Why Federal Inland Revenues Service freezes the bank accounts of some companies in Nigeria

By Anayo M. Nwosu

Some business men especially big time traders and those in logistics or clearing and forward agencies have complained that Federal Inland Revenues Service (FIRS) had frozen their bank accounts for unknown reasons. No, the reason is known. It is because the companies which are limited liability companies have not paid tax at all or have not paid enough tax.

In Nigeria, the Corporate Income tax rate is a tax collected from companies. Its amount is based on the net income companies obtain while exercising their business activity, normally during one business year. Revenues from the Corporate Tax Rate are an important source of income for the government of Nigeria.

Every registered company in Nigeria by law must pay company tax to FIRS and the tax rate is currently 30% of your profit before tax which must be paid every year. FIRS also collects value added tax which is calculated as 5% of total sales made or services rendered by a company or an enterprise.

FIRS has many ways of finding out that you have not paid taxes apart from storming your offices and conducting investigations by examining your financial books. Incidentally the storming of tax defaulters' premises used to be efficient until business people started using residential building or unmarked apartments for business.

Now FIRS has devised a way to catch tax evaders. And the most effective way is to attack where they keep their money that's their bank accounts.

When your account is clamped or frozen by the FIRS then you will be forced to report to their office for discussion and pay the tax before the your account is unfrozen.

Recall that no bank is allowed by law to open an account for any company in Nigeria without a tax  identication number (TIN). When linked to the company's registration number, the Bank Verification Numbers (BVN) and National Identity Number (NIN), no tax payer can hide.

With the tagging all the identifications of companies and their owners, every citizens' buying, spending and paying patterns can be plotted and understood.

Do you know that tax authorities know the profit margins of all types businesses in Nigeria and the maximum costs incurable in those businesses and therefore can project the amount tax each business can pay?

FIRS knows that most contractors make between 15-40% per supply. They know that a recharge card seller makes 5% margin but does high volumes just like most fast moving consumer goods.

Do not wait for FIRS to clamp down on your bank accounts.

Engage an accountant albeit on a part-time basis to help you prepare your annual financial accounts with comprehensive details and submit same to the FIRS for assessment and payment of your annual tax.

Also ensure that you charge and remit VAT promptly.

Those in clearing and forwarding agencies as well as logistics should engage the FIRS to understand that huge turnovers in their bank account's statements are not sales but payments by their principals to clear or supply goods or move goes for them. This can only be better explained by a chartered tax accountant or a finance person experienced in tax matters. There are also many tax consultants.

The rate at which personal and company identification information are converging, there is little or no hiding place for tax evaders especially those trading under limited liability companies.

Note that the all important herdsmen fall in this category. FIRS should be encouraged to make them pay tax.

The Nigeria law allows FIRS to access and view the turnover and balances of all bank accounts in Nigeria. They can now use the tax identification number or BVN to ascertain how much tax you have paid.

You can now see that wahala dey?

How much tax do herdsmen pay to enjoy the Nigerian state the way they do? FIRS should be encouraged to make them pay tax.

Following "go back to your state" warnings by some anti-progressive and tribe preservative forces, some business people have started abandoning the use of limited liability companies. They now use their personal names or Sole Proprietorship names to operate their bank accounts.

Some aggrieved tax payers in Lagos are changing their contact and residential addresses to their states of origin. The implication is that they are now liable to pay income tax or pay as you earn tax (PAYE) to their own states of origin. They would have to contend with Land Use Charge or Business Premises Charge in Lagos.

Seriously speaking, if your business is a small or medium enterprise whereas you don't intend to truly invite others to invest in your business, why operate with as limited liability company?

Why not register an Enterprise and manage your tax liabilities better?

I reckon that the major aim of trading with a limited liability name is to limit the liability or loss upon bankruptcy of your company to only the assets or property owned by the company or are in the name of the failed company.

Out of creativity, banks have immuned themselves against the limitation of liabilities of debtor companies. Banks ensure that the directors or owners of the company give personal guarantees to any loan borrowed using their limited liability companies so that when the companies fail to pay, the lenders will go after the personal assets of the owners of the failed companies.