BusinessDay... the voice of business: Can high networth individuals be 'cornered' to pay correct tax?

Can high networth individuals be 'cornered' to pay correct tax?
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BLESSING ANARO,  IHEANYI NWACHUKWU on 20 April, 2008 12:00:00
 
The rich, for the purpose of this piece, referres to high networth individuals
who employ all the legal tricks in the book to make extra kobo.
They have more money, but they pay less tax in ways no tax official could catch
up with. At least the books appear not cooked, but the more the gross earnings
or fat pay, the leaner the Pay As You Earn (PAYE) appears to be.
The situation is usually reversed for the poor. You can see them being chased
on the streets to pay one form of tax or the order. In some cases, their stalls
are shut down, and in most cases, they pay to both government officials and to
local strong men, popularly referred to as area boys.
But as Herculean as the task seem to be, the Lagos state government appears
bent on unraveling the secret of the high networth individuals who earn more,
spend more but makes little impact in income accruing to governance.
Experts said, the problem actually lies with the Nigerian government. They say,
government officials or 'friends' are the faceless high networth individuals who
end up defrauding government of taxes to build infrastructure.
What the Lagos state government wants to do now is to ensure high networth
individuals are properly audited. One dare say, unless there is an insider, the
state government might get little revelation.
Experiences from India indicates that doing it right takes the will of
government, where any caught hiding income made could go to jail as deterrent to
others.
Audit as we all know is a fact finding, ascertainment of compliance with laid
down rule and regulation mechanism.  The State envisages that these individuals
(the high net worth) should declare and even pay much tax as they earn so much.
Facts used to back the step to audit these individuals is that they spend even
more than what they declare as income. But the question being asked is: Will the
audit recognise that most of the said huge expenses incurred by these people
(the high net worth) are either taken care of as official benefits or even as
goodwill from business partners or colleagues?
Meanwhile, there may not be any reason for panic because those in the oil
producing and servicing companies as well as the banks and other financial
institutions will be allocated to firms with tax monitoring experience because
of their sensitivity and the dexterity required in handling their jobs.
According to Ade Ipaye, special adviser to Lagos State governor on taxation and
revenue, the audit will help the State reveal what most of the high net worth
individuals submit as tax returns which appear to be so low.
PAYE is an aspect of the tax regime with the Nigerian tax system predicted upon
the enabling Act- Personal Income Tax Act (PITA) 1993 as amended. The basic
feature of PAYE is the role played by the employers of labour who act as agent
of the tax authority (board of internal revenue).
According to Ipaye, some of these high net worth individuals do not distinguish
between private expenses and business expenses.
"They do not distinguish their way of expenses. It is only through this audit
that will help to identify these facts." No doubts, most employers of labour
also fall in this category of high net worth individuals.
For PAYE tax, these employers of labour are solely responsible for the
deduction of the "correct amount at source" and the remittance of same within
ten days following the month of deduction.
Looking at Personal Income Tax Act (PITA) which regulates the taxation of
individuals, its section three says that "tax shall be payable for each year of
assessment on the aggregate amounts which is the income of every taxable person
from a source(s) inside or outside Nigeria, including, without restricting the
generality of the forgoing.
The foregoing being gain or profit from any trade, salary, wages, fees,
allowances or others including compensations, bonuses, premiums, benefits.  The
employer of labour is saddled with the obligation by law to deduct the correct
amount of tax from each employee and remit same to government coffers by the
tenth day of the month following month of deduction.
It is the presumption of the law that the employer as an agent of tax authority
will act in good faith by deducting the right amount of tax and remit same to
the tax authority within the time frame allowed by law. Any act of omission or
commission contrary to the spirit of the law is construed to be an illegality.
Then, this could call for audit.
F. T. Abass, deputy director SDLM (Audit) of Lagos State Internal Revenue
Service said the complexity and incongruence in the foregoing (gain or profit
from any trade, salary, wages, fees, allowances or others including
compensations, bonuses, premiums, benefits) often provide the platform for PAYE
audit.
He said: "We are not delving into the field of investigation. I believe it is
germane to make mention of it in view of its symbiotic nature with audit.
Apparently, what audit fails to reveal, investigation does probe and reveal.
He further noted that it has become acceptable practice for Lagos State
Internal Revenue Service to carry out tax audit exercise in order to ensure that
the actual taxes are deducted and remitted to its coffer.