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Published On: Fri, May 9th, 2014

Collection Procedure (II)

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Procedure for taxInterest & Penalty for Late Payment 
The interest is not an alternative to the penalty. Interest is for late and deferred payments while penalty is charged for late payment of tax. Interest is therefore charged in addition to the penalty in cases of late payment.
Self-Assessment 
Penalty starts to count from the due date of payment but interest starts to count from a day after the due date of payment.
Government Assessments 
Penalty is charged from the date the assessment was issued but interest is reckoned from a day after the assessment was issued.
Example 4 
A company was served a notice of amended assessment for N500,000 to replace a disputed government assessment on 1st May, 1992. The tax remained unpaid till 31st October, 1992.
Comment
Penalty for late Payment 
Note:
1/5/92 to 31/10/92 6 months
Penalty = 6/12 of 10/100 of 500,000 = N 25,000
Interest 
Due date of payment Day of Reckoning Interest rate 02/05/92 to 31/10/92
– 01/05/92
– 02/05/92
– 20% per annum
– 183 days.
 Total Payment 
Tax – 500,000.00
Penalty – 25,000.00
Interest – 50,000.00
Amount Payable 575,000.00
Deferred Payment: Interest & Penalty 
When a company arranges with the Service to defer the tax due, interest is chargeable but penalty may not be imposed if the application is approved. The interest is calculated on reducing balance basis.
Interest on Payments in Excess of Approved Instalments 
When a taxpayer seeks to pay the tax due in a number of instalments greater than that approved for self assessment  as specified above, interest is payable on the excess number of payments, also on reducing balance basis.
Example 5
XYZ Limited, with 31st March, 1993 as the due date of payment of the self-assessment, has applied for the payment of the tax due amounting to N100,000 in ten equal monthly instalments.
Comment
a.) Since the company is entitled to six instalments in the current year of assessment,
the first six payments terminating on 31st August, 1993 will not attract interest.
However,  interest  will  be  charged  on  the  balance  of  four  months  on  reducing
balance basis as follows:
b.) 1st April to 30th September (6 months)
N
6/12 of 40,000 x 20/100 = 4,000.00
c.) 1st Oct to 31st Oct. (1 month)
1/12 of 30,000 x 20/100 = 500.00
d.) 1st Nov. to 30th Nov. (1 month)
1/12 of 20,000 x 20/100 = 333.33
e.) 1st Dec. to 31st Dec. (1 month)
1/12 of 10,000 x 20/100 = 166.67
Table of Payment
Due Date Tax Interest Amount Payable
(Tax + Interest)
N N N
30th Sept. 10,000 4,000.00 14,000.00
31st Oct. 10,000 500.00 10,500.00
30th Nov. 10,000 333.33 10,333.33
31st Dec. 10,000 166.67 10,166.67
Default in Payment of Approved Instalments 
When a company defaults in the payment of the instalments as approved, the concession stands cancelled. Interest starts to count from the date the default occurs. The calculation of the interest is also on the reducing balance basis.
Interest on Arrears 
As from 1st January 1991, arrears of tax are to carry interest at commercial rate. The interest is in addition to the annual penalty and both are to be charged annually.
Lateness in Filling Application for Instalment Payments 
Where a company is late in applying for instalment payment arrangement, interest should be charged from the date of reckoning (a day after the due date of payment) to the date of commencement of the payments. The accruing interest should be added to the tax and spread over the number of instalments allowable under the circumstance.
Petroleum Profits Tax (PPT)
In view of the fact that transactions in the oil industry are in dollars and the operators are allowed to keep their proceeds of sale in accounts overseas, government has directed that the estimated tax of an accounting period under the provisions of Section 27 of the PPT Act, 1959 shall be made and submitted to the Service in US dollars and when payments are being made, each monthly payment shall be in US dollars and shall be equal to one-twelfth of the estimated tax or of the fraction of the remaining months of the accounting year for which a revised estimated tax becomes necessary and is so estimated.
The  final  PPT  payable,  that  is,  the  thirteenth  installment,  shall  be
ascertained as provided for in Section 38 (4) of the same Act such that so much of the amount of instalments of estimated tax that had already been paid in US dollars shall be deducted from total PPT computed in US dollars based on the annual accounts.
`
Litigation 
As explained above, instalment or deferred payments, as the case may be, will be approved for companies with convincing proof of serious financial problems. However where the arrangement fails to yield the desired result, legal action may be instituted against defaulters to enforce payment.
Withholding Taxes (WHT) 
Payments made to companies and certain categories of individuals are to suffer deductions at source as follows:
Rates 
Type of Payment Applicable WHT Applicable WHT
Companies *a Individual *b
(i) Dividend, Interest and Rent 5 5
(ii) Royalties 15 15
(iii) Commissions, Consultancy
Technical & Management 10 5
(iv) Construction 2.5 2.5
(v) Contract Supplies* 2.5 2.5
The Payment of withholding tax is now in the currency of the contract agreement.
The individuals covered by the Federal Inland Revenue Service are the non-residents, residents of Abuja, members of the Police & Armed Forces and External Affairs Officers. Other individuals are under the tax jurisdiction of the State tax authority where the individuals reside.
*The term ‘contract supplies’ covers all forms of supplies, deliveries, or the like through competitive bidding, tenders, LPOs or other arrangements, whether oral or written. The term does not cover across-the-counter cash sales or supplies in the ordinary course of sales.
WHT on Investment Income 
(i) Non-Residents: WHT on dividends, interests, rents and royalties payable to non-resident remain the final tax.
(ii) Residents: With effect from January 1992 the provisions in the Act regarding these payments as final tax have been amended. They are now to be regarded as payments on account.
Remittance of WHT to Tax Authorities
Failure of an agent of deduction to remit WHT within the statutory time-limit will attract:
(iii) Interest at commercial rate on the amount not remitted by the agent,
(iv) Prosecution of the agent for default, and
(v) Denial of Tax Clearance Certificate to such an agent.
Furthermore, where the agent is a government ministry, parastatal or department or a local government, the Service may authorize the Accountant-General of the Federation in writing to deduct such tax plus interest at the prevailing commercial rate from any allocation due to such agency.
WHT  as Tax Credit 
Withholding taxes are advance payments and they can only be applied as tax credit to settle the assessment of the year to which the income that suffered the deduction relates. Where the withholding tax credit exceeds the assessment for a given year, the excess may be carried forward as future set-off.
Refund/Set-off 
 Where it is proved that the person who suffered the deduction is not liable to tax or that tax withheld is in excess of the assessed tax, the Service will grant a refund or a carry-forward, as the case may be, after the claim has been confirmed by tax audit process.

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