Tax Consulting Tax Planning, Tax Compliance and the Profitability of the Small Business
With the plethora of tax legislation and the pressure faced by businesses to grow their turnover and hence maintain reasonable profitability, small businesses are often caught in the web of not tax compliance issues.
Tax Planning is an exercise undertaken to minimise tax liability through the best use of all available allowances, deductions, exclusions, exemptions, etc., to reduce income.
Tax planning can be defined as an arrangement of one’s financial and business affairs
by taking legitimately in full benefit of all deductions, exemptions, allowances, and rebates so
that tax liability reduces to a minimum. In other words, all arrangements by which the tax is
saved by ways and means which comply with the legal obligations and requirements and are
not colourable devices or tactics to meet the letters of law but the spirit behind these, would
constitute tax planning.
Tax planning is a broader term which requires management of affairs in such a way that results in the reduction in minimisation of tax liability. Tax planning is not possible without tax management. It refers to the compliance of statutory provisions of law. Tax Management includes
(i) Deduction of taxes at source
(ii) Payment of tax and self-assessment
(iii) Payment of tax on demand
(iv) Maintenance of accounts
(v) Audit of accounts
(vi) Payment of assessed duty or fees, bonus and commission to employees etc
(vii) Filing of return of income
(viii) Documentation and maintenance of tax files etc.
(ix) Review of order received from tax Authorities.
Tax Management involves compliance with all taxes a Tax Payer is exposed to including:
Value Added Tax Act,
Withholding Tax Act
Company Income Tax Act
Education Tax Act
Personal Income Tax Act
Business Premises Tax Act
Development Levy ( for employees),
Withholding Taxes (Individual and unincorporated entities)
Capital Gains Tax Act
Associated Gas Re-Injection Act
Deep Offshore and Inland Basin Production Sharing Contracts Act
Tertiary Education Trust Fund Act
Federal Inland Revenue Service (Establishment) Act
Income Tax (Authorised Communications) Act
Industrial Development (Income Tax Relief) Act
Industrial Inspectorate Act
National Information Technology Development Act
Nigerian Export Processing Zones Act
Nigeria LNG (Fiscal Incentive Guarantees and Assurances) Act
Oil and Gas Export Free Zones Act
Petroleum Profits Tax Act
Stamp Duties Act
Taxes and Levies (Approved List for Collection) Act
Companies with Foreign Ownership and subsidiaries or oversea branches are also exposed to Transfer Pricing Regulations, E-Commerce Taxes
Tax Management include:
- Knowing & compliance with Tax Laws
- Maintenance of accounts,
- Auditing of Books of Accounts
- Filing returns in time
- Deducting Taxes at Sources and Remittance in time
- Making payments,
- Avoiding Payment of Interest, Penalty or Litigation
- Relevant Taxes, Tax Authorities
- Objections, Incentives, Claiming allowances and Incentives
- Past, Present, Future.
Past – Assessment Proceedings, Appeals, Revisions etc.
Present – Filing of Return, payment of advance tax etc.
Future – To take corrective action
Tax Planning helps the Tax Payer to enjoy
(a) Minimization and reduction of Tax Liability
(b) Minimization and reduction of Tax Litigation, Queries, Penalties etc
(c) Productive investment from saved payment in taxes to grow and expand business
(d) Reduction in cost by give them opportunity to sell cheaper, do more volumes, grow profits
(e) Healthy growth of economy
(f) Employment generation by creating a pool of funds available for new investment and employment.
Importance of Tax Planning
We present the following points when planning for tax
- Claimable deductions, allowances and relief are statute driven and must be utilized within period allowed by law. Claims may not be allowed outside time recognized by law. Claims lapse.
- Without Tax Planning, the tax payer may be open to tax penalties since room for tax
- avoidance and tax evasion is being closed with government focusing more on tax as a revenue source.
- Government has presented tax incentives to encourage investments in specific sectors of the economy, without tax planning, taking advantage of the incentives may be difficult.
- Growing profits means increase tax payments. It stands to reason that tax planning will be required to minimize tax payment legitimately.
- Tax Panning positions a company to bear direct and indirect taxes, plan expenses,
- capital assets buying, sales promotion.
