Practical Taxation in Nigeria

Report
Being a Paper Prepared by Ifeanyi Mba . Managing Partner,
MBA & CO (Chartered Accountants)
To 400 Level Accounting students of Covenant University:
January 21 – 23, 2015
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Fiscal Federalism in Nigeria
Nigerian Tax/Legal System: Past to Present
Administration and collection of Taxes in
Nigeria
Personal Income Tax Procedures
Value Added Tax matters and procedures
Withholding Tax Matters and procedures
Company Income Tax Procedures
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Tertiary Education Trust Fund (Establishment,
Etc) Lax matters
National Information Technology
Development Agency Levy matters
Capital Gain Tax
Petroleum Profit Tax
Practical Workshop Session
Appendices:
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App. A - Personal Income Tax’s List of
Amendments todate and Subsidiary Legislations
App. B - Value Added Tax’s List of Amendments
todate and Subsidiary Legislations
App. C - Companies Income Tax’s List of
Amendments todate and Subsidiary Legislations
App. D - Capital Gains Tax’s List of Amendments
todate and Subsidiary Legislations
App. E - Petroleum Profits Tax’s List of
Amendments todate and Subsidiary Legislations
App. F - Taxes & Levies(Approved Lists..)Tax’s
List of Amendments todate and Subsidiary
Legislations
Fiscal Federalism in Nigerian dates back to 1954 when the
country which had until then been governed as a unitary
state by the British, adopted a Federal Constitution.
Nigeria, thence, became a Federation, which means the
amalgam of sub-units of a national sovereign government
that operate independently to defined limits within a
constitutionally agreed sphere of functional competence
(Oates, 1972), and where such sub-units are the Federating
Units in what is now called a Federal System and which
individually, and voluntarily give up their respective
independent sovereignty in several aspects of their
operations in order to achieve the benefits of national unity
in some areas of government activities, while retaining a
measure of autonomy in others.
Federalism (cum Federation), may also be as a
compromise solution, in a multinational state (like
Nigeria) between two types of self-determination, i.e
the framework of government which guarantees
security for all in a nation state on the one hand, and
the self-determination of sub-national units to retain
some degrees of their respective identities on the other
hand.
Now Fiscal Federation can be described as the division
of Taxation and Expenditure functions amongst the
tiers of government in a Federation and sustained by
fiscal decentralization amongst the federating units.
Fiscal decentralization means the devolution of fiscal
responsibility among the federating units (i.e states
and local government , including federal capital
territory of Nigeria), whilst the federal government
oversees and controls some.
The arrangement which ensures that each level of
government is free to take decisions and allocate
resources according to the priorities set in its
respective areas of jurisdiction. This position is
guaranteed under Section 4 and the Second
Schedule of the 1999 Constitution of the Federal
Republic of Nigeria (as amended), which express
items lying on Exclusive Legislative List (Part 1,
2nd Schedule) and those on Concurrent Legislative
List (Part II, 2nd Schedule).
On the basis of the components of what may be
called the broad trilogy of a government contract
with the citizens, i.e Allocation, Re-distribution
and Stabilization, it would seem that while the
lower levels of government are assigned the
allocative function, the functions of redistribution
and macro economic stabilization are more
appropriately assigned to the central government
via politico-socio economic policies and Taxation
Laws. Relevant Tax Laws and Legislations are
enumerated in the next paragraph II
Taxation is based on Tax Laws; and may be
expressed as those techniques designed and
harnessed by experts in Tax laws and accounting
and which are aimed at ascertaining (ref:
Assessments) what demands a government of any
Sovereign jurisdiction or country makes from her
Citizens, Corporate establishments and other
Institutions for compulsory payment of money
(taxes ).Thus taxes cannot be paid in Kind .
The legal history of the Nigerian Tax System can
be traced to Nigerian Native Customs and
traditions and the resultant Nigerian customary
Law. Under native customs and traditions,
Nigerians cheerfully paid their taxes in kinds by
rendering free services to the community in which
they lived; the few defaulters were punished by
compulsory manual labour, in say, erection of
town hall or community buildings or slaughtering
their fattest cow and feeding complying tax
payers.
Thus the tax laws essentially draw from Legal
System of a country. In Nigeria, we have The
Nigerian
Legal
System which comprises:
Customary laws, and different Legislations , Law
courts, Law Professional Personnels, Judicial
Precedents ,Law books and authoritative law
releases, etc. Thus, the Nigerian Tax system is a
product of this legal system and accordingly
comprises some pieces of legislations, professional
tax processes and including judiciary precedents,
as above mentioned .
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Personal Income Tax Act, No. 104,1993,as amended to 2004
or
or Personal Income Tax Act,cap.P.8,LFN 2004
Personal Income Tax (Amendment )Act,2011
Companies Income Tax Act , CAP.60,LFN,1990
Companies Income Tax (Amendment) Act 2007
Federal Inland Revenue Service (Establishment)Act,2007
Taxes and Levies (Approved List for Collection) Act , 1998
Tertiary Education Trust Fund (Establishment)Act, 2011
Value Added Tax Act .No.102,1993
Value Added Tax (Amendment) Act, 2007
Petroleum Profits Tax Act , P.13, LFN, 2004
Capital Gains Tax Act, CAP . C.1 , LFN, 2004
National Information Technology Development Agency
Act, 2007
The practice of taxation in Nigeria is enhanced by a
