2 Ways Tax Refund is Treated in Nigeria

Every Taxpayer including government, departments and agencies as well as NGOs which have made payments to government, either in error or inadvertently may qualify for refund of such excess tax payment, after subjecting claims of such substantial amount to tax audit before the application of refund can be entertained:

After tax audit review, the established refund can be treated in two ways:

1. Outright refund: refund is made directly to taxpayers account using electronic channels
2. Utilization of excess payment: the taxpayer can elect to use the established overpayment as a set off against his future tax liability

Rules Applicable for Refund to Taxpayers.

• There shall be refunds to taxpayers, after proper auditing by the service of the over payment tax. “the dedicated accounts created ……. shall be administered by the Service (FIRS) and be funded from the respective accounts of government into which revenue of each tax – type is remitted”
• Any refund shall be made within 90days of the decision, with the option of setting off against future tax by the taxpayer.
• “for the purposes of tax refund, the Accountant-General of the Federation shall open a dedicated account for each tax-type into which shall be paid money for settling tax refunds”

Note:

Section 23 of Federal Inland Revenue Service (Establishment) Act deals with Tax Refund, amended by the Finance Act, 2020.

Bottom Line:

The process of obtaining refund in Nigeria is rather cumbersome and most times taxpayers are reluctant to apply for refund partly due to the bully tactics employed by Tax officials and partly because of the fear that their application will be defeated in administrative translation. Many tax officials are scared of declaring refund even when it is evident and would rather avoid triggering such an event to their superior in order to appear politically correct. There is culture bias towards Tax refund.

It is best practice to allow officers do their jobs with clear conscience and come up with findings that can promote the image of tax transparency and equity. The taxpayer is the golden guise that lays the golden eggs and as such be treated with respect and not be made to suffer the brunt of an inefficient system.

There is an urgent need for the Tax authourity to adopt block chain technology in their tax administration and become proactive, rather than reactive. The Tax authourity does not have to wait for the taxpayer to apply for refund before it can data mine the taxpayer information and ascertain the refund status, together with other tax parameters. The implementation of a transparent refund procedure will give the taxpayer confidence to keep proper records and promote voluntary compliance. Taxation can be a tool in the hands of the government to redirect and change the compliance culture.

To expand the tax net and increase the tax base, they social contract between the taxpayer and the government must be mutual to the extent that tax becomes an amount of money paid by the taxpayer to the government in exchange for tangible and verifiable social infrastructure.

The issues of how Tax revenue is allocated by the government must become a national discuss and a major point for election into public office for political parties and politicians in any election cycle. On the other hand the citizens should contribute to the Tax purse and vigilantly hold the government accountable for how their Taxes are utilized.