Omodele Adigun

As the business community awaits  President Muhammadu Buhari’s assent to the Finance Bill with which the Federal Government intends to widen its tax net from 2020, Nigerian bank customers, shareholders and other stakeholders have been commenting on the likely implications of using the Tax Indentification  Number (TIN) as basis for future banking transactions.

As part of plans to compel more Nigerians to pay tax to the government, part of the provisions of the Finance Bill is seeking to issue TIN to all depositors and bank customers as a prerequisite for account opening and other transactions with financial institutions.

But commenting on the possble  consequence of the bill’s provision, which makes evidence of tax payment a condition for operating bank account, the President of Bank Customers Association of Nigeria (BCAN) Dr. Uju Ogubunka, said it might come with a backlash that would become a setback for the financial inclusion drive of the Central Bank of Nigeria(CBN) unless massive awareness commences in earnest to help government achieve the goal of getting more  people into its  tax net and to secure critical public buy-in of the masses.

His words: “When it comes to banking relationship, the Finance Act may have a backlash on the financial inclusion. Some people that are not amenable to paying taxes may decide to close their accounts or just leave it open and warehouse their money elsewhere. Don’t forget that people may buy stocks, particularly businessmen, to keep their money in their businesses. In fact, before this time, that was what people were doing. Some people may decide to buy whatever they want to buy: property, to keep their money. Some people may decide to dig ground inside to keep their money rather than going to bank and  paying  tax.So financial inclusion may suffer  a setback with this policy.”

According to a section of the Bill, submitted to the lawmakers with Budget 2020 by President Muhammadu Buhari, banks will require anybody opening an account to provide his Tax Identification Number (TIN). Those who already have accounts with banks will also be required to provide this unique identifier for an individual or a company for tax remittance. There are about 40 million people on Bank Verification Numbers (BVN)-linked accounts, according to the Governor of the  Central Bank of Nigeria (CBN), Godwin Emefiele.

“Right now, we have BVN. Isn’t it? And all they are saying is that that is not sufficient to identify people? So it requires a lot of public awareness and enlightenment to explain to us the essence, the reasons, the value, otherwise I foresee a situation where it may have a backlash. And the issue of financial inclusion, that CBN has been championing to become a reality, may suffer  setback” argued Ogubunka.

Another major feature of the Bill is the hike in Value Added Tax (VAT) to 7.5 per cent from the extant five per cent.

Also commenting on the likely consequences of the initiative, Mr Ayodele Adigun, former President  of Chartered Institute of Taxation of Nigeria (CITN), said it was a wrong step in a right direction as we are going into the new year.

Hear him: “We should just be prepared for another tough year ahead. I can tell you, if the two instrumentalities of regulating budget-fiscal and monetary policies-are not properly harnessed, definitely it is going to be summersault again. I am sure the budget is not going to produce any good result because when the micro-economic issues are not addressed, honestly, it is going to be a total failure. For instance, the VAT increase is a wrong step in the right direction. It is poorly timed.VAT is different from other income taxes. The VAT increase has the effect of increasing the cost of goods. And when the cost of goods is increased,  there would be poor sales because, already, the economy is pauperised. That is, the people’s purchasing power is already very weak. And there would be a lot of stocks in the warehouses of the manufacturers. And the effect of that is that they would lay off workers. Alreadythe unemployment rate is terribly high, very alarming.So whoever advise them in that direction has not done it very well.”

Also in the bill, emails will be accepted by the tax authorities as a formal channel of correspondence with taxpayers.

The bill will also strategically “promote fiscal equity by mitigating instances of regressive taxation; reform domestic tax laws to align with global best practices; introduce tax incentives for investments in infrastructure and capital markets; support small businesses in line with the ongoing Ease of Doing Business Reforms; and raise revenues for the Government by various fiscal measures.”

Under the proposed Personal Income Tax Act: the bill will state that pension contributions no longer require the approval of the Joint Tax Board (JTB) to be tax-deductible.

