PRACTICAL TAXATION IN NIGERIA:

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

This Paper is presented under the following sub-headings :

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

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:

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

I. Fiscal Federalism in Nigeria

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

II. Nigerian Tax / Legal System : Past to Present (An Overview)

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 .

Some of the Tax Legislations are:

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

III. Administration and Collection of Taxes in Nigeria

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.

(a) The Joint Tax Board (JTB)

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).

Members of JTB 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.

Functions and Operations of the JTB

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.

(b) Federal Board of Inland Revenue (FBIR)

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.

Functions and Powers of the FBIR

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.

Functions of FIRS- 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

- 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.

(iii) Technical Committee of FBIR

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 SecretaryNote: From time to time, and as exigencies

may require , other members of staff might be co-opted into the committee for efficacious performance of its functions.

Functions of the Technical committee

- 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.

(c) The State Board of Internal Revenue (SBIR).

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.

Functions and Powers of SBIR

(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

Functions :

- 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.

Functions and Duties of SIRS

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.

(D) Local Government Revenue Committee

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.

Functions(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.

(E) Joint State Revenue Committee

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

Functions

(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.

Tax Payer Identification Number (TIN)

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 Operation of TIN in Nigeria.

- 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 NoToday these numbers are one and same

today.

IV. Practical Personal Income Tax Procedures

The undermentioned procedures will cover:Taxation of sole-proprietorships (self-employed )Taxation of Partners in PartnershipsTaxation 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 SettlementsApplicable Legislations:These include,

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 and Public Sector) other than members Of the Armed Forces, Police, residents of FCT Staff of Foreign Affairs Ministry

SIRS closest to place of residence

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

THE FOLLOWING SHOULD BE NOTED UNDER PITA:

A.Chargeable Income, S. 3 ( as amended by PITAM );B.Income Exempted, S. 19 ( as amended by PITAM );C.Deductions Allowed, S. 20 ( as amended by PITAM );

D. Deductions not Allowed, S.21 ( as amended by PITAM );E. Ascertainment of Assessable Income/F. Basis Period, S.23 ( as amended by PITAM );

• Employment Income- basis- Income of the year of assessment• Self-employed Income – basis- Income of the year preceding year

of assessment

i. Nigerians with diplomatic status working in UN organization abroad

FIRS

j. Nigerians without diplomatic status working abroad

Tax Authority of Home Country

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 PayableI. 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.

V. VALUE ADDED TAX MATTERS AND PROCEDURES.

Issues to take note of are as follows:A. Taxable (vateable ) Goods and Services, S.2 ,

VAT Act, 1993All goods and services except those exempted in

the 1st Schedule to VAT Act, 1993B. Exempted Good and Services, S.3, VAT Act,

1993. See 1st Schedule to VAT Act, 1993C. Rate of Tax: 5%, S.4, dittoD. Value of Goods and Services, Ss. 5 to 6, ditto.Based on regulated prices or usual selling prices.

E. Taxable Persons, S.8dittoPersons 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), dittoN10,000 for the first month of failure, and 5000 for

subsequent months(cumulatively). See Actuarial Table;

 G. Remittance of VAT, S.16 dittoOn 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

VI. WITHHOLDING TAX This is both administered under PITA and CITAThe 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%

VII. COMPANIES INCOME TAX ACT, 1990 ( CITA )

The following issues shall be discussed:a). Charge of Tax: S.40For periods 1996 todate:For Small Manufacturing Company 20%For Coys in Agricultural Trade/Business 20%For All Other Companies 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 

…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. 10See Certificate of Incorporation, CTCs of MEMART,

CAC Form 7, etcc). On WHT, see Ss. 78 to 80d). 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.29f). Total Profit or Taxable Profit, S.31 See Format iiig). 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 Audited Accounts (if any) Tax Comps Capital Allowance Comps Acceptance Certificate for qualifying expenditures

i). Penalties: Failure to comply with 11.aboveN25,000 in the first month of failureN5000 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 Court3rd: Appeal CourtFinal: Supreme Court

i). Tax Clearance Certificate (TCC).

VIII. TERTIARY EDUCATION TRUST FUND (ESTABLISHMENT, ETC) ACT 2011

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 Profitc. Who can assess and collect: FIRSd. Time of Payment: within 60 days of Noticee. 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.

