Cecily Zamora
Taxation is a significant system in Nigeria that helps generate and redistribute revenue to provide public services and improve the economy. The government has enacted laws to govern and regulate taxation in different sectors of the economy. The Companies Income Tax Act (CITA), Cap C21, LFN 2004 is the principal law that governs the taxation of companies in Nigeria. Sections 60, 61, and 62 of CITA, along with Sections 69 to 72 of the Personal Income Tax Act of 1993, govern withholding tax in Nigeria. Withholding tax must be filed within 21 days after the duty to deduct arises, and the tax withheld must be remitted within 30 days or the date the duty to deduct arises, whichever is earlier.
| Characteristics | Values |
|---|---|
| Law | Companies Income Tax Act (CITA), Cap C21, LFN 2004 |
| Administered by | Federal Board of Inland Revenue |
| Tax rate | 5% or 10%, depending on payment type and recipient |
| Tax deadline | 21 days after the duty to deduct arises |
| Tax exemptions | Manufacturer buying raw materials for production; manufacturer delivering products to distributors and agents for sale |
| Penalty for non-payment | 200% fine of the tax withheld but not remitted |
| Other laws | Stamp Duties Act LFN 2004, Value Added Tax Act 2004, Customs and Excise Management Act LFN 2004, Employee Compensation Act 2010 |
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What You'll Learn
Company Income Tax Act (CITA)
The Companies Income Tax Act (CITA), Cap C21, LFN 2004, is the primary legislation in Nigeria for taxing companies. This Act mandates that companies, regardless of their residency status, withhold tax on payments made for goods and services provided to individuals or other businesses in Nigeria. Withholding tax must be filed within 21 days of the obligation to deduct arising.
CITA outlines specific sections that govern various aspects of taxation. For instance, Section 9 sets the tax rate applicable to profits derived within Nigeria, providing clarity on the taxation of domestic earnings. Additionally, Section 24 of CITA allows for deductions on expenses incurred in generating these taxable profits. This includes interest on borrowed capital, offering businesses an opportunity to reduce their tax liability by accounting for legitimate expenses.
The Act also interacts with other tax laws in Nigeria. For example, the Capital Gains Tax Act of 1990, which imposes a 10% tax on gains from the sale of certain assets or exchanges of interests, is an important companion to CITA. Understanding these complementary laws is crucial for businesses to navigate their tax obligations effectively.
CITA is administered by the Federal Board of Inland Revenue, which is responsible for managing personal taxes for residents of the Federal Capital Territories and overseeing the application of CITA across the country. This ensures uniformity and consistency in the implementation of the Act, providing a stable framework for businesses operating in Nigeria.
In summary, the Companies Income Tax Act (CITA) is the cornerstone of corporate taxation in Nigeria. It sets out the rules for withholding tax, tax rates, deductions, and interactions with other tax laws. With CITA, businesses in Nigeria can understand their tax obligations and make informed decisions regarding their fiscal responsibilities.
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Personal Income Tax Act
The Personal Income Tax Act (PITA) mandates that companies or individuals, resident in Nigeria or not, withhold tax from payments for goods and services provided to companies or individuals in Nigeria. Withholding tax must be filed within 21 days after the duty to deduct arises. This tax acts as an advance payment of income tax.
Withholding tax rates are either 5% or 10%, depending on the payment type and whether the recipient is an individual or a corporation. The State Inland Revenue Board oversees personal income taxes for individuals.
Section 6(A) of the PITA introduces significant economic presence (SEP) rules to the taxation of non-resident individuals, executors, or trustees carrying on a trade or business comprising technical, professional management, or consultancy (TPMC) services to persons resident in Nigeria. The Ministry of Finance (MoF) may, by order, define what constitutes SEP for this purpose, but it has yet to do so.
Employees who earn no more than the national minimum wage (NGN 30,000 until 30 April 2024, and NGN 70,000 effective 1 May 2024) are no longer liable for tax or deduction of monthly PAYE. Where a taxpayer has no taxable income because of personal reliefs and allowances, or where total income produces a tax lower than the minimum tax, a minimum tax rate of 1% of total income is payable.
