SOME Enlightenment On Tax & Tax Laws
Taxes are administered base on jurisdictions. The Jurisdictions are mapped according to the type of taxes each body govern and collect. Presently we have four form of tax collections bodies in Nigeria. The Federal Inland Revenue Service1 (FIRS), the Nigeria Customs Service2, The State Boards of Internal Revenues3 in each of the 36 states. And the Local Government Revenue Committee in each of the 774 local governments across the federation. The demarcation on which taxes are collected and by whom is define by Taxes and Levies Approved list of collection ACT.4 as we define each tax on this website, we will define the jurisdiction, to avoid tautology.
The two most important records to be kept are the records of all Incomes that accrued to your business and the list of all the Expenditures your business incurred to raise the income. Off course some of the expenditures may not be allowed for tax purposes. It is wise to know which expenditures are Allowable in the tax jargon.
Taxes is not just about paying and given, it can also serve as a medium to help you regain your money, avoid losing money and help you grow your business and income base. The links below are some of the tax benefits that can be exploited Capital Allowance (CA) Every enterprise, is given a relief called capital allowance on qualifying capital assets, an amount deducted from his income before taxes are applied to the balance. The rate of the allowance vary with the varying capital asset and the time of acquisition. It is advisable for a tax payer to take advantage of CA and reduce his/her tax burden and maximize his/her profit
This is a 2.5%, 5% or 10% deductions suffered by a taxpayer on his income from another activity they did to another taxpayer. Every taxpayer is expected to claim his WHT and use it to offset his tax liability in the future. A WHT that is not exhausted is refundable according to Nigeria laws with 90 days of application. A taxpayer can claim his WHT credit note from the nearest tax office where he did the job or with the contractee.
Input VAT provide entrepreneurs with a way to regain the money they earlier lost while purchasing goods they intend to sell. VAT is bound by final consumers, hence a retailer is expected to subtract the input VAT he/she paid from the output VAT he/she charged before remitting the difference to FIRS
Most complications in Taxations starts when the entrepreneur either is not informed well or did not comply with his civic duties. Either way, it is believed that, ignorance of the law is not an excuse. As a result tax authorities will impose different penalties5 that may put the tax payer at a serious disadvantage. There are different penalties ranging from the refusal to file returns to refusal to pay the right taxes. When this penalty are put together most often quadruplet the amount a taxpayer might have pad if he followed the laid rules.
The TETFund today we all enjoy is our high institutions is a product of Education Tax. Unfortunately it is one of the only taxes we paid that we could see been used visibly. This can however change if we pay our other taxes. We will have the rights to ask our leaders what they did with our money. Paying taxes will give us a sense of belonging and ownership.
This is the most paid, type of tax anywhere in the world. Every adult is expected to pay his personal income tax to the relevant revenue authority. In Nigeria the State Boards of Internal Revenue in each state collect the personal income tax of every individual, Except the Residence of Federal Capital Territory, The Military, The Police and the Employees of foreign employment who make their payments to FIRS. The method of payment of personal income tax and returns rendering is broadly categorized into two. The Direct assessment of a person or entrepreneur and the Indirect Pay-as-You-Earn (P-A-Y-E) scheme. The Personal Income tax is guided by Personal Income Tax Act 20116 as amended
From the records kept as explained in one of our links, a taxpayer is expected to match his income against his expenditures to arrive at his Net Profit. The taxpayer then less Income Exempted and/or add back expenses not allowed to arrive at assessable profit. The taxpayer is given capital Allowance and loss relief to arrive at the taxable income. The final Procedure in the income Tax table Computations7 is then calculated through Personal Income table. A taxpayer paying Personal Income tax through direct assessment has the benefits of Capital allowance.
This is a form of personal Income tax that is deducted at source from the salaries of a taxpayers. It includes all incomes of an employee in Nigeria. Under PITA, any salary, wages, fees, allowances or other gains or profits from an employment including bonuses, premiums, benefits or other perquisites allowed, given or granted to an employee are put together for PAYE purposes. PAYE is deducted by the employers on behalf of their employees and remitted to the relevant tax authority. Failure to deduct and or remit can lead to penalties5 on the employer. The computations7 are done through a table, after relieving the allowable reliefs form total employees income.
The personal Income Tax Act 20116as amended has given a consolidated relief allowance of two hundred thousand naira (N200,000) plus 20% of the gross income as an allowance from the gross income before taxes will be paid of the Net income. A taxpayer is also allowed to relief of: 1. Pension Fund Contribution (PFA) a total of 8% of Gross/Taxable income 2. A taxpayer also have the option of increasing his/her PFA contributions, to any amount. It will not be subjected to tax , provided that he did not withdraw from the money for 5 years. 3. National Housing Funds contribution, (NHF) a total 2.5% of Gross/Taxable Income. (NHF Act 2007) 4. Life assurance premium paid within that year. 5. Reimbursement of expenses incurred by the employee in the performance of his duties, and from which the employee is not expected to make any profit. 6. Medical and dental expenses incurred by the employee. Retirement gratuities and compensation for loss of office. 7. Cost of any passage to or from Nigeria incurred by the employee. The tax table is only applied to the net difference of the above deductions and reliefs.
