help you. If, however, you really want to learn how to, spending a maximum of two hours with an accountant will get you through the basics. For starters, for paying federal taxes to FIRS, log on to the Remita website, fill in the required details and the kind of tax you want to pay. A code will be generated. You can either pay on the Remita Website with a card transaction, or head to a bank to pay. For paying into the State Inland Revenue Service, you may walk into any bank with your TIN and pay. After payment, you should take your documents to the relevant authorities.
