Tax Rights in 2022: What MSEs in Nigeria Need To Know

This article does not represent the opinion of any tax authority in Nigeria. While Ifeanyi Francis-Shokoya takes care to ensure accuracy as at the date of publication, this tax information is summarized, based on author’s understanding of tax legislations and practices and may be subject to change over time. You should seek professional and personalized tax advice.

Introduction

SMEs (Small and mid-size enterprises), MSMEs (Micro, Small and Medium Enterprises), SMBs (Small and Medium-Sized Businesses) are the same concepts. These names and associated classification are chosen based on the country’s laws, objectives, contributions and financing sources related to their circumstance. SMEs are generally viewed as businesses that maintain revenues, assets or a number of employees below a certain threshold[1]. According to the Finance Act, you are a ‘small company’ when your gross turnover earned is N25,000,000 naira or less, and a medium-sized company, when your gross turnover is greater than N25,000,00 naira but less than N100,000,000 naira[2]. The MSME National Policy 2021 -2025 found that there could be conflict when classifying the SME[3] as seen in varying definitions in its National Policy, FIRS Tax Administration Operations and the Finance Act respectively.

Nevertheless, this article will focus on the ‘Tax Rights of the Micro and Small Enterprises (MSEs) that are Limited Liability Companies or Incorporated Trustee, and as classified by the operations of Federal Inland Revenue Service (FIRS). The right of the taxpayer should be same in whichever jurisdiction tax is being paid. But the taxpayer rights referenced in this article, would be in relation to the FIRS – the mother tax revenue agency, with whom the Micro and Small Enterprises (MSEs) that are Limited Liability companies r Incorporated Trustee are to file applicable tax returns with as mandated by the existing laws of Nigeria[4]. Since taxation has become a priority sector for revenue generation, every taxpayer needs to be aware of its fundamental entitlements, when fulfilling their mandatory civic obligation in dealing with the tax authority.

Be aware that, this classification is not a hindrance to your businesses growth; however, it aims to increase awareness, knowledge and aid financial planning in relation to your classification. This article will be free of the tone and character associated with tax laws while focused on sharing simplified and accurate tax information to MSEs ‘as easy as can be’.

Micro & Small Enterprises (MSEs): Know your Classification

According to segmentation of tax cases in FIRS Tax Administration Operations, your establishment is a Micro & Small Enterprise, if it is a registered corporate entity/company, Limited Liability company or Incorporated Trustee, with the annual gross turnover in the threshold of below 500million Naira.[5]  In Nigeria, a registered corporate entity/company are  establishment with a group of subscribers represented by shareholdings of common stock, registered by Corporate Affairs Commission – CAC (under the Company and Allied Matters Act (CAMA), 2020) as a Limited Liability Company or Incorporated Trustee. This company could be registered for the purpose of promoting commerce, art, science, religion, sports, culture, education, research, charity or other similar objects; making profit or not, as with charities[6].

Your establishment is expected to abide by the institutional, legal and regulatory framework of the National Policy on Micro, Small and Medium Enterprises (MSME). In it, ‘Tax Administration’ is instrumental, a key thematic area, with objectives and strategies interlinked with other policy areas, to position MSEs for growth and enjoy the rights to enter into contracts, borrowing and lending of money, to be invested in, hiring of employees, owning assets, payment of taxes and associated incentives[7].

Micro & Small Enterprises (MSEs): Tax Rights

Tax administration in Nigeria cuts across the three-tiers of Government to raise revenue to finance government spending for national development. This is where taxpayers – citizens and businesses come in. As an MSE, your business is of the 65% contributing to Nigeria’s economic growth, ensuring that revenue is available for improving on the provision of social amenities and services. For the tax system to achieve its goal and function effectively, there has to be a delicate, balancing act of increasing awareness about the MSEs tax rights for fulfillment of their corresponding and mandatory tax obligations. This ensures that the MSE knows what to do, if it perceives that the tax authority has not respected its rights. The Taxpayer Rights is the treatment you are entitled to when you deal with the FIRS and it as follows:

Right to be Informed, Assisted and Heard

The FIRS has the mandate under the existing laws of Nigeria to register a corporate entity/taxpayer for taxes within its jurisdiction. Specifically, the MSE can seek and receive clarification on any tax issue, changes in the tax laws, policy, updated tax-related information and FIRS operations from any FIRS tax office in Nigeria and its approved communication channels.

