There are tax havens and there are jurisdictions where the taxman reign supreme. In any jurisdiction where taxes are levied, Tax Clearance Certificate (TCC) is a collector’s item. Nigeria is not one where the citizens enjoy the luxury of tax-free income. If you detest tax payment, you may reconsider your Nigeria residency. You probably should be in the Bahamas or Bermuda. Both places are not only tax-free, you’ll also enjoy white sand beaches, ocean views and tropical climate.
Sound like a perfect place to retire to? Well, be sure to read about the mysterious disappearance into the famous Bermuda Triangle. But I haven’t heard about the “Bahamas Triangle”. Perhaps, that will be a good consideration for a tax haven. My Barrister friend and co-traveller has also mouthed his planned retirement into Cayman Island or British Virgin Island. He’s working to meet the requirements. And I’ve agreed with him to invite me over when he’s done settling down.
You don’t have to pay taxes in Oman too, but you probably won’t even have much income to be taxed in the first place. Qatar, UAE, Kuwait are options too. Just be sure you understand what it takes to stay there. If prerequisites from known tax havens scares you, try the likes of Andorra, Anguilla, Brunei, Kuwait, Maldives, and Vanuatu. You probably don’t know where some of these countries are. Well, Google is your friend. He knows everything. Google says Brunei is on the island of Borneo in Southeast Asia, right next to Malaysia. So richly blessed with natural resources – and all that resources for just a little over 400,000 people.
The country is said to have vast petroleum and natural gas resources which makes it about the 6th richest nation on earth! Some statistics by IMF and World Bank rank the country 4th and 5th respectively based on projected and actual GDP per capital. So they don’t need your taxes – government could just practically go scoop some oil in a bucket like black gold. Just that you don’t blame me for luring you to Brunei, I heard there’s no free speech there. And you may be lonely. So I heard!
Let’s come back to reality. Business is about risk and reward and tax is a consequence of good fortunes. If you relish the market potential of near 200 million people, you must also do the needful. TCC is one of the requisite documents for various transactions by individuals and corporate organisations in Nigeria. Taxpayers are required to obtain TCC annually and will often be required to present it as evidence of good tax standing. Let me quickly state that the real meaning of TCC is often confused. Tax clearance certificate is not an absolute clearance from tax liabilities in respect of periods covered. Confused? In simple terms, it only means the tax assessed for the period have been paid or that none has been assessed. This explains why tax audits could still be carried out for period covered by TCC and liability established and payable.
TCC is ordinarily tied to income tax. For corporates, Company Income Tax (CIT); for individuals, Personal Income Tax (PIT). TCC is issued whenever tax assessed on the profit or income has been fully paid or that no tax is due on such profit or income. Under the self-assessment system, once the amount of self-assessed CIT liability has been fully paid, TCC may be issued. Although FIRS often reject TCC application by taxpayers who are in default of other taxes, it was primarily CIT-focused.
The fact that TCC is CIT-focused is buttressed by the fact that records of other taxes do not appear on the certificate. Only details relating to amount of CIT assessed and paid for the immediate past 3 years are shown. TCC discloses, in respect of last 3 assessment years, (a) the total profits or chargeable income (b) tax payable (c.) tax paid. There’s even a school of thought that TCC may be issued where tax is outstanding. This is because CITA provides TCC may disclose (d) any outstanding tax or a statement to the effect that none is due. This is probably where FIRS is provided with a good reason for the delay and compelling commitment on future settlement.
Nonetheless, it is not totally out of place for FIRS to look at other tax obligations outside CIT before issuing TCC. While there may not be a direct provision in VAT Act that justify refusal of TCC for VAT default, WHT default is a valid ground. Based on CITA, when a person has deducted any tax under CITA and fails to remit same, TCC may be refused. Non-compliance with WHT obligation may lead to TCC being refused, even if own CIT liability has been fully discharged.
CITA requires TCC to be issued within 2 weeks of application, otherwise tax authority must provide reason for its refusal. This means that TCC should ordinarily be issued within 2 weeks provided a taxpayer has settled assessed tax. Once a company is able to demonstrate that it has fully paid its CIT, or no liability to tax, TCC must be issued. CIT payment could be by direct cash settlement of offset by withholding tax credits.
