List Of Taxes In Nigeria (All You Need To Know). There are a large number of taxes that must be paid by businesses operating in Nigeria. Some examples are taxes on corporate profits, individual profits, capital gains, VAT (value-added tax), education taxes (or education-related taxes), stamp duties, and withholding taxes. Read this article to have more knowledge about taxes in Nigeria.
The three levels of government in Nigeria are responsible for tax administration. The Federal Inland Revenue Service (FIRS) manages taxes owed to the federal government, while the State Boards of Internal Revenue (SBIRs) of the United States’ thirty-six states handle taxes owed to the states. Local governments are also in charge of administering the rates and taxes that they themselves collect via the numerous councils that make up their jurisdictions.
Upon request, a Tax Clearance Certificate is provided to a taxpayer who has paid all of their taxes for the three years before the year in question. To do official business with the government, a Tax Clearance Certificate is often necessary (MDAs). Revenue generated and redistributed in Nigeria’s economy via taxation is critical to the provision of public services and economic growth. Nigeria’s government has created laws to oversee and regulate taxes in the various sectors of the economy because of the importance of this issue.
In Nigeria, why do we have to pay taxes?
In a nutshell, we pay taxes because the state or federal government enforces tax laws. All government services are funded by the hard-earned money of the people. Despite the fact that paying taxes is required by law, it is also seen as a civic duty. Failure to pay taxes could result in fines or even prison time if you don’t comply with the Federal Inland Revenue Service’s (FIRS) mandate.
Over 3.7 trillion Naira in taxes were collected in 2015 by Nigeria’s federal government. Personal Income Tax, Payroll Tax, Corporate Tax, Tariffs and a slew of other revenue sources all have a hand in this. There are numerous responsibilities that the government has to fulfil in order to better society as a whole and other non-developmental but essential obligations to the citizens of the country.
List of taxes in Nigeria
1. Company Income Tax (CIT).
The Federal Inland Revenue Service (FIRS) collects this tax on all firms formed in Nigeria, save those involved in petroleum activities. Income earned outside Nigeria is free from CIT, however, income earned within Nigeria is taxed at the same rate as income earned inside Nigeria. For enterprises with yearly gross revenue of less than N25 million, CIT was totally exempted in recent years, although they were still had to submit a company tax report. While firms with moreover $25 million but less than $100 million will be charged at 20%.
Companies having a turnover of more than $100 million pay a tax of 30% on their earnings. While a newly registered business may submit an 18-month account if the end of the accounting year does not occur within the tax year, the CIT must be filed within six months of the end of the accounting year.
Those already in business must submit their returns within six (6) months after the end of the fiscal year, while newly formed businesses have eighteen (18) months to file their returns from the date of incorporation or six (6) months from the end of the fiscal period. Both deadlines apply. The minimum tax is imposed when a business is in the red, has no tax to pay, or has tax to pay that is less than minimum tax.
2. Personal Income Tax (PIT)
Personal income, wages, and earnings are taxed under the personal income tax system. Wages, salaries, dividends, interest, royalties, rents, and sales of products are all examples of taxable income. Regardless of whether the taxpayer works for the federal, state, or local governments, or for a private organization, this is a progressive tax that must be remitted to the state’s Inland Revenue Service, with the exception of Nigerian Police, Armed Forces, and residents of the Federal Capital Territory (FCT) and foreign nationals living outside of Nigeria who earn income from Nigeria (non-residents).
Those who are self-employed are also expected to file a return of income, which is essentially a profit from any trade, business or profession that existed or was carried on during the preceding year.
|Annual income (NGN)
|Personal income tax (PIT) rate (%)
3. Value added tax (VAT)
Taxes on goods and services are subject to Value Added Tax (VAT). An invoice-based and taxed at various points throughout production lines implies that each time value has been added and a sale has been made, VAT has been collected and accounted for. The buyer is charged a VAT tax by every seller in the supply chain. The value added by the most recent seller determines how much tax is collected at each subsequent sale in the chain.
Taxpayers are expected to submit their monthly VAT returns to the tax office that corresponds to their address. Any sales or services provided during the previous month must be reported by the 21st of that following month. E.G Prior to the 21st of February, all January sales activities must be completed and paid for. VAT Decree 102 of 1993 and Cap VI of the LFN are the laws that apply to this tax. It was increased from 5% to 7.5 % in the 2019 Finance Act.
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4. Withholding Tax (WHT)
Withholding Tax (WHT) Taxes that are paid by the payer rather than the recipient, such as withholding taxes, are known as withholding taxes. The tax is withheld or deducted from the recipient’s income at the source because it is believed to be a tool for catching as many potential taxpayers as possible who might try to evade paying taxes. In contrast to other taxes, this one is only levied on contracts, such as rent or the delivery of goods and services to a location specified by the customer.
