What You Need to Know About Tax Matters in Nigeria – Madil Associates Limited

What You Need to Know About Tax Matters in Nigeria

Definition:

Tax is a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions. It can be in form of levy, tariff, duty, toll, excise, impost, contribution, assessment, tribute, charge and fee.

It is a financial charge or other levy imposed upon a taxpayer (an individual or legal entity) by a state or the functional equivalent of a state to fund various public expenditures. Failure to pay, or evasion of or resistance to taxation, is usually punishable by law.

Who Should Pay Tax:

In Nigeria, all persons in employment, and individuals in business, non -residents who derive income from Nigeria as well as companies that operate in Nigeria are liable to pay tax.

How do You Register for Tax:

Registration for tax purposes is a legal obligation of every person who is required to pay tax in Nigeria. At registration, Tax Identification Number (TIN) will be issued. TIN is a unique number allocated and issued to identify a person (individual or company) as a duly registered taxpayer in Nigeria.

A new company is expected to register for Value Added Tax (VAT) on or before six (6) months after incorporation whether registered business or limited liability or Non- Governmental Organisation (NGO) or Trustees.

Type of Taxes in Nigeria

According to FIRS there are nine (9) types of taxes in Nigeria:
• Companies Income Tax (CIT)
• Petroleum Profit Tax (PPT)
• Value Added Tax (VAT)
• Personal Income Tax (PIT)
• Withholding Tax (WHT)
• Educational Tax (EDT)
• Stamp Duties (STD)
• Capital Gains Tax (CGT)
• National Information Technology Development Levy (NITDL)

Some taxes are payable to the Federal Government (and administered by Federal Inland Revenue Service), some are payable to the State Governments and some to Local Governments. For a complete listing of which tax is payable to which level (or tier) of Government, please see Taxes and Levies (Approved list for collection) Act. No 21 of 1998

The different taxes are as listed below

Companies Income Tax
Companies Income Tax Act (CITA), Cap C21, LFN 2004 (as amended) A tax chargeable on all companies (other than Companies engaged in petroleum operations as defined under the PPTA) registered in Nigeria.

Petroleum Profits Tax
Petroleum Profits Tax Act Cap P13 LFN 2004 (as amended) The rate varies from 50% to 85% of the chargeable income for companies engaged in petroleum operations as specified under the Act.

Value Added Tax
Value Added Tax Act Cap V1, LFN 2004 (as amended) A tax payable by the consumer at 5% of the net value added based on eligible transactions once consumed.

All registered businesses are expected to register and have a VAT registration certificate, and boldly display their VAT registration number on all invoices.

Personal Income Tax
Personal Income Tax Act (PITA) Cap P8 LFN 2011 (as amended) A tax payable by all individuals and registered businesses and partnerships except those registered under Part A of Companies and Allied Matters Act 1990.
The current rates applicable to the chargeable income are as follows:
Below N300,000 @ 1%
First N300,000 @ 7%
Next N300,000 @11%
Next N500,000 @15%
Next N500,000 @ 19%
Next N1,600,000 @ 21%
Above N3,200,000 @24%

Withholding Tax
This is not really a tax. It is an advance payment of tax (at 5% to 10% depending on the transaction) to which individuals and organizations are entitled to demand a withholding tax credit note.

Education Tax
Tertiary Education Trust Fund (Establishment, Etc) Act 2011 A tax chargeable on all companies registered in Nigeria at 2% of assessable profit as contribution to the Education Tax Fund.

Stamp Duties
Stamp Duties Act CAP S8, LFN 2004 (as amended) Stamp Duty is administered on written documents only (e.g. Share Capital, Deed of Assignment, Debenture, etc.). It is Chargeable according to a scale fixed by the Joint Tax Board

Capital Gains Tax
Capital Gains Tax Act, Cap C1, LFN 2004 (as amended) A flat rate of 10% tax imposed on Capital Gains arising from a sale, exchange or other disposition of properties known as chargeable assets.

National Information Technology Development levy (NITDL)
National Technology Development Agency Act, Cap N156 LFN 2004 (as amended) The levy is charged at the rate of 1% of Profit before tax on specified companies with turnover of N100 million and above.

When is Tax payment due?

Companies Income Tax (CIT)
• For newly incorporated companies, within eighteen (18) months from the date of incorporation or not later than six (6) months after the end of its accounting period, whichever is earlier.
• For existing companies, within six (6) months after the end of the accounting year.