blend of strict adherence to these legislations and
Courts’ Common Law Rules and Judicial Decisions
.The term “Common Law” is used in several senses
but as a division of Nigerian Law, it means the Law
developed by the old common law of England,
namely, the King’s Bench, the court of common pleas
and the court of exchequer. Under the guise of
enforcing the customs of the land, the common law
judges developed a system of Law known as the
Common Law of England. Rules of the common Laws
are therefore found in judicial decisions .These
naturally came to Nigeria through Colonial Masters
.Thus a decision reached by the Supreme Court of
Nigeria is the Law of the Land until changed by the
Legislative Assemblies - The National Assembly of
Nigeria, through production of Legislations.
Personal Income Tax Act . Cap.P8, LFN, 2004
The administrative machinery currently in existence
in Nigeria for assessment and collection of taxes
includes the following:
(a) The Joint Tax Board (JTB)
(b) The Federal Board of Inland Revenue (FBIR)
(through Federal Inland Revenue Service, FIRS).
(c) The State Board of Internal Revenue
(SBIR)(through State Internal Revenue Service,
SIRS);
(d) The Local Government Revenue Committee
(e) The Joint State Revenue Committee.
JTB is established by Section 86(1) of the Personal
Income Tax Act, Cap . P8.LFN,2004.The JTB has over
these years to date continued to contribute to the
advancement of the Tax Administration in Nigeria,
especially in the area of harmonization of Personal
Income Tax Administration across individual human
persons and Corporate Juristic Persons; thus
recognizing that companies are also persons (artificial
or juristic or corporate persons in the eye of the Law).
Therefore, Companies Income Tax Laws , Petroleum
Profit Tax Laws (all Companies) can be taken as
Strategic Legal extensions of Personal Income Tax
Laws ,
designed for administrative expediency.
(MBA & CO).
To achieve and benefit from the harmonization mentioned
above, members of JTB are drawn to include all the
government revenue generating agencies and bodies and
they include:(i.) The Executive Chairman of the FIRS as the chairman
(ii.) One member from each state being a Person experienced
in Income Tax Matters and
nominated by respective state
(ref: SBIR)
(iii) Co-opted as members are the representative of the
following bodies :- Federal Road Safety Commission (FRSC)
- Revenue Mobilization and Fiscal Commission (RMAFC)
- Federal Capital Territory Administration
- Federal Ministry of Finance
- Federal Inland Revenue Service
(iv) A secretary being a Person experienced in Income Tax
Matters appointed by the Federal Civil Service Commission.
(v) A Legal Adviser who is also the Legal Adviser to the FIRS.
JTB carries out her functions (below mentioned)by meeting
every quarter to appraise the performance of same functions
and effectiveness of the members and to deliberate on Tax
issues
of National Importance and to develop new
Strategies to continuously give efficacy in discharge of the
functions which includes;(i) Advising all tiers of Governments on Tax Matters so as to
evolve an efficient tax administration System in our country
Nigeria.
(ii) Resolving areas of Conflict on Tax Jurisdiction among
Member States
(iii) Using its best endeavors to Promote in both application of
the Tax Laws and in the incidence of Tax on individual
through out Nigeria
(iv) Imposing its decision on matters of procedure and
interpretation on Income Tax Matters on members States.
(v)
Advising the Federal Government of Nigeria
in respecting Double Taxation Arrangements, Rate
of Capital Allowances and Taxes Payable, etc
(vi) Making Proposals for necessary amendments on
PITA, CITA, etc
(vii) Other allied and incidental matters.
(viii) Monitors operations under Taxes and Levies
(Approved List for collection) Act No.21, 1998.
For efficient Management of self, JTB, apart from
Quarterly General Meeting (QGM),and committee
Meetings , the Board also organizes Retreat
regularly for members .The retreat is used as an
avenue to discuss other vital matters that cannot be
accommodated during the normal meetings. All
members of the Board are usually mandated to
attend
all
Meetings
and
Retreats
and
representation by proxy is discouraged.
It should be noted that the Board operates
through Committee and these committees reports
to the Board accordingly. Members are assigned to
these committees
and at Present each to a
minimum of Two committees. Members are
expected to be actively involved in the activities of
these committee and be always ready to contribute
meaningfully.
This is a creation of section 3 of Federal Inland Revenue
Services Act, 2007. The FBIR has executive arm called
Federal Inland Revenue Service (FIRS) established in
section 1 of the same FIRS Act, 2007
(1) Composition of FBIR:
- Executive Chairman of the FIRS, who shall be
experienced in taxation as a chairman to be
appointed by the President and Subject to the confirmation
of the senate.
- Six Members with relevant qualifications and
expertise who shall be appointed by the President to
represent each of the six geo- political zones;
- A representative of the Attorney General of the
Federation;
- The Governor of the Central Bank of Nigeria (CBN) or
his representative:
- A representative of the Minister of Finance not below
the rank of a Director;
- The Chairman of the Revenue Mobilization,
Allocation, and Fiscal Commission (RMAFC) or
his representative who shall be any of his
commissioner representing the 36 states of the
Federation.
- The GMD of the NNPC or his representative who
shall not be below the rank of GED of NNPC or
equivalent ;
- The Controller General of the NCS or his
representative not below the rank of a Deputy
Controller General.
- The Registrar General of the CAC or his
representative who shall not be below the rank of a
Director and
- The Executive office of the National Planning
Commission (NPC) or his representative who
shall not be below the rank of a Director.