IX. NATIONAL INFORMATION TECHNOLOGY AGENCY ACT, 2007The following are relevant:a). The above Act imposes a Levy called NITD Levy, S. 12b). 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 abovee). Accounting Treatment: Levy PAID shall be tax deductible

X. CAPITAL GAINS TAX ACT, 1990

1. Chargeable Persons: Persons payable taxes under PITA. (Companies excluded since Balancing Charge already applies)

2. Chargeable Income: Gains from disposal of property (i.e Disposal value less acceptable expenses)

3. Rate: 10%4. Computation: done separately from PITA

Comp.

XI. PETROLEUM PROFIT TAX ACT, P13, LFN, 2004

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.

Petroleum Profit Tax (PPT) Act, 1959

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: 1st January to 31st December (of year of assessment) Relevant Tax Authority: Federal Inland Revenue Service (F.I.R.S)

PPTA and VATAs 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.

PPTA and PAYE/WHTsAll 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.

Returns and Remittances

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.

Closest FIRS for Oil & Gas to Ota

FIRS LTO (Oil & Gas), FIRS Building, 17b, Awolowo

Road, Ikoyi, Lagos.

 Tax Controller: 01-2666856 08033022303

Rates of PPT:

I. For Joint Venture (JV) arrangement or Non Production Sharing Contract (PSC) over 5 years, rate is 85% of Chargeable/ Taxable Profit.

II. For Non PSC in its first 5 years during which the company has not fully amortised all pre-production capitalized expenditure, rate is 65.75% of chargeable profit.

III. Petroleum Operations under PSC with NNPC, rate is 50%.

Determination of Taxable/ Chargeable Profit

N N Net Profit per Audited Accounts xx(i.e. Profit for year i.e, IFRS compliant )

Add backNon-Allowable Expenses xTaxable Income not reported x xx

DeductNon-Taxable Income xAllowable Expenses not reported x xx Losses unreceived b/f xxReceived (x) (x)

Add:Balancing charge xAssessable Profit xxLess: Capital Allowance xx For year xx Relieved (x) (x) Taxable/ Chargeable Profit xx

Steps to Compute Taxable Profit/ file Tax Returns/Pay PPT/Obtain TCC and official FIRS

Documents in use at date (2015)

Practical Procedures Official DocumentsFIRS/ Other docs

Step 1:Action 1: Identify the profit or Loss for the year Audited set of financial statement In line with IFRS for relevant period(i.e. Net Profit or Loss)Action 2: Extract and place in the computation paperStep 2:  Action 1: Study and screen the set of Audited financial i. PPT Act Statement (or Audited Accounts) by going through ii. Audited AccountsChairman’s statements iii. Adjusted Profit or loss Directors Report statement.Notes to the AccountsAppendices to the Accounts and also PPTA and Identify the followings, if any:Non allowable expenses (ref PPTA)Taxable Income omitted (ref audited accounts)

Action 2: Prepare schedule and add total accounts in Comp. paper  Step 3: Action 1: Like in step 2, identify i. PPT ActNon-taxable Income (already included in the audited ii. TET Act Accounts) iii. Audited AccountsAllowable Expenses (not taken note of, e.g. AllowableTertiary Education Tax that are deductible as expense 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 AccountsStep 5:Action 1: Identify any balancing charges arising from disposal i. PPT Act Of Non current Assets ii. Appendix on

computation Action 2: Add back (to obtain Assessable Profit) of capital Allowance. iii. Audited Accounts

Step 6: Action 1: Identify and unclaimed capital Allowance i. PPT Act Brought forward and add current year capital ii. Appendix on computation

of Allowance. capital

allowanceAction 2: Observe limitations (if any) and effect claim of iii. Certificate of Qualifying

from Capital Allowances by deducting from the Fed. Min. of Ind. Trade &

Inv Comp. paper to obtain Taxable/ chargeable profit . iv. Audited Accounts  Step 7: Action: Apply appropriate PPT Rate, 85%(say) on Taxable Taxable profit comp. paper Profit to obtain the Assessable Tax.  Step 8: Action 1: Identify any Tax offsets and MoU credits (tax credits) 1. PPT Act by perusing listed documents. 2. JV Contracts/ MoUsAction 2: Prepare schedule and deduct Tax offsets and MoU 3. Comp. Paper tax credits from Assessable Tax to obtain chargeable tax. 

Step 9Action 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.

Procedure for Payment of PPTLaw: 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

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.

See next

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

Practical Case of Payment PPT

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.

