Who May Collect Taxes From Business Names?
Short answer: lt depends on the nature of the business name whether it is run or operated by an individual/individuals, a firm or a company. believe that this is the effect of relevant statutory and constitutional provisions which we shall shortly review. But, why does it matter? It matters and, indeed, is topical, in my view, because of the apparent confusion or the pre-eminent tax collection authority in Nigeria, the Federal Inland Revenue Service (F.I.R.S) that its remit includes taxes payable by all business names alike. without discrimination, whether they belong to individuals, firms or otherwise.
believe that this confusion is manifest from the on-going practice of the Service of collecting withholding taxes from payments made to such persons/firms for services rendered or goods supplied by them to agencies of the Federal Government. Is the F.I.R.S. Iegally justified to do so? Given that the Constitution empowers only the Federal Government to collect taxes from companies or corporate bodies, does that practice suggest that all business names are invariably Companies? We shall presently investigate but first…
What is a business name?
By virtue of Section 57(1) of the Companies and Allied Matters Act (CAMA), 2004, every individual, firm or corporation having a place of business in Nigeria and which carries on business under a business name is required to be registered if-
- In the case of a firm the name does not consist of the true surname All partners without any addition other than the true forenames of the individual partners or their initials;
- In the Case of an individual, the name does not consist of his true Surname without any addition other than his true forenames or their initials and
- in the case of a corporation. the name does not consist of its Corporate name without any addition”
Section 588(1) of the Act defines “a business name” as “the name and Style under which any business is carried on, whether in partnership or otherwise;” it also defines a “firm” as “an unincorporated body of two or more individuals or one or more individuals and one or more corporations or two or more corporations, who or which have entered into partnership with one another with a view to carrying on business for profit”, while “business IS defined as any trade, industry and profession and any Occupation carried on for profit”.
What about “companies”?
Section 19(1) of CAMA, 2004 forbids any association consisting of more than twenty persons from carrying on business for profit unless it is registered as a company under the Act except by virtue of some other subsisting enactment. Legal practitioners, accountants and co-operative societies are however exempted: Section 19(2). Apart from the foregoing. Section 567(1) of the Act proffers the only other definition of a “company” as, inter alia, “a company formed and registered in Nigeria under this Act or, formed And registered in Nigeria before and in existence on the commencement of this Act.”
Taxation under the Constitution
By virtue of Item 59 of the Exclusive Legislative List of the 1999 Constitution, the National Assembly enjoys a monopoly over the taxation of incomes profits and capital gains except as otherwise provided by the Constitution. item 7(a) of the Concurrent Legislative List of the Constitution further provides that “In the exercise of its powers to impose any tax or duty on capital gains, incomes or profits of persons other than Companies, the National Assembly may, subject to such conditions as it may prescribe, provide that the collection of such tax or duty or the administration of the law imposing it shall be carried out by the Government of a State or other authority of a State.
It can be seen that the key phrase in the provision is “persons other than Companies. “It Is obvious that, having regard to the definition of “company” above, this excludes individuals or human beings (known as “natural persons” in law). In other words, the National Assembly can only empower State Governments to collect taxes payable by individuals or natural persons it cannot empower the Federal Government or any of its agencies to do so. This distinction is crucial, as we shall soon see.
in pursuance of Items 59 and 7 of the Exclusive & Concurrent Legislative Lists of the Constitution, respectively, the National Assembly enacted (or is deemed to have enacted) the Taxes and Levies (Approved List for Collection) Act 1998, as amended. Items 1, 2, and 6 of Part 1 of the
Schedule to this Act empower the Federal Government to collect companies income tax, withholding tax for companies and capital gains tax corporate, ” respectively. By contrast, Items 1- 4, of Part Il of the Schedule to the Act, empowers State Governments to collect, inter alia, Personal Income Tax (Pay-as-you-earn and direct taxation by self- assessment). Withholding Tax for individuals and capital gains tax for individuals.
And, finally . . .
Who, as between the Federal Board of Inland Revenue and State Boards of Internal Revenue is competent to collect taxes payable by persons or firms carrying on business as business names? The F.I.R.S. is the operational arm of the Federal Board of Inland Revenue. Similar structures in the States are the State Internal Revenue Services: See Section 87 of the Personal Income Tax Act, 1993, as amended: they are responsible for the collection of all taxes and penalties due to the (State) Government under the relevant laws”.
The foregoing constitutional and statutory provisions make it plain that a business name is but a convenient tool a moniker of sorts – for carrying on business by a person or group of persons who, unlike limited liability companies and incorporated trustees, lack legal personality: YUSUFF vs. ADENIJI BROS (1991) 7 NWLR pt 201 pg. 39 This means that while the latter are distinct from their members in all things including their property (see UNION BANK vs. PENNY-MART (1992) 5 NWLR pt. 240 pg. 228 @237). 0wners of business names are personally liable for any liability incurred under that name. Furthermore, unlike limited liability companies
and incorporated trustees, business names lack perpetual succession – see Sections 37 and 596 of CAMA, 2004.
It is for these reasons that the law regards the assets of a firm of partners or a sole proprietorship as no different from those of the partners or individuals who own the business. It follows that the incomes, profits and any capital gains made by such entities are personal and not corporate. To that extent. they ought to be subject to the jurisdiction of the State Boards of Internal Revenue and not the Federal Board of Inland Revenue. I submit that this Is the implication of a dispassionate analysis of the aforesaid taxation laws which are required to be interpreted strictly: 7-UP BOTTLING CO. v. L.S.I.R. B. (2013) 2 NRLR 105.
The Particular Case of Withholding Taxes
as previously alluded to. the F.I.R.S. has been collecting withholding tax at source from the fees paid to professional and others who do business with Federal Ministries Departments and Agencies (MDAS) using their business names. Withholding tax IS an advance or indirect payment of tax required by law to be withheld by a party, for onward transmission to the relevant tax authority, from a payment made to another party for goods sold or services rendered. See ADDAX PETROLEUM vs. F.I.R.S. (2012) 7 TLRN 74 @ 87.
From the foregoing discussion of the constitutional remit of the National and State Houses of Assembly in respect of the collection of taxes, I submit that with the exception of residents of the FCT(vide Item 2 of Part 1 of the Schedule to the Taxes and Levies (Approved List for Collection Act).
Any tax payable on the incomes, profits and capitals gains of individuals who trade as business names, or firms are incomes, collectible by the Governments of the State from which they were derived or earned.
To illustrate, the withholding tax due on a contract for legal series awarded by a Federal Ministry in Abuja to an Enugu-based law firm (a business name) which is to be wholly executed in Enugu, ought to be Collected by the Enugu State Internal Revenue Service, and not the F.I.R.S., as is presently the case. This practice is particularly worrisome, because of the continuing failure of the Service to furnish such entities with credit notes in respect of such taxes, as it is legally obliged to.
To the extent that the Federal Inland Revenue Service has been collecting taxes from business names operated by individuals on the apparent assumption that they are companies, that practice – except in Abuja, FCT is inconsistent with relevant statutory and constitutional provisions. In a nutshell, therefore a business name operated by an individual or firm anywhere in Nigeria except Abuja, is not a company within the contemplation of either the Constitution or the Taxes and Levies (Approval List for Collection) Act, to bring it within the tax-collection remit of the Federal Inland Revenue Service
Abubakar D. Sani, Esq.
7 December 2017
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