Yinka Babalola: Failure To Pay Tax March 31St Faces N100,000 Penalty

Mr Yinka presented the following write-up at the seminar aimed at motivating and inspiring the outgoing 7th cohort of Imole Eko Foundation Graduates.

I have come to realize that the EFCC and ICPC do not have access to your bank account; it is solely a mandate or instruction legally issued by the court that allows them to request access from the bank to your account.

It is important for us to fulfill our responsibilities. For a small business, one should register an enterprise, and when you have a bigger scope, register a limited liability company. If it is a non-governmental organization (NGO), it should be registered in accordance with the regulations established by the government.

Some of us, as business owners, may not pay taxes because the government claims that we are earning so little, leading to the assumption that we should not be taxed. The reality is that regardless of whether you are earning a lot or not, you are still required to file your taxes. It is the responsibility of the appropriate authority to inform you if you are exempt from paying taxes due to your income level.

Who qualifies as a small business owner?

A small business owner is an individual who operates the business themselves, which cannot be compared to Parallex Bank, as it is not owned by a single individual.

The government recognizes your business as an extension of yourself. For example, if you were supposed to supply 50 bags of Rice and, by chance, you only supply 40, you will be the one held accountable.

On the other hand, if your business is structured as a limited liability company and it incurs debt, it is the entity that is responsible for the debt, not you personally.

If I am registered with the CAC as an enterprise and I obtain a loan from a bank to enhance my laptop business, the bank views the loan as being taken out by me. If I default on repayment, the bank may initiate a warrant for my arrest. However, if it is Parallex Bank, the court and other agencies such as the police, EFCC, and ICPC will go after the bank as an entity.

As an enterprise owner, the Tax Identification Number (TIN) is your personal TIN. You are not liable for Corporate Income Tax (CIT), and your assets are fixed. If you are taken to the police station for theft or due to failure to repay your debts, the government has the authority to seize your vehicle.

For a business name, it is necessary to pay taxes, which are classified as Personal Income Tax (PIT). This tax is due once a year, March 31st stipulated as the deadline.

It is essential to ensure that your bookkeeping is organised appropriately. Each day, make it a point of duty to document personal expenses.

Tax evasion occurs when an individual attempts to avoid paying taxes; this is considered a criminal offense. Conversely, tax reduction is viewed as a legitimate method of minimizing tax liabilities.

If you reside in Lagos, you must register with the Lagos Inland Revenue Service (LIRS) and ensure that you pay your taxes annually and consistently.

For example, if N10 million is deposited into your account as a loan, you are not required to pay tax on that amount. If I can prove to the LIRS that the funds deposited into my account are a contribution to my business, I will not be liable for tax on it.

Calculation:

According to the LIRS, if you are subject to Personal Income Tax (PIT), the first N800,000 in your account is exempt from tax. This means that if your total transactions for the month of January amount to N800,000, you will not incur any tax liability. However, if your transactions fall between N800,000 and N3 million, you are required to pay a tax rate of 15%. For transactions between N3 million to N12 million, the tax rate is 18%. If your transactions range from N12 million to N25 million, the applicable tax rate is 21%, for transactions between N25 million and N50 million, the tax rate is 23%. Lastly, above N50million is 25%.

Business Expenses

Not all funds that are deposited into your account are subject to taxation; your personal living expenses, school fees, and rent are exempt from taxes.

Value Added Tax (VAT):

You will deduct your expenses from your revenue. For a business name or an enterprise owner, if your total income does not reach N25 million, you will not be liable to pay VAT.

Penalties:

For PIC (business owners/enterprise), if you fail to make the payment by March 31, you will incur a penalty of N100,000. If you miss the payment the following month, an additional N50,000 will be added to the initial N100,000, and if you miss the payment again the following month, another N50,000 will be added. Failure to pay your taxes entirely may result in the loss of your business.

Your tax obligation is based on profit, not revenue.