Federal Inland Revenue Service (FIRS) has started inviting taxpayers for reconciliation of their withholding tax (WHT) credit positon with FIRS’ records summarised in the taxpayer’s K-Card (tax position card). This is necessary to ensure that taxpayers’ records with FIRS are up to date and K-Cards to be uploaded into FIRS’ Standard Integrated Government Tax Administration System are error-free.
To this end, taxpayers (especially those that have overpaid taxes or have unutilized WHT credit notes) are required to:
- Review their records to determine their tax position and any unutilised WHT credit
- Complete the WHT Credit Utilisation Request Sheet provided by FIRS with relevant details and submit to FIRS along with documentary proofs of all unutilized WHT credit notes (see link to view a sample)
- Visit the relevant tax offices to reconcile, agree and sign-off their WHT credit positions with FIRS.
The above exercise is required to be completed by 30 August 2018. Taxpayers who fail to comply with this directive within the set timeline run the risk of having to accept FIRS’ position as final.
The proposed timeline by FIRS appears inadequate for review of the taxpayers’ records and reconciliation of the tax positions considering capacity of FIRS to handle all reconciliation exercises concurrently.
Additionally, the possibility of losing unreconciled WHT credits raises legal and practical questions which include:
- Whether FIRS can use a mere internal memo, to amend the provision of Companies Income Tax Act which entitles taxpayers to carry forward unutilised WHT indefinitely; and
- What happens where taxpayers or their clients are unable to obtain WHT credit notes before the expiration of this period?
The above notwithstanding, this initiative is laudable as it aims to improve transparency and ensure that key tax processes are automated for both taxpayers and tax administrators. The automation will cut out inefficiency in the WHT process and ensures that taxpayers are instantly credited for source deductions. While FIRS may consider extending the timeline, we encourage companies to take advantage of the initiative to regularise their tax records and obviate the risk of losing revenue.