Section 7 , FIRS(Establishment) Act, 2007, provides:- Provide the general Policy Guidelines relating to the
Functions of the Service(FIRS)
- Manage and superintend the Policies of the Service on matters
relating to the administration of the revenue assessment
collection and accounting system under this Act or any other
enactment or Law;
- Review and approve the Strategic plans of the Services;
- Employ and determine the terms and conditions of the service
including disciplinary measures of the employees of the
service;
- Stipulate remuneration, allowances, benefits and Pension of
staff and employees in consultation with the National Salaries
, Incomes and Wages Commission (NSIWC)and
- Do such other things which in its opinion are necessary to
ensure the efficient Performance of the functions of the
service under this Act.
- Assessment of Persons, Companies other
Organizations.
- Collection of Taxes from above mentioned
- Enforcement of Collection including legal action in
collaboration with Law enforcement Agencies
- In collaboration with relevant Ministries and Agencies,
review tax regimes, and promote the Application of tax
revenues to stimulates economic activities and
development
- Carry out back duty (short and long term) audit on self
– assessment, including examinations and investigation
in respect thereof;
- Determining from time to time, the extent of financial
losses by government arising from tax fraud or evasion
and such losses of revenue owing to tax waivers, etc
- Adopt measures to identify, trace , freeze, confiscate or
seize proceeds derived from tax fraud or evasion
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Collaborate and facilitate rapid exchange of
information with relevant National and International
agencies or bodies on tax matters
Establish and maintain data base of statistics and
records of Persons , Companies and Organizations e.t.c
, that are subject of taxation in all it forms and
continuously update for efficient admin and avoidance
of tax evasion and fraud.
Issue Tax Payer Identification Number (TIN) to every
taxable persons in Nigeria and integrate same with
VAT No and in collaboration with SBIR and Local
Government Tax Authorities.
carry out and explain vigorous public awareness and
enlightenment campaign on the benefits of tax
compliance within and outside Nigeria.
Accounting for all revenues collected from different
taxes through collaboration with Financial
Institutions and ensuring they are fully receipted into
the Federation Account.
- To carry out the above functions by reference to
- FIRS (Establishment) Act 2007,
- CITA 1990
- PITA 2004
- Taxes and Levies (Establishment) Act 1998
- Petroleum Profit Tax
- Other relevant Laws
- Undertake exchange of Personnel or other experts
with Complementary agencies for purpose of
comparative experience and human capacity
building.
- Carry out such other duties as are necessary or
expedients for the full discharge of all or any of the
functions under this Act and other relevant Laws or
enactments.
This comprises :- Executive Chairman of FBIR as Technical
Committee Chairman
- All Directors and Heads of Departments of FIRS
- The Legal Adviser to the Board.
- The Board Secretary
Note: From time to time, and as exigencies may
require , other members of staff might be coopted into the committee for efficacious
performance of its functions.
- Considers all Matters that require Professional
and technical expertise and make
recommendation to the Board .
- Advise the Board on scope and limitations of
its Powers and Duties.
- Attend to such other matters as may be referred
to it from time to time.
As with FBIR, SBIR has an executive arm also called State
Internal Revenue Service (SIRS).
Composition of SBIR ,S.87.PITA
(I) The Chairman of the State Internal Revenue Service
(SIRS) as chairman who shall be a person experienced in
taxation and member of relevant professional body and
appointed by the state Governor , subject to confirm by
State House of Assembly
(ii) The Directors from within or outside the State Service
(SIRS)
(iii) A Director from the State Ministry of Finance
(iv) Three Persons appointed by the Governor on their
Personal Merits and one each representing a senatorial
District in the State;
(v) A legal adviser to the State Service
(vi) The secretary to the SIRS who shall be an ex – officio
member.
(i) Formulation and Implementation of Policies, working
circulars and blue Prints for efficient operation of SIRS
(ii) Overseeing and Supervising all the activities of SIRS.
(iii) Making recommendations , where appropriate to the
JTB on Tax Policy , Tax reforms, Tax Legislation, Tax
Treaties and exemptions as may be required from time to
time;
(iv) Appointing , promoting, transferring and imposing
discipline on employees of the State Service Technical
Committee of SBIR.
Composition:
- Executive Chairman of SBIR as Chairman,
- All Directors and Heads of Department of the SIRS.
- The Legal Adviser to the SBIR.
- The Board Secretary
- Consider all matters that require Professional
and Technical expertise to make
recommendations to the Board;
- Advise the board on its duties, especially in
regards to scope and limitations.
- Attend to such other matters as may be referred
to it.
Now, amongst other duties , SIRS carries duties of :
- Assessment
- Collection
- Accounting
of taxes under the following:- Personal Income Tax Act, Cap .98,1993 as amended
by PITA in 2011
- Taxes and Levies (Approved list for collection) Act
, No 21, 1998
- Other relevant laws, and reports to the SBIR.
This is established for each Local Government
Area of each state.
Composition
(a) The Local Council Supervisor as Chairman
(b) Three Local Government Councilors as
Members
(c) Two other Persons experienced in revenue
matters to be nominated by the chairman of the
Local Government on their personal merits.
(a) Responsible for the assessment and the collection
all taxes , fines and rates under its jurisdiction and
shall account for all the monies collected in a
manner to be prescribed by the Chairman of the
