The Federal Inland Revenue Service (FIRS) has made it clear to businesses in Nigeria that it is serious about tackling tax evasion.
Relying on some of the news reports we have gathered and experiences of some of the affected companies, we now fairly understand what they do before they seal off any organization.
- They give you an assessment of what you owe: Before the tax authorities seal off your premises, they first send you a tax assessment of what you owe. Tax assessments can be done in two ways. It's either they assess your tax liabilities after obtaining your financial records, or they pass a Best of Judgement Assessment (BOJ). A BOJ is an assessment done without relying or partly relying on your financial records. Once an assessment is done, they send a letter to your registered address or the most visible location of your offices. The FIRS often gives a period of two weeks or less for response.
- They send you a demand notice: If after sending you a notice of assessment for how much tax you likely owe, you do not respond, they send you a demand notice. A demand notice can also be sent if negotiations break down between you and the tax authority. A demand notice is basically a letter of demand that you pay tax to the FIRS. The demand notice will include the estimated tax liabilities computed against your company, as well as any penalty or charges that may have accrued due to your inability to pay your tax within the required period. A demand notice, in some cases, has a one-month period for the tax payer to respond to it.
- Seal off offices: After the stipulated period in demand notice has elapsed and no agreement has been reached, the tax authority will get their enforcement unit to seal off your office premises. We have seen instances where the enforcement unit actually sealed off offices even when negotiations were ongoing. The order to seal off offices often comes from the FIRS HQ, which makes it difficult for the local offices to reverse.
We often advise startups or companies to try to pay up a part of what they feel is their tax liability once an assessment notice is received. After making payments, follow-up with self instigated meetings with the Inland Revenue. We also advise that you go with a qualified and experienced tax consultant.