What the Taxman gives with one hand he sometimes ends up taking away with the other. This is not out of any ulterior intent but simply because business owners refuse to fulfill conditions that got them the benefits being reversed.
In the blog posting of October 28, 2017, we met the Taxman as a business partner. To claim and retain Capital Allowances on assets employed in the business to earn income, businesses are required to obtain Tax Acceptance Certificates (TAC) for assets acquired costing any amount above N500,000 from the Industrial Inspectorate Division (IID) of the Federal Ministry of Industry Trade and Investment.
Sonny Boy (is a business owner): You are telling me the Taxman will renege on our partnership agreement if I don’t have a TAC! What is that?
Sharpman: (is a Consultant): TAC means, “tax acceptance certificate”. The Industrial and Inspectorate Division (IID) of the Federal Ministry of Industry, Trade and Investment will issue a TAC. The certificate will convince your Taxman business Partner that in truth you acquired an asset of some significance during the year.
Sonny Boy: Why do I have to obtain a TAC after all I get my External Auditor to certify my accounts when I present them to him?
Sharpman: So does every other business owner who files accounts with him. The certificate is only to assure him that similar assets bought by 2 different businesses carry equivalent, or near equivalent, values on both sets of books. Let me explain.
Your Jeep Prado came into this country at over N15m and is on your books at that amount. IID is going to assess this figure and assure your business partner that indeed, give or take a couple of thousand naira, it is true that the Prado is worth the amount shown in your company’s financial statements.
Imagine then that this same type of Jeep, no technical differences or features, appears on the books of another business at N45m. IID’s assessment is also then meant to prove or disprove that and issue a TAC on their findings.
Sonny Boy: It seems I have to get these IID chaps to certify all my company’s assets then?
Sharpman: No not all of them. They will certify only acquisitions above N500,000 and above, each. It used to be N20,000 when the enabling Act was first enacted in 1970 (you know those years when cheques for N5 were still going through clearing!). The upward revision came in 2007.
Sonny Boy: Is this my business partner justified in reversing the allowances he grants to my company if I don’t have a TAC?
Sharpman: The law allows him to do that, so he does not have to justify it to you.
Sonny Boy: If he reverses those Capital Allowances earlier granted and we then get a TAC will he reverse the higher assessment to tax my company paid?
Sharpman: Sorry old boy, the law does not provide for such reversals if you fail to provide a TAC, but you can appeal to him to use it in subsequent assessments especially if the asset is of a very high value.
Sonny Boy: My business partner gets the better part of these deals then leaving me with higher bills to pay.
Sharpman: A business partnership is a ‘quid pro quo’. For us to remain in the venture for our mutual benefits, we agreed to fulfill our part of the agreement as the other party does also. When one party fails to honour his part of the agreement the penalty clause, or whatever provisions were made for a breach, kick in. Business should not be a place for half-hearted effort.
Sonny Boy: How do I make the best case for obtaining TACs for my assets?
Sharpman: You need to start the application process very early. There is the pre-acquisition, acquisition and installation and post-acquisition periods. The IID ought to be involved at each of these stages.
This makes your case less difficult to handle for them. There are going to be delays but be prepared and ensure that your project implementation program takes such delays into account at the planning stage.