Local Government.
(b) Shall be responsible for the day to day running of
the Local Government Treasury. The local
Government Treasury shall be its operational arm.
This Revenue Committee shall strictly work under
the- Taxes and levies (……………) 1998
- Other Laws , bi-laws and enactments not in
conflict with the 1998 Act.
This is established for each State of the Federation.
Composition:
(i) The Chairman of The State Internal Revenue
Service as Chairman
(ii) The Chairman of the Local Government Affairs
not below the ranking of a Director
(iv) A rep of the National Revenue Mobilization,
Allocation and Fiscal Commission as an Observer
(v) The State Sector commander of the Federal Road
Safety Commission
(vi) The Legal Adviser of SBIR
(VII) The Secretary of the committee who shall be a
staff of the SIRS and shall be an ex-officio member
(i) Implement the decision of JTB.
(II) Advise the JTB and the State and Local
Governments on revenue matters.
(iii) Harmonize tax administration in the State
(iv) Enlighten members of the Public on State
and Local Government Revenues Matters.
(v) Carrying out such other functions as may
from time to time be assigned to it by the JTB.
This is an initiative of JTB, and is basically an
electronic system of tax registration , which
will be unique to an identified taxpayer for life
and integrated in National Nigerian Network
for tax services across FIRS,SIBR,LOCAL
GOVERNMENT Revenue Committee, e.t.c
TIN is also integrated with the banking system in
Nigeria and makes it possible for any tax payer
to pay taxes in any bank that is a collecting
agent bank in any State of the Federation.
TIN Makes operation and issuance of e-ticket by
banks (as evidence of tax payment and receipt)
practicable for operating online banking Service .
Being a Brain child of JTB , TIN is administratively
and operationally managed and superintended by
the Joint Tax Board for the benefits of all allied
Partners-viz FIRS,SIRS,LG Revenue Committee ,
Collecting or Receiving Banks, Tax Payer of all
description and also facilitates forensic accounting
and investigation by extended third party
consultants.
- Design and Implementation of Infrastructure and
system to support TIN assignment to taxpayers.
- Deployment of 5 fixed Biometric registration
equipments at the FIRS and SIRS, through out the
Federation
- Deployment of 3 Mobile Biometrics registration
equipments at each of the tax authorities.
- Deployment of 2 GMPC Personalization Machines at
each of the tax authorities
- Format and continuous Modification and
improvement on Same.
- Securing Provision of Working Capitals for
Maintenance and Logistics.
- Changed Management for Successful phased
roll out.
- Capacity building for the Personnel of the tax
authorities.
- -Setting up of Contact Management Centre
(CMC) for support of TIN Program.
TIN and VAT No
Today these numbers are one and same today.
The undermentioned procedures will cover:
Taxation of sole-proprietorships (self-employed )
Taxation of Partners in Partnerships
Taxation of Employees of sole-proprietorships,
Partnerships, Companies (in Private Sector), as
well as those of Public Sector Government
establishments, Non-Governmental Organisations,
Incorporated Trustees of Ecclesiastical,
Educational, etc, establishments;
Taxation of Estates, Trusts and Settlements
Applicable Legislations:
These include,
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Personal Income Tax Act, No. 104,1993, as
amended to 2004 or
or Personal Income Tax Act,cap.P.8,LFN 2004
Personal Income Tax (Amendment )Act,2011
Taxes and Levies (Approved List for
Collection) Act , 1998
Value Added Tax Act .No.102,1993
Value Added Tax (Amendment) Act, 2007
Capital Gains Tax Act, CAP . C.1 , LFN, 2004.
Tax Jurisdiction in respect of the above
mentioned:
Taxable Person
Relevant Tax Authority
a. Resident Individual Soletrader,
Partner, other self-employed
SIRS closest to place of residence
b. Employees of Orgs (both in Private SIRS closest to place of residence
and Public Sector) other than
members Of the Armed Forces, Police,
residents of FCT Staff of Foreign
Affairs Ministry
c. Members Of the Armed Forces,
Police, residents of FCT, Staff of
Foreign Affairs Ministry
FIRS
d. Non-resident individuals, eg, staff
of Nigeria Embassie Oversees
FIRS
e. Resident Companies
FIRS closest to H.O.
f. Non- Resident Companies
FIRS
g. Foreign Diplomats accredited to
Nigeria
Tax Authority of Home Country
h. Nigerian working in Embassies and
UN Organization in Nigeria
SIRS closest to place of residence
i. Nigerians with diplomatic status
working in UN organization abroad
FIRS
j. Nigerians without diplomatic status
working abroad
Tax Authority of Home Country
A.
B.
C.
D.
E.
F.
Chargeable Income, S. 3 ( as amended by PITAM );
Income Exempted, S. 19 ( as amended by PITAM );
Deductions Allowed, S. 20 ( as amended by PITAM );
Deductions not Allowed, S.21 ( as amended by PITAM );
Ascertainment of Assessable Income/
Basis Period, S.23 ( as amended by PITAM );
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Employment Income- basis- Income of the year of assessment
Self-employed Income – basis- Income of the year preceding year of
assessment
Returns by Taxable Person, S.41 ( as amended by PITAM );
For each year of assessment, a taxable person shall WITHOUT
NOTICE or demand therefor, file a return of income in the
prescribed Form ( ref: Forms )
G. Self-Assessment, S.44 ( as amended by PITAM );
H. Bonus for Early Filing on self-assessment, S.45 ( as amended by
PITAM );
- 1% of Tax Payable
I. Personal Reliefs, Children, etc, S. 33 ( as amended by PITAM ):
- From 20% of Earned Income + N5000
- To 20% of Gross Emoluments + Higher of 1% of Gross Income or
N200,000, noting that Sub-sections 2 and 3 of S.33, on other
reliefs are now re-numbered as Ss. 3 and 4 without altering nor
removing them, while inserting a new sub-section 2 that
defines ‘Gross Emoluments’ as ‘Wages, Salaries, Allowances,
BIK, Gratuities, Superannuation and other incomes derived
solely by reason of employment’ and without including
