Tax is a compulsory charge by the government on the goods, services, income, or profits of persons. There are different parameters for determining who, when, how, and where to pay taxes in Nigeria. After a taxable person registers for tax, the next step is to map out the tax compliance cycle. Deferring this cycle until the taxman comes knocking, say years later, may create a different result. A tax management system will optimize the tax structure of the business to avoid extra exposures. The article is split into other levies and taxes payable to the,
A - Taxes and levies administered by the Federal Inland Revenue Service only
1. Companies Income Tax
Incorporated entities, except companies operating in the oil and gas sector, are subject to Companies Income Tax on their profits from all sources. Exempt companies include an agricultural production company for a maximum period of eight years and a company with an annual turnover of ₦25million and below. The legislation for income tax exemption on approved industries or products is the Industrial Development (Income Tax Relief) Act [IDITRA]. Companies with a pioneer status will obtain a tax holiday from income tax for an initial period of three years. A company can get an additional holiday for one or two years. More details on FAQs on CIT is available here.
2. Petroleum profit tax
Petroleum Profit Tax (PPT) is a charge on the income of upstream petroleum operations. The rate is 50% for petroleum operations under Production Sharing Contracts (PSC). For non-PSC operations in its first 5 years during which the company has not fully amortized all pre-production capitalized expenditure, the rate is 65.75%. Petroleum operations carried out under a Joint Venture (JV) arrangement with the Nigerian National Petroleum Corporation (NNPC) or any traditional oil concession after five years will apply a rate of 85%.
3. Tertiary education tax
Resident companies in Nigeria pay tertiary education tax (TET) at 2% of the company’s assessable profit. Non-resident companies, small companies, and unincorporated businesses are exempt from TET. See the full article on TET.
5. Information Technology (IT) Levy
IT levy is payable an annual turnover of ₦100 million and above. Companies covered are GSM service providers, telecommunications companies, cyber companies, internet service providers, pension managers, insurance companies, and financial institutions. The rate is 1% of profit before tax, and the levy is a deductible expense in a companies’ income tax computation.
B - Taxes payable either to the FIRS or the relevant State Internal Revenue Service
1. Withholding Tax
Withholding tax (WHT) is an advance payment of income tax. The rate is either 5% or 10%, depending on the nature of the transaction and the taxable person. The due date for filing WHT is 21 days following the month of the transaction.
2. Personal income tax
Personal Income Tax (PIT) covers taxation of employees, sole traders, individuals, partners, communities, families, trustees. Persons earning an annual minimum wage or below are exempt from personal income tax. Exempt income includes the income of government officials, diplomats, and local government institutions. Here is a Guide on PAYE taxes in Nigeria.
3. Capital Gains Tax (CGT)
CGT is payable on chargeable gains arising from the disposal of chargeable assets. The CGT law applies a rate of 10% applies to individuals and companies. CGT is remitted to the relevant tax authority.
4. Stamp Duty
Stamp duty is the tax payable on documents as a form of agreement or transaction between two or more persons. The rate is either fixed or variable, depending on the type of transaction.
C - Taxes and levies payable to the relevant State Internal Revenue Service only
1. Consumption Tax
The Hotel Occupancy and Restaurant Consumption Law govern consumption tax in Nigeria. The consumption tax rate is 5% on the value of goods and services consumed in hotels, restaurants, and event centres.
It includes annual development levy on employee as well as business premises levy.
D - Others
1. Custom and Excise Duties
Customs duties are payable on goods coming into Nigeria from 5% to 35% of import value. Excise duty is a charge on the production, sale, or use of certain locally produced goods.
A medium sized business that generates income can pay three or more taxes in Nigeria to the revenue authority. Keeping track of the different tax laws in Nigeria can be tedious. Businesses must consider the tax impact of transactions to avoid extra costs.