The process of filing corporate taxes and getting the annual tax clearance in Nigeria is broken for small businesses. Government has to take another look at it. Yes, I know that government has many elements in most business processes to mitigate the evils of corruption and fraud. But on a specific phase of the tax system, I do not see any value on a key requirement.
When you execute a job for a major client, you are supposed to provide your Tax Identification Number. That company debits you the VAT and WHT amounts from your contract amount. The money is wired to the Federal Inland Revenue Service (FIRS). The company that is paying you has done its job: it has paid you your amount and also sent to government the contract value projected tax amount. In most parts of the world, that company can rest because both of you have concluded the business relationship. You have done the job. You have been paid. And government has been paid. Period.
But in Nigeria, that does not happen. As you plan to file your tax clearance, government will expect you to return to that company to get a document called e-payment slip (or its alternates) which is issued by FIRS to your client for making the tax payment on your behalf. This is the phase I find very frustrating.
Why should I go back to this particular client to ask him or her to return to FIRS office to collect this document for me? Government has the money and can make any decision if I have to pay more tax. Also, it is government that issues this slip, which means it can access the document. But that does not happen. The tax office will want you to get a physical document (yes, the e-payment slip) from your client so that they can copy the slip number as they finalize the tax clearance.
Now, there are challenges when the client has no time to pursue this document for you. I do not blame anyone because helping me to file tax is not a client’s business priorities. And government cannot give you the document, only that your client can collect it. Yes, it has to be the person that made the payment, and when that person does not have time, your tax clearance process stalls.
Government needs to update its process to remove the need of that slip number. Rather, it can generate a digital one which associates a slip number to the payment it has received, automatically. The goal is to prevent one from going back to a client for something that was concluded a previous year. The government has the money and it does not need this document.
What is happening here is similar to the same old thinking of airlines that physical tickets have the same value as money. So when you purchase a ticket, you have to pay to have a physical receipt/itinerary delivered to you. If you lose the itinerary, they will not fly you, even though they can see your name right in the list of customers that bought tickets. So, you can have scenario where after paying for a ticket, you have to pay for overnight ticket delivery for a document that technically has no value since airlines have all the details already. But thank goodness for electronic ticketing or even no-ticketing except confirmation number.
The document FIRS is asking companies to present is issued by it. Also, FIRS has the money. Except to muddle processes, there is no value in this extra process. They need to stop it and update the process. It makes no sense that one cannot file a tax clearance if your business partner has gone bankrupt within a year. That is what the present system is built upon, because if the client cannot get the document, the filing cannot be completed.
Sure, FIRS has made progress as they continue to simplify the tax process. I am sure if they fix this minor change, it will be easier for small businesses to file taxes. We will certainly appreciate it. I do not want to be begging clients for the certainly avoidable slips when I can use the time to explore new business opportunities.---
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