Taxation is system that encapsulates the lawful imposition of a compulsory financial charge at specified rates on individuals and corporate entities by the government or its agency, in a bid to generate revenue to fund public expenditure.
In a lucid view, it is simply revenue generation for government activities geared towards benefit of its citizenry. On this basis, taxation in its systematic nature is unarguably a civil responsibility on all and sundry in Nigeria subject to some directions, exceptions and exemptions as will be acknowledged herein.
The tax structure in Nigeria is decentralized between the Federal, State and Local Government and each Level/Tier is independently responsible for the administration of taxes within its jurisdiction via the authorized agency/body authorized to spearhead same for such tier.
The Federal Inland Revenue Service (FIRS) is the body that is responsible for the administration of taxes that are due to the Federal government such as Companies Income Tax, Education Tax, Stamp Duties, Custom Duties, Excise Duties, Withholding Tax and Value Added Tax etc.
Whereas the various State Boards of Internal Revenue administer taxes that are due to State governments such as Personal Income Tax and Withholding Tax; and the Local government revenue committees on the other hand, administer taxes that are due to local governments which most times come in form of levies.
Relatively, different types of taxes abound at various levels of government such as Personal Income Tax (PIT), Capital Gains Tax (CGT), Value Added Tax (VAT), Company Income Tax (CIT), Petroleum Profit Tax (PPT), Stamp Duties Tax (SDT) amongst others.
Streamlining to our Discuss, we would take a definitive and comprehensive review on Corporate Taxes in Nigeria.
Corporate Taxation is simply company taxation which by extension deals with taxes that are levied on incorporated companies.
Before a company is taxed under corporate taxation regime, such a company must be incorporated under the Companies and Allied Matters Act (CAMA) 2020 as a distinct legal personality with all of its characteristics. Hence, Corporate Income Tax is one and same thing with Company Income Tax.
Companies Income Tax (CIT) is a tax on the profits of registered or incorporated companies in Nigeria. It also includes the tax on the profits of foreign companies carrying on any business in Nigeria.
The tax responsibility of a company is determined by the net income of the company which accrues from their business activities, normally within one business year.
Revenues from the corporate tax regime is an important source of income for the government of Nigeria. It is one of the main taxes administered and collected by the Federal Inland Revenue Service (FIRS).
Regulation, Assement and Administration of CorporateTaxes in Nigeria.
The Company Income Tax Act (CITA) 2011 is the principal law that regulates the taxation of companies in Nigeria. The rate on this tax is 30% of a company’s total profit less all expenses, for the period which a company reasonably incurred in generating the taxable profit.
It is worthy of note that this 30% tax rate applies to companies with gross turnover greater than NGN100 million, which is assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment).
While Companies with gross turnover of above NGN 25 million but below NGN 100 million is taxed 20% of such income whereas, companies with gross turnover of NGN 25 million or less is exempted from company income Tax.
This position of Exemption of companies with below NGN 25 Million gross turnover is a laudable provision of the Finance Act 2019.
Furthermore, where a company is involved in Petroleum activities (Upstream), they are
exempted from Company Income Tax (CIT) from the same income base and at such are only liable to Petroleum Profit Tax (PPT) on that income base. This is to avoid double taxation.
Notably, there are various means of assessment of Company Income Tax amongst which are;
• Best of Judgment (BOJ). This occurs where the tax payable does not have any financial records or returns submitted to the tax authority to base its assessment on, thereby causing the tax authority to resort to physical assessment based on observation and enquiries carried out by them.
The BOJ means of assessment may also be applied where the company’s financial records are unreliable even though they were timeously
submitted by the tax payer.
• Self-Assessment of Tax Payable: This means of assessing the tax payable is a system where a company pays tax by instalment and is permitted by the relevant tax authority to estimate the company’s chargeable income and tax payable for that year of assessment. Self-assessment of tax payable is provided for under section 53 of the Company Income Tax Act (CITA), 2011.
• The currency of Assessment: This makes provision for the currency of assessment of tax payable by a company as stated under section 54. Under this section, the Act provides that, notwithstanding anything to the contrary in any law, an income tax assessment under sections 52, 53 or 55 of this Act shall be made in the currency in which the transaction giving rise to the assessment was effected.
Mention must be made that with respect to business profits, a non-resident company that has a fixed base or a “Permanent Establishment” (PE) in Nigeria, is taxable on the profits attributable to that fixed base. As such, it is required to register for CIT and file its tax returns.
To ascertain the above business profits, there are some allowable deductions under the Company Income Act as covered by Sections 24, 25(A) and 26 of CITA 2011 encapsulating all deductions allowable in determining the taxable profits of a company.
Going further, Section 27 of CITA 2011 addresses the deductions not allowed in determining a company’s profit.
In contemporary Nigeria, the following income are subject to Company Income Taxation (CIT) in Nigeria amongst others.
• Profits accruing in, derived from, brought into, or received in Nigeria in respect of any trade or business.
• Dividends (extended to include compensating payment arising from regulated securities lending transaction), interest (extended to include compensating payment arising from regulated securities lending transaction), royalties, discounts, charges, or annuities.
• Royalties received by a Nigerian company are liable to tax at the relevant CIT rate. WHT at 10% is available as an offset against the final CIT liability.
• Royalties received by a Nigerian company from non-resident payers are taxable except if repatriated into Nigeria through government-approved channels.
• Non-resident companies who receive Nigerian royalties are subject only to WHT at 10%, which is reduced to 7.5% if a treaty is in place with Nigeria. Etc.
On the other hand, the following income are exempted completely from CIT purposes
• Co-operative societies registered under any ecclesiastical or charitable establishments of a public character.
• Small company’s profit. (As provided under the Finance Act 2019)
• Profit of a registered trade union.
• Export profits, as long as proceeds are brought into Nigeria through government approved channels and invested in raw materials, spare parts, and plant and machinery.
• Foreign Income: A Nigerian resident company is taxable on its worldwide income. On the other hand, a non-resident company is subject to tax only on income derived from Nigeria.
• Profit of a company established within an Export Processing Zone (EPZ) or Free Trade Zone (FTZ).
• Dividends, interest, rents, and royalties earned abroad and brought into Nigeria through government-approved channels are exempted from Nigerian tax; otherwise, the income is taxable at the CIT rate applicable based on the classification of the company (i.e. small, medium, or large) and tertiary education tax at 2%.
Government-approved channels as we mentioned above, mean the Central Bank of Nigeria and any bank or financial institution authorised to carry out foreign exchange transactions.
Company income taxation as already noted above, has been and still remains a strong and reliable source of income generation for the government and the administration of same has over the years and till date, had laudable transformation.
Apart from CIT, other taxes may be applicable to companies in Nigeria. Such taxes include the Withholding Tax, which is payable in advance on executed contracts by the companies but subject to deduction from taxable profits.
Also, the Value Added Tax, which is payable on certain goods and services. Education Tax and Industrial Training Funds are also to be paid by
companies operating in Nigeria.
With the effect of the Finance Act 2019, small companies with less than N25 Million turnover are now completely exempted from the payment of company income tax which is one out of few laudable amendment seeing that it will encourage Small Medium Enterprises (SME) and aid the general growth of small companies.
About the Author.
Chidiebere Mbah Esq., is a prolific writer, an avid researcher, poet and a legal practitioner, who believes in salvaging the hope of the common man. He has several legal and artistic work to his credit.