- Pro-tax reformers say model from US capitalist-oriented tax system
- Challenge is lack of tech to drive it through
- Over 40m Nigerians unbanked
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- Country’s huge informal sector excluded
- MSMEs should be exempted to drive in-country growth
- Nigeria follows South Africa, Kenya, but duo operate robust tax systems
- FG via system targeting to wipe off over N4trn budget deficit
Tax experts, analysts and legal practitioners are weighing in on the planned deduction of taxes from potential payers’ bank accounts by the Nigerian government through its Federal Inland Revenue Service (FIRS), with varied responses to our newspaper’s series of inquiries across the country.
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According to PwC, in a January 2020 note: The new law contains over 90 changes to 7 different tax laws including: an increase in the rate of VAT from 5% to 7.5% 0% CIT rate for small businesses and a lower rate of 20% for medium-sized companies. requirement for TIN to open and operate a business bank account.
Some anti-tax reformers interviewed by this newspaper said, the impending tax recouping model, if implemented, will be “tantamount to stealing,” and that government should follow the laid-down process for paying tax and penalty for default; and also, that “government cannot deduct tax from payers’ bank accounts.”
But pro-tax reformers among our respondents say, the system draws strength from the US capitalist-oriented tax model which empowers the Internal Revenue Service (IRS) to deploy tax-recouping methods including following the money trail, where the customer’s banker is expected to play a role by divulging its customers bank account information to the IRS authorities.
Some anti-reformers are vociferous in their comments: “I don’t know why the Nigerian Federal Government usually resorts to unlawful ‘violence’ in every matter including taxation. There are judicial decisions on this matter in which the court lampooned this arm-twisting tactic by the FIRS. Funny enough, there are easier and better recovery processes recognised by the law such as distrain. Why not adopt that?”
Another yet said: “Deduction of tax from payers’ bank account is like dipping your hand into the pockets of your debtors to take the money they are owing you or forcefully going to the house of your debtors to take your money. See (US) State of Nevada vs Oriental James Simpson and others. The courts see it as theft, stealing, armed robbery, trespassing, arm-twisting and abuse of privilege. It is also un-progressive for any bank to allow third-party to take money that does not belong to it from a customer’s account without court judgement.”
“This Act is barbaric, and will deter foreign investors from investing in the country, because it means they are not protected,” another analyst told our newspaper.
Perhaps, this comment strikes chord with Section XII of the Finance Act which deals with Personal Income Tax Act (PITA) which states: “Where a non-resident individual, executor or trustee carries on a trade or business involving the provision of technical, management, consultancy or professional services to a person resident in Nigeria, the profits/gains accruing from such trade or business shall be deemed to be derived from, and taxable in Nigeria, to the extent that the individual, executor or trustee has significant economic presence (“SEP”) in Nigeria. The Minister of Finance may determine what constitutes significant economic presence of an individual, executor or trustee, by issuing a SEP Order specifying same. Where a non-resident recipient of an income does not fall within the scope of the SEP provisions, the WHT applicable to the received income under the PITA shall be the final tax payable.”
One analyst’s opposition was thus: “I won’t even bother myself with the FIRS. I will go after the bank. The only exception is if I want to go to the Federal High Court or perhaps TAT for strategic purposes.”
Act empowers FIRS to ensure total compliance
George Iwuagwu, an economist, independent wealth advisor and blogger explained to Business A.M. in Port Harcourt, Rivers State some reasons why the Federal Government intends to go the tax payer’s bank account deduction model. “The Tax Reform Act 2020 empowers FIRS to strategically ensure total compliance to the citizens duty of paying taxes. Now like their counterparts in the US, they (FIRS) can deploy methods like following money trail; that’s where your banks play a role…well because the banks in Nigeria like abroad, are strictly regulated…they must follow guidelines set by the CBN or SEC as the case maybe.
Easier to rollout policies: does FIRS have tech to drive through?
“While it’s easy to rollout policies of this sort, the question begging for answer is: does FIRS have the technology to go through with it? What about the over 40 million unbanked Nigerians? It’s relatively easy to tax e-commerce platforms, but if the drive to increase revenue, increase tax net and close budget deficit gap of over N4 trillion…then more needs to be done.”
Court injunctions to access customer’s details
Definitely, banks can’t give financial details of customers except authorities get court injunctions, or can establish that the individual or organization is being investigated for flaunting tax requirements, which is a very serious crime.
How far the Federal Government through FIRS can go with driving through the tax deduction from customers banks accounts would be the true test of the Act.
Frontpage September 11, 2019