It’s common practice to refer to WHT deductions as a form of advance payment. WHT fees can range from 5% to 10%, depending on the transaction.
|Types of Payments
|Rate of Tax for Companies (%)
|Rate of Tax for Individuals (%)
|Dividends, interests and rents
|Building and construction
|All types of contracts and agency arrangements, other than sales in the ordinary course of business
|Consultancy and professional services
5. PPT (Petroleum Profit Tax)
The PPT is an income tax on upstream petroleum companies. The tax to be charged is the aggregate of adjusted profit, assessable profits, and chargeable profits for each accounting period of a company. The following are the tax rates on profit petroleum:
- Petroleum operations under PSCs with Nigeria’s National Petroleum Corporation (NPC) account for 50% of the total cost (NNPC).
- 65% for non-PSC activities, including joint ventures (JVs), in the first five years during which the corporation has not yet completely amortized its pre-production capital investment.
- First Five Years: 85 Percent for Non-PSC Operations.
6. Stamp duties
The Stamp Duties Act (Chapter S8), LFN 2004 imposes a levy on papers, which must be paid (the “Stamp Duties Act”). When it comes to stamp duties, it all relies on the kind of document and its value. The Federal Inland Revenue Service collects the stamp duty when a document is signed by a firm and a person, while the State Board of Internal Revenue collects the stamp duty when the document is signed simply by people.
7. Education Tax (EDT)
The Tax on Education (EDT) Efforts to alleviate the country’s education funding crisis were made possible by the introduction of this tax. According to the legislation, private sector companies that benefit from education can contribute to the Tertiary Education Trust Fund and help fund it (TET Fund). Companies registered in Nigeria pay 2% of their Assessable profit as Tertiary Education Tax (TET).
In an assessment year, assessable profit is the adjusted profit or a portion of it that is taxable to corporations. Following notification from the Federal Inland Revenue Service, a company must pay the Tertiary Education tax within 60 days.
8. National Information Technology Development Levy (NITDL)
Levy for the Development of Information and Communications Technology (NITDL) Companies in Nigeria pay this kind of tax on their pre-tax profits. The National Information Technology Development Agency Act governs its operations (NITDA). 1% of net profit before tax applies to businesses with annual revenue of N100,000 or more. As part of the self-assessment process, the levy is calculated and filed with the company’s income tax returns.
There is a penalty of 10 per cent of the unpaid amount plus interest at the Central Bank of Nigeria’s current minimum rediscount rate if the levy is not paid within 30 days after a demand notice is issued by NITDA.
9. Capital Gains Tax Act (CGTA)
The Capital Gains Tax Act of 1990 is the law that governs the taxation of capital gains. Section 2 of the Act specifies that the capital gains tax is 10% of the company’s gains from the sale of chargeable assets or the exchange of specified types of interests. According to Section 6, corporations are required to pay capital gains tax on the sale of stocks, bonds, precious metals, real estate, and other assets and property investments. Taxes on capital gains are accumulated annually.
10. Information Technology Development Levy
Companies with yearly revenue in excess of N100,000,000 (One Hundred Million Naira) are subject to a charge equal to one per cent of their profits before taxes under the National Information Technology Development Agency (“NITDA”) Act, 2007 (the “Act”), which was passed in 2007. An additional 2 per cent penalty will be imposed to any charge that is not paid within 60 days after being served with notice of assessment according to provisions in the NITDA Act, which also allows for tax assessments and collections to be made by the Federal Inland Revenue Service (the “FIRS”). Additionally, a fine of at least N1,000,000 (one million Naira) would be imposed for failing to pay the tax.
11. Tenement Rate
Landlords and occupants of a building pay tenement rates to their local government councils as part of their own internal revenue. A levy on property taxes and ground rent has been combined to form this new fee. The formula required by the law is under consideration.
Administration of the country’s tax laws in Nigeria
For each tax, there is a different tax authority that is responsible for administering the tax. There are three (3) levels of government in Nigeria:
1. Internal Revenue Service (IRS)
Through the Federal Board of Inland Revenue, which administers Revenue laws pertaining to taxes paid by Federal Capital Territory residents and corporations, the federal government collects taxes (Limited Liability Companies). They are responsible for reporting all taxes collected to the federal government.
2. State Inland Revenue Board
To collect taxes, the states rely on the State Board of Internal Revenue, which oversees the Personal Income Tax Act and other revenue statutes that some of the states in the union have passed. They are responsible for submitting all revenue collected to the state government.
3. Revenue authorities for local governments
Taxes are collected by the Local Government Revenue Committee, which is accountable to the chairman of the Local Government for the assessment and collection of all taxes, fines, and rates within its jurisdiction.
Not all nairas generated are comparable as far as the taxpayer is involved. Nigerian tax rates differ according to the sum of money you generate, and you pay various rates on different components of your income.
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