Because it serve as evidence of tax registration/payment, new companies that haven’t commence business are entitled to TCC. For newly incorporated companies, there’s no statutory fee or cost if it applies for TCC within 6 months of incorporation. A company which is yet to commence business after 6 months of incorporation will pay pre-operational levy (POL). POL is payable in any year that a company that is yet to commence business, after 6 months of incorporation, applies for TCC. POL is N20, 000(~$100) for the first year and N25,000 (~$125) for every subsequent year that TCC is required.
POL is only payable for the particular year that TCC is required and not for each year that the company has been inoperative. For example, if a company incorporated in Jan 2014 is yet to commence biz and applies for TCC in 2015, POL payable is N20k. Not N45k. If the company still hasn’t commence business in 2016 and require TCC, it will pay N25k.
Now, the real gist of today is about driving tax compliance through effective use of Tax Clearance Certificate. CITA requires presentation of TCC in many different business dealings with Government’s MDA or Bank. MDA stands for Ministry, Department or Agency of Government. In order words, whenever a company is entering into business dealings with any MDA or Bank, TCC is required. Other companies also includes TCC as part of bid documentation and vendor registration. Let’s look at some of the transactions that requires TCC. If this rule is followed conscientiously, compliance will rise.
First on the list is application for Government loan for industry and business. You can’t approach Government for loan without TCC. Same rule applies for application for award of contracts by Government, its agencies or registered companies. Application for foreign exchange or permission to remit fund outside Nigeria also require presentation of valid TCC. In the same vein, application for import or export license are supposed to be supported by TCC.
You need TCC to apply for registration of a limited liability company or business name with CAC. You’ll also be required to present TCC when applying for stamping of statement of the amount of loan capital. Same with stamping of company’s statement of nominal share capital or increase in authorised share capital. You need TCC to apply for plot of land, agent license, Certificate of Occupancy, approval of building plans and transfer of property. Application for registration as a contractor, application for distributorship license require TCC. Application for firearms license, application for pools or gaming license all require TCC. Application for allocation of market stalls require presentation of TCC. Application for offshore remittance of rent, dividend, interest, royalty, fees or any other similar income requires a TCC. This is to show that tax has been paid on none is due on funds in respect of which the application is sought.
TCC is also required for registration of Motor Vehicles. That’s food for thought! I do not know how well, how often, and the extent to which this rule is applied in practice. Imagine the number of registered vehicles plying our roads and causing untoward traffic gridlocks. Stamping of Guarantor’s form for Nigeria passport also require TCC. Yeah, what you call “International Passport”! Imagine how many people holds valid passport, all of whom must have provided a guarantor. Check the website of Nigeria Immigration Service, the first requirement for obtaining a standard Nigerian passport is Guarantor’s form. The guarantor’s form is supposed to be duly signed by a commissioner of oaths. Inference from CITA provision is that before the Commissioner of Oaths stamps the form, guarantor’s TCC should be sighted. Now, confession time: how did you get through with your passport application process without guarantor’s TCC? Don’t worry, those who can catch you are not on twitter. They won’t see your response.
If you ponder well on these things, you’ll ask: How then do we find it difficult to bring eligible taxpayers into tax net? Imagine for a moment what the level of tax compliance in the country would be if TCC is being properly used! This is why I hold the view that it is possible to shore up tax revenue without necessarily creating new taxes or amending laws. Just by improved enforcement, we can achieve a significant increase in government revenue. No sacred cows. Just by simply asking – Show Your Tax Clearance Certificate. Not “Oluwole TCC”!
Nigeria isn’t short on laws, what is required is enforcement. Just to get more serious with making the laws work as they should. When we get everybody – corporates and individuals, at every level of influence – to all say YES to rule of law, doing right. Don’t get caught on the wrong side of the law. Be a responsible citizen. In the words of FIRS, it pays to pay your tax.
Thank you for following this discussion. See you next time. Thanks for your retweets.
Note:
This article was posted in verses via my Twitter handle, @YomiOlugbenro, on Wednesday, 4 November 2015. Every Wednesday at 17:00 WAT (CUT+1), I run a one-hour “tweetax” session with hashtag #TaxWiseNG where topical tax issues are discussed. The tweets are subsequently posted as an article and posted on my website yomiolugbenro.com, facebook.com/YomiOlugbenro and LinkedIn.com/YomiOlugbenro.
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