27/09/2021
*THE LAW HOUSE LEGAL TIPS* 👇👇👇👇👇👇👇👇👇👇
*TAX AND TYPES OF TAXES IN NIGERIA*
Tax is a compulsory contribution to federal or state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.
As a matter of fact and obligation, every individual, whether resident or non-resident in Nigeria, persons in paid employment or businesses, or persons who derive their income from Nigeria, as well as companies that operate in Nigeria, are all liable to pay tax. Failure to deduct and remit tax or failure to pay taxes of any kind as the case may be attracts punitive fines and penalties.
Payment of taxes enables the government to raise revenue to foster economic growth and development as well as provide basic social amenities.
There a different types of taxes in Nigeria, some of them include:
1. *COMPANIES INCOME TAX*
CIT is governed by Companies Income Tax Act (CITA), Cap C21, LFN 2004 (as amended). CIT is a tax imposed on profit of a company from all sources. The rate of tax is 30% of total profit of a company. Some profits are exempted from CIT provided they are not derived from trade or business activities carried out by the company e.g. Cooperative society. Every company shall pay provisional tax not later than three (3) months from the beginning of each year of assessment which is an amount equal to the tax paid in the previous year of assessment. This is a payment on account of the year’s income tax assessment.
2. *PERSONAL INCOME TAX*
Personal Income Tax is guided by the Personal Income Tax Act Cap P8 LFN 2004 (as amended). The tax is imposed on income of Individuals, Corporate sole or body of individuals, Communities, Families and Trustees or Executors of any settlement- An individual is entitled to a Consolidated Relief Allowance of N200,000 or 1% of gross income whichever is higher plus 20% of gross income. The rate of the tax ranges from 7% to 24%, depending on the amount of chargeable income- Individuals are subject to minimum tax of 1% of gross income where the income is less than N300,000 per annum. The tax is administered by FCT/States Internal Revenue Service(IRS) in respect of their residents. The tax is also administered by FIRS on non-residents, members of the Armed Forces, Police, Officers of Nigerian Foreign Service. The due date for filing returns of the tax is 31st March of every year. The due date for remittance of PAYE is 10th day of every succeeding month. An employer shall file return of emoluments and tax deducted from the employees in the preceding year not later than 31st January of every year. A person who fails to file a return shall be liable on conviction to a fine of N5,000 and a further sum of N100 for every day during which the failure continues or imprisonment of six (6) months or both. Any employer who fails to file a return, shall be liable on conviction to a penalty of N500,000 for body corporate and N50,000 in the case of individual.
3. *VALUE ADDED TAX*
VAT is a consumption tax paid when goods are purchased and services rendered. VAT is borne by the final consumer. All goods and services (produced within or imported into the country) are taxable except those specifically exempted by the VAT Act. VAT is charged at a rate of 7.5%. Some goods and services such as non-oil exports are zero rated. All taxable persons are required to file VAT monthly returns not later than 21st day following the month of transaction.
Please note that there is currently a debacle between some States of the federation and the federal government as to whether it is the states or the federal government that VAT should be payable to.
4. *CAPITAL GAINS TAX*
It is governed by Capital Gains Tax Act, Cap C1 LFN 2004 (as amended). Capital Gains Tax is charged at a flat rate of 10% of chargeable gains. All chargeable assets are subject to Capital Gains Tax when disposed at a gain, except those specifically exempted by the Act. Chargeable assets include all forms of property whether or not situated in Nigeria. The due date for filing return and payment of the tax is the same as in Companies Income Tax. Allowable expenditure for the purpose of CGT includes fees, commissions or remunerations paid for professional services and cost of transfer. Gains exempted from CGT include those arising from disposal of decorations awarded for valour and gallant conduct, life insurance policy, Nigerian government securities, stock and shares etc. Gains shall not be chargeable if it accrues to some organizations provided the gain is not derived from any disposal of any asset acquired in connection with any trade carried on by the organization, e.g. An ecclesiastical, charitable or educational institution of a public character, Statutory registered friendly society, Cooperative society registered under Cooperative Societies Law of any State, Trade union registered under the Trade Unions Act.
*5. PETROLEUM PROFIT TAX*
The tax is governed by the Petroleum Profits Tax Act, Cap P13 LFN 2004 (as amended).Companies liable to PPT are not liable to Companies Income Tax(CIT) on the same income. For Joint Venture and Sole Risk Companies in their first five years of operation, the rate of tax is 65.75% of chargeable profit. For Joint Venture and Sole Risk Companies in operation for more than five years, the rate of tax is 85% of chargeable profit. For a Company under Production Sharing Contract, the rate of the tax is 50% of chargeable profit. Education Tax is a deductible expense in computation of assessable profits of petroleum companies. Returns of estimated tax for each accounting period are to be submitted not later than two months after the commencement of the accounting period. Final returns for each accounting period shall be filed within five months after the expiration of the accounting period. The penalty for late submission of a return is a penalty of N10,000 and a further sum of N2,000 for each and every day the failure continues. Any instalment of tax not paid on the due date shall attract a penalty of ten percent (10%) and interest at prevailing minimum rediscount rate of the CBN and if payment is not made within one month, enforcement shall take place.
*6. STAMP DUTIES*
It is governed by Stamp Duties Act, CAP S8, LFN 2004 (as amended). It is administered on written documents only. It is administered by both FIRS, FCT and respective States Internal Revenue. FIRS assesses and collects duties on documents executed between a company and an individual, group or body of individuals. FCT and States Internal Revenue Service(IRS) assess and collect duties on documents executed between persons or individuals. A Commissioner of Stamp Duties adjudicates on the amount of duty payable on instrument (Adjudication is the process of determining the correct amount of duty payable on an instrument).
7. *CUSTOM AND EXCISE DUTY*
These are taxes charged at the Nigeria's Port of Entry on certain imported goods. It is usually administered and collected by the Nigerian Customs Service by virtue of the Customs and Excise Management Act. There are two types of taxes charged at the Nigeria Port of Entry; one is in certain imported goods and the other is on some exported good. Thus, custom and excise taxes are imposed on goods either for revenue purposes or to discourage consumption of such products. This is why it is a times referred to as consumption tax.
*Sarafina Nwabueze, Esq*
[email protected]
