The Tax Advocacy series of Kwara State Internal Revenue Service (KW-IRS), for the week under speaks to “Concept of Taxation, Tax Laws and Policies” by Head, Monitoring & Evaluation Department, Bolakale Imam, Head, Accounts Department, Babatunde Salawu, and Team Lead, Business Analysis Unit, Taofiq Alabi.
Did You Know?
Tax is a compulsory levy imposed on individuals of a society by the government to fund government expenditures and spending in an economy.
There are various forms of taxes and these include Value Added Tax, Capital Gain Tax, Pay-As- You- Earn (PAYE), Personal Income Tax (PIT), Property Tax and Withholding Tax etc.
Taxes can be direct or indirect.
Direct taxes are levied on income or profit, e.g. Personal Income Tax, Company Income Tax, etc., while Indirect taxes are levied on goods and services. Indirect taxes are those taxes that can be shifted from one individual to another (E.g. VAT, Sales tax, excise duty, etc.).
Canons of taxation are principles upon which a good tax system is built and they include:
– Principle of Equity: Tax to be paid must be based on one’s ability e.g. PAYE of salary of senior officers is higher than junior ones; that is high income earner pays higher amount than low income earners.
– Principle of Certainty: The exact amount, date and medium for payment must be known and cleared to the taxpayers.
– Principle of Convenience: Payment of tax should match the convenience of taxpayer e.g. PAYE is deducted when salary is paid, VAT is deducted when purchase is made, farmers are taxed during bumper harvest, etc.
– Principle of Economy: Tax administration should align with the tenet of CBA (Cost Benefit Analysis) i.e. the cost of collection of tax must be very low to the amount to be realized.
– Principle of Simplicity: Tax system must be well understood with ease by the taxpayers in order for him/her to compute his/her liability in order to create a friendly-tax environment.
Payment of taxes is civic responsibility.
Taxes helps the economy and in the developmental projects of the government.
Tax Evasion is a deliberate attempt to illicitly refuse to pay tax or concealment of true and fair value of one’s income/profit.
Tax Evasion is a crime.
Tax Avoidance is taking advantage of loopholes in the tax laws to reduce tax liabilities, while Tax Evasion is an illegal act of illicit refusal to pay tax or concealment of true and fair value of one’s income/profit.
Benefits in Kind (BIK) are part of remuneration given to employee by the employer in kind rather than in monetary form e.g. living accommodation for domestic servant, company cars and other assets.
BIK is liable to tax; through:
– Living accommodation: where an employer provides an accommodation for an employee, such employee or his/her spouse is treated as being in receipt of additional emolument equivalent to annual value of such building less any rent paid by such employee. However, where such building is occupied for less than a year or part of it is occupied, the annual value would be apportioned appropriately.
– Cars and other assets: where an employer provides an asset owned by them (e.g. car) to employee, the employer is deemed to have incurred an annual expense equal to 5% of the cost of the asset, if the cost cannot be ascertained, 5% of the market value would be considered as at the date of acquisition.
– In case of rented asset or hired one, the employer is deemed to have incurred an expense on employee equal to the annual amount of rent and it is taxable in the hand of the employee. E.g. Generator.
– Other Taxable Benefits: Aside from accommodation and other assets (such as car, generator, etc.) the employer is deemed to have incurred annual expenses equal to annual expended in providing such facility e.g. electricity bill, water bill, domestic servant, driver, any other benefit provided for spouse of employee.
Items exempted from Benefits in Kind (BIK) include Meal Provision; Uniform, Overall or Protective Clothing; Redeployment of employee’s allowance i.e. Relocation (Disturbance allowance).
Withholding Tax (WHT) is the tax deducted at source whereby the authorized person making payment serves as an agent of collection and in turn remit the amount deducted to the Relevant Tax Authority (RTA).
All directed employers, MDAs and Organized Private Sectors (OPS) are mandated to deduct WHT from: Interest, Royalty, Rent, Dividend and payment in receipts of buildings, construction and related activities. It includes all types of contracts and agency arrangement. It also covers Commission, Consultancy, Management and Technical Service and Directors’ Fees. However sales in the ordinary course of business is exempted.
WHT is not a separate tax but an advance payment of Income Tax, which is set off from the taxpayer’s liability upon presentation of credit note.
Double Taxation is a tax principle referring to income tax paid twice on the same source of income, while Multiple Taxation occurs when tax is paid on different sources of income by the same taxpayer. For example Personal Income Tax, Property Tax and WHT from contract are different sources that could be paid by same taxpayer.
Capital allowance is the allowance granted in lieu of depreciation to a taxpayer who is a bonafide owner of an asset on which he has incurred qualifying capital expenditure for the purposes of his business. Such asset must be in use at the end of the basis period for a year of assessment before the allowance is granted.
Types of capital allowance include:
– Initial Allowance: It is granted once in the life span of an asset having satisfied the prescribed condition of being a bonafide owner and used for purpose of business.
– Annual Allowance: As the name implies it is granted on yearly basis upon satisfaction of prescribed condition. The computation is done using the straight line method.
– Balancing Allowance: when the tax written down value exceeds the sale proceed, balancing allowance is said to have arisen.
– Balancing charge: When the sale proceed is higher than tax written down value, balancing change is said to have occurred. It is treated as a trading income.
Currently, there is drastic shift from oil revenue to non-oil revenues. This is as a result of the drop in global oil price in the international market; and as such, the Nigerian Tax System has facilitated economic growth and development.
The Nigerian Tax System has not fully addressed the inequality of income distribution in the sense that the high income earners are not paying appropriate tax due on their income as compared to low income and salary earners.
By Kwara State Revenue Administration Law of 2015 as amended, the Kwara State Internal Revenue Service is the sole agency of the government vested with the responsibility to collect all taxes, fees, rates and levies on behalf of the Kwara State Government.
In enlightening, educating and ensuring taxpayers understand their rights and responsibilities, KW-IRS has been fulfilling this responsibility through its weekly radio tax advocacy programme (My Tax and I), jingles, dissemination of tax information through the website and social media platforms of the Service, through continuous engagement of relevant stakeholders, groups, association and involvement of traditional and religious leaders, as well as daily interaction of the staff with taxpayers.
Taxpayers can transact directly with the official revenue officers at the various KW-IRS offices and payment points situated across Kwara State and ensure all payments are receipted accordingly.
All revenue payments are to be made into the Kwara State Government IGR Accounts through the online payment platforms provided by the State. That is REMITA, QUICKTELLER, PAYARENA and others to be communicated in due course.
For ease of Revenue administration, among other benefits, the harmonized collection was introduced as an approach to effective collection by and for the State. This tool is being used in collection of revenue meant strictly for the State and for few collectible items of Local Government as agreed with them for efficiency. These collectibles on behalf of LGAs are reported and remitted to them accordingly by the end of each month. Such collections include Tenement rate, Radio License, Citizenship etc.
All correspondence for Kwara State Internal Revenue Service (KW-IRS) are to be addressed as and only to the Executive Chairman, KW-IRS, 27, Ahmadu Bello Way, G.R.A, Ilorin, Kwara State for required attention.
The Corporate Head Office of KW-IRS is on number 27, Ahmadu Bello way, GRA, Ilorin.
KW-IRS has physical offices in all the 16 Local Government Areas across Kwara State.
Corporate Affairs Department, KW-IRS