The bill when signed into law, is expected to  remove the tax exemption on withdrawals from pension schemes except the prescribed conditions are met.

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The bill will come up with a penalty for failure to deduct tax by agents appointed for tax deduction. This penalty is 10 per cent of the tax not deducted, plus interest at the prevailing monetary policy rate of the CBN.

The conditions attached to tax exemption on gratuities will be removed by the bill, meaning that gratuities are unconditionally tax exempt. The duties currently performed by the Joint Tax Board (JTB) as it relates to administering the Personal Income Tax Act, will now be performed by the FIRS.

Another penalty that will come into effect when the bill becomes law will be the penalty for late filing of the Value Added Tax (VAT) returns.

The penalty for failure to register for VAT will be reviewed upwards to N50,000 for the first month of default and N25,000 for each subsequent month of default.

The penalty for failure to notify FIRS of change in company address will be reviewed upwards to N50,000 for the first month of default and N25,000 for each subsequent month of default. This penalty also covers failure to notify FIRS of permanent cessation of trade or business.

In his reaction, the National President Constance Association of Nigeria Mallam Shehu Mikail, said the policy would be a real set back to us especially the banks because people’s interest in using bank platforms will really diminish. For example, a pensioner who does not know about this and goes to the bank to collect his money will be livid. It is better for the government not to allow that form of implementation if they really want people to key into the financial inclusion drive because doing this will chase customers away which could dent banks’ revenues. Let the tax authorities look for another strategy instead of causing more chaos than what we already have.

They are:Assets are sold to a Nigerian company and is for the better organisation of the trade or business; The entities involved are within a recognised group 365 days before the transaction, and the relevant assets are not disposed earlier than 365 days after the transaction.

The current practice is that companies send an approval request letter under CITA S29(9) to the FIRS, and include a CGT exemption request. Currently, the CGT Act imposes CGT on compensation for loss of employment above N10,000.The bill seeks to expand the coverage of this provision by renaming it “compensation for loss” and increase the minimum threshold from N10,000 to N10 million.

At the Bankers Retreat earlier in the month, at Ogere, Ogun State, the CBN governor Godwin Emefiele,  said the optimization of taxation through the digital economy is the vogue around the world now and Nigeria cannot afford to lay by:

His words:

“We look at issues bordering on optimization of taxation through the digital economy. At some points, discussion of the panel came out and said, what we found, unfortunately, is that there are lots of opportunities for the Nigerian government to raise its revenues even through taxation but for the few anomalies we found in the system. For instance, you can have an arrangement where tax is imposed on you per annum. But what you truly got to pay into government coffers is less. And in some cases, substantially  lower than what the government should actually receive or than the amount initially estimated that the tax should be. And we all know the kind of things that usually happen when such issues  arise. We thought that in advising the fiscal(authority), there is a need for us to think on how to digitize the tax collection system  where it would be minimal cash, everything must go through the electronic system; you can even sit in your house and pay taxes. You don’t even need to see anybody ; you don’t need to talk to anybody.Those are the kind of innovation  the world is embracing and there is also need for Nigeria to also move in that direction. We also looked at issue of delivering inclusive growth through digital finance.”

On how to make the Finance Bill succsful, Ogubunka said:

“So  FIRS would be going from door to door looking for those that want to open bank accounts? And we are still talking about financial inclusion? The most important thing is that if people understand the reasons behind the requirement. But it requires the government to do a lot of public enlightenment, and people buy into it so that they know that it has values why people are required to do that. But again if it is to go and get Tax Identification Number, naturally many people would avoid payment of tax. And once they know that their names are inside the tax bracket, they can no longer run away. So they would better not go for it and then, they would better not open bank account. Some people may even abandon the accounts they have opened and quickly withdraw the money they have there before the commencement of the policy. So it has a lot of implications. But we need to see it from positive angle. And t he positive angle is for somebody or the government or those who are involved, the banks, to explain in details the essence of getting the number”