Practice

I. Submission of estimated tax payable of N250 million to the Revenue for approval on February 7, 2013.

II. Approval granted with monthly installment of N250m÷12 = N20,833,333.33, on February 26, 2013.

III. Legal payment period March 2013 to February 2014.

IV. Payments made between March-August 2013 of N20,833,333.33 each month.

V. From September, revision which was approved in August 2013 became effective.

Computation of revised estimates:On N20,833,333: March-August 2013: 6 monthsRevision = [N350m less (20,833,333×6)] ÷ 6 = N37,500,000Period: September 2013 to February 2014Total 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 SXIII. A P P E N D I C E S

Appendix A: PITA, Amendments and Subsidiary Legislations

Principal Law in NigeriaPersonal Income Tax Act, No.104, 1993. Wef: 25 August 1993Repealed:I. Income Tax Management Act, 1961II. Capital Transfer Tax ActIII. Income Tax (Armed Forces and Other

Persons) (Special Provisions) ActUpdated Reference: PITA, CAP. P8, LFN, 2004

List of Amendments:

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

Subsidiary Legislations:

1. Personal Income Tax (Rates, etc, of Tax Deduction at Source (Withholding Tax) Regulations, 1997

Commencement: 1st January, 1995Under S.72, PITA

2. Operation of Pay As You Earn (PAYE) Scheme Regulations, 2002

Commencement: 1st January, 2002Under S.80 (6) PITA

Appendix B: VAT, Amendments and Subsidiary Legislation

Principal Law in NigeriaValue Added Tax Act, No.102, 1993. Wef: 1st December, 1993Repealed: 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 NigeriaValue Added Tax Tribunals Rules, 2003

Appendix C: CITA, Amendments and Subsidiary Legislationss

Principal Law in NigeriaCompanies Income Tax Act, No.28, 1979. Wef: 1st April, 1977.Repealed: CITA 1961Reference Today (2014): CITA, Chapter

C.21, LFN, 2014

Amendments to CITA, 1979:

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

Subsidiary Legislation:1. Double Taxation Relief (Between the Federal Republic of Nigeria

and the Government of the Kingdom of Belgium) Order, 1997. Wef: 1st January 1990

2. Double Taxation Relief (Between the Federal Government of Nigeria and the Government of the French Republic) Order, 1997. Wef: 1st January 1991

3. Double Taxation Relief (Between the Federal Government of Nigeria and the Government of Canada) Order, 1997. Wef: 1st January 1993

4. Double Taxation Relief (Between the Federal Government of Nigeria and the Government of Romania) Order, 1997. Wef: 1st January 1993

5. Double Taxation Relief (Between the Federal Republic of Nigeria and the Government of the Kingdom of Netherlands) Order, 1997. Wef: 1st January 1994

6. Companies Income Tax (Rates, etc, of Tax Deducted at Source (Withholding Tax) Regulations, 1997. Wef: 1st January 1995

Appendix D: CGT, Amendments and Subsidiary Legislation

Principal Law in NigeriaCapital 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

Appendix E: PPTA, Amendments and Subsidiary Legislation

Principal Law: Petroleum Profit Tax Act, No.15, 1959Commencement: (Retrospectively) 1st January, 1958Updated Reference: PPTA, CAP. P.13, LFN, 2004 List of Amendments:I. Income Tax (Amendment) Act No.65, 1966II. Petroleum Profit Tax (Amendment) Act No.1 1967III. Oil Terminal Dues Act No.9, 1969IV. Petroleum Tax (Amendment) Act No.4, 1970V. Petroleum Tax (Amendment) Act No.22, 1970VI. Petroleum Tax (Amendment) Act No.15, 1973VII. Petroleum Tax (Amendment) Act No.55, 1977VIII. Petroleum Tax (Amendment) Act No.2, 1979IX. Petroleum Tax (Amendment) Act No.21, 1991X. Petroleum Tax (Amendment) Act No.30. 1996

XI. Petroleum Tax (Amendment) Act No.31, 1996XII. Petroleum Tax (Amendment) Act No.32, 1996XIII. Petroleum Tax (Amendment) Act No.18, 1998XIV. Petroleum Tax (Amendment) Act No.30, 1999

Subsidiary Legislation:Chargeable Persons Partnership (Monipulo

Limited and Brass Exploration Unlimited) Rules 2002

Commencement: 1st January, 2002

Appendix F: T & L (Approved List)

Principal Law in NigeriaTaxes and Levies (Approved List for

Collection) Act, No.21, 1998Wef: 30th September, 1998 Repeals: NIL List of Amendments: NIL Subsidiary Legislation: NIL