However, the MSE can fulfill its tax obligations and transactions in any Micro & Small Tax Offices (MSTO) close to its business address. The Taxpayer Service (TPS) Unit in your MSTO will receive all your business tax correspondence; attend to any tax enquiry and assistance required. The addresses of the Micro & Small Tax Offices (MSTO) closest to your business can be found at FIRS website (www.firs.gov.ng). The FIRS social media handles (Facebook; Instagram: ‘firs_nigeria’ and twitter: @FIRSNigeria) and Contact Center (+23494602700, +2349074444441, +2349074444442, +2349072111111, +2349073777777) are other approved channels to obtain accurate information on what your business needs to do to comply.

Right to be Issued Taxpayer Identification Number (TIN):

MSEs are to obtain a TIN, to be identified as a registered taxpayer in Nigeria and fulfill civic obligations while executing its tax transactions, which is compulsory. Intending MSEs can obtain TIN at the point of registering the business with CAC. The TIN is now appended on your company registration certificate and is a precondition for continued operations of the business account(s). MSEs must also display TIN on all documents, correspondence and business transactions with other Companies, Individuals, Ministries and Government agencies, MSE can also approach the MSTO associated with its business address, with its CAC Certificate of Incorporation, to apply for its unique TIN. TIN generation is free of charge. Your tax representative may charge you professional fees, if you engage the entity for this purpose and other tax dealings.It can beobtained within 48hours from the tax office and verified at https://apps.firs.gov.ng/tinverification/.[8] For other taxes associated with the States, MSEs must apply for TIN from Joint Tax Board (www.jtb.gov.ng) or applicable State Board of Internal Revenue.

Right to Confidentiality and Secrecy: Business strategies, personal and financial information must not be shared except the MSE authorizes it or in accordance with the law. It is prohibited and a fine of ₦l,000,000.00 or 3-year imprisonment or both will be charged of the defaulter. Besides, the Nigeria Data Protection Regulation (NDPR), 2019, binds FIRS to imbibe the best data protection practices that safeguard personal data and enhance its security. FIRS has obtained the International Standard Organisation Certification (ISO 27001:2013) to assure of regular review of its internal processes and the safety of taxpayer information and data exchange on its network.[9] The taxpayer is to provide feedback through FIRS communication channels, if it perceives that confidentiality of its information has been compromised or FIRS has not respected their right to privacy and confidentiality.

Right to Quality Service, Complain and Seek Redress:

The FIRS Vision, Service Charter and the Mandate of its Taxpayer Services Department has quality service to taxpayers and 360o communication as the core of these guiding principles. This is why the MSE should expect effective, efficient and professional service when interacting with the tax office and staff.

Ideally, you should be attended to within 15 minutes at the tax office and receive acknowledgment to communication, with a timeline for action and contacts for follow up, within 48hours of receipt of correspondence and addressed promptly. The Tax Controller (TC) of your MSTO is mandated to receive & investigate your complaints/issues and proffer timely solutions. The contact details of the State Coordinators (supervisors of the TCs) of the tax offices are available on the FIRS website, if you still disagree with the way the TC addressed your concerns and escalation is required. When service received is short of quality, the MSE is advised strongly to communicate and seek redress.

Furthermore, the FIRS SERVICOM department acts as an Ombudsman, ensuring that all departments of FIRS deliver their Service Charters without bias. This is why you must not be weary to channel complaints for fear of reprisal because they are treated in the strictest confidence. Complaints can be channeled physically at any tax office, through the FIRS Contact Center (information provided above) and FIRS Service emails (helpdesk@firs.gov.ng; enquiries@firs.gov.ng; complaints@firs.gov.ng; servicom@firs.gov.ng). The Anti-corruption & Transparency Unit for ethical situations regarding fraud, bribery and corruption practices via 09030009710; 09071666666 and anticorruptionunit@firs.gov.ng. External channels such as independent arbitration & mediation services, the Tax Appeal Tribunal and other courts of law can be explored, if these other channels do not provide satisfactory outcomes[10].

