Tax default: LCCI cautions FIRS over members’ bank accounts

The directive to banks by the Federal Inland Revenue
Service (FIRS) to tamper with the accounts of some firms over tax
defaults has again been deplored by Lagos Chamber of Commerce and
Industry (LCCI). Taiwo Hassan reports

Last year, Nigeria was ranked
146th by the World Bank Ease of Doing Business, an indication that
the cost of doing business is still high.

Indeed, the country’s business environment is still perverse
with over regulation, multiple taxes and levies, which inhibit
investment and economic activities, particularly in the
manufacturing sector.

Technically, the resultant negative effect of multiple taxes on
the overall economic ambience is already colossal for an economy
whose current growth rate is still fragile.

Nevertheless, government believes that no matter the economic
challenges confronting businesses in the country, Nigeria remains
an investment haven in Africa considering the high return of
investment, market size and growing middle class.

Mounting pressure
However, one of the major challenges hindering growth and
development of businesses in Nigeria is that of over regulation and
multiple taxes and levies on operating companies.
Members of the Organised Private Sector (OPS), comprising the
Manufacturers Association of Nigeria (MAN), Nigeria Employers’
Consultative Association (NECA), Nigeria Association of Chambers of
Commerce, Industry, Mines and Agriculture (NACCIMA), Nigeria
Association of Small Scale Industries (NASSI) and Nigeria
Association of Small and Medium Enterprises (NASME), have been
complaining that the government agencies saddled with tax
collection responsibilities have been putting more pressure on them
in a bid to drive revenue.
The OPS is an advocacy group that has been championing the welfare
of private sector operators with the aim of ensuring smooth trade
facilitation for its members without hindrances from regulatory
agencies.

Potential

In any industrialised economy, the micro, small and medium
enterprises (MSMEs) have the potential to greatly enhance the tax
revenue profile of the country if adequately harnessed.
Basically, the strategies for optimising the contribution of MSMEs
to the country’s tax revenue profile are critical towards measuring
the growth and development of the country’s economy.
That is why tax is centered on the contribution of MSMEs to Gross
Domestic Product (GDP) national export and tax collection.

However, there are always challenges impeding the optimisation
of MSMEs’ contribution to tax revenue and this is the reason tax
collectors beam searchlight on tax defaulters in the system, who
are mostly SMEs operators.

Population

In Nigeria’s context, when adequately harnessed, MSMEs can have
much impact on the profile tax revenue for the country, especially
considering their direct correlation with personal income tax,
value-added tax and withholding taxes.
MSMEs are classified into micro enterprises, small enterprises and
medium enterprises.
The most recent survey conducted by the National Bureau of
Statistics (NBS), in partnership with the Small and Medium
Enterprises Development Agency of Nigeria (SMEDAN), put the number
of MSMEs in Nigeria at 97 million.

Challenges

With this SMEs population in place, government tax agencies have
been beaming light on operators to ensure that tax collection is
made into government’s coffers without bothering to know the
challenges confronting MSMEs in the country.
Based on this precinct, operating businesses in Nigeria have been
tough in all ramifications.

However, findings show that the challenges impeding the
optimisation of MSMEs’ contribution to tax revenue in Nigeria
include poor record-keeping and information management, inability
to distinguish personal capital from business money, low awareness
of Nigerian tax laws and, little or no business research leading to
close of business.

LCCI’s stance

Meanwhile, the Council of the Lagos Chamber of Commerce and
industry (LCCI) at its first meeting in 2019 in Lagos recently
deliberated on a range of business and economic issues facing
manufacturers with the aim of resolving them.
One of the critical issues deliberated upon was the effect of
freezing corporate bodies’ bank accounts by FIRS due to tax
defaults.

This move, LCCI noted, was premised on the powers conferred on
the FIRS by section 31 of the FIRS Act, which gives FIRS the powers
to appoint collection agents for the recovery of tax payable by the
taxpayer.
The Council affirmed that LCCI was a strong proponent of regulatory
compliance by private sector players.

However, it is important to underscore the fact that tax
administration should be in consonance with the basic tenets of the
rule of law and the fundamental principles of a good tax
system.
It stated that tax administration should be consistent with the
principles of equity, fairness, legality, accountability and due
process.

LCCI insisted that taxpayers should be given ample opportunity
to defend their positions on tax matters before a lien is placed on
their bank accounts.
“There are instances where company accounts were frozen in error
because there was no proper engagement, documentation or
communication with the tax payers.
“The disruptions to businesses resulting from a sudden freezing of
bank accounts for reasons of alleged default in tax payment has
caused irreparable reputational damage to many businesses,” the
chamber said in the communique.

Restraint

In light of the foregoing, LCCI urged the FIRS and the banks to
exercise utmost restraint in the adoption of this tax revenue
recovery strategy because of the grave implications for investors,
financial inclusion and the economy as a whole.
The damage to the economy may be much more than the contemplated
revenue.

Revenue generation is not an end in itself; it is a means to an
end. The ultimate objective is to ensure equity, improve welfare of
citizens, create jobs and promote the advancement of the economy.
The activities of agencies of government should be in tandem with
the Ease of Doing Business Agenda of government and the promotion
of the ideals of the Economic Recovery and Growth Plan (ERGP).

FIRS’ position

To remedy the situation, the Executive Chairman of the Federal
Inland Revenue Service (FIRS), Mr. Babatunde Fowler, while reacting
to the matter, said that the Service has deployed adequate
man-power to promptly attend to all tax related challenges by
MSMEs.
He also recommended that respective organs of government saddled
with disbursement and utilisation of tax revenue should endeavour
to be transparent and ensure accountability in order to motivate
voluntary tax compliance by the MSMEs.
In addition, he called on governments at all levels to endeavour to
provide infrastructural facilities and enabling business
environment to allow MSME businesses to thrive.

Last line

Of late, there have been frequent clashes between the OPS and
FIRS on economic issues bordering on enabling environment.
Although acting within its mandate, truth is that FIRS needs to
take it easy to give room to SMES and other corporate bodies to
grow.