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Tax evasion is set to become more impossible in Nigeria, thanks to the provisions of the new Finance Bill.
Currently under deliberation in Nigeria’s National Assembly, the bill is likely to mandate every bank customer in Nigeria to pay tax before they can operate their accounts.
The bill, submitted by President Muhammadu Buhari, seeks to instill a firm change to the outdated corporate tax laws of Africa’s largest economy, where 81 percent of citizens do not pay tax.
If signed into law, it is expected to address a majority of the hiccups in Nigeria’s ease payment of taxes and help the government increase its revenue.
The bill, being reportedly received positively, by stakeholders, has a lot in store for commercial banks as it looks to widen the tax base and making tax evasion – an arguably controversial topic in the country – a thing of the past.
The amendment of what is the Personal Income Tax Act, covers the deletion of provisions that grants some personal reliefs and the deductibility of Pension contributions.
But what has caught the attention of many is that individuals would have to produce their Tax Identification Numbers (TINs) before they can operate. This applies to both new and existing bank accounts in Nigeria.
An insider from one of Nigeria’s leading financial institutions spoke to WeeTracker on the matter under the condition of anonymity.
According to the source, banks in the country are more or less caught in the middle of the development and are waiting to find out if the law will be implemented.
Explaining the entailments, the source said that bank account holders, mainly Tier 3 savings and current account holders will need to tender their TIN in order to make their bank account compliant to the yet-to-be-enforced law.
“The financial institutions will only act as enforcers of this directive. This is a means to ensure that Every Nigerian that works or earn money pay the appropriate taxes to federal and state government, “ the person said.
Bank opening forms for business who want to have an account on Nigeria already requires them to provide data regarding their corporate status. The forms addresses the identity if their directors, bank account numbers, BVN (Bank Verification Number) and tax identification numbers.
This means that the formality has already been established, as there are 30 million Bank Verification Number-linked accounts.
What the new bill is looking to do is formalize what is already placed by banks under the Know-Your-Customer (KYC) directive of CBN, Nigeria’s apex bank.
The bill is codifying it into the tax law, which mandates that banks should not open accounts for business without a TIN.
By closing this gap, it will apparently become easier for regulatory authorities to match the operationalization of bank accounts with contributions to the economy by way of tax retribution.
The OECD (Organization for Economic Cooperation and Development) and the United Nations, for many years, have conducted research into multinationals practice in the area of erosion of profit base through base erosion and profit shifting framework enunciated by both institutions.
Most of their recommendations are that countries should align their physical framework with the reality of doing business in a modern world.
Nigerian tax laws were formulated on the assumption that businesses physically operating in the country are to contribute tax. For example, a fintech firm based in San Francisco but with digital presence in the country. The new bill is trying to move the physical framework towards the direction of international trade.
The Finance Bill proposes to capture the effects of digital and international trade. Here, Nigeria is the recipient – or staging area – for such trade, with no necessary need for being the physical base for a company participating in or facilitating the trade.
If the bill is implemented, digital trade will be well-accounted for. A substantial economic presence which will be judged to have been made such operators to be inclusive in the Nigerian tax net.
The bill also reserves the Minister of Finance the ability to determine which international trade participants will need to pay tax. According to the OECD, what signifies the considerable economic presence of a company would be revenue in excess of USD 750 Mn.
At the core of the provisions, the government will be using banks as agents to tax Nigerians. The Finance Bill also gives the FIRS and State Inland Revenue Service absolute access to transactions in business bank accounts.
So doing, they will be able to capture more Nigerian companies into the tax net and generate more revenue.
WeeTracker’s source says the implementation of the bill – however depending on the government – is likely to be implemented as they were able to finalize the stamp duty of NGN 50 years ago.
“Explaining it to the average customer will be the difficult part. However, this is a government directive which has no link with the bank. You would agree that paying taxes is one of the civic duties of every citizen”.
Featured Image: Businesswire
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