The Federal Inland Revenue Service (FIRS) has announced that it will begin enforcing and recovering unpaid tax deductions owed by several states and local governments across the country.
Most states and local governments have failed to remit the Service Withholding Tax (WHT) and Value Added Tax (VAT) deductions from payments made to contractors and service providers as required by law, according to a public notification signed by the tax authority’s Executive Chairman, Muhammad Nami.
Following the failure of defaulting states and local governments to remit, the FIRS has advised the Federal Government and the Minister of Finance to 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 state or local government with outstanding unremitted funds.
The tax authority also announced that it will publicly name and disgrace delinquent governments and councils, as well as disclose the amounts owed in unpaid tax deductions.
It also stated that it would use the provisions of Section 24 of its Establishment Act, which allows the Accountant General of the Federation to deduct unpaid taxes due from any government agency from monthly FAAC allocations and then transfer those deductions to the Federation Account and notify the service.
To avert these enforcement procedures, the FIRS urged all defaulting governments and municipalities to swiftly remit all unremitted tax deductions within 30 days of the notice’s issuance.
According to the notice, which cited relevant sections of the Companies Income Tax Act (CITA) and the Value Added Tax Act (VATA), government ministries, departments, and agencies, as well as parastatals and other businesses, are required by law to deduct certain taxes when making payments to third parties and remit those deductions to the FIRS.
“The provisions of Sections 78(3), 79(3), and 81 of the Companies Income Tax Act (CITA) and Sections 9(I), 13(1) of the Value Added Tax Act (VATA) require MDAs, parastatals, and other establishments to deduct WHT and VAT while making payments to third parties and repay the same to the service.”
“States and Local Governments are statutorily obligated, as agents of collection, to deduct at source and remit to the Service, any taxes deducted, within twenty-one days,” according to the Notice.
Despite FIRS appeals, the majority of States and Local Governments have failed to comply with these aspects of the law, according to the report.
“However, it is disappointing to see that the majority of States and Local Governments have failed to fulfill their legal obligations to refund WHT and VAT deducted from payments made to contractors and service providers.”
“The inference is that the states and local governments incur enormous tax debts.
“All of the Service’s efforts to assure the remittance of the established unremitted tax deductions by defaulting States and Local Governments have failed due to a lack of cooperation in implementing the FIRS’s e-payment platforms for a seamless deduction and remittance of these taxes.”