Unearned Income as part of G. Emoluments, and S.34’s Sch. 6
excluded Gratuity and Pension and income from Life
Assurance from taxable income.
J. Withholding Tax, Ss.69 – 72 ( as amended by
PITAM );
K. Penalties:• On WHTs, S.74(1) 10% of amount not deducted
or not remitted plus interest at CBN MPR
• Remittance Time: On or before 21st day of the
subsequent month;
• Unremitted PAYE, AG of Federation to deduct
from MDAs and remit to SIRS
• Unremitted PAYE by private sector orgs:
N500,000 penalty per annual occurrence for
body corporate and N50,000 for individual incl
soletraders/pts.
• TIME of Remittance: on or before 10th day of
the subsequent month. See TAX PLANNER.
Issues to take note of are as follows:
A. Taxable (vateable ) Goods and Services, S.2 ,
VAT Act, 1993
All goods and services except those exempted in
the 1st Schedule to VAT Act, 1993
B. Exempted Good and Services, S.3, VAT Act,
1993. See 1st Schedule to VAT Act, 1993
C. Rate of Tax: 5%, S.4, ditto
D. Value of Goods and Services, Ss. 5 to 6, ditto.
Based on regulated prices or usual selling prices.
E. Taxable Persons, S.8 ditto
Persons who deal in vateable goods and services,
including MDAs are required to register with FIRS
within 6 months of commencement of business or
risk penalty as in (f). below
F. Penalty for Failure to register, S.8 (2),
ditto
N10,000 for the first month of failure, and 5000 for
subsequent months(cumulatively). See Actuarial
Table;
G. Remittance of VAT, S.16
ditto
On or before 21st day of subsequent month. See 2014
Tax Year Planner.
Remittance will be different btw Output and Input
VATs.
H. Penalty for failure to remit VAT Collected: ‘a sum of
5% p.a, plus interest at commercial rate of the amount
remittable ( as computed from Audited Accts or BOJ),
shall be added to the VAT not remitted and payable
within 30 days of notice, S. 19;
And failure to submit returns: 5000 per month ( See
Actuarial Table)
I. Recovery: VAT Tribunal to give Order. Also a taxable
person may petition VATT for directives.
J. If a taxable person changes address and does not notify
FIRS within a month, penalty shall be 5000.
K. Failure to issue Tax Invoice, on conviction by VATT to
a fine of 50% of the cost of goods and services for
which the invoice was not issued.
Workings:
See the VAT related Forms enclosed
This is both administered under PITA and CITA
The rates which used to be different under either PITA and
CITA are now harmonized as follows:
Services
Rate
Management Services
5%
Technical Services
5%
Technical Services
5%
Royalties
5%
Consultancy & Professionals Services
5%
Supplies and Contracts
5%
Rent ( incl. amount payable for hire of equipments) 10%
Directors Fees
10%
Interests and Commission
10%
Dividends
10%
The following issues shall be discussed:
a). Charge of Tax: S.40
For periods 1996 todate:
For Small Manufacturing Company
For Coys in Agricultural Trade/Business
For All Other Companies
20%
20%
30%
Small Companies are those with a Turnover of Less than or equal to N2
million,
And Net Assets of Less than or equal to N1
million
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…to be charged on the profits of any Company accruing in, derived
from, brought into, or received
in Nigeria, in respect of… ( see details in S.9, CITA), and noting that:
S.11, contains exempted income on certain agric loans
S.23, contains exempted profits of ecclesiastical, educational, etc,
companies.
b). Identification of a Company: S. 10
See Certificate of Incorporation, CTCs of MEMART,
CAC Form 7, etc
c). On WHT, see Ss. 78 to 80
d). Ascertainment of Profits:
Deductions Allowed, S.24
• Donations Allowed, S.25, subject to 10% max. on total profit
• Deductions of R & D Exp., S.26
• Deduction not Allowed, S.27
•
e.) Computation of Assessable Profit/ Basis Period, S.29
f). Total Profit or Taxable Profit, S.31 See Format
iii
g). Claim of Capital Allowance: Assets must qualify for
this( i.e N500,000 and above) and Acceptance
Certificate obtained from Inspectorate Division of
Federal Ministry of Industries, Trade and Investment.
h). Filing of Returns, S.55
•
A New Company: a grace period of 18 months from
date on incorporation
•
Other existing Companies: not later than 6 months
after the end of the Accounting Year.
•
S.55 (1) says, ‘Every Company shall at least once a
year without notice or demand there from, file a
return in the prescribed Form, plus a:
--- Forwarding Letter from The Company, attaching viz
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Audited Accounts (if any)
Tax Comps
Capital Allowance Comps
Acceptance Certificate for qualifying expenditures
i). Penalties: Failure to comply with 11.above
N25,000 in the first month of failure
N5000 for each subsequent months in which failure
continues
j). Notice of Assessments, S.65.
If at the expiry of self-assessment period in S.55,
and a tax payer fails to file a Return, then FIRS
shall raise assessment using prescribed form, see
Form 4D Coy, attached.
Under this the FIRS shall apply BOJ or may
accept or make additional assessments even if
Audited
Accounts are submitted later.
h). Handling disputes,
1st: Tax Appeal Tribunal ( which replaced Body of
Appeal Commissioners)
2nd: Federal High Court
3rd: Appeal Court
Final:
Supreme Court
i). Tax Clearance Certificate (TCC).
a. Tax Payer: this tax is due from all Companies to
which provisions of the Companies Income Tax
and/or Petroleum Profits Tax apply.
b. Rate: 2% of Assessable Profit
c. Who can assess and collect: FIRS
d. Time of Payment: within 60 days of Notice
e. Treatment on TET in the Accounts:
 For those the PPTA applies, from 1st January 1996,
TET is a charge against profit, and calculated as 2/102
of Assessable Profit
 For other Companies, the TET should be treated as an
appropriation of profits like income tax and
dividends.
The following are relevant:
a). The above Act imposes a Levy called NITD Levy, S. 12
b). Rate: 1% of Profit before Tax, S.12 (2)(a)
c). Tax Payers: the following Companies listed in 3rd Schedule
of NITDA 2007:

GSM Service Providers and all Telecommunication
Companies

Cyber Companies and Internet Providers

Pension Managers and Pension Related Companies

Banks and Other Financial Institutions

Insurance Companies.
d). Turnover Threshold: =N=100 Million and above
e). Accounting Treatment: Levy PAID shall be tax deductible
1.
2.
3.
4.
Chargeable Persons: Persons payable taxes
under PITA. (Companies excluded since
Balancing Charge already applies)
Chargeable Income: Gains from disposal of
property (i.e Disposal value less acceptable
expenses)
Rate: 10%
Computation: done separately from PITA
Comp.
Petroleum Profit Tax in Nigeria
Brief background of Petroleum Profit Tax in Nigeria
History of Petroleum Operations and allied businesses
commenced in Nigeria when Oil Prospecting License (OPL) was
granted to Shell D’ Arcy Co.Limited (First company in this field
in Nigeria), in 1938. Initially, extensive search for oil over
several oil wells that were dug for the purpose did not result in
discovery of oil in commercial quantities, but continuous
scientific perseverance led eventually to colossal pool of oil in
Oloibiri, in the defunct Owerri province of the then Eastern
Nigeria in 1956. Two years later, commercial quantities were
produced by Shell D’Arcy and first export of crude oil took off
in 1958.
As a result of aforementioned success and the
resulting huge income and profits, the
Government enacted the Petroleum Profits Tax
ordinance of 1959, which logically had to have a
retrospective effect on January 1, 1958 (since
commercial and income activities started thence).
This law became necessary at a time when
production of Crude Oil became more significant
to both the economy of the country and in the
world market.
This is the enabling law for Petroleum Operations in Nigeria.
PPTA is only applicable to Companies that are engaged in
Petroleum Operations.
Definition of Petroleum Operations, S.2, PITA
Petroleum Operation is defined as the winning or obtaining
and transportation of petroleum or chargeable oil in Nigeria
by or on behalf of a company for its own account by any
drilling, mining, extracting or other like operations or
process not including refining at a refinery, in the course of a
business carried on by the company engaged in such
operations and all operations incidental thereto any of or
any disposal of chargeable oil by or on behalf of the
company.
This of course, includes Petroleum exploration,
development, production, sale or disposal of crude
oil by the oil company. Thus, all activities as
defined of petroleum companies that are to be
taxed under PPTA are referred to as Upstream
operations, whereas all refining and marketing
activities of petrol and similar white products are
referred to as Downstream operations, and
companies engaged on these are subjected to taxes
under Companies Income Tax Act, CAP C.21, LFN
2004.
Now companies that engage on both, must
however be taxed, respectively under PPTA and
CITA.
Basis Period:
Actual Year Basis
Accounting Period:
of assessment)
Relevant Tax Authority:
(F.I.R.S)
1st January to 31st December (of year
Federal Inland Revenue Service
PPTA and VAT
As part of government incentives to encourage exports of
both oil and non-oil types, all exports are exempted from
inclusion of VAT in their invoices. This makes exported
goods, including sale of crude oil cheaper and more
attractive to importers from importing countries of our
crude oil (and in fact also non-oil exports (ref: VAT
(Amendment) Act, 2007).
But all importers of non-exempted goods and services, pay
VAT. Thus, the inclusion of VAT on import prices increases
purchase prices to the importer, thus discouraging imports.
All companies who pay taxes under PPTA also are
statutorily required to observe provisions of PITA in
respect to PAYE (deduction and remittances, as a
special withholding tax) and also other contract WHT
as imposed under either PITA and CITA.
Under CITA, WHT must be observed under CITA
Subsidiary Legislation whose reference title is
‘’Companies Income Tax (Rate, etc, of Tax Deduction
at Source (Withholding Tax) Regulations 1997’’
Commencement date: 1st January 1995.
This Subsidiary Legislation is based on S.63 and 64 of
CITA (Principal Act). Also S.56, PITA is on WHT to be
observed by petroleum companies.
Under PITA, WHT must be observed under a
PITA Subsidiary Legislation whose reference title
is ‘’Personal Income Tax (Rates, etc, of Tax
Deducted at Source (Withholding Tax)
Regulations, 1997.
Commencement date: 1st January, 1995.
This Subsidiary Legislation is made under S.72,
PITA.
WHT Rates
As at date WHT Rates are harmonized for
individuals and corporate bodies.
WHT Returns are made on monthly basis.
Deductions from human individual persons are
remittable to State Internal Revenue Service where
the person is resident, whereas deductions from
companies and other corporate bodies are made to
Federal Inland Revenue Service closest to the
company office.
Remittance must be made in accordance with
FIRS Tax Planner, i.e. preceding month basis.
FIRS LTO (Oil & Gas),
FIRS Building,
17b, Awolowo Road,
Ikoyi, Lagos.
Tax Controller:
01-2666856
08033022303
I.
II.
III.
For Joint Venture (JV) arrangement or Non
Production Sharing Contract (PSC) over 5
years, rate is 85% of Chargeable/ Taxable
Profit.
For Non PSC in its first 5 years during which
the company has not fully amortised all preproduction capitalized expenditure, rate is
65.75% of chargeable profit.
Petroleum Operations under PSC with NNPC,
rate is 50%.
Net Profit per Audited Accounts
(i.e. Profit for year i.e, IFRS compliant )
N
N
xx
Add back
Non-Allowable Expenses
Taxable Income not reported
x
x
xx
Deduct
Non-Taxable Income
Allowable Expenses not reported
x
x
xx
Losses unreceived b/f
Received
xx
(x)
(x)
Add:
Balancing charge
Assessable Profit
Less: Capital Allowance
For year
Relieved
Taxable/ Chargeable Profit
xx
xx
(x)
x
xx
(x)
xx
Practical Procedures
Step 1:
Action 1: Identify the profit or
Loss for the year
In line with IFRS
(i.e. Net Profit or Loss)
Action 2: Extract and place in the
computation paper
