The Federal Inland Revenue Service (FIRS) has said it will commence the process of enforcement and recovery of unremitted tax deductions owed by some states and local government areas in the country.
The revenue agency made the disclosure in a public notice, signed by its chairman, Muhammad Nami. Nami said most states and local governments have failed to remit to the service withholding tax and Value Added Tax (VAT) deductions from payments made to contractors and service providers by them as required by law.
Citing relevant portions of tax laws, the FIRS said ministries, departments and agencies of government, as well as parastatals and other establishments were mandated by law to deduct certain taxes while making payments to third parties and remit those deductions to the FIRS.
“The provisions of Sections 78(3), 79(3), 81 of the Companies Income Tax Act (CITA), and Sections 9(I), 13(1) of the Value Added Tax Act (VATA), mandate Ministries, Departments and Agencies of Government (MDAs), Parastatals and other establishments to deduct withholding tax and VAT while making payments to third parties and remit same to the Service.
“By the provisions of the relevant laws, States and Local Governments are statutorily mandated, as agents of collection, to deduct at source and remit to the Service, all taxes deducted, within twenty-one days,” the notice read.
It further stated that most states and local governments have failed to comply with these provisions of the law, despite appeals from the FIRS.
“However, it is regrettable to note that most of the States and Local Governments have failed in their responsibilities of remitting withholding and VAT deducted from payments made to contractors and service providers as required by law.
“The implication is the huge tax debts owed by the States and Local Governments.
“All entreaties by the Service to ensure the remittance of the established unremitted tax deductions by the defaulting States and Local Governments have been unsuccessful as a result of lack of cooperation in adopting the e-payment platforms provided by the FIRS for a seamless deduction and remittance of these taxes.”
The FIRS has stated that it will consequently advise the federal government and the Minister of Finance, Zainab Ahmed to henceforth decline approval of any request for the issuance of state bonds or other securities in the capital market; as well as requests for external borrowing and approval for domestic loans from commercial banks or other financial institutions by any of the state and local governments with outstanding unremitted tax deductions.
The tax authority stated that it would also publicly name and shame the defaulting states and local governments while publishing the amounts owed in unremitted tax deductions.
It further stated that it would also invoke the provisions of section 24 of its establishment Act which empowers the Accountant General of the Federation to deduct at source, from the monthly Federal Account Allocation Committee (FAAC) allocations, un-remitted taxes due from any government agency and to thereafter transfer such deductions to the Federation Account and notify the Service.
The FIRS called on the defaulting states and local governments to promptly remit all unremitted tax deductions within 30 days of the publication of the Notice to avoid it taking these enforcement actions.