Right to a Tax Representative; to Pay Only the Correct Amount of Tax; Objection and Appeal:

It is expected that FIRS has put measures in place to ensure accuracy and consistency in the administration of the tax laws. If you feel FIRS have not applied the law consistently or correctly in your situation, the MSE has the right to oppose a tax assessment (the amount you are expected to pay as taxes to the government) raised and appeal decision by the FIRS, by responding via written response, sent in-person, through courier, or email/electronic means. Judicial means can be explored, when a satisfactory response is not received from previous correspondence. However, response (by either party) must be given within thirty (30) days or the stipulated time in notice and in line with the law guiding the objection[11]. Which is why the MSE should be aware that their business has the right to Pay only the correct amount of tax legally due based on prevailing circumstance, and also engage a Tax representative/Consultant.The MSE can expect to pay no more and no less than the correct amount required under the law of the federation.

The MSE is legally responsible for its tax affairs. However, if the MSE struggles to get its tax right or pay on time, consider using a qualified and credible tax consultant to handle and discuss the business’ tax dealings with FIRS, to ensure the business understands and abides by the tax laws, guidelines, regulations and implications. MSEs are entitled to be granted tax credits, refund on excess tax paid or tax erroneously paid after proper audit with the option of using it to offset future tax liabilities in accordance with the law. Another benefit is that, the business can carefully take advantage of reliefs, deductibles and tax refunds (where applicable) taking into consideration the prevailing circumstances of the business and the tax laws as counselled by the tax representative. Engaging a tax representative is a deductible business expense that is most times cheaper than penalties or prosecution. These rights mentioned here, go hand in hand because the tax laws and penalties will not be waived or reduced as a result of ignorance.

A single-source repository for all Tax Consultants in Nigeria may not be readily available to the taxpayer. However, any entity your business selects should be accredited and from either of these professional bodies (Chartered Institute of Taxation of Nigeria (CITN), Institute of Chartered Accountants of Nigeria (ICAN) and Association of National Accountants of Nigeria (ANAN)) in Nigeria.

Right to be Informed of a Tax Audit:

A physical examination (known as a Tax Audit) of the MSEs financial records and transactions including 3rd party documents, to confirm the extent of tax compliance, raise additional tax assessments to cover any shortfall and educate the Taxpayer on the provisions of the tax laws for voluntary compliance is statutory and can be carried out on your business. However, you have a right to be informed through a notice in-writing, sent through courier/electronic means, not less than 30 days from the date of receipt of FIRS notice. The notice will clearly state the period(s) to be covered, time of the audit and the authorized tax officials, amongst others. You have the right to request to view proper identification from any person claiming to be an FIRS official while at your business on official duties. The Audit cycle should be completed within 60 days (i.e. from the date of commencement of audit exercise to conclusion) and conclusion communicated to the taxpayer accordingly.[12]

Right to be Issued with Tax Clearance Certificate (TCC):

After fulfilling the tax obligation of your business, the MSE can request for the TCC anywhere (from the comfort of your home or office). Application for the Tax Clearance Certificate can only be made electronically and online by visiting https://tcc.firs.gov.ng/ . The TCC will be issued upon approval to cover the three years proceeding the year of application or denied within two weeks of application, with reasons to support the denial. A link to download the electronic-TCC will be instantly sent to the e-mail where the TCC can be printed.  The authenticity of an e-TCC can also be verified by visiting https://tcc.firs.gov.ng/ , clicking on the verify e-TCC button and entering the TCC Number and TIN of the Company. You can also use the QR Reader, to scan the QR bar on the top-right-corner of the e-TCC, to verify authenticity of the e-TCC.[13]

Conclusion:

Running a MSE in Nigeria and fulfilling your tax obligations can be challenging. However, exploring the tax rights can help the MSE establish processes that:

  • Manage its tax properly from the start.
  • Encourage keeping good financial records.
  • Encourage frequent evaluation and accounting of MSE income and financial position.
  • Encourage planning ahead and early separation of tax from cash flow and profits.
  • Aid MSE to learn from past/fix mistakes: The MSE owner would be held liable if audited by the FIRS and found wanting.  Thus, it is important to ask questions, stay up-to-date on changes occurring and understand what numbers are being reported for your business.
  • Improve your communications with the FIRS.
  • Reduce exposure to government fines; paying taxes is cheaper than penalties or prosecution.
  • Position the MSE to gain access to finance, government incentives and growth opportunities.
  • Aid MSE to focus its energy and resources on creating jobs, growth and expansion for the Nigerian economy.
Works Cited
Berkeley Legal Management & Consult International. Different Corporate Entities Under the Nigeria Law. 2021.
“Company Income Tax Act (CITA), Cap C21.” n.d.
Corporate Affairs Commission. “Companies & Allied Matters Act.” 2020.
CSG, FIRS Compliance Support Group. Approved Tax Audit Process-Realignment of Processes 12,18 & 19. Abuja, 2020.
Realignment of Processes 12 & 18 of May 2020 Approved Tax Audit Processes. Abuja, 29 September 2020.
Federal Capital Territory Inland Revenue Service (FCT-IRS). Tax Types. n.d. March 2022. <https://fctirs.gov.ng/tax-types/>.
Federal Inland Revenue Service (FIRS). Federal Inland Revenue Service Establishment Act – FIRS (Establishment Act) 2007. 2007.
“Our Charter.” n.d. https://firs.gov.ng/our-charter/. April 2022.
FIRS. Circular on Review of Turnover Based Segmentation Threshold. 2020.
General Tax Administration. n.d. March 2022. <https://firs.gov.ng/general-tax-administration/>.
Tax Laws. n.d. March 2022. <https://firs.gov.ng/tax-laws/#>.
Tax Payer Guidelines. n.d. March 2022. <https://firs.gov.ng/tax-payer-guidelines/>.
Joint Tax Board – JTB. Frequently Asked Questions. n.d. March 2022. <https://www.jtb.gov.ng/frequently-asked-questions/>.
JTB. Tax Laws. n.d. March 2022. <https://www.jtb.gov.ng/tax-laws/>.
Laws of the Federation of Nigeria. “Finance Act 2019.” n.d.
Schedule to the Taxes & Levies (Approved List for Collection) Act (Amendement) Order. 2015.
Liberto, Daniel and Janet Berry-Johnson. Investopedia.com. 8 November 2020. April 2022. <https://www.investopedia.com/terms/s/smallandmidsizeenterprises.asp>.
SMEDAN (Small & Medium Enterprises Development Agency of Nigeria). National Policy on Micro, Small & Medium Enterprises (2021-2025 Edition). 2021-2025. March 2022.

[1] (Liberto and Berry-Johnson)

[2] (Laws of the Federation of Nigeria)

[3] (SMEDAN (Small & Medium Enterprises Development Agency of Nigeria))

[4] (Federal Inland Revenue Service (FIRS))

[5] (FIRS)

[6] (Corporate Affairs Commission); (Berkeley Legal Management & Consult International)

[7] (SMEDAN (Small & Medium Enterprises Development Agency of Nigeria))

[8] (Joint Tax Board – JTB) (FIRS)

[9] (Federal Inland Revenue Service (FIRS))

[10] (Federal Inland Revenue Service (FIRS))

[11] (Company Income Tax Act (CITA), Cap C21)

[12] (CSG, FIRS Compliance Support Group), (CSG, FIRS Compliance Support Group), (Federal Inland Revenue Service (FIRS))

[13] (Federal Inland Revenue Service (FIRS))

Ify.shokoya

I am a performance driven and high impact professional with over 12 years’ experience in project management, business integration, institutional change and multicultural team management. Also an exceptional communicator and an unconventional thinker with demonstrated ability to understand and implement various strategies globally. Experienced in reform and digital transformation of the sector focused on domestic revenue mobilization in Nigeria

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