Step 2:
Action 1: Study and screen the set of Audited financial
Statement (or Audited Accounts) by going through
Chairman’s statements
Directors Report
Notes to the Accounts
Appendices to the Accounts and also PPTA and
Identify the followings, if any:
Non allowable expenses (ref PPTA)
Taxable Income omitted (ref audited accounts)
Official Documents
FIRS/ Other docs
Audited set of financial statement
for relevant period
i. PPT Act
ii. Audited Accounts
iii. Adjusted Profit or loss
statement.
Action 2: Prepare schedule and add total accounts in
Comp. paper
Step 3:
Action 1: Like in step 2, identify
Non-taxable Income (already included in the audited
Accounts)
Allowable Expenses (not taken note of, e.g. Allowable
Tertiary Education Tax that are deductible as expense
i. PPT Act
ii. TET Act
iii. Audited Accounts
Action 2: Prepare schedule and deduct from Comp. paper
Step 4:
Action 1: Identify any unrelieved losses
i. PPT Act
Action 2: carry out relief by deducting in the comp. paper
ii. Losses Appendix
iii. Audited Accounts
Step 5:
Action 1: Identify any balancing charges arising from disposal
Of Non current Assets
Action 2: Add back (to obtain Assessable Profit)
i. PPT Act
ii. Appendix on computation
of capital Allowance.
iii. Audited Accounts
Step 6:
Action 1: Identify and unclaimed capital Allowance
Brought forward and add current year capital
Allowance.
Action 2: Observe limitations (if any) and effect claim of
Capital Allowances by deducting from the
Comp. paper to obtain Taxable/ chargeable profit .
i. PPT Act
ii. Appendix on computation of
capital allowance
iii. Certificate of Qualifying from
Fed. Min. of Ind. Trade & Inv
iv. Audited Accounts
Step 7:
Action: Apply appropriate PPT Rate, 85%(say) on Taxable
Profit to obtain the Assessable Tax.
Taxable profit comp. paper
Step 8:
Action 1: Identify any Tax offsets and MoU credits (tax credits)
by perusing listed documents.
Action 2: Prepare schedule and deduct Tax offsets and MoU
tax credits from Assessable Tax to obtain chargeable
tax.
1. PPT Act
2. JV Contracts/ MoUs
3. Comp. Paper
Step 9
Action 1: Write official letter to closest LTO as:
Application for TCC/VAT/TIN, and also obtain from
FIRS official Tax Documents (as listed here) for
Annual Tax Returns.
Action 2: Transfer what you have on the comp. paper to the
FIRS forms (as appropriate)
Action 3: If chargeable Tax based on this audited accounts is
Additional Assessment
more than total estimated Tax already paid on monthly
form.
installmental basis (see Annex on payment of PPT in oil & Gas),
then cheque must be raised to pay the difference within 21
days of the additional assessment.
If less, then Tax credit is issued against next year estimated payments.
Step 10
Action 1: Return back to FIRS LTO ‘armed’ with accurately filled FIRS forms and
evidence of payment from approved (received) bank.
Action 2: Do ‘filing’ by simply submitting all the filled and completed forms and
Bank payment (deposit) slip and e-ticket to relevant FIRS officer.
Law: PPTA (Petroleum Profit Tax Act) imposes a duty on
companies engaged in petroleum operations to pay PPT in
advance, in 12 equal monthly installments.
Procedure/ Action
Document in use
1st: Company to prepare an estimate
of chargeable Tax payable and submit
to FIRS not later than the end of 2nd
month of any financial year, i.e. 28 Feb.
since oil company year end is Dec 31.
I. Company letter Headed Schedules
i.e.
-Respective Company forwarding
letter.
-schedule of monthly estimates.
(No special FIRS form).
2nd: FIRS appraises the estimate for
reasonableness, and if approved, will
divide same into twelve (12) equal
parts. And payment stream will be 12
months from March to February
No Special Docs
See next
3rd: Review of estimate: This may
happen when corporate rolling budget
of company gives reasons to do so.
Where new estimate is adopted and
approved by FIRS, then monthly
installments will be changed in the
manner shown overleaf.
4th: Annual Tax Return must be done
not later than the end of the 5th month,
i.e. 31 may after company’s financial
year end.
Where total installments paid between
March and February is less than
Return based on Audited Accounts,
then different must be paid within 21
days(in June) to avoid penalty, if
greater than tax credit
Grace and Favour Oil Plc is an Oil & Gas company
based in Port Harcourt. For the year ended
December 31, 2013, the company’s estimated
Chargeable Tax payable was N250 million. In
September 2013, the estimate was revised to N350
million. The tax on audited accounts of the
company (released in April 2014) amounted to
N370 million.
Show how PPT would be treated under the
provisions of PPTA to prevent penalties.
I.
II.
III.
IV.
V.
Submission of estimated tax payable of N250
million to the Revenue for approval on February
7, 2013.
Approval granted with monthly installment of
N250m÷12 = N20,833,333.33, on February 26,
2013.
Legal payment period March 2013 to February
2014.
Payments made between March-August 2013 of
N20,833,333.33 each month.
From September, revision which was approved in
August 2013 became effective.
Computation of revised estimates:
On N20,833,333: March-August 2013: 6 months
Revision = [N350m less (20,833,333×6)] ÷ 6 = N37,500,000
Period: September 2013 to February 2014
Total payment to February 2014 = 20,833,333 × 6 = 124,99,998
37,500,000 × 6 = 225,000,000
349,999,998
Additional Assessment:
N
Tax Payable based on Audited Accounts
370,000,000
Tax Paid (on instalmental estimates)
349,999,998
Additional Assessment
20,000,002
This additional Assessment must be paid to FIRS
not later than 21 days of receipt of the assessment.
Companies usually apply for revision to avoid a
situation where they may come under pressure of
21 days rule.
XII. P R A C T I C A L S E S S I O N S
XIII. A P P E N D I C E S
Principal Law in Nigeria
Personal Income Tax Act, No.104, 1993. Wef: 25
August 1993
Repealed:
I.
Income Tax Management Act, 1961
II.
Capital Transfer Tax Act
III. Income Tax (Armed Forces and Other Persons)
(Special Provisions) Act
Updated Reference: PITA, CAP. P8, LFN, 2004










