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[INTERVIEW] Dr Jerome Okoro Talks On Taxes SMEs in Nigeria Should Know

In this interview, Dr. Jerome simplified tax processes.

The rise of SMEs in Nigeria has to a large extent enhanced the Nigerian economy especially in the reduction of the unemployment rate, but this impact could be better felt these business owners are following all due processes, one of which is filing for tax regularly.

We had a random interview with selected businesses owners in the SME sector and we were made to understand that the reason many don’t see this as an urgent activity to carry out is that amidst all uncertainties of growing their businesses, they also have to deal with complicated tax payment processes.

To simply this tax issue, Espact Media had an extensive interview with a Legal practitioner and tax specialist who is presently a partner and the head of Litigation, Tax and Energy Law Practice at HERMON BARRISTERS & SOLICITORS.

DR. JEROME OKORO who was called to the Nigerian Bar in 2007 holds a Ph.D. (Energy Law) from the University of Ibadan, a Master of Laws (LL.M) from the University of Lagos, and a Bachelor of Laws (LL. B) from the University of Nigeria Nsukka.

In this interview, he discussed extensively the taxes every business owner in Nigeria should be aware of and the process of getting them done. He simplified the processes involved in filing taxes, you truly had a lot to learn from him.

Read His Interview Below:

Welcome to Espact Interview, it’s great to have you here Dr. Jerome Okoro

Thank you very much.

1. Let’s get to know you better.  Tell us about your personality 

I am a simple amiable fellow with a ceaseless inclination to learning and making improvements. I love to interact and share ideas, which are the main bases of my mixing up with people. I hold legal practice as a very essential aspect of my life, and my attention is largely on my work and my family.  

2. Would you say your personality at home and at work are same?

Not altogether, but similar in many respects. You know, office goals are much more defined than home goals which are mostly contingent.

In the office, I aim at solving legal problems, satisfying my clients and improving and utilizing human capacity. Achieving these goals entails that I keep myself as busy as possible in the office by working and engaging my mind to think out solutions. The pressures are often there.

But at home, I create a more relaxed atmosphere whereby I share time and relate well with my family. What then draws the similarity of circumstances between my office self and my home self is my leadership or coordinating roles at both places. At work, I have lawyers and support staff under my supervision; at home, I head the home.

So, in both circumstances, I naturally build such air of simplicity that makes me easily approachable to my office subordinates and my family. As a matter of fact, my children have learnt to approach me directly and not through their mother.

Dr. Jerome Okoro

But in all these, I still wield the disciplinary tips that ensure my simple personality is not abused. One of such tips is to probe minor affairs or minute details that I might be expected to overlook. Enquiring into details and procedures instills seriousness, doggedness, and discipline. A task or team leader who waits for results without monitoring the process would often miss the expected results.

3. You have a great personality! Now to our topic, are you aware that currently in Nigeria, the SME sector is one of the leading economic growth enhancers? As a tax specialist, please enlighten us on the taxes every business owner within this sector should know and be paying.

Yes, I agree with the assertion that the SME sector is one of the leading economic growth enhancers in Nigeria. As it undoubtedly constitutes the majority of business structures, the role of SMEs in economic growth enhancement is very significant.

On the space occupied by SMEs, I will refer to a report of the National Bureau of Statistics (NBS) which is recorded in the website of the Small and Medium Scale Enterprises Development Agency of Nigeria (SMEDAN). This report puts the number of Micro, Small and Medium Enterprises in 2017 at 41.5 million. I have, however, seen other reports that recorded 39 million, but whichever is the accurate number in that range underscores the wide space occupied by SMEs in the Nigerian economy.

The NBS data cuts across five major sectors of the economy with Wholesale/Retail trade representing 42.3 percent,  Agriculture  20.9 percent, other services 13.1 percent, Manufacturing 9.0 percent,  and Accommodation and  Food Services 5.7 percent. These figures and the areas of the economy covered entail high volumes of transactions and activities which translate to massive job creation, enormous tax revenue earnings, and the widest spread of wealth creation.

The NBS data cuts across five major sectors of the economy with Wholesale/Retail trade representing 42.3 percent,  Agriculture  20.9 percent, other services 13.1 percent, Manufacturing 9.0 percent,  and Accommodation and  Food Services 5.7 percent. These figures and the areas of the economy covered entail high volumes of transactions and activities which translate to massive job creation, enormous tax revenue earnings, and the widest spread of wealth creation.

