RELEVANT TAX LAWS IN NIGERIA
The tax law establishes the administrative body and specify its tax jurisdiction.
RELEVANT TAX LAWS IN NIGERIA
Tax laws in Nigeria are laws and regulations guiding the collection and administration of taxes. Taxes are established by law in Nigeria. By implication, such tax must have been passed into law through enactment of relevant statute (Act, By-law, decree among others). The tax law establishes the administrative body and specify its tax jurisdiction. Tax laws impose tax at a predetermined rate on specified income, profit, gain, and value of transactions of taxable persons. These laws are amended from time to time in view of meeting present economic situation, complexity of financial transaction, welfare, and social needs.
Tax structure in Nigeria is tailored towards Nigerian governance hierarchy (Federal, State and Local Government). Nigeria operates a decentralized tax system where each level of government is independently responsible for the administration of taxes within its jurisdiction. Nigeria generate revenue to fund government expenditure through a pool of taxes from each tier of government. A body is established for taxes due to each tier of government.
Federal Inland Revenue Service (FIRS) is the body that is responsible for the administration of taxes that are due to the federal government. The various state boards of internal revenue administer taxes that are due to state governments while the local government revenue committees administer taxes that are due to local governments. However, joint tax board advise, harmonize double taxation, and propose amendment.
TYPES OF COLLECTIBLE TAX IN NIGERIA
The types of taxes collectable in Nigeria, as well as the bodies in charge of collecting, managing and regulating taxation, are stipulated by the following tax laws in Nigeria:
Personal Income Tax Companies Income Tax Finance Value Added Tax Stamp Duties Petroleum Profit Tax Capital Gains Tax Education Tax
The major laws regulating taxation in Nigeria shall be briefly discussed below;
Company Income Tax Act (CITA)- The Company Income Tax Act (CITA), Cap C21, LFN 2004 is the principal law that governs the taxation of companies in Nigeria. CIT is a tax imposed on the profit of a company from all its sources and it is also imposed on foreign companies operating a business in Nigeria. Section 1 of the Act provides for the establishment and constitution of the Board whose operational arm shall be called the Federal Inland Revenue Service, while Section 3 provides that the powers and duties of the board concerning companies include the collection of tax and accounting for all amounts collected.
Capital Gains Tax Act- The governing legislation of the Capital Gains Tax is the Capital Gains Tax Act 1990. The capital gain tax is 10% of the company gains realized upon the disposal of chargeable assets or exchange of certain kinds of interests as provided by Section 2 of the Act. The most common capital gains tax payable by companies includes but not limited to the sale of stocks, bonds, precious metals, real estate, disposal of assets, and property investments as provided by Section 6 of the Act. Capital gains tax accrues yearly.
Section 26 of the Act provides for exemptions and reliefs.
Petroleum Profit Tax Act (PPTA)- Petroleum Profit Tax Act 2004 (as amended) governs taxes that are imposed on the income of companies in the petroleum operations (upstream) sector of the economy. The Act regulates the financial operations of oil companies comprising of those in crude oil production, petroleum marketing, and also servicing companies involved in the survey, drilling, and data collection.
Section 2 of the Act defines petroleum operations as “petroleum operations is the winning of, obtaining and transportation of petroleum or chargeable oil in Nigeria by or on behalf of a company for its own account by any drilling, 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 and any sale or any disposal of chargeable oil by or on behalf of the company”.
Personal Income Tax Act- The Personal Income Tax Act 2011 (as amended) governs tax charged on the income of individuals, families, body of individuals, and trustees. Section 1 of the Act provides that the tax is an obligation, paid to the State Inland Revenue Service where the individual resides.
Section 3 of the Act provides that tax shall be payable for each year of assessment on the aggregate amounts each of which is the income of every taxable person, for the year, from a source inside or outside Nigeria, including without restricting the generality of the foregoing-
Stamp Duties Act- the Stamp Duties Act LFN 2004 regulates taxes imposed on instruments and the rate of tax to be paid is dependent on the type of instrument and value of the transaction as provided by Section 3 of the Act.