Personal Income Tax (Amendment) Act, No.3, 1999
Personal Income Tax(Amendment) Act, No.19, 1998
Personal Income Tax(Amendment) Act, No19, 1999
Personal Income Tax(Amendment) Act, No.31, 1991
Personal Income Tax(Amendment) Act, No.30, 1996
Personal Income Tax(Amendment) Act, No.31, 1996
Personal Income Tax(Amendment) Act, No.32, 1996
Personal Income Tax(Amendment) Act, No.18, 1998
Personal Income Tax(Amendment) Act, No.30, 1999
Personal Income Tax(Amendment) Act, No.20, 2011
1. Personal Income Tax (Rates, etc, of Tax
Deduction at Source (Withholding Tax)
Regulations, 1997
Commencement: 1st January, 1995
Under S.72, PITA
2. Operation of Pay As You Earn (PAYE) Scheme
Regulations, 2002
Commencement: 1st January, 2002
Under S.80 (6) PITA
Principal Law in Nigeria
Value Added Tax Act, No.102, 1993.
Wef: 1st December, 1993
Repealed: NIL
List of Amendments:

VAT (Amendment) Act, No.31, 1996

VAT (Amendment) Act, No.30, 1996

VAT (Amendment) Act, No.18, 1998

VAT (Amendment) Act, No.32, 1996

VAT (Amendment) Act, No.30, 1999

VAT (Amendment) Act, 2007
Subsidiary Legislation (on VAT) in Nigeria
Value Added Tax Tribunals Rules, 2003
Principal Law in Nigeria
Companies Income Tax Act, No.28, 1979.
Wef: 1st April, 1977.
Repealed: CITA 1961
Reference Today (2014): CITA, Chapter C.21,
LFN, 2014










Companies Income Tax (Amendment) Act, No.3, 1993
Companies Income Tax (Amendment) Act, No.30, 1996
Companies Income Tax (Amendment) Act, No.21, 1991
Companies Income Tax (Amendment) Act, No.63, 1991
Companies Income Tax (Amendment) Act, No.32, 1996
Companies Income Tax (Amendment) Act, No.31,1996
Companies Income Tax (Amendment) Act, No.98, 1999
Companies Income Tax (Amendment) Act, No.18, 1998
Companies Income Tax (Amendment) Act, No.30, 1999
Companies Income Tax (Amendment) Act, No.19, 1998
1.
2.
3.
4.
5.
6.
Double Taxation Relief (Between the Federal Republic of Nigeria
and the Government of the Kingdom of Belgium) Order, 1997.
Wef: 1st January 1990
Double Taxation Relief (Between the Federal Government of
Nigeria and the Government of the French Republic) Order, 1997.
Wef: 1st January 1991
Double Taxation Relief (Between the Federal Government of
Nigeria and the Government of Canada) Order, 1997. Wef: 1st
January 1993
Double Taxation Relief (Between the Federal Government of
Nigeria and the Government of Romania) Order, 1997. Wef: 1st
January 1993
Double Taxation Relief (Between the Federal Republic of Nigeria
and the Government of the Kingdom of Netherlands) Order, 1997.
Wef: 1st January 1994
Companies Income Tax (Rates, etc, of Tax Deducted at Source
(Withholding Tax) Regulations, 1997. Wef: 1st January 1995
Principal Law in Nigeria
Capital Gains Tax Act, No.44, 1967.
Wef: 1st April, 1967.
CGT Amendments:
 Capital Gains Tax Act, No.45, 1999
 Capital Gains Tax Act, No.19, 1998
 Capital Gains Tax Act, No.3, 1993
Subsidiary Legislation: NIL
Principal Law: Petroleum Profit Tax Act, No.15, 1959
Commencement: (Retrospectively) 1st January, 1958
Updated Reference: PPTA, CAP. P.13, LFN, 2004
List of Amendments:
I.
Income Tax (Amendment) Act No.65, 1966
II.
Petroleum Profit Tax (Amendment) Act No.1 1967
III.
Oil Terminal Dues Act No.9, 1969
IV.
Petroleum Tax (Amendment) Act No.4, 1970
V.
Petroleum Tax (Amendment) Act No.22, 1970
VI.
Petroleum Tax (Amendment) Act No.15, 1973
VII. Petroleum Tax (Amendment) Act No.55, 1977
VIII. Petroleum Tax (Amendment) Act No.2, 1979
IX.
Petroleum Tax (Amendment) Act No.21, 1991
X.
Petroleum Tax (Amendment) Act No.30. 1996
XI.
XII.
XIII.
XIV.
Petroleum Tax (Amendment) Act No.31, 1996
Petroleum Tax (Amendment) Act No.32, 1996
Petroleum Tax (Amendment) Act No.18, 1998
Petroleum Tax (Amendment) Act No.30, 1999
Subsidiary Legislation:
Chargeable Persons Partnership (Monipulo Limited
and Brass Exploration Unlimited) Rules 2002
Commencement: 1st January, 2002
Principal Law in Nigeria
Taxes and Levies (Approved List for Collection)
Act, No.21, 1998
Wef: 30th September, 1998
Repeals:
NIL
List of Amendments:
NIL
Subsidiary Legislation: NIL

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