I will make an outline of the taxes that are paid and should be known by every entrepreneur in Nigeria, with a few particulars:

Companies Income Tax (CIT) is paid by limited liability companies at the rate of 30% of the company’s profit. All companies incorporated in Nigeria and companies that are not resident in Nigeria but earn income from Nigeria pay this tax. Companies limited by guarantee and incorporated trustees usually do not pay CIT, as they are registered as friendly societies or cooperative, ecclesiastical, charitable, educational, or sports organizations or trade unions, and the profits of all such entities are exempted under Section 23 of the Companies Income Tax Act.  Companies under pioneer status do not pay CIT for the period of the status, although they are still required to file their tax returns and fulfill their obligations in respect of other taxes. The Federal Inland Revenue Service (FIRS) solely administers CIT.

Personal Income Tax (PIT) is paid by individuals and registered Business Names. For a Business Name, PIT is paid on the incomes of the sole proprietor or the partners. Companies and Business Names also serve as agents for the tax authorities by deducting the appropriate percentage of the tax from the income of each of their employees and remitting it to the relevant tax authority. In respect of PIT rate, the Personal Income Tax Act, 2011 Amendment introduced significant changes. If after subtracting the reliefs and tax-exempt deductibles outlined in the law (which include N200, 000 tax free allowance plus 20% of gross income), the chargeable income of the taxpayer is less than 1% of the gross income, then the tax would be paid at the rate of 1% of the gross income. This is the new minimum PIT rate. Then for the first N300, 000 earned, the rate is 7%; for the next N300, 000, the rate is 11%; for the first N500, 000, the rate is 15%; and so on till N3, 200, 000 and above which are taxed at 24% is the maximum rate. For businesses and employees residing in FCT Abuja, PIT is administered by FIRS. For those in the states, it is administered by the revenue authority of the relevant State.  

Value Added Tax (VAT) is paid at the rate of 5% of the value of taxable goods and services supplied in Nigeria. All business structures including companies and Business Names pay VAT on the goods and services they purchase and also serve as collecting agents to charge, and collect the tax from their customers or clients when they sell goods or render services. They then remit the VAT to FIRS which is the sole authority on VAT.

Education Tax is paid by all companies that pay CIT or Petroleum Profit Tax in Nigeria. The rate is 2% of the company’s assessable profit. FIRS is the sole authority on this tax.

Capital Gains Tax is paid by all business structures at the rate of 10% of gains arising from the disposal of their assets. This tax is administered by both FIRS and the revenue authorities of the states.

Withholding Tax WHT is not a distinct type of tax but rather a mechanism of advance payment of income tax to ensure that the tax is not lost by the tax authorities. The person paying the business entity for goods or services purchased, deducts WHT from the money and remits it to the relevant tax authority on behalf of the business entity that receives the payment. The paying party on remitting the WHT, obtains a credit note on the tax from the tax body and forwards it to the entity on whose behalf the tax was paid.

When the income tax of the entity becomes due, it can be offset through the credit notes. This offset is to avoid double taxation on the income tax. The rate of WHT varies among the services paid for and depends on whether the entity liable to the tax is a company or a business name which would be classified as an individual for tax purposes. On commission, consultancy or management services, the rate of WHT is 10% for companies, 5% for individuals. On dividends, interests and rents, the rate is 10% for both categories of recipients. WHT is administered by both FIRS and the state authorities.

Stamp Duty is paid on instruments evidencing transactions, at rates specified by law, based on the type of instrument. Both FIRS and the state authorities administer this tax depending on whether the transaction involves a company or an individual.

4. From our research, we discovered that a lot of  business owners see the tax payment  process as  a very complicated one,  because they  don’t  have clear understanding on how to go about it. Kindly take us through the proper processes of paying these taxes.

Yes, it would appear complicated to a taxpayer who is not properly guided. The first guidance here is ascertaining what you should pay, and this is where an expert’s input is needed.

In this era of self-assessment, a business is supposed to assess itself to the accurate tax based on what the law says, and pay the same to the tax authority. This cannot dispense with the help of a tax consultant if an error in the assessment and consequent additional assessment by the tax authority must be avoided.

It is also noteworthy that every business must register and obtain the Taxpayer’s Identification Number (TIN) which is issued one-off at the commencement of business by the Taxpayers’ Services Department of the FIRS office nearest to the place of business.

When a company has obtained a TIN and the tax has been assessed, it proceeds to one of the designated banks where FIRS payments are made and pay the tax. The bank notifies FIRS of the payment, and from the payment details, the tax receipt is produced by FIRS and signed for collection by the taxpayer. Most, fortunately, these processes, from TIN processing to tax payment and Tax Clearance Certificate (TCC) have been much simplified through technology.

