Page 58 Replace Editorial

Page 58 Replace Editorial

CAC and dormant companies

The Corporate Affairs Commission (CAC) recently announced plans to delist 50,000 of the over 1.2 million names on its register over their failure to file annual tax returns, a statutory requirement for all firms authorised by law to operate in Nigeria.

CAC Registrar General Bello Mahmud, who disclosed this in Abuja, said 623,659 or 49 percent of the companies had not filed annual returns since their registration, contravening sections 370-378 of the Companies and Allied Matters Act (CAMA), which provides for payment of annual returns and prescribes sanctions for infringement.

Mahmud said other companies had not filed tax returns for between two and four years, without specifying the number of defaulters in this category. He stressed however that names of the defaulters would be struck off the register after due notification through different channels of communication as prescribed by law. He said CAC does not delight in deregistering companies because some of the defaults were due to economic reasons, which was why the commission ensures that laid down procedure is followed to allow them to remedy the situation and avoid delisting.

It is mandatory for all registered companies to file annual tax returns and to file their annual information with the Commission, which was established in 1990 to regulate the formation and management of companies, about their viability and status as going concerns. It is therefore worrisome that nearly half of the registered companies in Nigeria fail in this basic requirement and thus are contributing nothing to the economy. A former registrar general Ahmed Al-Mustapha said the Commission loses N400 million yearly due to non-filing of returns, an amount that may have doubled over the years. It is imperative that this has to be urgently reversed in view of the prevailing economic challenges confronting Nigeria, and President Muhammadu Buhari’s avowed determination to plug leakages in the financial system and depend less on oil revenues.

The CAC has been hamstrung in effectively carrying out its mandate because most of the companies on its register are “briefcase companies,” meaning they have no verifiable addresses and are registered for “emergency contracts” after which they literally fold up. While the “briefcase companies” may default due to the economic downturn, many other firms doing profitable business fail to file returns simply to shortchange the federal government. But some are not even aware of their statutory obligations. This is not the first time though that the CAC will announce plans to delist inactive companies. Nine years ago, it mulled striking off a whopping 450,000 firms from its books for failing to comply with the law. Last year it said it was processing 49,000 companies for sanctions, up from 45,000 in 2013. But sadly, like Mahmud disclosed, only 9,347 companies have been delisted since the inception of CAC 25 years ago.

This clearly means the Commission has failed to effectively carry out the supervisory aspect of its mandate as its efforts to make registered companies to update their records seem to have failed. Besides, this unrealistic list of over 1.2 million registered companies, most of them inactive, gives the wrong impression about the size of Nigeria’s economy and makes it difficult to formulate and implement economic strategies.

Effectively delisting inactive companies would impact positively on CAC as it would make its register leaner, more convenient and easier to manage as well as offer improved supervisory services. It would also assist in effective planning as the government would be working with genuine firms that are vibrant and contributing to the economy.

Nigeria’s drive for foreign investment must be matched by realistic economic indices because a dependable list of active companies will enable investors take actual investment decisions. This underscores the need for stringent sanctions against defaulters and stricter re-listing requirements as the current charges of between N1000 and N5000 as filing fees for annual returns and the N100 per day penalty fee are now obviously inadequate.

The CAC also needs to educate registered companies on their obligations and collaborate with the Federal Inland Revenue Service, the Economic and Financial Crimes Commission and other security agencies to carry out surveillance on the operations of these companies and persecute those found wanting accordingly.