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Self Assessment Tax And The Taxpayer

We live in a digital age. The era of having to visit banking halls, headquarters of institutions; and liaison offices sometimes to fill forms or to make enquiry are things of the past and thankfully so. Although Nigeria has not fully moved beyond the paper pushing stage, some institutions and agencies are beginning to realize the need to go beyond this crude method of business operations in substitution for computer based/self help methods.

Self Assessment tax system of administration is not a new concept in the Nigerian tax sphere. The system was introduced in 1991, but did not take operational effect till 1992; at this stage, it was restricted to certain categories of taxpayers remitting tax dues on designated types of taxes. However, implementation began in 2011. Incident to this unique tax system is Section 24 (f) of the Constitution of the Federal Republic of Nigeria which states that ‘it shall be the duty of every citizen to declare his income honestly to appropriate and lawful agencies and pay his tax promptly’.

Self assessment is a tax system that requires you as an individual to accurately calculate how much tax you should pay. Defined by the Federal Inland Revenue Service through their paper published in 2016 on the topic; ‘Understanding Self Assessment’, Self assessment is a method whereby a taxpayer is required to correctly compute own tax liability, properly complete the tax return, pay the self assessed tax and submit the tax returns together with the accompanying documents on or before the due date according to the relevant tax law. Section 61 of the FIRS (Establishment) Act grants power to the FIRS Board to make rules and regulations for giving full effects to the provisions of the law.

Self-assessment is a welcome initiative in administration of taxes for reasons that cannot be overstated. For instance, the statement ‘self assessment is a trust, do not betray it’, appears in bold letters on the Federal Inland Revenue Service official paper on Self assessment. Considering the fact that payment of tax in whichever manner is considered a civic duty, one wonder’s why a supposed moral route has to be plied for a nation to get her citizens to remit taxes. The reason for this is not far fetched. At different points in time and for various reasons, we all have had to visit a government office or secretariat to process one thing or the other. The unpleasant attitude of some government staff lacking zest to carry out their official duties, the trickling pace of services rendered often due to limited manpower and adequate facilities, culminating sometimes in loss of applicants documents, information, issues of whether or not documents reached the right table, disputes arising from issuance of inappropriate notices or non dispatch of notices etc. is a major turn off for a population who mostly only pay taxes because of government imposed sanctions rather than as a civic duty to the state. Self assessment tax system corrects these flaws associated with human error. Bear in mind that while processing self assessment, an individual is required to be present at the tax office for a quick on the spot check to ensure that all documents are appropriate and have been completed and filed right.

The main objective of the system is to ease payment of tax for individuals by providing an avenue that assists them pay a fair tax according to their business transactions, encourage voluntary compliance with tax laws, minimize disputes arising between taxpayers and administrators and ensure that government accrues revenue without having to wait until tax administrating agents chase citizens down.

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The various tax laws operated by the Nigerian government all contain provisions for self assessment tax system. The forms are available at every FIRS office free of charge and are available for Personal Income Tax (PIT), Company Income Tax (CIT), Value Added Tax (VAT); and all taxes falling under the purview of the FIRS (Establishment) Act.

The following steps are a practical guide to remittance of self assessment:

  1. Accurately calculate your tax liability, then proceed to a designated bank to pay your due. You will be given an e-ticket after which you must file your self-assessment return on or before the due date for filing such tax return. For all purposes, ‘Due Date’ refers to the last date of the period given by law to a taxpayer to file a specific tax return and/or pay the related tax.
  2. Your filed tax returns are accepted by the tax authority in the manner in which they were filed but will subsequently be subjected to on-the-spot simple checks to ensure that tax return forms are correctly completed and those identified with defects are classified as revenue risks and will be treated duly.
  3. The returns filed are further subjected to administrative assessment; a method used by tax authority to assess a taxable person or entity using available information, third party sources or on the spot analysis (tax audit and investigation) to raise such assessment. The results of this assessment is served on the taxpayer, specifying the tax payable and due date.
  4. Administrative assessment will only arise when:
    a.) A taxpayer fails to file a return and pay tax due on or before the due date or;
    b.)The tax authority has found that there is an understatement of tax in the return filed by a taxpayer.

Where the above is established, penalties may include various sanctions such as fines, interest and imprisonment as the case my be.

What are the filing and payment requirements of the different tax types above:

Personal Income Tax (PIT) : self employed individuals should file returns and pay tax on or before 31st day of March of every year.

Companies Income Tax (CIT): this is divided into two. Old companies are required to file income tax and returns within six (6) months from the end of the accounting year.

While for new companies, income and returns should be filed within eighteen (18) months from the date of incorporation or not later than six (6) months after the end of its accounting period, whichever is earlier.

Petroleum Profits Tax (PPT): Taxpayers filing a return and estimated tax on PPT should do so within an accounting period of two (2) months after the commencement of each accounting period;

Note that in situations where you have commenced installment payment, filing should be done not later than the third month of the accounting period; filing a final return is within five (5) months after the end of the accounting period accompanied with the evidence of payment of the final installment.

Value Added Tax (VAT): filing returns and paying VAT due of the preceding month is on or before the 21s t day following the month of transaction.

Pay-As-You-Earn (PAYE): for employment income, tax deducted must be paid with appropriate returns (showing total salary and tax deducted for each employee during the month) within 10 days of the end of every month. Annual returns showing total annual salary, tax relief, total tax deducted regarding each employee and a declaration under oath on the relevant forms must be filed by the employer not later than 31st January of every year. Federal Inland Service (Establishment) Act 2007 Section 5 and Section 21 (1) – (4).

As a taxpayer you may apply for extension of time to file returns but note that this consideration is only given in regards to specific occurrences which include the death of a taxpayer in the case of an individual; death of a principal officer such as the Chairman, Director or Company Secretary in the case of a company or a natural disaster. Both circumstances are to be supported by verifiable evidence. Note however that there is no extension for the filing of VAT.

Furthermore, there are certain acts that amount to offenses under the self assessment provision. A taxpayer who fails to comply with the provisions of the tax provisions commits one or more of the following:

  1. failure to register for tax purposes
  2. failure to keep proper business records
  3. failure to file tax returns and pay tax on or before the due date
  4. understatement of tax in a return
  5. failure to produce such records or information as may be required by the tax authority.

From the above, it is clear that the FIRS has on paper simplified remittance of self assessment in the best way possible. How seamless the process is in practice will be judged by the individual experience of each taxpayer.

Overall, the system is commendable as it encourages remittance of dues based on mutual trust. Among the biggest advantage of this system is the ease, convenience and affordability it accords a taxpayer. In time, people may cease to fill out forms the dated way.

Article by Ene Omoha Esther (Esq.) 08157561204

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