Nigeria’s Federal Inland Revenue Service has warned tax defaulters, citing thorough audits of companies doing business in Nigeria to ensure they are compliant with various taxes due to the country.
Companies have therefore been advised to set up formal business systems to put in place solutions that streamline capturing of transactions, automate payroll calculations and bring visibility of the business. The technology solution will make it simpler to keep track annual changes to tax regulations that impact on payroll tax calculations and changes in legislation.
Recently, a law enforcement exercise saw the Lagos Inland Revenue Service temporarily seal the premises of 10 firms for failing to remit N45.52 million (Ksh24 million) Personal Income Tax of staff to the state government.
These actions show that Nigeria’s tax authorities are taking a zero-tolerance approach to non-payment of tax or incorrect remittances of taxes to the government, whether the reason is a deliberate evasion or an accidental oversight. With companies in Nigeria coming under more scrutiny for their tax affairs, it is essential to put in place systems and processes that help you to easily comply with tax regulations.
Employer, Employee Tax
The Nigerian Personal Income Tax Act states that employers are required to file annual returns of all remuneration paid to their employees and taxes deducted and remitted to the tax authorities on or before 31 January every year. Failure to do so carries a maximum penalty of N500, 000 for the employer and N50, 000 (Ksh 26,491) for individuals.
In addition, employers must remit Pay-As-You-Earn (PAYE) tax each month for each employee to the relevant state internal revenue services, on or before the 10th day following the month in which salary was paid.
Furthermore, employers and employees are each required to contribute 10% and 8% respectively of their employee’s monthly remuneration to the Nigeria’s contributory Pension Scheme. There are also other statutory payments, such as the Employee Compensation Scheme (formerly known as the Workmen Compensation Act), Development Levy, National Housing Fund, Industrial Training Fund, just to name a few.