Lagos to enforce personal tax filing – LIRS director

The Lagos State Internal Revenue Service’s Director of Legal Services, Seyi Alade, speaks to ARINZE NWAFOR on how the agency is ramping up its drive for more residents to file returns and avoid tax evasion

Why is the LIRS emphasising personal filing of taxes?

Filing returns is a constitutional obligation. Section 24(1)(F) of the Constitution of the Federal Republic of Nigeria, 1999, as amended, provides that every citizen must declare their income truthfully to the appropriate tax authority and, upon that declaration, pay all assets due to the tax authority. It is not just a matter of tax law; it has its foundation in the Constitution. It is a statutory and constitutional duty of every citizen to file their returns on or before March 31.

From the first day of January of any new year, you can begin to file your returns. Apart from the employers of labour, every other person has until March 31 to file. If a resident fails to file beyond that date, you are already guilty of an offence. In that case, there is a strict liability offence for failing to file returns.

Why is the LIRS asking individuals to file taxes, whereas most residents know employers file employees’ taxes?

Section 41 of the Personal Income Tax Act makes tax filing everyone’s duty, not just employees. We are talking about employees and others who are self-employed, including those who run businesses.

This is a point of misconception that we have been throwing a lot of light at. Section 41 is clear. It says income from all sources. The emphasis is income from all sources. One may be an employee, for example, a public servant whom the law permits to engage in agricultural business and who may have inherited properties from late parents where they derive rental income. That rental income is an income. Whatever I get from my agriculture business is an income. Despite being an employee, these are other sources of income for me, and the LIRS deducts their taxes.

Many residents have multiple streams of income, so the argument that an employer has already deducted taxes from a worker’s emoluments every month does not hold.

There is also the situation where one does not have other income streams apart from their employment income. Now, in that situation, the employee may want to do something with some foreign embassies, or travel or engage in one activity for which they are asked to present their tax clearance certificate, only to find out from the tax authority or agency that the employer failed to remit the tax deducted from the employee’s salary. Drafters of the law know what they are doing, as this is one of the activities acting as a check and balance.

When an employee files their returns and their employer fails to remit all they had deducted from the employee in a year, the LIRS can come to the employee’s rescue and state that the tax authority does not have records of tax remissions done on behalf of the employee.

It is in everyone’s best interest to file returns because of situations where a failure to do so could become an Achilles heel for them when they may desperately need their tax clearance.

Would residents have broken any laws if they fail to beat the March 31 deadline?

Yes, penalties begin to accrue when you cross the deadline.

What are these penalties?

We have different penalties. The law stipulates monetary penalties, but they go beyond that. A person can be prosecuted for failing to declare and get assessed on their other sources of income for constituting tax evasion. This is notwithstanding if the person is an employee whose employer has been remitting taxes on his or her behalf.

A failure to file returns on other sources of income might be a concerted effort towards evading taxes on your other sources of income. We should not only look at the provisions of Section 95(1) about failure to file returns, which includes a fine, double the amount of tax that was undercharged due to the incorrect filing, but also prosecution for tax evasion.

How can residents learn how to file their returns?

The agency has made filing returns very simple. I am a lawyer and do not call the services of an accountant when I file my returns because the process is seamless.

When you visit the e-tax website and click on the link for filing returns, you register, and the questions are pretty straightforward. The old regime, when we had multiple pages of questionnaires to answer to qualify as having filed our returns, is gone.

At the moment, we have barely two pages, and the questions are simple. One can file returns in the comfort of the bedroom. The computation and assessments can even be done on that e-tax portal.

What are the legal options protecting taxpayers?

We do everything in the LIRS in strict compliance with the law, that is, the Personal Income Tax Act.

The law provides that when one has filed his returns and the tax authority raises an assessment based on what the taxpayer may have filed, should the taxpayer disagree with the assessed amount after being served the assessment notice, the taxpayer has 30 days within which, and upon receiving the objection, to be invited by the tax authority. The law requires a taxpayer objecting to state what parts they are contesting.

What the taxpayer is not contesting — which becomes what you have agreed with in that case — is meant to be paid. The taxpayer pays while objecting to the part that they disagree on.

For instance, a taxpayer has been assessed N1m for 2024 as his tax liability for that year. If based on the taxpayer’s informed calculation for which he has documentary evidence to support, it says: ‘No, I owe a tax liability of N600,000. I do not know where the agency got this extra 400,000 from. I have paid the N600,000, and here are my reasons for contesting the N400,000. I have supplied documentary evidence to support my objection.’

It’s straightforward. In that case, the LIRS is statutorily required to invite the taxpayer to affirm it has received the taxpayer’s objection, revise the assessment based on the evidence the taxpayer supplied and note that it is comfortable that the taxpayer should not be assessed over N600,000. The LIRS will review and reassess the documentary evidence.

However, where a taxpayer’s documentary evidence is insufficient to hold their claim, the agency can call them to provide further and better documentary evidence to support their claim.

A taxpayer unsatisfied with the agency’s position following an Audit Reconciliation Meeting can approve the Tax Appeal Tribunal. It is the taxpayer’s right to say, ‘No. The position of the agency, after providing some documentation to support my claim but still holding this assessment, is not satisfactory to me, so I want to appeal.’ By appealing, the taxpayer has approved an independent arbiter to look into the tax authority’s processes and documents the taxpayer supplied.

