Following the decision of the Senate to investigate non-remittance of taxes on bank deposits and dividends payment due to state governments Tuesday, analysts have suggested more practical ways of collecting withholding tax by state governments.
The Senate directed its Committees on Banking, Insurance and other Financial Institutions and Finance to investigate the matter. The upper legislative chamber also mandated the committees to ensure that all withholding tax revenues on both bank deposits and dividends are recovered while they report back to the plenary within four weeks.
In a chat with NATIONAL ECONOMY Tuesday, managing director of APT Securities and Funds Limited, Mallam Garuba Kurfi said that there is a withholding tax (WHT) of 10 percent which is applicable to dividend payments in Nigeria. The tax is deducted by the investee company before remittance of dividends to shareholders. This is in line with Section 80 of the Companies Income Tax Act (CITA).
Kurfi also said that the problem here lays in the ineffective system the country operates, saying that “Looking at our system, we do not have effective ways of keeping records.”
He explained that for every stock an investor buys, withholding tax will be deducted from the dividend accruing to the investors and they should also receive a notification as at the time the tax is being paid, which is not so.
He noted that till every investor has a recognised identifying number for tax in alerting them of their remittance, the same issue will still be coming up, saying there should be an effective system that will identify individuals and therefore they should have a system.
Also, an operator with name withheld said that the State government must have standard ways of ensuring compliance, saying that it is obligatory for these institutions to remit taxes and if they failed to do so as at when due, the onus is on the State government to enforce the sanctions.
He stated that one of the problems affecting Nigeria growth and development is that we have rules and regulations that take care of everything but enforcement is always a problem
He pointed out that the provision is there of remittance and time-frame and the sanction for failure to do so is also explained there.
Also, an expert on Management and Corporate Governance, Dr. Akin Ajayi stated that delayed or non-remittance of WHT by banks to respective states government is a perennial issue.
According to Ajayi, there are very rife allegations that banks deduct these taxes and some other statutory charges but refuse to remit to appropriate quarters. Rather they convert these funds to their use. This act is not only illegal but also criminal.
He stated that this can be tackled in several ways, saying that first, there must be strict penalties attached to any default as a result of delay or non-remittance of WHT after 21 succeeding days.
He further said that “Not only should the state tax agency go after the principal sum being held by the banks, they must charge at least a 10 percent penalty charge to serve as a deterrent to others.
“The state government with the Joint Tax Board should work out modalities with the Central Bank of Nigeria for possible direct deductions after a period of default.
“The Financial Reporting Council of Nigeria (FRC) must also ensure that penalties imposed on the banks must be disclosed in the bank’s financial statements as this would trigger shareholders to ask the management questions as to the reasons for the penalties.”
He added that “We must imbibe a culture of strict enforcement of laws if we are to get anywhere where we desire as a nation. Tax collection and adequate remittance is very germane to the realization of the dreams and visions of any government.”
Meanwhile, analyst’s prescriptions are on the back of the Senate’s decision to probe non-remittance of taxes to state governments, Tuesday. Leading debate on the motion, Senator Uche Ekwunife (PDP-Anambra) said: “It has been discovered that the Central Security Clearing System, (CSCS) and banks in Nigeria do not remit withholding tax on bank deposits and dividends to state government as and when due.”
The lawmaker, who also noted that most state governments were unable to pay salaries and meet their financial obligations due to poor and dwindling revenue.
She said a lot of money was being held by banks either in form of under remittance or non-remittance of withholding revenue to the state governments.
Ekwunife stressed the need for states to increase their internally generated revenue given the dwindling revenue from the Federation Account which had left various state governments with the task of formulating strategies to improve the revenue base of their states.
According to her, one of the major sources of revenue for state governments is the withholding tax on bank deposits and dividends which have been difficult for the states to track.
“The current practice is that both the banks and CSCS remit to state governments any amount they desire as it is difficult for the states to reconcile what amounts should be credited to them.
“Remittances without recourse to details is capable of and already eroding the revenue due to the state governments,” she said.
Ekwunife, however, said that the leakages with respect to remittance of withholding tax could be addressed using modern tax solutions and information technology.
She also stressed the need for proactive measures to ensure that all the withholding tax is remitted for enhanced revenue and in meeting the Federal Government’s drive and quest for increased revenue at all levels to meet the nation’s development needs.
Senators, in their contributions, also affirmed that automation of revenue collection, remittance of withholding tax remained the best way to block the leakages inherent in the payments due to state governments.
