One of the civic duties of the citizens of every country is payment of taxes. As a citizen of Nigeria you are required to pay your taxes. Also, residents, individuals and organisations doing business in Nigeria are required to pay taxes.
However, many people do not understand which taxes they are to pay, when to pay and how to pay them. If you have any question about paying taxes in Nigeria, then this article is for you.
In this article we would outline the different taxes available in Nigeria, what each tax stands for, who is liable to pay and how and when you should pay them. In order to fully do justice to the topic, we would also be highlighting the provisions of the laws of taxes in Nigeria. Some of the tax laws we would be discussing are the Finance Act, the Companies Income Tax Act, The Petroleum Profit Tax Act, the Stamp Duties Act and the Personal Income Tax Act.
We have also created a list of frequently asked questions. Most of the questions are questions business people ask us about taxes when setting up their business in Nigeria. Below this article you would find the list of frequently asked questions on taxes in Nigeria and their answers.
What are Taxes?
Taxes are necessary and statutory levies imposed by the government on individuals and enterprises for the improvement of the country. Taxes are not imposed on nothing. Taxes are not collected for no reason at all.
Payment of taxes in Nigeria is a legal requirement for individuals and business owners. So if you are thinking of starting a business, then you should understand that your business is required to make a contribution to Government’s revenue.
Tax evasion is a crime under the laws and ignorance of the law is not an excuse.
Taxes can either be direct or indirect. Direct taxes are levied on private individuals, corporations, goods and properties, while indirect taxes are import and export duties.
Why should I pay Taxes in Nigeria?
Many times you might wonder, why bother paying taxes? What do I get in return for paying taxes?
Taxes are not payments you make to get something specific in return. However, there are lots of benefits that flows indirectly from payment of taxes.
The major source of revenue for the government is Taxes. To meet with the governance expenditure such as health services, education, personal reliefs in terms of scholarships and grants, electricity, good roads , alleviation of poverty and generally for the good of the public.
Taxes paid comes back to tax payers in form of social amenities which are needed for the development of the country. We should remember that the development of a country is also the development of your business or individuals in that country.
Types of Taxes in Nigeria?
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Company Income Tax (CIT)
Company Income Tax(CIT) is governed by Companies Income Tax Act (CITA), Cap C21, LFN 2004(as amended) CIT is imposed on profit of a company from all sources,The rate of tax is usually 30% of total profit of a company, Some of the profits of the company are exempted from Company Income Tax 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. Capital gain Tax (CGT)
Capital gain Tax (CGT) is governed by the Capital Gains Tax Act, Cap C1 LFN 2004 (as amended). CGT pertains to all gains accruing to a taxpayer from the sale or lease or other transfer of proprietary rights.
CGT 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
3. Personal Income Tax (PIT)
Personal Income Tax (PIT) is guided by the Personal Income Tax Act, 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 . 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.
4. Witholding Tax (WT)
Withholding Tax (WT) is a method used to collect Income Tax in advance.This is deducted at varying rates ranging from 5% to 10% depending on the transaction. This means that where a transaction payment is due, the person making the payment is to deduct tax at the required rate and remit to the tax authority.
The due date for filing its returns is 21st day of every succeeding month.Penalty for late filing of returns is N25, 000 for the first month it occurs and N5, 000 for each subsequent month the failure continues.
5. Value Added Tax (VAT)
Value Added Tax (VAT) is a consumption tax paid when goods are purchased and services rendered. It is a multi-stage tax borne by the final consumer whereby goods and services (produced within or imported into the country) are taxable except those specifically exempted by the Act.
VAT is charged at a rate of 7.5% Some goods and services such as non-oil exports are zero rated and all taxable persons are required to file VAT monthly returns not later than 21st day following the month of transaction
- Stamp Duty
Stamp Duty is governed by Stamp Duties Act, CAP S8, LFN 2004 (as amended). It is administered on written documents only by both the Federal Inland Revenue Service (FIRS), and respective States Internal Revenue Service(IRS).
FIRS assesses and collects duties on documents executed between a company and an individual, group or body of individuals at the federal level while the States Internal Revenue Service(IRS) assess and collect duties on documents executed between persons or individuals on the state level.
