In practice, many companies pay the tax on a self-assessment basis along with their CIT. This simply means that the months in the basis period of a year of assessment shall be within the same year. Compute the assessable profits for the first 3 years of assessments and decide whether or not Doro-Dapo should exercise its right of election. 2. The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted from dividend … However, the provisions of the Companies Income Tax Act 2004 as amended (CITA) and Finance Act 2019 have alternative ways of determining the corporate tax payable. Nigeria in any Accounting period shall be assessed to tax in the year of assessment in which the profit accrued. Adjusted Profits are calculated by the value of Profits less outgoings & expenses which were wholly, exclusively &necessarily incurredwithin or outside Nigeria listed in S.10 as well as the cost of transportation of chargeable oilby sea-going tankers as provided in S.14. Copyright © 2020. Companies are mandated by law to pay Company Income Tax (CIT) in Nigeria based on the profit. A company with a turnover between N25 Million and N100 Million- 20% on assessable profit; A company with above N100 Million turnover- 30% on assessable profit. Examples of income exempt from income tax are export profits, as long as proceeds is brought into Nigeria through government-approved channels and invested in raw materials, spare parts, and plant and machinery. Usually, when companies prepare income statement they always charge depreciation as an expense before arriving at their profit before tax. The agro allied and manufacturing industries are two economic sectors that have been adjudged critical to Nigeria's rapid industrialization but whose potentials have become sabotaged due to the propensity for rent seeking from the resource sector resulting in non-implementation or ineffective implementation of defined According to the aforementioned section, a new business is entitled, on giving notice in writing within two years after the end of the second year to the Board to require that the assessable profits both for the second year and third year (but not for one or other only of those years) shall be the actual profits of the respective years of assessment (i.e. This is because the definition is important in the administration and computation of personal income tax in Nigeria, more so where wage employee’s PAYE and Sole proprietor’s Personal Income tax computations are concerned. Section 29 (6) allows for the apportionment and aggregation of profits in order to arrive at the profit of a year of assessment. Any tax on income or profit is not deductible except where such tax was paid on profit earned outside Nigeria. 22. State and local taxes (business rates) … In such situation, the repetitive rule will be applied. Can we now infer, as against the requirement of the law,that the first set of returns can hold till 31st December, 2002? Determine the tax year and basis period for company that has just filed 2013 financial statement, having 30th September as its permanent year end. Any basis period that does not fulfill the conditions stated under the normal basis period is said to be abnormal. Contribution of Business Taxation in Nigeria 4. The accounting profit arrived at in the trading, profit & loss account is not usually the same as “tax profit”. 2017: NGN540,000. The tertiary education tax is levied on a company registered in Nigeria at the rate of 2% of the assessable profit. It should be noted that treatment of this profit depends on the tax type as companies income tax treatment differs from petroleum profit tax treatment. Oil and gas companies involved in downstream operations are to be taxed under CITA and not PPTA. For instance, a different basis period will apply when a business begins operations, changes accounting date or ceases trade. Welcome! Nevertheless, expenses such as penalty, fine, depreciation are not allowed in the calculation of income tax. 3. Total profit is profit after deducting previous year losses carried forward and capital allowances. Capital allowances is the tax systems assessable profit Education Tax Fund ETF-In addition to the CIT, all registered companies are required to pay ... Nigeria on the profit of a Nigerian company being remitted into the country is reduced by the amount of Foreign Tax’’ paid abroad and where an overseas company receives profits from Lagos seals event centre for contravening protocols, Nine passengers escape death as vehicles catch fire in Anambra, Lagos-Ibadan train stations for inauguration next month, Trump makes U-turn, signs $900bn COVID-19 relief package, Five killed as rival cult groups clash in Bayelsa, Navy rescues 12 passengers in Lagos boat accident, Notorious bandit, Nasiru Kachalla, others killed in Kaduna, Insecurity: ‘Nigerians harbour too much hatred to handle guns’, CAN to govt officials, politicians: adhere to guidelines, COVID-19 won’t be last pandemic, says WHO chief, COVID-19 death toll more than double in one month, NCAA to slam $3,500 fine on defaulting passenger on airlines. show that we basically have two (2) types of basis period applicable to every company liable to tax. In simple terms, assessable profit is simply computed as adjusted profit less losses (unrelieved c/f) before taking into consideration capital allowances, balancing allowance and or balancing charge. An abnormal basis period can be obtained under the following circumstances: The above requires special treatments as adequately provided for in the relevant tax laws. Usually, when companies prepare income statement they always charge depreciation as an expense before arriving at their profit before tax. A Careful study of the provisions in the Nigerian tax laws (CITA,PPTA,CGTA,PITA etc.) Tax adjustments include expenses, income and any other transaction with tax impact on the income statement. Partnershi ps, etc. 6.6. Imposed on all companies registered in Nigeria The rate of the tax is 2% of assessable profit The due date for filing returns is the same as that of CIT and PPT The tax is an allowable deduction in computing the assessable profits of companies engaged in petroleum operations(Up stream) The Nigeria personal income tax act 2014 has the answer to these. (d) For the third year, it may not be possible to obtain a realistic basis period as the period might begin in a month earlier than the month of commencement. Foreign companies not resident in Nigeria, but with a fixed base in Nigeria are only required to pay company income tax on their incomes derived from Nigeria. NOTE: A company eligible to pay Education tax in Nigeria will complete a tertiary education tax (TET) return containing details such as assessable profit, rate of tax and amount payable. Profits, YOA Basis Period Assess Profit (N), 2002 1/10/02 – 31/12/02 (3/8 * 240,000) 90,000, 2003 1/10/02 – 30/9/03 (240,000 + 4/12*516,000) 412,000, 2004 