Hello AFL readers, if you are new here, a big welcome to the AFL community. Today’s topic is about an area of law that is very important for every fashion entrepreneur to understand. I have been getting a number of questions as regards to this area;
“Annie do I have to pay tax?”
“Annie how can I pay my tax?”
I am an advocate for running fashion businesses effectively. Before going into business, every business owner should be equipped with knowledge of important things like taxation but that is not always the norm, there are still a large number of people that start businesses with passion, drive and hunger to succeed without any real knowledge of how things actually work. It is totally not wrong to have the passion but it is essential to understand how you can run your business effectively. As a fashion entrepreneur, there are some basic important things you need to in setting up your company, to mention a few;
Having a business legal structure, Having a business plan, Opening a business account and so on…
In opening a business account, there are certain details that would be required, in the short list of requirements includes the Tax Id
The Taxpayer Identification Number (TIN) is a unique number allocated and issued to identify a person (individual or Company) as a duly registered taxpayer in Nigeria. It is to be used by that taxpayer alone.
Although taxes are considered as a legal requirement, paying taxes is also considered a civic duty. If you neglect to pay, the mediating body that oversees taxes will require that you do so, otherwise, you might face penalties such as large fines or jail time.
Paying taxes is one aspect that most business owners try to avoid, because they feel it is complicated, tedious and expensive but the truth is that they are mostly inexpensive. Non-payment of tax is against the law of any country and it is unadvised to start an entrepreneurial career on the wrong side of the law.
In Nigeria, all persons in employment, individuals in business, non-residents who derive income from Nigeria as well as companies that operate in Nigeria are liable to pay tax.
Some taxes are payable to the Federal Government (and administered by Federal Inland Revenue Service), some are payable to the State Governments and some to Local Governments.
In running a business or a company in Nigeria, you are expected to pay tax among which includes;
Income Tax
All businesses must pay tax on their income. This means that a business must pay tax on the profit of the business. How that tax is paid depends on the form of the business.
Small businesses (sole proprietors and single-member LLCs) owners pay taxes on their personal income tax returns. Company Income Tax (CIT) is payable only to the federal government.
State governments collect income taxes of individuals and unincorporated entities, while local governments are only allowed to collect levies and rates but not income tax.
Pay As You Earn (PAYE) system
Employees simply pay their income tax through the Pay As You Earn (PAYE) system, whereby employers deduct the due tax at source from the salaries and transfer it directly to the FIRS on a monthly basis, while independent workers and beneficiaries of additional income are required to file their own tax returns. Income tax in Nigeria is levied at a progressive rate capped at 24%. So if you have employees in your fashion business or company, it is essential that this is applied.
Sales Tax
Sales tax also known as Value Added Tax (VAT) is required to be collected by merchants in most states and paid to the state department of revenue. Specific products and services are sales-tax eligible and money must be collected and paid, and reports must be completed on a regular basis.
There are two main methods of calculating VAT: the invoice-based method and the subtraction or accounts-based method. Using the invoice-based method, sales transactions are taxed, with the customer informed of the VAT on the transaction, and businesses may receive a credit for VAT paid on input materials and services. The invoice-based method is the most widely employed method.
There are a million and one reasons why you should pay your tax
- It is important to know that paying our taxes makes us better citizens, helping build a stronger nation for its citizens and the future generation that will follow.
- As long as the business has transitioned from the idea stage, investors want to see proof of proper taxation before committing.
- There are various penalties for not paying tax, every single tax evaded carries its own punishment. Generally, Income Tax Act tax collectors have the power to seize/auction off the goods and even premises of defaulting taxpayers to recover monies owed. So it is best to just do the needful.
In case you are wondering, how you can get this done, you can pay taxes yourself without any professional. But it is advisable to have a professional with proper knowledge of the system
The process is pretty simple:
Go to www.firs.gov.ng
Click on e-services, then click on e-filing
After doing this, you can download a form and fill in the tax details. Here is where it gets interesting, after completing the form, all you have to do is scan the documents and send it to the tax office of your choice.
The online tax filing process is also available for e-registration to obtain your Tax Identification Number (TIN), e-stamp duty for tax levied against documents like land transactions and other legal documents.
The FIRS page also includes a tax calculator that helps individuals and organizations determine how much tax they are required to pay. Use it so you don’t end up over or underpaying.
To learn more, check www.firs.gov.ng
if you have any question, kindly drop a comment, let’s have a discussion in the comment section..