Direct Assessment: The procedures are quite simple, it can be achieved in six 6 simple stages. 1. Prepare your accounts as shown in the simple tax computation, (as exemplified above) on or before 31st March of Each year. 2. Approach any bank and pay the tax liability using your Tax Identification Number (TIN) and obtain e-ticket for your payment. 3. Approach a tax office where you are registers and complete self-assessment form on all the taxes you assessed yourself and paid. 4. Submit the self-assessment forms along with your e-ticket and your prepared accounts and tax computation. 5. If you want a tax clearance certificate, you will request for the Tax Application form with the Revenue authority, complete it and submit it to relevant authority. 6. The Revenue authority is expected give you your tax clearance certificate free of charge within two weeks of application or explain to you why you are not given. Note: filling of tax returns and application of tax clearance certificate is done free of any service charge. Please don’t hesitate to report to this website any authority that request for anything extra.
In direct assessment, starts with the Employer completing for “A” or submit the list of employees with their annual gross income and possible deductions to the relevant tax authority. The income table shall include all possible deductions to be made by the employer on behalf of his employee. All deductions made are to be remitted to the Relevant Tax authority on or before 10th day of the subsequent Month. An annual returns is then submitted with on or before the 31st March of the subsequent years. PAYE Computations is done through the Personal income tax table.
This is an annual tax paid by Nigerian companies and companies that come to do business in Nigeria. The tax is charged at 30% of taxable profit and not below the minimum tax. Some companies are also grouped as small companies, and they are expected to pay only 20% of their taxable profit as Company Income Tax. Self-Assessment Procedures A company is expected to file self-assessment return on or before the end of the 6th month after the end of the accounting date of the company. The self-assessment procedures are thus: a) A taxpayer is expected to prepare his financial statement from the records of the company, prepare a capital allowance schedule and tax computation. b) Approach any bank and pay the taxes assessed. c) Visit the FIRS office where the company is registered and complete self-assessment forms. d) Submit the completed forms along with the e-ticket of the paid taxes and the documents in ‘a’ above. e) If the company wants a tax clearance certificate (TCC), the company should request for the TCC Application form with FIRS, complete it and submit it. f) FIRS is expected to issue TCC free of charge within two weeks of application or provides explanations why not. Education Tax This is a 2% tax on Assessable profit of registered companies before capital allowance relief. It is a tax meant to fund Tertiary Education Trust Fund. It is deducted and along with company income tax. Education tax is only collected by FIRS and it is paid by both conventional companies and companies in oil business.
The current rate of 5%, is added to every goods or services consumed in Nigeria except on the few goods and services on the exemption/zero rated list. Guided by the Value Added Tax Act6, VAT is a 5% multi-layer taxation collected by agents on behave of FIRS and remitted to the service on or before the 21st day if the subsequent month . Companies and individuals are mandated by law to register for VAT agents of collection with FIRS within the six months of incorporation or six months after the incorporation of VAT act. Refusals to register for VAT, Collect VAT, Keep Records or remit what is collect attracts a penalty and/or jail term. The Process of VAT payment is simplified through a computation that allows the deduction of Input from out put. VAT returns are filed on the same timing condition with the payments. The returns are filled using VAT form 002, which is obtainable in any FIRS office.
Withholding taxes, in itself is not a form of tax, but rather an advance way of holding a taxpayers income to be used to offset income taxes in the future. WHT like VAT is an indirect TAX collected by registered agents on behalf of a tax payer and remitted on or before the 21st of the subsequent month. WHT serves as the taxpayer’s money and it can be refunded if the taxpayer did not use/exhaust the money. In Nigeria, the law requires that upon application, a taxpayer should be refunded the unutilized WHT within 90 days. The remitting authority is expected to prepare payment schedule detailing the name of the tax payer they are paying for, the Tax Identification Number, contract sum the percentage to be deducted and the amount deducted. The Taxpayer whose income is deducted will be issued with a Credit Note to serve as evidence of deductions. WHT tax rates varies base on the type of contract or service provided
This is 10% tax on any qualifying capital expenditure. It is arrived at when the cost of disposal of asset is higher than the cost of acquisition of the asset. CGT is 10% of the gains from the sell proceeds. CGT is computed through a simple computations
Petroleum Profit Tax (PPT) This is a tax paid by companies in petroleum exploration. The tax ranges base on the arrangement the company signed with a country. In Nigeria the tax rate is 85% for JV and 65% for PSC. PPT is collected by FIRS. Stamp duties These are taxes on documents and agreements. If consist of different rates that are paid to make documents bindings. It is collected by both FIRS and the states boards of internal revenue. Business premises Registration Urban areas, is N10,000 for registration and N5,000 subsequent renewal. While in the rural area it is N2,000 registration and N1,000 subsequent renewal. Development Levy Not more than 100 naira per anum Naming of street The levy for naming a street is also a form of tax collected by either SBIRS if the road is in the State Capital or collected by LGRC if the road is a loal road. Right Of occupancy
Tax collections Summary by FIRS for the past 5 years
WE BUILD AWESOMENESS
Global leaders around the world have joined hands with FollowTaxes.
Become a Volunteer
Tell us about yourself