Who makes up the Tax Appeal Tribunal?

The Tax Appeal Tribunal is an independent body set up by law under the PITA to look at tax issues unresolved at the level of the tax authority. The LIRS can approach the tribunal to say, ‘Despite having done all that is statutorily necessary, this particular taxpayer has refused to pay the assessed tax liability.’ The LIRS can drag a taxpayer to the tribunal as much as the taxpayer can drag it.

The tribunal is constituted at the federal level. The Lagos Tax Appeal Tribunal was recently constituted. It sits along Adeniyi Jones. There is another tribunal at Ibadan.

What documents are required in filing returns?

A taxpayer needs statements of financial transaction release, computation of income from all sources for the previous year, documents supporting deductions and allowances claimed, statements of financial transactions relevant to the tax year, employment income details such as salary slips and employer tax filings and records of self-employment earnings, business profits, and investment income for the self-employed.

How does the LIRS verify the self-employed taxpayer’s records?

The law requires taxpayers to maintain a proper accounting book for tax purposes. You are inviting the tax authority to use its best judgement to assess you if you do not.

For instance, if you are self-employed, perhaps a businessman, and you file the returns and say, ‘Hey, I made a loss last year, and there is nothing even for me to pay as taxes because I did not make any income.’ As a taxman, I would say, ‘Oh, okay, sorry about your loss. Can I have the names of the schools that your children go to? How many children do you have? ‘Are you a landlord, or are you a tenant?’ These are some of the questions that a taxpayer is meant to answer when filing their returns. If you did not make a gain, you were meant to pay your taxes before fulfilling these other activities.

Tax is a first-line charge on an earner’s income. Apart from the Consolidated Relief Allowance granted as a relief when a taxpayer’s income has been calculated, there is the taxable income. After the taxes have been removed from a worker’s salary, they can plan on paying their house rent, children’s school fees, fuelling their car and all the other obligations, even paying their tithe.

How would self-employed earners make sense of these categorisations?

Personal income tax is the same, and we have administrative means of collection. The law drafters considered it less unwieldy to hold employers of labour as government agents for deducting and remitting employees’ taxes. If this were not the case, after everyone receives their salary, they have to declare their income, deduct their consolidated relief allowances and other allowed deductions and pay their taxes.

We have different paths, but that does not mean we have different taxes. We are all paying personal income tax. If you fall within a particular segment of the economy today, it is easier to collect through your employer. Tomorrow, you can leave your employer and become an employer of labour or become self-employed, running their own business. This is why even though one is an employee and their money has been deducted, they are still required to file their returns.

Everyone must keep proper books of accounts. If a taxpayer does not do that, the tax authority will use its best judgement or may disagree with what they have found and give a high liability. Now, what happens? What kind of documentation would be enough to sustain an objection? How about the taxpayer considering going to the Tax Appeal Tribunal? People who have gone to the Tax Appeal Tribunal without proper books of record have lost their cases. Everybody must keep a book of accounts.

What are the best formats for keeping these records?

The records can be digital, as we have gone past hard copy. Today, if one wants to start selling garri, he will open an account with, say, Moniepoint Microfinance Bank, and he will get a Point-of-Sale machine which does a lot. These POS machines are an accounting tool.

Only when people want to cheat or evade taxes do they claim ignorance, and I’ll tell you why. Even in the informal economy, how do you think those market women who sell tomatoes and garri by the roadside keep up if they don’t know their capital and profit elements?

The LIRS wants to add the informal economy to tax brackets. How would you tax them?

Many of them are in tax brackets. Again, we have another path of assessing them to tax. For instance, the law provides presumptive tax for people like market women and men. Our society is still evolving, and it may be difficult for them to keep formal books of account. Under the presumptive tax, there is a minimum amount that they are meant to pay by year. We watch (the informal economy) with our eagle eyes. We monitor them as they move up from one particular level to another. For example, when the woman selling by the roadside rents a shop and it is flourishing, the LIRS would rejoice with her and explain why she needs to start formalising, as she cannot be under presumptive tax again.

Why is it so important for LIRS to enforce individual tax return filing even with seizures?

We look at seizures from a broader perspective, and we want to use this opportunity to let taxpayers know that if we get a judgement against them from the courts or from the tribunal – the law permits us to move to the Federal High Court for the execution of that judgement from the tribunal – there are different ways that we can seek to execute that judgement.

We can initiate garnishee proceedings and move against the bank accounts of taxpayers. So, we want taxpayers to know that when we talk about seizures, it’s not just about physical things. But more importantly, we hear about grave tax evasion offences in developed countries. This is because tax is the blood in the vein of the government. When we evade taxes or fail to fulfil our statutory obligations of filing returns, keeping proper books of accounts, etc., we are trying to drain the blood, which is the life of the government.

We look at these societies out there, and everybody wants to Japa. We would not have anywhere to go if the citizens of those foreign countries were not paying their taxes so their governments could do things to make life good and comfortable. If we want to make our country good, we must pay our taxes, file our returns properly, faithfully and diligently and every other obligation required of us under the law to comply with the tax base.