A Commissioner of Stamp Duties adjudicates on the amount of duty payable on instrument
Forms of Stamp Duties
- Ad-valorem- Duties that vary with consideration, e.g. duties on Share Capital, Deed of Assignment, Debenture, Bills of Exchange, etc.
- Fixed Duties- duties that do not vary with consideration, e.g. duties on payment receipt, proxy forms, guarantor forms, etc.
- Tertiary Education Tax (TET)
Tertiary Education Tax(TET) is governed by Tertiary Education Trust Fund (Establishment, Etc.) Act 2011 Imposed on all companies registered in Nigeria. The rate of the tax is 2% of assessable profit and the due date for filing returns is the same as that of Company Income Tax and Personal Income Tax.
TET is an allowable deduction in computing the assessable profits of companies engaged in petroleum operations(Upstream) and Funds derived from the tax are used for rehabilitation, restoration and consolidation of tertiary education in Nigeria by the Tertiary Education Trust Fund (TETFUND)
The amount in the Fund is distributed between Universities, Polytechnics and Colleges of Education in the ratio 2:1:1 respectively.
- National Information Technology Development Levy (NITDL)
National Information Technology Development Levy(NITDL) is governed by National Information Technology Development Agency Act, CAP N156 LFN 2004 (as amended) and is charged at the rate of 1% of Profit before tax, and it is charged on specified companies with turnover of N100 million and above
Companies liable to pay are:
- GSM Service Providers and all Telecommunication Companies
- Cyber Companies and Internet Providers
- Pension Managers and Pension Related Companies
- Banks and other Financial Institutions and
- Insurance Companies
What authorities guides Payment of Taxes in Nigeria?
Nigeria as a country practices a decentralized system of taxation, Different bodies at different level of government guides the payment of taxes in Nigeria.These bodies are;
1. Federal Inland Revenue Service (FIRS)
The Federal Inland Revenue Service was established by the Federal Inland Revenue Service Act of 2007, It is an Operational Agency put in place by the federal government to collect relevant taxes in Nigeria.
Its function in Section 8 of the FIRS Act includes but not limited to the accessing of companies, collection of Tax payment for the federal government, review of tax and determination of financial loss.
2. State Board of Internal Revenue(SBIR)
The SBIR was established Under Section 85A of the Personal Income Tax of 1993, it operates through the State Internal Revenue Service. The Agency is saddled with the responsibility of collecting and assessing Taxes due to the state government.
3. Local Government Revenue Committee
The Local Government Revenue Committee was also established under section 85D(1) of the Personal Income Tax Act of 1993, its function includes accessing and collecting taxes accrued to the local government.
What are the laws guiding Taxes in Nigeria?
For it to be a Tax, it must have been backed up by the legislation of Nigeria.
Some of these laws are:
The Nigerian Constitution of 1999 (as amended)
The Finance Act 2020
Associated Gas Re-Injection Act
Capital Gains Tax Act Cap C1 LFN 2004 (as amended).
Companies Income Tax Act 2004 as amended
Deep Offshore and Inland Basin Production Sharing Contracts Act
Tertiary Education Trust Fund Act Act 2011
Federal Inland Revenue Service (Establishment) Act
Income Tax (Authorised Communications) Act
Industrial Development (Income Tax Relief) Act
Industrial Inspectorate Act
National Information Technology Development Act
Nigerian Export Processing Zones Act
Nigeria LNG (Fiscal Incentive Guarantees and Assurances) Act
Oil and Gas Export Free Zones Act
Personal Income Tax Act Cap P8 LFN 2004 (as amended
Petroleum Profits Tax Act
Value Added Tax Act Cap V1 LFN 2004 (as amended).
Stamp Duties Act CAP S8, LFN 2004
Taxes and Levies (Approved List for Collection) Act
Casino Act
Conclusion
Payment of Taxes should be seen as an obligation that we all have to our country, and instead of complaining about the situation of the country every time, we should rather check ourselves if in anyway we have also deluded it of its right, as much as the nation owes us a lot, we also have a part to play. we should try our best in the most possible way to contribute to the growth of the country. Payment of Taxes is essential, and when you are diligent, you have a right to demand for your rights.
