Taxes are vital instruments for the government to generate revenue to foster the provision of the basic necessities for the public good. In this article, we’ll be addressing the different types of taxes applicable to individuals and corporate bodies in Nigeria. Keep on reading to find out what applies in each of the categories of taxes that would be discussed in this article.
The types of taxes in Nigeria would be discussed below:
In Nigeria, Capital Gains Tax (CIT) is imposed on profits accrued from the sale or exchange of qualifying assets. CIT is charged at the rate of 10% of the profit from the disposal of chargeable assets, whether or not the property is situated in Nigeria. The date for filing returns and the payment of this tax is expected to be done at the same time as Company Income Tax.
The expenditures allowable for CGT include fees, commissions, remuneration for professional services, and the cost of the transfer. Disposal of assets such as decorations awarded for valour and gallant conduct, life insurance policy, Nigerian government securities, stocks, and so on. If religious organizations, educational institutions, registered trade unions, and cooperative societies dispose of assets not in connection with a trade, gains on such an asset are excluded from CGT. CGT is governed by the Capital Gains Tax Act (as amended).
Company Income Tax (CIT) is assessed and collected by the Federal Inland Revenue Service (FIRS) and is governed by CAP C21 LFN 2004 (as amended). This tax is imposed on all companies incorporated in Nigeria, excluding those involved in petroleum operations. Company Income Tax is chargeable on profits accrued in, derived from, brought into, or received in Nigeria. CIT excludes profits accrued from business activities outside Nigeria.
Companies whose annual gross turnover is not up to N25 million are exempted from paying CGT, however, they must file for CIT returns when due. For companies with an annual gross turnover of between N25 million and N100 million, the CIT rate is assessed at 20%, whereas a rate of 30% is for companies with more than N100 million annual turnover. Companies that record losses in an accounting year are charged a minimum tax.
This tax is imposed on companies in the private sector, and it was introduced to address the shortage of funds public tertiary institutions once faced. The payment of this tax is made to the tertiary Education Trust Fund (TETFUND) and is charged at the rate of 2% of the assessable profit of a company in an assessment year. After the FIRS has issued a notice to qualifying companies, they must make payments within 90 days. This tax is tailored toward improving the quality of tertiary education in Nigeria.
Personal Income Tax (PIT)
Personal Income Tax is governed by the CAP P8 LFN 2004 (as amended). Individuals residing in Nigeria and earning income whether in the form of salary, wage, interest, royalties, rents, product sales, or other forms are subject to Personal Income Tax (PIT). Self-employed individuals are also expected to file returns from the profits they obtain from their business, trade, or business. This tax is progressive and it is assessed and collected by the State Inland Revenue Service where the individual resides. Some set of people such as members of the Nigeria Police Force and Armed Forces, as well as residents of the Federal Capital Territory and non-resident foreign nationals who are earning income in Nigeria, are exempted from paying Individuals whose gross income for a year is less than N300,000 are subject to a tax of 1% on the income.
National Information Technology Development Levy (NITDL)
The National Information Technology Development Levy (NITDL) is a type of tax imposed on the profit before tax of GSM providers, telecommunication companies, cyber companies, internet providers, pension management companies, and other pension-related companies. The rate for this tax is 1% of the profit before tax on companies in the aforementioned categories with an annual turnover of N100,000 and above. Filing of returns of NITDL should be done at the same time as Company Income Tax (CIT) is being submitted for self-assessment. The payment for this tax is expected to be done within 30 days of receiving the demand notice of the levy from the National Information Technology Development Agency. Failure to pay as when due attracts a penalty.
Stamp Duties are administered on instruments or written documents, and this type of tax is governed by the Stamp Duties Act, CAP S8 LFN 2004 (as amended). The documents and instruments that warrant stamp duties include Share Capital, Debentures, Deed of Assignment, Guarantors Form, and so on. Depending on the class of document or instrument, the rate for Stamp Duties may be fixed rates or in proportion to the value of consideration. The FIRS assesses and collects Stamp Duties due to companies, while corporate bodies pay to the Federal Government. Stamp duties due to individuals are assessed and collected by the State Government in which they live.
Landlords and occupiers of real properties are charged property taxes in the form of tenement rates. This tax is payable to the Local Government Councils and forms a crucial part of internally generated revenue. Tenement rates combine ground rents and neigbourhood improvement levy and vary from one LGA to another.
Value Added Tax (VAT) is a type of tax imposed on goods and services. The current rate for VAT is 7.5%.
Also, known as advance income payment, WHT is paid to the government by the payer of an income instead of the recipient of the income. Withholding Tax (WHT) is imposed on all transactions involving contracts such as rent, supply of goods, and services to a destination requested by a client, among others. The rate of WHT falls anywhere between 5% and 10% depending on the transaction. This type of tax is designed to capture more prospective taxpayers into the tax net, which in turn broadens the income tax base.