PwC Report: FIRS Paid N69.926bn Tax Refund in Three Years

• Received N321.34bn, $862.61m, €114m Refund Applications Within Period Under Review

A PricewaterhouseCoopers (PwC) Nigeria’s report released yesterday has disclosed that the Federal Inland Revenue Service (FIRS) paid a total sum of N69, 926,345, 255,45 in tax refunds in 2019, 2020 and 2021.

According to report by thisdaylive.com, the report titled, “Tax Refunds in Nigeria – Myth or Reality,” also stated that the FIRS received N321, 344,546,103.68; $862,612,748.63 and €114,000.31 tax refund applications in 2019, 2020 and 2021.

The PwC’s report also showed that the federal government provided a total of N75 billion for the payment of tax refund in 2019, 2020 and 2021. This was at a fixed rate of N25 billion per year irrespective of the sum being claimed for tax refund.

The report also showed that the FIRS received 911 requests for tax refund out of which 362 were processed and paid.

A breakdown of the figures showed that 284 applications were received in 2019, for the repayment of the sum of N211, 305,047, 504.44 and $18,041,869.81 in 2019. However, only 192 applications were processed and the sum of N23,605,897,863.40 repaid.

In the same vein, a total of 242 requests were received in 2020 for the repayment of N52,584,000,991.28, $6,416,999.31 and €57,453.00 in tax refund. But 125 requests were processed and the sum of N27,883,524,254.05 repaid.

Also, in 2021, 385 applications were received by the FIRS for the repayment of N57,455,497,607.96, $838,153,879.51 and €56,547. However, only 45 applications were processed and the sum of N18,436,923,135.00 were repaid to deserving tax payers.

The report indicated that the value of tax refund applications received by the FIRS increased by almost 10 per cent from 2020 to 2021, and in each of the two years, the applications received exceeded the budget amount of N25 billion in each year.

The PwC stated that, “it appears that there is no data driving the fixed budget amount of N25 billion, despite the increase in demand cases. This may cast more doubts in the minds of taxpayers about the willingness of the tax authorities to make refunds.”

The audit firm stated that the FIRS annual reports for the periods under review also showed that “the payment of approved refund applications was subject to the availability of funds released to the FIRS in the annual budget/appropriation.

“The question then is whether the government has made adequate provisions to cater for situations where the approved refunds exceed the budget.”

It stated that a taxpayer might request a refund for various reasons, including tax remittance made with mistaken tax identification numbers, withholding tax deductions in excess of income tax payable, when input VAT exceeds output VAT and for other computation or payment errors.

The PwC also compared the Nigerian situation with what was obtainable in Germany and South Africa.

It added: “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.

“South Africa has made remarkable progress with its tax refund administration. The South African Revenue Service (SARS) reported in April 2022 that it paid out its highest-ever amount in tax refunds in 25 years, representing an estimated 5.1 per cent of gross domestic product.

“According to the reports, the refunds reflected a growth year-on-year of 10 per cent mostly dominated by VAT (R262.4 billion), Personal Income Tax (R33.7 billion), CIT (R17.7 billion) and Customs duties (R58 billion).”

The PwC, however, recommended that the timeframe from verification of refund to the payment of the tax refunds should not exceed 12 months. It also recommended that taxpayers should ensure that proper and relevant documentation is maintained to aid refund requests.

“Also, taxpayers should conduct a tax health-check before applying for the tax refunds. The FIRS should adopt a proper revenue recognition mechanism where WHT from companies (except where the WHT is final tax), are properly treated as liabilities until the relevant entities have filed their annual returns, or other appropriate criteria are met.

“This results in more accurate reporting, increases transparency and improves taxpayer confidence.

“Commercial interest should apply on late payment of refunds, similar to interest imposed on taxpayers for late payment of taxes. This encourages accountability, and aligns our tax system with global best practices.”

The PwC noted that taxpayers would begin to feel a deeper sense of trust and confidence in the government if an efficient tax refund system is put in place.

It added that “from an equity perspective, it is generally accepted that if a legal remedy or equitable relief is available to a deserving party but is not provided in good time, it is effectively the same as having no remedy. Essentially, justice delayed is justice denied.

“A proper refund system becomes increasingly critical as the government starts focusing on fostering the ease of doing business and encouraging foreign investment and participation in Nigeria. Investors will feel more confident where they know that overpaid taxes can be refunded.”