Nigeria Needs Efficient Tax Refund System—PwC

By Dipo Olowookere

The federal government has been advised to consider implementing a proper tax refund system to increase investment in the country.

In a publication titled Tax Refunds in Nigeria – Myth or Reality, the firm said “investors will feel more confident when they know that overpaid taxes can be refunded.”

In the article, PwC picked a hole in the current system which fixed the tax refund budget of the Federal Inland Revenue Service (FIRS) at N25 billion in a year, noting that this will discourage some companies from applying for a refund.

While analysing the 2021 annual report of the FIRS, which gave a breakdown of refund cases between 2019 and 2021, it was observed that the agency emphasised that the payment of approved refund applications was subject to the availability of the funds released to it in its annual budget/appropriation despite witnessing almost 10 per cent rise in tax refund applications from organisations and individuals.

According to the tax collecting organisation, it received tax refund claims of N321.4 billion between 2019 and 2011 but could only pay N69.9 billion.

“The question then is whether the government has made adequate provisions to cater for situations where the approved refunds exceed the budget,” the member of the Big Four accounting firms asked.

This made PwC conclude that “refunds would likely be considered more of a myth to many businesses, especially those whose refund requests exceeded the FIRS’ N25 billion refund budget, or who are hit with additional liabilities following a refund audit.”

Business Post reports that in the Federal Inland Revenue Service Establishment Act 2007 (FIRSEA), taxpayers can request refunds if they have made an overpayment.

The excess can only be paid to the beneficiary within 90 days after an audit has been carried out to authenticate the validity of the request.

However, as noted by PwC, “The tax audit process in Nigeria is known to be rigorous, lengthy and expensive, and the tax refund applicants often end up with liabilities that exceed the refund requested and looked into areas that are not relevant for the refund.

“Section 23 of the FIRSEA does not specify a timeframe within which tax refund audits must be concluded; as a result, there seems to be a low level of commitment from the tax authority to finalise such audits.”

To address this, the firm has advised that “the timeframe from verification of refund to the payment of the tax refunds should not exceed 12 months,” adding that “commercial interest should apply on late payment of refunds, similar to interest imposed on taxpayers for late payment of taxes” to encourage accountability and align Nigeria’s tax system with global best practices.

It said in “Germany, refund payments are usually made within two to six months of an application; and there is an interest of 0.15 per cent that is charged for late refunds payments.”