The Director, Legal Services, Lagos State Internal Revenue Services (LIRS), Mr. Seyi Alade, speaks on various steps being taken by the tax authority in Lagos to educate taxpayers on being responsible and the penalties for not filing annual returns. Raheem Akingbolu presents the excerpts:
For the benefit of members of the public who are oblivious of some issues around tax, could you please explain what the annual returns is?
The annual returns is actually a schedule of all income and enablement that a person receives over a period of one year. The way it is done is that you file retroactively on the past year basis. So, you are meant to come forth and file the returns on all the income that you made from the previous year basis. One major reason why this is very important is that the tax authority is hampered by the challenge of not knowing what everybody is earning.
I don’t know what you earn and I don’t know the ways that you earn that money, so for the tax authority to know, you need to come forth and state in the returns, stating truthfully that these are the amounts that you earn. At the end of the day, the tax authority will be able to assess you based on what you filed, based on tax, so that is how to know the exact amount that you’re meant to pay, or that is due to you as taxes for that particular period. That is the first major step. One of the reasons for filing of returns (the annual returns), is to factor in individuals. When we say individuals, there is a kind of misunderstanding and misconception out there, because people who are employees often think they are not to file returns. That is not correct. As a public servant, there is only one legal activity; business activity that one can involve in and that is Agriculture.
So, how can the tax authority determine what is payable on Agricultural activities?
Very simple, let’s deal with this scenario. If I have a poultry, a very big one for that matter, even with a fish pond by the side and still growing a lot of vegetables that I can even supply to eateries all over the place. I can be making a hundred times the money I’m making as a public servant from those ventures. Are we now saying that because I am an employee -a public servant; those incomes from that agriculture source should not be taxed? So, because personal income tax is income from all sources, all sources, don’t say that; “Oh, I need this money in London, so what is the business of Lagos State?” The fact that you are resident here, you’re eligible for personal income tax in Lagos. That is why everyone must file their returns, individuals and you know what the law says is that; on or before the 31st of March of every year you must file your returns.
You have actually cleared the air on certain perceptions, because there’s the general notion that most people are not really aware of their constitutional duty of filing tax. On this note, I would like to get a bit further on that by asking you about the legal framework for filing
You know in law, we say ‘the mother of all laws is the constitution.’ So, in the Nigerian 1999 constitution as amended, Section 24, paragraph ‘F’ of that constitution clearly spells out the duties of every citizen to file returns of their emolument and pay all taxes the duly assessed thereto. So, it is a constitutional duty and all other laws, all other tax laws actually derive their legitimacy from that particular provision. So, you talk about the personal income tax Act, it is derived from there because the constitution states that you must pay your tax and before you pay your tax, you must have filed your returns like I said earlier.
Now, for instance, if a public servant has other engagements where he or she earns outside of what is earned and taxed from his or her job with the government, are they also obliged to file annual returns on these outside sources of income?
Like I said it is not only people who are self-employed, and when I mean self-employed, we are talking about even the market women, the businessmen all over the place. Those are people that you call majorly self-employed. Public servants, just for clarity, for the sake of clarity, also employees of all the multinationals, it covers everybody, because the law imposes a duty also on the employer to file returns of all emolument that have been paid, or income paid to its employees and that is the one that is done on or before the 31st of January of every year. But then, the law now imposes that same duty on individuals, employees alike to file their returns, so it encompasses everyone.
What are the implications and penalties for not filing annual returns, for example, by March 31, 2022?
A lot of people are not, in fact, aware that there are grave consequences for not filing returns, because failure to file returns is an offence, it’s an offence, even though the law makes a pecuniary. By pecuniary, I mean a momentary penalty, failure to file, for instance now, for individuals, self-employed people, the penalty is N50,000, but there is a big caveat, it is upon conviction. Since the tax authority does not have judicial powers, it cannot convicts, so in order for the tax authority to even take that penalty, the N50,000 penalty, as the case is from the taxpayer, must first obtain conviction from the court and what conviction simply means is that you have now become a convict. Therefore, if you’re taken to court for failure to file your returns, your only defence will be that; “oh, I actually filed my returns”, or it becomes a strict liability offence, and once the court pronounces, you have become an ex-convict. I’m sure that a lot of us understand what it means to be an ex-convict, there are so many offices in life that you cannot be able to aspire to if you have become a convict. That is why we (Lagos State Inland Revenue Services) as a very, very responsible tax authority, is doing a lot in trying to educate our teeming taxpayers to make sure that they file their annual returns. We actually put a lot of resources in this enlightenment program, urging taxpayers to please come forward and file their returns, because we don’t want any of our taxpayers to become a convict.
