COMPANIES INCOME TAX (CITA CAP C21 2004 LFN)
The profit or gain of any company accruing in, derived from, brought into , earned in or received in Nigeria are assessable to tax under Companies’ Income Tax Act CAP C21 2004 LFN. The current tax rate is 30% and it is applied on the total profit or chargeable profit of the company.
i. REGISTRATION OF COMPANIES
All companies whether resident or non-resident are to be registered with the Federal Inland Revenue Service (FIRS) for tax purpose.
ii. SELF ASSESSMENT
All companies are required to file self assessment return within six months of its accounting year end. For a newly incorporated company, filing should be done within eighteen months from the date of its incorporation or not later than six months after the end of its first accounting period whichever is earlier.
iii. DUE DATE OF FILING TAX RETURNS
iv. PENALTY FOR LATE FILING TAX RETURN
Failure to comply with the self assessment system attracts penalty of:
(a) N25, 000 for the first month in which the failure occur &
(b) N5, 000 for each subsequent month in which the failure continues.
v. PENALTY FOR LATE PAYMENT OF TAX
If payment is not made within the specified time period, a sum of 10% of the amount of tax payable shall be added. For Naira remittances, the tax due shall carry interest at the prevailing minimum rediscount rate of CBN plus spread to be determined by the finance minister from the date when the tax becomes payable until it is paid. For foreign currency remittance, the tax due shall accrue interest at the prevailing London Inter Bank Offered Rate or the prevailing minimum rediscount rate of the CBN, whichever is higher, plus spread to be determined by the minister.
vi. MINIMUM TAX
(a) For companies within turnover of N500, 000 or less, highest of:
o 0.5% of gross profit
o 0.5% of net assets
o 0.25% of paid-up capital
o 0.25% of turnover.
(b) For companies with turnover in excess of N500, 000.00:
0.125% of turnover in excess of N500,000, plus the highest tax arrived at in (a) above.
vii. EXEMPTION FROM PAYMENT OF MINIMUM TAX
§ Companies with at least 25% foreign participation or imported equity.
§ Companies engaged in agricultural trade
§ Companies still in their first four calendar years of business.
(b) Capital allowances granted in any year are restricted to 662/3% of the assessable profit for the year for companies not engaged in manufacturing, mining and agricultural trade or business.
(c) It is a condition for granting capital allowance that capital expenditure acceptance certificates are obtained from the Industrial Inspectorate department of the Federal Ministry of Industries for capital expenditure of a company incurred in any one year in excess of N500, 000.
(d) Investment allowance on plant Equipment and Machinery is available at 10%.
B. PERSONAL INCOME TAX (PITA CAP P8 2004 LFN)
TAX TABLE OF RATES
Rate of Tax
TYPE OF PAYMENT
Rent (including hire of equipment)
All aspects of building construction and related activities
All types of contracts and agency arrangements other than
sales in the ordinary course of business
Consultancy and professional fees
With effect from 16th April 2007, withholding tax returns are to be filed within 21 days of the end of each month. Penalty for failure to withhold or failure to remit tax withheld within 21days is 10% of tax involved plus interest at the prevailing CBN re-discount rate.
C. CAPITAL GAINS TAX (CGTA CAP CI 2004 LFN)
With effect from 1996, CGT is computed at the rate of 10% of the chargeable gain. With effect from 1998, gains on sale of shares and stock of all forms are exempted from tax.
D. VALUE ADDED TAX (VAT A CAP VI 2004 LFN)
Value Added Tax (VAT) was introduced on 1st January 1994 to replace Sales Tax. Taxable persons are obliged to register under the VAT Act. The tax is at a single rate of 5% of taxable goods and services.
Supply of all goods and services except those specifically exempted are subject to VAT. Non-resident companies, which transact business in Nigeria, are also required to register for VAT and render VAT returns using the address of the company in Nigeria with whom they have subsisting contract.
The following goods and services are specifically exempted from VAT:
1. All medical and pharmaceutical products
2. Basic food items
3. Books and Educational material
4. Baby products
5. Fertilizer locally produced agricultural and veterinary medical farming machinery and farming transportation equipment.
6. All exports
7. Plant and machinery imported for use in the Export Processing Zone
8. Plant, machinery and equipment purchased for utilization of gas in downstream operations
9. Tractors, ploughs, agricultural and implements purchased for agricultural purposes.
1. Medical services
2. Service by community Bank, Peoples’ Bank and Mortgage institutions.
3. Plays and performances conducted by education institutions as part of learning.
4. All exported services.
ZERO RATE STATUS
1. Non-oil export
2. Goods and Services purchase by diplomats
3. Goods purchased for use in humanitarian donor funded projects
OFFENCES AND PENALTIES UNDER VAT
a. Failure to registered within 6 months of commencement of the decree i.e. 1st January 1994 or commencement of business: Fine as follows:
i. N10, 000 1st month of failure
ii. N5, 000 for each subsequent month for which the failure continue
b. Failure to keep proper record of account: fine of N2, 000 for every month the failure continues.
c. Failure to collect tax: penalty of 150% of the amount not collected plus 5% interest above the CBN rediscount rate.
d. Failure to submit return attracts fine of N5, 000 for every month the failure continues.
E. INFORMATION TECHNOLOGY (I.T TAX)
This is backed up by the National Information Technology Development Agency Act 2007.
i. The FIRS is to assess and collect the tax
ii. The rate of tax is 1% of profit before tax and it is tax deductible when paid.
iii. The levy applies to companies and enterprises with annual turnover of N100m and above in following businesses.
iv. GSM Service provider and all telecoms companies
v. Cyber Companies and Internet service provider
vi. Pension Manager and pension related companies
vii. Banks and other financial Institution
viii. Insurance companies
ix. Penalty of 2% is added for failure to pay the tax within 60 days after service of notice of assessment
x. Failure to pay the tax attracts a fine of not less than N1million on conviction.
F. TAX REFUND PROCEDURE
The Federal Inland Revenue Services Establishment Act 2007 makes provision for tax refund to tax payers who have valid claims within 90 days.
Claim for tax refund may arise from any of the following:
1. Over payment of tax in error
2. Double remittance by banks
3. Double payment for the same tax liabilities by the tax payers
4. Withholding Tax credit higher than the final tax liability
5. Input VAT in excess of output VAT
6. Input VAT claims in zero-rated transactions
Any claim for tax refund less than three hundred thousand Naira (N300, 000.00) could be settled immediately provided:
i. The tax payer has made valid tax claim previously
ii. The tax payer has beer tax audited within the last two years
iii. The tax payer has no outstanding tax liability with the Federal Inland Revenue Services
Any claim for tax refund amounting to three hundred thousand Naira (=N=300, 000.00) and above must go for tax audit procedure or a spot check before the refund can be approved.
G. OIL AND GAS COMPANIES
i. Oil Marketing Companies are liable to tax under CITA at the rate of 30% and Education Tax at rate of 2% on the assessable profit. Education tax is treated as allowable expense.
ii. Oil Services companies are liable to tax under CITA at the rate of 30% and Education Tax at the rate of 2% on the assessable profit.
iii. Oil producing Companies are liable to tax under the Petroleum Profit Tax Act CAP P13 LFN 2004 at the following rates:
Joint Venture Contracts, Risk Service
Contracts and Sales Risk Operators
First Five years 65.75%
Production Sharing Contracts (PSCs)
50% of Chargeable Profit
(Mainly for Deep Off-shore exploration & production)
Oil producing sharing companies are to file tax returns within five months of the year end. PPT is payable in 12 monthly installments plus a final installment payable within 21 days of the date of service of the notice of assessment.