Common Tax Myths in Nigeria Debunked
Taxation is an essential aspect of any economy, serving as a vital source of revenue for government operations and public services. However, misconceptions and myths surrounding taxation often lead to misunderstandings and reluctance to comply with tax laws. In Nigeria, several common tax myths persist, contributing to misconceptions about the tax system and hindering effective tax compliance. We have put together a few myths to help you better understand what’s true and what’s false as it concerns tax in Nigeria.
While salary earners are subject to Pay-As-You-Earn (PAYE) taxes deducted by their employers, taxation extends beyond salary income. Various forms of taxes, including Value Added Tax (VAT), Company Income Tax (CIT), Withholding Tax (WHT), and Capital Gains Tax (CGT), apply to different sources of income such as business profits, investments, and property transactions. Individuals, partnerships, and companies engaging in economic activities are all liable to pay taxes based on their earnings and transactions.
2. Tax Evasion is Risk-Free
Tax evasion, the illegal act of deliberately underreporting income or misrepresenting tax liabilities to avoid paying taxes, is a criminal offense in Nigeria. The Federal Inland Revenue Service (FIRS) and other tax authorities have implemented stringent measures to combat tax evasion, including audits, investigations, and penalties for non-compliance. Individuals and businesses found guilty of tax evasion face severe consequences, including fines, imprisonment, and reputational damage.
3. Paying Taxes Does Not Benefit Taxpayers
Paying taxes contributes to the development of public infrastructure, social amenities, and essential services that benefit society. Tax revenues fund government initiatives in healthcare, education, transportation, security, and infrastructure development, improving living standards and promoting economic growth. All of these in one way or another directly affects us all and our standards of living.
More so, tax compliance enhances taxpayers' credibility and increases your eligibility for government contracts, loans, Form A transactions, and other business opportunities through the issuance of tax clearance certificates.
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4. Small Businesses Are Exempt from Taxation
Small businesses are not automatically exempt from taxation in Nigeria. While the government provides certain incentives and tax relief schemes to support small and medium-sized enterprises (SMEs), such as the Micro, Small, and Medium Enterprises (MSMEs) Development Fund and tax holidays for qualifying businesses, SMEs are still required to fulfill their tax obligations. Depending on their business structure and activities, SMEs may be liable for taxes such as VAT, PAYE, CIT, WHT, and Stamp Duties.
5. Taxpayers Cannot Challenge Tax Assessments
Taxpayers have the right to challenge tax assessments they deem inaccurate or unfair through the tax dispute resolution process. Taxpayers can file objections with the relevant tax authorities, such as the FIRS or State Internal Revenue Service (SIRS), and seek redress through administrative appeals, alternative dispute resolution mechanisms, or judicial review.
In conclusion, understanding the truths behind common tax myths is crucial for every Nigerian taxpayer. By dispelling misconceptions and clarifying the facts, individuals and businesses can make informed decisions and fulfill their tax obligations with confidence. Remember, taxation is not just about compliance; it's about contributing to the development of our society and economy. If you have any questions or need assistance with tax matters, don't hesitate to reach out to us at Accountable Techserve, where our team of experienced professionals is dedicated to providing comprehensive accounting, tax, and advisory solutions tailored to your needs. Let's work together towards a more transparent and prosperous tax environment for all.
You can also always book a free consultation if you would like to know more.