Section 4 of the Act provides that the Federal Government shall be the only competent authority to impose, charge and collect duties on instruments if such instrument relates to matters executed between a company and an individual, group, or body of individuals, while the State Government shall collect duties on instrument between individuals, at a rate agreed with the Federal Government.
Value Added Tax Act- the Value Added Tax Act 2004 regulates taxes imposed on goods and services sold to the public as provided by Section 2 of the Act. The current VAT rate payable is 7.5% following the amendment of the Value Added Tax Act by the Finance Act 2020.
The First Schedule of the Act states the goods and services that are exempted from paying this tax. These are; all medical and pharmaceutical products; non-oil exports, commercial aircraft, and spare part imports; baby products; certain humanitarian initiatives; machinery and equipment used in the solid minerals sector; exports, agricultural equipment, and commercial vehicles; basic food items; postal; residential rents; medical and pharmaceutical supplies; education and related materials and books and educational materials.
Withholding Tax- The Companies Income Tax Act and the Personal Income Tax Act provides for withholding of tax from payments due to companies or individuals whether resident in Nigeria or not, that provides goods and services to individuals or companies in Nigeria. The period for filing withholding tax is on or before 21 days after the duty to deduct arose for deductions from companies. It is an advance payment of income tax.
Withholding tax is charged at the rate of five per cent (5%) or ten per cent (10%) depending o the type of payment or nature of the transaction and also whether the beneficiary of the payment is an individual or a corporation.
Custom and Excise Duty Act- The Customs and Excise Management Act LFN 2004 imposes a custom duty on specified imported goods and also restricts the movement of certain goods in and out of Nigeria. It is collected by the Nigerian Customs Service. Any company involved in importation operations are liable to pay the tax charge ranging from 5% to 30%, depending on the goods imported.
Employee Compensation Act- the Employee Compensation Act 2010 imposes obligations to employers in both the private and public sector to deduct 1% from the monthly salary of its employees and remit it to an Employee Compensation Fund. It is a form of insurance for the company’s employees in event of death, injury, disease, or disability of the employee arising in course of employment as provided by Section 1 of the Act.
The Nigerian Social Insurance Trust Fund Board (NSITF) under Section 2 of the Act has the power to implement the fund. The Scheme is targeted at protecting private-sector employees from financial difficulties in the event of death since most employers do not have such provisions in their employment policies.
Education Tax Act 2004- This Act regulates taxes imposed on every Nigerian resident company at the tax rate of 2% of all assessable profit for each year of assessment as provided by Section 1 of the Act. It is payable by the company within sixty (60) days of an assessment notice from FIRS.
Industrial Training Fund (ITF) Act- The Industrial Training Act, 2011 establishes the Industrial Training Fund in Section 1 of the Act to promote the acquisition of relevant skills in industry or commerce to generate a pool of indigenous manpower to satisfy the needs of the economy as stated in Section 2 of the Act.
Section 6 of the Act provides that every employer having twenty-five or more employees in his establishment shall in respect of each calendar year contribute one (1%) per cent of the amount of its annual payroll to the Fund not later than the 1st of April of every year.
The IDTF Act further imposes a duty on employers to provide training for their indigenous staff to improve their job-related skills. It also provides that the Fund's Council may make a refund of up to 50% of the amount paid by an employer where it is satisfied that its training program is adequate as provided by Section 4 of the Act.
Failure to make contributions within the stipulated period in a calendar year attracts a penalty of five per cent (5%) of the amount unpaid for each month or part of a month after the date on which payments should have been made as provided in Section 9.
Tax laws in Nigeria are laws and regulations guiding the collection and administration of taxes. Taxes are established by law in Nigeria. By implication, such tax must have been passed into law through enactment of relevant statute (Act, By-law, decree among others).
NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact firstname.lastname@example.org
WRITTEN BY CHAMAN LAW FIRM TEAM
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