Tax advice to the start-up entrepreneur

BY TUNDE ESAN

The word ‘Tax’ evokes unpleasant thoughts in the minds of the start-up entrepreneur with the images of tax officials with unintelligible assessments, tax advisors speaking esoteric language of distinction between tax avoidance and tax evasion, calculations involving unwieldy allowances and incentives, constant din of back-duty assessments, audit, investigation, filing returns and remittances.

The entrepreneur wonders what all the fuss is when all the tax administrations are interested in is ‘taking my money’.

Taxation is not a difficult subject for an entrepreneur to master and when stripped of all technicalities, it boils down to filings and remittances to designated tax administrations. The start-up entrepreneur is better served by paying heed to the simple points in this article.

The primary responsibility of the entrepreneur is to learn what levies and taxes he is assessable to. Every entrepreneur is advised to obtain a copy of the Taxes and Levies (Approved List for Collection) Act, CAP. T2, L.F.N. 2004 and the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order 2015. The Act and the amendment thereto state clearly all the taxes that an individual or a business concern is to pay and the taxing authority that is responsible for the assessment and collection. The Act is easily obtainable online.

Having known the taxes and levies he is to pay, the entrepreneur as a requirement of the law, must register for tax and obtain a Tax Identification Number (T.I.N.). To register to be captured in the tax net is not optional but mandatory for an entrepreneur and failure to register for tax has dire financial consequences in the payment of penalties, proprietary consequences in the form of distrainment and personal liberty consequences in terms of jail terms. Registration for tax is free. All that the entrepreneur is required to do is to go to the tax office covering his registered or business address and register for tax. A visit to the portal of the Federal Inland Revenue Service (FIRS), in the case of registration for taxes assessable and collected by the said body, will direct the entrepreneur to the specific address of the tax office that covers his jurisdiction.

It is critical to note that one of the essential functions of tax administrations is enlightenment of taxpayers or prospective taxpayers on taxes and everything pertaining to it. An entrepreneur should not hesitate to walk into a tax office and demand to see a responsible tax officer to demand answers to all questions he wishes to raise pertaining to taxation. The tax officers are paid to answer his enquiries

Having registered for tax, filing your returns as and at when due requires discipline and this where most entrepreneurs get into trouble with tax administrations. Keeping proper records and books of accounts and filing tax returns as and at when due can be tedious, repetitive and boring but this is the lifeline of complying with tax laws and an entrepreneur not opening himself up to penalties for defaults for late filings or false filings or possible loss of property or even custodial sentencing for tax evasion. An entrepreneur must file his returns as and at when due. Take for instance filing of returns in respect of Value Added Tax (V.A.T.). The first thing an entrepreneur must do is to know what goods and services are VATable and which goods or services are not VATable or attract zero percent tax. This list is available online. The entrepreneur must then charge VAT at the rate of 5 percent on VATable goods and services sold or rendered by him. The entrepreneur collects VAT as an agent of FIRS. The entrepreneur must remit the VAT collected in a particular month to FIRS on or before the 21^st day of the month following and where he fails to do this, interest begins to accrue on the unremitted sum and penalties for failure to file. Where in a given month, an entrepreneur does not receive any sum as VAT, he has an obligation under law to file a nil return on or before the 21st day of the month following and where he fails to file penalties will start to accrue for his failure to file returns. The entrepreneur must know when to file his withholding tax returns, his companies’ income tax returns, his petroleum profits tax returns, his personal income tax returns and every other tax return.

The entrepreneur must engage the services of a tax practitioner from time to time to learn what allowances and deductions are open to him under the various tax laws in lieu of depreciation. It is not part of business savviness to pay monies to the tax authorities where legally the law permits the entrepreneur to take advantage of allowances, deductions, benefits and exemptions granted thereunder. Getting a refund for excess sum paid as tax is a cumbersome process. The need for professional advisory services in this field is because there is a very thin line between tax avoidance and tax evasion. Tax avoidance is legal while tax evasion is criminal. It is important that in taking advantage of the loopholes in the tax laws an entrepreneur does not breach the provisions of the said laws. The professional fees paid a tax professional will be more than offset by the deductibles the said professional can highlight under the laws, for instance what are the tax benefits of siting a business in a free trade zone or for opening up the road that leads to the business premises or for erecting poles and connecting the area to electricity or for entering an industry designated as pioneer? What are the annual and investment allowances allowed and at what rate? What are the allowances allowed for operators in the upstream sector of petroleum operations? How long can an entrepreneur carry forward business losses? When is capital gains tax payable on capital gains upon the disposal of an asset? When are tax havens permissible? What are the rules relating to transfer pricings? What happens where an entrepreneur in the petroleum sector for tax purposes registers his rig outside jurisdiction or an entrepreneur in online business has his server outside Nigeria? These and more questions will be addressed for the entrepreneur by the tax professional with the aim of reducing his tax liabilities.

The entrepreneur must not hesitate to file a notice of objection and request to amend where he objects to an assessment by a tax administration. The entrepreneur where he fails to get an objection granted and a notice of refusal to amend issued to him must take advantage of the appellate provisions from the Tax Appeal Tribunal all the way to the Supreme Court within the time limited to raising the objection to filing the appeal{s}.

Lastly, an entrepreneur must familiarise himself with all the tax laws and policies and any amendments thereto as well as making out time to attend enlightenment seminars on tax related issues.