What Entrepreneurs Should Know About Taxation

 

I was having a conversation with a close friend; for the purpose of this write-up I will call her Patra. Patra and I have been friends for over 5 years. We met while I was in my second year in University. She was one friend that did everything better than me, from being a star student to being the best club hopper and now as a business woman she was very successful. She is that friend that challenges me.

The other day while we discussed on the state of Nigeria, since that is all there is to talk about these days; from fuel scarcity, potential increase in VAT, Ben Murray-Bruce’s ‘Common Sense’ epistles to Governor Fayose’s outbursts about the APC government and its officials, I casually asked her if she paid her taxes.

She confidently said no and asked me if I knew of any businessmen who paid taxes and that if they were, there were just a handful of them; I was surprised to say the least!

After our conversation I decided to conduct an investigation, I called some friends who owned their respective businesses and they all confirmed what Patra said, and to an extent found the question laughable.

Our country, in this trying financial time, has finally seen the light in the importance of taxation on our economy and is taking steps to ensure taxation laws are enforced and punishment given when noncompliance is established.

A well-organized society owes the people it governs some fundamental obligations. The obligations include the provision of basic social amenities such as good roads, water, shelter, security of lives, health and so on. Therefore, a certain amount of contribution is required of its citizens to provide the above. Its simple arithmetic: 1 + 1= 2

We pay our taxes for the survival of our society and when citizens do not cooperate, it results in financial problems for the government.

However, in reality it’s not that simple.

TAX TYPES FOR ENTREPRENEURS

This would depend on what type of business you own as an individual. If, for instance, Petra registers her company as a Limited liability company, she is then taxed under the Companies Income Tax Act (CITA).  Since her company has legal personality it is taxed in itself.

Companies Income Tax

• The Companies Income Tax Act governs this.
• Applicable to all companies incorporated in Nigeria with the exception of companies engaged in petroleum activities.
• All non-resident (foreign) companies that earn or derive income from Nigeria.
• All organizations limited by guarantee (institutions of public character or charitable organizations) engaged in profit making activities other than the promotion of their primary objects.
• WHERE TO PAY- Companies incorporated in Nigeria and organizations limited by guarantee pay Companies Income Tax through any of the designated banks. Once payment has been captured by the bank collecting system, an e-ticket is issued is issued the company, this e-ticket is proof of payment and when presented at the Integrated Tax Office with jurisdiction an e-receipt will be issued.
• HOW TO PAY- Resident companies and organisations prepare and submit annual self- assessment tax returns as specified by FIRS accompanied by the evidence of the payment of the full amount or first instalment of the tax due. Payment is made to designated banks

However, if Petra registers as a sole proprietor either as a registered business name or partnership, then she obligated to pay the Personal Income Tax regulated by the Personal Income Tax Act (PITA).

Personal Income Tax

(Not applicable to Limited Liability Companies but applicable to sole traders, registered business name, partnerships, civil servants)

• The Personal Income Tax Act (PITA) governs this.
• Personal income tax may be paid by an individual or a group or a business
• An individual may be assessed to taxation on the basis of P.A.Y.E. (Pay As You Earn)
• It is a method of collecting Personal Income Tax from employee’s salaries and wages through deduction at source by an employer as provided in the relevant sections of the PITA.
• The employer has the duty of remitting the amount deducted to the relevant tax authority- Board of Inland Revenue. Each State has a Board of Inland Revenue.
• After payment of your tax a Tax Clearance certificate is issued to certify that a person has met his income obligation.

It is our civic duty as citizens to pay our taxes, but if we do succeed in evading tax payments who are we really to criticise the government and demand accountability?

 

For more on tax types visit the FIRS website

 

By #ReginaRex