- Capital Assets Purchase with the use of Cash from Reserves, Leased or bought on Hire
- Purchase have tax implication, tax planning can help to direct.
- Savings from Tax Planning is considered money earned in these days of recession
Essential of Tax Planning
- Tax Payer must have current knowledge of Tax Laws, recent Court decisions, Tax Circulars, Clarifications by Tax Authorities.
- The Tax Payer must be prepared to disclose all material information and filing same with the Tax Authorities. Penalties for concealment are worse.
- Tax planning strategies must not only comply with the law but must be seen to comply with the spirit of the law. Tax planning device must be valid and ethical.
- Corporate Planning, Strategic Planning, Project Planning, Operational Planning involve tax considerations must be part of Tax Planning
TAX EVASION AND TAX AVOIDANCE
Tax evasion is the attempt by a Tax Payer to reduce his tax liability by falsely suppressing income or exaggerating expenses and any other deliberate manipulations to reduce tax liability. It is punishable by law. Tax evasion may involve2018- Tax Year Planner II:
Stating an untrue statement knowingly, submitting misleading documents, suppression of facts, not maintaining proper books of accounts of income earned (if required under the law) omission of material facts in assessments etc.
Dishonestly claims of benefit and incentive under the statute by making false statements
Refusal to record Sales for Tax Purposes
Claiming bogus expenses, bad debts and losses etc.
Charging personal expenses as business expenses, e.g., car expenses, telephone expenses, travelling expenses, medical expenses incurred for self or family may be shown in the account books as business expenses.
Submission of fake receipts for charitable donations for claiming deduction under law
Failure to disclose capital gains on sale of asset
Tax Consultant Tax Planning, Tax Compliance
Why Some Tax Payers fail in Tax Compliance Tax Management
In some cases, the problem may be that proper accounting records may not have been maintained by the company with the results that computation of appropriate taxes and payment to relevant tax authorities may become difficult.
In other instances, having proper knowledge of applicable rates for taxes could also limit compliance by companies as they may apply the wrong tax rates, rules which may expose them to additional tax liabilities when the Tax Man come calling.
Furthermore, because of knowledge gaps, due date for filing State and Federal Taxes may also expose companies to penalties and interest, in addition to taxes they may not have adequately provided for in their books of account. In such cases, payment of such interests and penalties could affect the company’s cash flow and threaten its corporate survival.
In addition to the above, due to lack of proper knowledge of tax incentives available to the taxpayer, some taxpayer would rather be involved in tax evasion which is a criminal attempt to evade tax where a simple tax avoidance strategy would have sufficed.
Similarly, compliance problems may arise due to the failure of the company to understand tax implication of business transaction they are involved in from time to time. It then becomes too late for them to correct errors that may have exposed them to higher tax liabilities.
Also, tax compliance may require that companies are advised to devise their transaction in such a way as to avoid tax disadvantages where possible.
In a similar vein, there are tax consequences of adopting a business structure, partnership, joint ventures which if only the tax payers knows this, and they would be able to conveniently manage to the best interest of such companies.
Some businesses have not been able to comply with our tax laws due to what they see as complexity and costs they have to incur when they have to engage tax consultants with filings.
Another difficulty in compliance relates to the penalties of failure to comply. Where penalties like that of failure to file Value Added Tax on Due Date is punitively prohibitive, it becomes difficult for the company to comply with the result that some companies have practically have to wind up without being liquated with promoters simply registering a new company to come evade liability of non-compliance over time.
In spite of the above scenarios, our tax laws only recognize the taxpayer who when they possess the adequate knowledge of the tax laws can file that tax returns without the tax consultant, structure their transactions to avoid or minimize tax liabilities. This is in addition to the taxpayer filing its tax returns on due date and avoiding penalties thereon.
Tax Consulting Firms can help you with tax planning, tax management, tax compliance issues and keep you from the radar of the tax authorities while you remain a good corporate and private citizen paying taxes promptly. You are also saved from Tax Risk, Litigation, Cash and positioned to invest tax savings for growth, expansion, reduced production cost, increased sales volumes and profitability.
Get in touch with a Tax Consulting Firm to get help, please call 08023200801, 08075765799 or hit your 2018 Tax Planner 2018- Tax Year Planner II here.