Due to growing regulatory complexity, organisations need to realise that spreadsheets and other manual methods are no longer sufficient to meet their needs to comply
Nigerian companies must ensure that they have robust, automated payroll systems and processes in place so that they can more easily comply with the demands of an increasingly tough tax regime in the country.
That’s according to Magnus Nmonwu (twitter.com/mnmonwu?lang=en), Regional Director for Sage West Africa (sageafrica.com), who says that a hard-line attitude to non-compliance from the Nigerian federal and state tax authorities means that companies must get all their processes and paperwork in order to avoid tax troubles in the months to come.
Nigeria’s Federal Inland Revenue Service recently said (fin24.com/Economy/Nigeria-gets-tough-on-tax-evasion-20150809) it would crack down on tax evaders by conducting audits of companies doing business in Nigeria to ensure that they are compliant with the various taxes due to the country. Furthermore, a law enforcement exercise saw the Lagos Inland Revenue Service (apo.af/eoFxuv) temporarily seal the premises of 10 firms for failing to remit N45.52 million Personal Income Tax of staff to the state government.
Says Nmonwu: “These actions show that Nigeria’s tax authorities are taking a zero-tolerance approach to non-payment of tax or incorrect remittances of taxes to the government, whether the reason is a deliberate evasion or an accidental oversight. With companies in Nigeria coming under more scrutiny for their tax affairs, it is essential to put in place systems and processes that help you to easily comply with tax regulations.”
The Nigerian Personal Income Tax Act states that employers are required to file annual returns of all remuneration paid to their employees and taxes deducted and remitted to the tax authorities on or before 31 January every year. Failure to do so carries a maximum penalty of N500, 000 for the employer and N50, 000 for individuals.
In addition, employers must remit Pay-As-You-Earn (PAYE) tax each month for each employee to the relevant state internal revenue services, on or before the 10th day following the month in which salary was paid.
Furthermore, employers and employees are each required to contribute 10% and 8% respectively of their employee’s monthly remuneration to the Nigeria’s contributory Pension Scheme. There are also other statutory payments, such as the Employee Compensation Scheme (formerly known as the Workmen Compensation Act), Development Levy, National Housing Fund, Industrial Training Fund, just to name a few.
A lack of formal systems makes it hard to comply
Nmonwu says that one common reason some companies in Nigeria struggle to meet these tax obligations and deadlines is that they don’t have formal business systems in place to enable accurate recordkeeping, precise calculations and deductions, and automated preparation and submissions of these statutory returns to the relevant tax authorities or government agencies when due. Against the backdrop of growing regulatory complexity, organisations need to realise that spreadsheets and other manual methods are no longer sufficient to meet their needs.
To comply, companies need to put in place solutions that streamline capturing of transactions, automate payroll calculations and bring visibility of the business. Such solutions also make it simpler to keep track of annual changes to tax regulations that impact on payroll tax calculations and various changes in legislation, says Nmonwu.
The discipline a good payroll solution offers to the business also comes with other benefits, notes Nmonwu. Payroll fraud is a major risk, especially for smaller businesses, and incorrect payments can cost dearly. Payroll software delivers better visibility into transactions, provides an audit trail, reconciles input and output and offers a set of controls, checks and balances that help to prevent errors and fraud. What’s more, the ability to generate tax certificates, reports and electronic payslips with the click of a button is a major timesaver.
A good HR and payroll solution allow HR managers to focus on performance management, training, skills development, alignment of the workforce with the business strategy, and other key strategic initiatives.
Nmonwu says that Nigeria’s federal and state governments are eager to expand their tax bases, and are investing heavily in modernising and streamlining tax administration. Given that they desperately need tax funds for social spending and infrastructure investment, they are closing in on companies that don’t comply,
“As such, failing to meet the statutory reporting requirements set out in the Nigerian legislation is a growing business risk for companies in Nigeria. Failure to comply with these laws and regulations can cost a company greatly in fines, penalties, interest charges and reputational damage, which could lead to a going concern issues for the company.
Putting in place electronic or automated systems that allow you to stay ahead of tax authorities and legislation can help you avoid this risk, thereby enabling you to concentrate on your core business functions” says Nmonwu.