1/6/2002-31/12/3 ^^^^^. They are; ii. C21 LFN, 2004 as amended). Nevertheless, expenses such as penalty, fine, depreciation are not allowed in the calculation of income tax. First, assessable profit is the profit adjusted for income tax purposes using the information in the financial statements. For companies subject to PPT, tertiary education tax is to be treated as an allowable deduction. It is allowed as a deduction from assessable profit to arrive at total profit. The assessable profits of any company from any trade or business for the year of assessment in which it commenced to carry on trade or business (or in the case of a company other than a Nigerian Company, for the year of assessment in which it commenced to carry on the trade or business in Nigeria) and for two following years of assessment (which years are in this subsection respectively referred to as “the first year” “the second year” and “the third year” shall be ascertained in accordance with the following provisions: (a) First Year: the assessable profits shall be the profits of that year(i.e. 28. The laws equally provide for how the taxes are to be computed on the company’s profits and when they should be paid. R ecently at a public seminar it was asserted that the tax regime for insurance companies operating in Nigeria as contained in the Companies Income Tax Act as amended puts insurance companies at a disadvantage relative to other companies operating in the financial sector. Any trade or business for whatever period of such trade or business may have been carried on Capital allowances are given in place of depreciation for the use of business assets. Distinguish between the treatment of loss relief under Companies Income Tax Act and Petroleum Profits Tax Act. (a) Profit subject to Tax or Chargeable Profit: The act in section 8 imposes tax on the profits of any company accruing in, derived from, brought into or received in Nigeria. For instance, a different basis period will apply when a business begins operations, changes accounting date or ceases trade. under Commencement of new business, Change of date or cessation of business. Naturally, the taxpayer will exercise this right only where it may result in a lower tax liability. 26. (2) The tax at the rate of 2 percent shall be charged on the assessable profit of a company registered in Nigeria (in this Act referred to as “a company”). deduction from assessable profit to arrive at total profit. 3. Abnormal cases are when the basis period is greater than or less than 12 months. Capital allowances are given in place of depreciation for the use of business assets. Companies in the manufacturing and agro-allied sectors can claim the entire capital allowance in a tax year. Not all dividends paid by a company are subject to excess dividend tax. The tax is charged at 2%. Objectives/Aims of Business Taxation in Nigeria 3. the tax codes allow tax payers to claim certain benefits in relation to their business investments in the country as well as reduce the certain tax burdens which they would have borne, were such provisions not available. Tax Year Basis Period, 2012 1/11/2010 – 30/10/2011, 2013 1/11/2011 – 30/10/2012, 2014 1/11/2012 – 30/10/2013. The tertiary education tax is payable within 60 days of an assessment notice from the Federal Inland Revenue (FIRS). Ascertainment of assessable tax and of chargeable tax 21. Additional chargeable tax payable in certain circumstances. In practice, many companies pay TET on a self-assessment basis together with their CIT. Assessable profit is the profits from all sources in the year immediately before the year of assessment except in abnormal cases. It is only calculated when a company is computing its tax liabilities. h. Amendments to the ‘Minimum Tax Rule’ This is same as actual year basis discussed earlier. then the company paying the dividend will pay income tax at the applicable rate. Nigeria: Companies income tax assessment not allowed The Federal High Court sitting in Abuja issued a judgment for the taxpayer in a case concerning the authority of the Federal Inland Revenue Service (FIRS) to assess a company’s liability for Nigeria’s companies income tax … This simply means that the profit to be subjected to tax in a particular year will not be that earned that same year but the profit of the immediate past year. The tax is charged at 2% of the assessable … This means that every basis period determined on preceding year basis must be up to 12 months ending on a company’s permanent year end. In essence, disallowable expenses are added back to the accounting profit which will increase the assessable profit. What will be the basis period for assessable profits for 2012 to 2014 years of assessment? ... (ai) the aggregated deduction from assessable profit or income in respect of any such loss The Nigeria personal income tax act 2014 has the answer to these. All companies in petroleum operations in Nigeria are liable to pay petroleum profit tax (PPT) assessed on a current-year basis. This is because in ascertaining the accounting profit some expenses which are not allowed for tax purposes may have been reported and some income included in the accounting profit are tax-free. In other words, the taxpayer reserves the right to be assessed to tax in the second and third year on actual year basis instead of the rule highlighted under the commencement of business. Based on the above, it can be said that for the sake of equity; which is one of the qualities of the Nigerian tax system, the Nigerian government through the TaxAuthorities provides for the basis upon which taxes would be computed on a common ground. Considering the earlier example, the year of assessment will not be 2014 but 2013 and the basis period will be 1/1/2013 – 31/12/2013. Overall, the only abnormal basis period in Nigerian taxation is when a company changes its financial year-end to a new date. Other Domestic Resources Federal Inland Revenue Service Consult Doing Business Website, to obtain a … However, if an application for election had already been made, the company should renounce it in writing before the expiration of 12 months from the end of the third year of assessment (i.e. R ecently at a public seminar it was asserted that the tax regime for insurance companies operating in Nigeria as contained in the Companies Income Tax Act as amended puts insurance companies at a disadvantage relative to other companies operating in the financial sector. Non-Governmental Organizations - These are non-profit making organizations which are qualified for income tax exemption under Section 23 of CITA Cap. The rate is 30% of total profit for income tax and 2% of assessable profit for education tax. (b) Second Year: the amounts of the profits of one year (i.e. In their individual names, based on the Nigerian tax laws it is allowed as a public Limited liability to. 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