Petroleum Profit Tax (PPT)
Returns of estimated tax for each accounting period are to be submitted not later than two months after the commencement of the accounting period.

Value Added Tax (VAT)
All VAT deducted from final consumers should be filed not later than 21st day following the month of transaction

Personal Income Tax (PIT)
• The due date for remitting PAYE is the 10th day of every month following the month of deduction for employees.
• For business owners and self-employed individuals, who are not on payroll (salary), file direct assessment at the beginning of the year latest 31st March
• 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

Withholding Tax (WHT)
All Withholding Tax deducted from individuals and companies should be filed not later than 21st day following the month of transaction.

Educational Tax (EDT)
The due date for filing returns is the same as CIT and PPT

Stamp Duties (STD)
Duties are paid before documents are executed

Capital Gains Tax (CGT)
Due date for filing return and payment is the same as CIT

National Information Technology Development Levy (NITDL)
Due date for filing return and payment is the same as CIT

Penalties on Failure to Pay on Due Date:

Companies Income Tax (CIT)
• Penalty for late filing of returns is N25,000 for the first month it occurs N5,000 for each subsequent month the failure continues.

Petroleum Profit Tax (PPT)
The penalty for late submission of a return is N10,000 and a further sum of N2,000 for each and every day the failure continues.
Any instalment of the tax not paid on the due date shall attract a penalty of ten per cent (10%) and interest at the prevailing minimum rediscount rate of the CBN and if payment is not made within one month, enforcement shall take place

Value Added Tax (VAT)
Offences include: Failure to register, Failure to charge VAT, Failure to issue tax invoice, Failure to remit VAT charged and Failure to file returns.
Penalty for late filing of returns is N25,000 for the first month it occurs N5,000 for each subsequent month the failure continues.

Personal Income Tax (PIT)
• 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 corporate body and N50,000 in the case of individual

Withholding Tax (WHT)
Same as CIT

Educational Tax (EDT)
First office against the Act is liable on conviction to a fine of N1,000,000 or a term of 6 months imprisonment or both. Second and subsequent offences attract a fine of N2,000,000 or a term of 12 months or both.

National Information Technology Development Levy (NITDL)
Failure to pay the levy at due date shall attract a penalty of ten per cent (10%) and interest at prevailing minimum rediscount rate of the CBN and if payment is not made within one month, enforcement shall take place.

Consequences of Non-Compliance:

These include but not limited to

◆ Administrative tax assessments
◆ Denial of Tax Clearance Certificate (TCC)
◆ Imposition of fines, penalties, interest and/or imprisonment
◆ Recovery of tax through appointed agents
◆ Sealing of business premises
◆ Search and seizure
◆ Distrain
◆ Prosecution
◆ Loss of trust and confidence by Tax Authority
◆ Increased compliance cost
◆ Increased administration cost

There are other taxes which are not mentioned on the list but State and local government charge individuals and businesses. They can be classified as levy. Such as Business Premises which is N10, 000 the first year and N5,000 each year as renewal.
Each individual also pay N100 development level as you pay your tax.

Taxpayer’s Obligation, what are they:

 Register with a Tax Administration and obtain Taxpayer Identification Number (TIN)
 Assess yourself to tax
 Charge, deduct, collect and remit VAT, WHT and PAYE as an entity or institution with legal agency role under the tax laws
 Make full voluntary disclosure of all incomes and expenditures
 File tax returns, on or before the due date, through an FIRS designated collecting bank and obtain teller, e-ticket, e-acknowledgment as well as receipt from the Tax Office
 Keep proper books of accounts, records and documents
 Cooperate with any authorized Officer of FIRS while on official business of the service
 Always notify FIRS of any change in matters relating to business

Taxpayer’s Rights:

 Be informed, assisted and heard
 Be given a Taxpayer Identification Number (TIN) free of charge immediately on request or be provided with reason for failure to be issued with a TIN
 Object to a tax assessment that is not in agreement with business activities as provided by tax laws
 Appeal against a notice of refusal to amend an assessment as specified by relevant tax law
 Be issued a Tax Clearance Certificate (TCC) upon settlement of tax liabilities or be given a notice of denial within two (2) weeks of application, TCC itself is free
 Demand for proper identification from any person claiming to be an official of FIRS
 Be granted refund on excess tax paid after proper auditing with the option of using it to offset future tax liability

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