A promise or a threat?
The National Tax Policy (NTP) identifies Presumptive Income Tax Assessment (PITAS) as one of the strategies for creating a tax system that encourages compliance with the provisions of the tax laws
PITAS, no doubt, has the potential not only to increase tax revenue accruable to governments by enlarging the tax net but also to eliminate the distortion arising from “free riding” taxable persons in the allocation and access to social services. Whether PITAS would deliver on its promise or be undermined by its threat potential would depend on how the RTAS would apply it.
The National Tax Policy (NTP) identifies Presumptive Income Tax Assessment (PITAS) as one of the strategies for creating a tax system that encourages compliance with the provisions of the tax laws. In particular, the NTP notes that PITAS would help the tax authorities deal effectively with the taxable persons who have historically failed to comply with the tax laws due to their size or lack of business address. This category of taxable persons appear to be predominant in the informal sector.
With the decline of oil revenues and the consequent clamour for alternative sources of revenue, it is no surprise that the Federal Inland Revenue Service (FIRS) has expressed an intention to introduce PITAS into the Nigerian tax system. In FIRS' opinion, PITAS is a strategy that would promote voluntary compliance amongst taxable persons in the informal sector – a scenario that would lead to increase in tax revenues.
In light of the foregoing, the following questions immediately become relevant - What is Presumptive Income Tax Assessment? Is it legal? What are the merits? What are the demerits? If it does bring the informal sector into the tax net (an acceptable consequence), what are the likely challenges? These are issues that would require a much bigger space than this column affords to exhaustively analyse.
- What is PITAS? - Nigeria currently operates a self-assessment system in which a taxpayer reviews its books and based on such review calculates and pays the relevant tax. In doing this, the taxpayer would prepare and submit an audited account, tax calculations, completed assessment forms and evidence of tax payment. The tax authorities are empowered to review these returns and either accept or reject them – in which case additional assessments are levied on the taxpayer.