Tax is a compulsory levy imposed by the government on individual or entities. Taxes are imposed and applicable to both individuals and companies in Nigeria. The Federal Inland Revenue Service (FIRS) collect taxes on behalf of the Federal Government in Nigeria.
There are several taxes mandated by law to be payable by companies doing business in Nigeria, which includes but are not limited to Company income tax, Stamp duties, Petroleum Profit tax, capital gains tax, value added tax, personal income tax, withholding tax, industrial training fund tax, education tax among others.
It is also important to note that failure for companies to pay any of the taxes as at when due attracts various penalties.
The above mentioned taxes will be discussed briefly below.
Company Income Tax (CIT):
The Company Income Tax Act governs this particular tax. It is mandated to be paid by companies in Nigeria based on the profits made by the company.The percentage charged by the FIRS to be paid by companies is 30% of the profit earned by the company in the accounting year ending the preceding assessment.
Resident companies are liable to corporate income tax (CIT) on their worldwide income while non-residents are subject to CIT on their Nigeria-source income.
For small companies in the manufacturing and export sector, the taxable profit imposed is 20%, if they have a turnover of below N1, 000,000 (One Million Naira) and are still within 5 years of operation.
Capital Gains Tax (CGT)
The principal legislation of the Capital Gains Tax is the Capital Gains Tax Act. It is imposed on the companies by the FIRS. It is charged at Ten Percent (10%) of the company gains realized upon the disposal of chargeable assets.
Petroleum Profit Tax (PPT)
This tax is governed by the Petroleum Profit Tax Act. It is levied on the profit of each accounting period of companies engaged in the upstream petroleum operations in lieu of company income tax. All companies engaged in petroleum operations are chargeable under the Petroleum Profit Tax Act.
The petroleum profit tax rate is 50% for petroleum operations under the production sharing contracts; 65.75% for nonproduction sharing contract operations, paid in the first five years during which the company has not fully paid off all the pre-production capitalized expenditure; 85% for nonproduction sharing contracts operations after the first five years.
Personal Income Tax
This tax is governed by the Personal Income Tax Act(PITA). It is charged on the income of individuals and sole proprietors etc. To determine the tax rate to be paid, the simplified calculation is the income- expenses and deductions.
It is paid as PAYE (Pay as You Earn) by people in employment, whose employer deducts the tax at source and the option of self-assessment by self-employed individuals, paid directly to the tax authorities. Personal Income Taxes are collected by the various states Internal Revenue Services.
The Tax rate under the PITA is as follows:
|CHARGEABLE INCOME||RATE OF TAX|
Stamp duties are payable by the virtue of the Stamp Duties Act LFN 2004. This tax is imposed on documents and certain transactions. The stamp duty’s rate is dependent on the type of document and value of the transaction.Instruments that are required to be stamped under the Stamp Duties Act must be stamped within 40 days of first execution.
Typically when a document is executed between a corporate body and an individual, the tax is paid to the FIRS, but where the document is executed between individuals only, the tax is paid to the State Board of Internal Revenue. Example of stamp duty taxable item is for the incorporation of a Limited Liability Company and Power of Attorney.Stamp duty is imposed at the rate of 0.75% on the authorised share capital at incorporation of a company or on registration of new shares.
Value Added Tax
This kind of tax is imposed on goods and services sold to the public. It is a consumption tax. The tax payable is Five per cent (5%) on the supply of goods and services. Value Added Tax Act is the governing Act.Businesses are expected to register for VAT with the first six months of the start of the business.Non-resident companies are expected to register with the VAT office using the address of the person or business that it is doing business with in Nigeria.
The law provided for withholding of tax from payments due to companies or individuals whether resident in Nigeria or not, that provides goods and services to individuals or companies in Nigeria. The period for filing withholding tax is 21 days after the duty to deduct arose for deductions from companies.
Examples of payment items that fall within this category of tax are;
|Types of Payments||Rates for Individuals||Rates for Companies|
|Consultancy and professional services||10%||5%|
|Dividends, interest and Rents||10%||10%|
|Building and Construction||5%||5%|
|Contracts other than sales in the ordinary course of business||5%||5%|
Custom and Excise Duty
The Customs and Excise Management Act LFN 2004 imposes a custom duty on specified imported goods and also restricts the movement of certain goods in and out of Nigeria. Any company involved in importation operations are liable to pay the tax charge ranging from 5% to 30%, depending on the goods to be imported.
Employee Compensation Deductions
The Employee Compensation Act 2010 imposes obligations on employers in both the private and public sectors to deduct 1% from the monthly salary of its employees and remit it to an Employee Compensation Fund, in event of death, injury, disease or disability of the employee arising in course of employment. The power to implement the fund resides in the Nigerian Social Insurance Trust Fund (NSITF) Board.
This employee compensation contribution is for the benefits and interest of everyone in any employment in Nigeria
Industrial Training Fund Deductions
This is governed by the Industrial Training Fund Act CAP I9, LFN 2004 (the “IDTF Act”) (as amended by the Industrial Training Fund Amendment Act, 2011). Every Nigerian company that employs five or more employees or having less than five employees but with a turnover of N50 Million and above is required to contribute 1% of its total sum of annual payroll to the Industrial Training Fund not later than the 1st of April of every year.
The ITF is established to utilize the contributions to the funds for skills in management, technical and entrepreneurial development in the private and public sector of the Nigerian economy.Failure to make contributions within the stipulated period in a calendar year attracts a penalty of five per cent (5%) of the amount unpaid for each month or part of a month after the date on which payments should have been made.
By virtue of the Education Tax Act Cap E4 LFN 2004, every company incorporated in Nigeria is obliged to pay 2% of its assessable profit as Education Tax for each year of assessment. It is payable within two months of an assessment notice from FIRS. Some companies pay the education tax with their company income tax.
Tax is one of the major sources of government revenue in Nigeria. This helps to meet its statutory obligations of ensuring economic development and providing security in Nigeria.
There are penalties that arise from refusal to pay taxes as when due. The FIRS is statutorily empowered to impose punitive fees or even prosecute the tax defaulters. It is, therefore, advisable that the taxpayers comply with the relevant tax laws to avoid sanctions or penalties.
BY RESOLUTION LAW FIRM