THUR, APRIL. 20 2023-theGBJournal | Whether tax refund is a myth or reality in Nigeria will depend on who you ask. However, refunds would likely be considered more of a myth to many businesses, especially to those whose refund requests exceeded the FIRS’ N25bn refund budget, or who are hit with additional liabilities following a refund audit, according to a new report by PwC.
PwC also finds that there is a general pessimism about the likelihood of getting refunds for overpaid taxes. But the tax authorities will argue differently, and state that tax refunds are given for valid claims.
In the report, PwC ex-rayed provisions in the law that give the taxpayer the right to a tax refund, provided a breakdown of refund cases in Nigeria between 2019 and 2021, what obtains in other territories and made recommendations.
In its recommendation, PwC said the timeframe from verification of refund to the payment of the tax refunds should not exceed 12 months.
According to PwC, The current tax audit process in Nigeria is known to be rigorous, lengthy and expensive and the tax refund applicants often ends up with liabilities that exceed the refund requested and looks into areas that are not relevant for the refund.
Section 23 of the FIRSEA does not specify a timeframe within which tax refund audits must be concluded; as a result, there seems to be a low level of commitment from the tax authority to finalise such audits.
In many tax refund cases, the audits are delayed for years without significant progress or accountability.
”This is counterproductive for taxpayers as they lose the time value.”
It suggested that taxpayers should ensure that proper and relevant documentation is maintained to aid refund requests. Also, taxpayers should conduct a tax health-check before applying for the tax refunds.
The FIRS should adopt a proper revenue recognition mechanism where WHT from companies (except where the WHT is final tax), are properly treated as liabilities until the relevant entities have filed their annual returns, or other appropriate criteria are met. This results in more accurate reporting, increases transparency and improves taxpayer confidence
Commercial interest should apply on late payment of refunds, similar to interest imposed on taxpayers for late payment of taxes. This encourages accountability, and align our tax system with global best practices.
Overview of Tax Refund Cases in Nigeria
In 2021, the FIRS in its Annual Report provided a breakdown of refund cases between 2019 and 2021.
The Report indicates that the value of tax refund applications received by the FIRS increased by almost 10% from 2020- 2021 and in each year, the applications received exceeded the budget amount of N25bn in each year.
It appears that there is no data driving the fixed budget amount of N25bn, despite the increase in demand cases. This may cast more doubts in the minds of taxpayers about the willingness of the tax authorities to make refunds.
According to the report, the payment of approved refund applications was subject to the availability of funds released to the FIRS in the annual budget/appropriation. The question then is whether the government has made adequate provisions to cater for situations where the approved refunds exceed the budget,
What obtains in other territories?
In Germany, refund payments are usually made within two to six months of an application; and there is an interest of 0.15% that is charged for late refunds payments. South Africa has made remarkable progress with its tax refund administration.
The South African Revenue Service (SARS) reported in April 2022 that it paid out its highest-ever amount in tax refunds in 25 years, representing an estimated 5.1% of gross domestic product.
According to the reports, the refunds reflected a growth year-on-year of 10% mostly dominated by VAT (R262.4 billion), Personal Income Tax (R33.7 billion), CIT (R17.7 billion) and Customs duties (R58 billion).
In its conclusions, PwC said: ”Without a doubt, taxpayers will begin to feel a deeper sense of trust and confidence in the Government if an efficient tax refund system is put in place.
From an equity perspective, it is generally accepted that if a legal remedy or equitable relief is available to a deserving party but is not provided in good time, it is effectively the same as having no remedy. Essentially, justice delayed is justice denied.
A proper refund system becomes increasingly critical as the government starts focusing on fostering the ease of doing business and encouraging foreign investment and participation in Nigeria.
Investors will feel more confident where they know that overpaid taxes can be refunded.”
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