The FIRS official website, www.firs.gov.ng at the page https://www.firs.gov.ng/e-Services/e-TaxPayment, has provided four payment platforms: REMITA, INTERSWITCH, NIBSS and eTRANZACT for tax payment from the comfort of the taxpayer’s home or office. All the taxpayer needs is to simply visit the webpage, select the platform with his phone or laptop, and follow the process.

5. Wow! Thanks for the enlightenment. Let’s deviate a bit… Share with us an incident that happened while you were still in the Law school that makes you laugh whenever you remember?

Life was so regimented and the period was so short that I can hardly recall what stands out as a comical experience from our routines then.

But I will always remember “If You Like…” That was not an incident but a person – the Late Honourable Justice Valentine Ashi, may his kind, jovial and amiable soul rest in peace. He was a judge of the FCT High Court, but before he became a judge, he had taught me in the Nigerian Law School, Abuja.

Whenever the students voiced a protest at his instruction, he would first pause for a while and then respond, “if you like, tear your cloths, come to the front, dance naked, roll on the floor …” and he would continue with various other teases until it was laughed off. At a point, some students would deliberately murmur at whatever he proposed or announced, just to elicit that reaction from him.

 6. That must have been fun! Let’s continue on our discussin. Are VAT and withholding taxes part of taxes business owners should be concerned about? Please shed light on what they truly mean and how they can be filed for.

Yes, they are. Refer to my comment on the relevant taxes from your third question. But in addition, what mainly distinguishes these two from the other taxes is the indirect mode of the collection as they are usually paid by parties other than those who bear the tax liabilities.

WHT is deducted at source from payments due to an entity and remitted to the tax authority as advance income tax on behalf of that entity. A VAT is charged by the supplier of goods or services and paid to FIRS on behalf of the purchaser of the goods or services. There is also distinct registration for VAT required for all businesses in order to act as agents of collection and remittance of VAT from their clients or customers.

7. What does the tax audit process entail?

It is simply an examination to verify the records of a taxpayer and ascertain its tax position and enable accurate tax compliance.

In the audit process, the tax returns, account records and financial statements of the taxpayer are scrutinized and entries are confirmed with supporting documents, externally sourced records like bank statements and oral clarifications.

FIRS usually writes to notify the taxpayer of a proposed audit exercise, whereby it outlines the documents and information the taxpayer must make available to the audit team. The exercise can also involve an interrogative session with officers of the taxpayer.

8. We are now in a highly technological era, how do you think this can be used to make tax payment easier for businesses in Nigeria?

Technology, if put to maximum use would simplify tax compliance thereby saving a business time and motivating the taxpayers, and would also boost collection to a great extent.

In this respect, FIRS already deserves ample commendation for its promptness in adopting technological innovations to ease the tax processes. I think where effort needs to be stepped up is awareness creation to enlighten the public on the specific technology-based improvements in the tax systems and how taxpayers can use and benefit from such. As we speak, so many e-processes are available with FIRS, and I can mention just a few. I earlier hinted on TIN processing. 

I just learnt from FIRS that one can now seek and obtain TIN merely through one’s phone by just a visit to the page, http://tin.jtb.gov.ng/.

I have also talked about e-payment through the four platforms provided on the FIRS website, and there are e-filing and e-TCC. So, we are almost in an era where inconvenience would not be an excuse for non-compliance. What is left, I maintain is public awareness of what is available. This can be much achieved not just through the regulated print and electronic media, but also the various social media. Strategically, the awareness should transcend English Language to involve the various Nigerian languages and Pidgin English.

9. Oh! That’s a great Progress. So as a partner and the head of Litigation, Tax and Energy Law Practice at Hermon Barristers & Solicitors, looking back at how you started your career what are the achievements you feel very proud of?

Recalling the beginning, I cherish my copious experience in law practice especially in the areas of litigation, Tax and Energy Law. I am also glad for the ability to wade through my post-graduate academic programmes in the midst of law practice, the most challenging being the doctorate programme. I remain grateful to God Almighty and all who played a role in these.   

10. What do you hope to have achieved by 2025?

I wish by then to have contributed immensely to the revolutionizing of law practice generally and litigation particularly, by building a model practice on integrity and high moral principles. I wish to have made the best input in demystifying Tax and Energy Law, through litigation, relentless research, and publications. And as a litigation enthusiast, I am keen on attaining the rank of Senior Advocate of Nigeria (SAN).

11. Wow! Amazing. What’s your advice to aspiring lawyers and tax specialists?

  • Build natural love for law practice and tax expertise
  • Aspire for the best of the career
  • Develop resilience to conquer the discouraging factors. Success from a keen contest is always more rewarding than a walkover.

12. How would you like to be reached by readers who have questions for you?

By email at jerome@hermonlaw.com or SMS or Whatsapp at 08035487564.

Thanks for the time.

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