Now that the world has gone digital, how can those returns be filed online at the comfort homes or offices of Lagosians?
As far back as year 2018 if I’m not mistaken, the agency being very proactive, and of course seeking for the ease of the taxpayers interacting with the tax authority, actually put a portal in place, and a purely online portal where teeming taxpayers can, in the comfort of their homes, their offices and wherever they may be, log on to the portal and do the needful. The portal will give you an opportunity to register, have your own personalized password and then you can file your returns with ease, without having recourse at any of the tax offices and once this is done, you fulfilled your statutory obligation. It is a very user-friendly platform, in fact, from there, year-in-year-out, you can keep track of all your various filings.
Based on the feedback you are getting, how far have members of the public gone with the app?
Absolutely, people have been engaging us via the app and there’s been a lot of activity of traffic on the platform. Again, for every kind of difficulty that people may have experienced, we have customer care -people that are always on standby to help assuage any of those problems, so the platform is doing perfectly well and I believe that we have not had any unsavoury feedback from the teeming taxpayers.
Can you please briefly shed more light on “Best of Judgment Assessment“?
In explaining the “Best of Judgment assessment,” I don’t want to be quoting a lot of sections here but will make this as plain as possible because of our teeming readers who may be thinking that this issue of tax is very complicated, but it is not. In my open statement concerning the reason why we file returns and why it is important to file returns, the tax authority does not have the gift of clairvoyance, it cannot see into individual pockets. So, when you have failed to file returns, what you have turned the tax authority to, is to have that gift of clairvoyance and to begin to look and for different reasons and different factors, through which to assess you because you have failed to put forward the schedule of your emolument and earnings. What the tax authority will then do which the law permits, is to assess you via the “Best of Judgment assessment“ and in this case, you may feel; “oh where did they get this figures from?”, but it is due to your failure to do what you are statutorily meant to do that has brought about “Best of Judgment assessment“. To this end, our responsible taxpayers must understand that the “Best of Judgment assessment“ is based on default to render returns.
Beyond the “Best of Judgment assessment “, are there other legal implications? Can they be taken to court for filing annual returns incorrectly?
Look, the personal income tax Act, specifically section 95, states that “when a person, who without reasonable excuse makes an incorrect return (emphasis on incorrect return) by omitting or understating any income liable to tax under this act or gives an incorrect information in relation to matter or things affecting a liable to tax of any taxable person is guilty of an offence and liable to conviction to a fine of N20,000 and correct tax and double the amount of tax which has been under charged (emphasis again on conviction). So, a taxpayer needs to understand that the duty goes beyond just filing of the tax, but if you file incorrectly you’re also liable to becoming a convict and to pay amount which I mentioned; N50,000 and then of course, the tax and then double again the amount of tax that you were under-charged. Again, these are very serious provisions because it is another route towards becoming convicts. As a result of this, I’m using this opportunity to appeal to our teeming taxpayers because the agency is self-assured, because we know that we have done enough enlightenment overtime, for the teaming taxpayers to be knowledgeable enough. At this stage, the full weight of the law is going to be brought to bear on any non-compliant taxpayer.
Over the years, the agency must have had the experience of those who have been non-compliant; did they face the wrath of the law? What would you say is probably the maximum or the most severe term they can get from such a penalty when they are convicted by the court?
You know, taxation is a very peculiar thing; there can be no taxation without laws. The law spells out what the penalties are,so if you go to the penal section of the personal income tax Acts, it spells out different offences and the different penalties from section 94 of the personal income tax act. All the way down to section 97, all these penalties are well stated there.