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Stamp Duties Act
Withholding tax in Nigeria is governed by the Personal Income Tax Act (PITA) Cap p8 LFN 2004 (as amended by the PIT Amendment Act, 2011) and the Company Income Tax (CIT) Act, Cap. C21, LFN 2004 (as amended by the CIT Amendment Act, 2007). The Stamp Duties Act (SDA) LFN 2004 governs taxes on documents. The tax amount depends on the type of document and the value of the transaction, as outlined in Section 3 of the SDA.
Section 4 of the SDA states that the Federal Government exclusively imposes, charges, and collects duties on documents related to transactions between a company and individuals, groups, or bodies of individuals. State Governments collect duties on transactions between individuals, at rates agreed upon with the Federal Government.
Stamp duty is an instrument tax charged on written or electronic documents, regardless of whether they are executed in Nigeria or not, unless specifically exempted under the SDA. The SDA provides a list of dutiable documents and their applicable stamp duty rates, which may be levied at a fixed (flat) rate or ad valorem (a percentage of the transaction value). Any agreement or contract not specifically provided under the SDA is stamped at a nominal rate of 15 Kobo.
On 20 July 2020, the Federal Inland Revenue Service released a Public Notice summarising categories of dutiable instruments and their corresponding stamp duty rates. This included a 1% stamp duty on contracts without specified rates. Stamp duty is typically applied to the transfer of homes, copyrights, buildings, lands, patents, and securities.
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Value Added Tax Act
The Value Added Tax (VAT) Act is one of the key pieces of legislation governing taxes in Nigeria. The VAT Act has seen several amendments over the years, with the Finance Acts of 2019, 2020, 2021, and 2023 introducing significant changes.
One notable change came with the Finance Act of 2019, which increased the VAT rate from 5% to 7.5%. This change had a direct impact on taxpayers, who are now advised to review their VAT obligations under the amended law to ensure compliance and avoid penalties.
Subsequent amendments to the VAT Act have broadened its scope to include digital services and non-resident suppliers. These changes reflect the evolving nature of the economy and ensure that VAT keeps pace with modern business practices. Additionally, the amendments have provided clarifications on exemptions and place of supply rules, enhancing the understanding of taxpayers and tax administrators alike.
The VAT Act plays a crucial role in generating revenue for the government and promoting fairness in the taxation system. It is administered by the Federal Inland Revenue Service (FIRS), which is responsible for directing taxable persons to register, charge VAT where applicable, file monthly VAT returns, and remit collections by the 21st of the following month. This timely remittance ensures a consistent inflow of funds that contribute to the nation's development and public welfare initiatives.
Moreover, the VAT Act allows deductions for expenses incurred in generating profits, as outlined in relevant sections of the legislation. This consideration ensures that businesses are not overly burdened and can recover some of the costs involved in their operations. Overall, the VAT Act, along with other tax laws in Nigeria, forms the backbone of the country's taxation framework, fostering a compliant and beneficial environment for individuals and businesses alike.
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Customs and Excise Management Act
The Customs and Excise Management Act (CEMA) is a piece of legislation in Nigeria that regulates the management and collection of customs and excise duties. It covers a wide range of topics related to the importation, exportation, and control of goods, as well as the administration of customs and excise laws. Here is a detailed overview of the Act:
Part I: Preliminary
This part of the Act covers preliminary matters, including definitions of key terms used throughout the legislation. For example, it defines "aerodrome" as any area of land or water designed for aircraft landing and departure, and "aircraft" as including balloons, kites, gliders, airships, and flying machines.
Part II: Administration
The administration part of the Act establishes the role of the Board in controlling and managing the administration of customs and excise laws. It also outlines the constitution, proceedings, and functions of the Board, which is subject to the general control of the Minister.
Part III: Importation, Exportation, and Carriage
This section covers the regulations and procedures for importing and exporting goods, including the power to refuse or cancel clearance of ships or aircraft. It also includes provisions for export duties, exemptions, and penalties for improper exportation.
Part IV: Warehouses and Government Warehouses
Part IV of the Act addresses warehouses and government warehouses, including the removal of goods from warehouses without payment of duty under certain conditions. It also mentions offences relating to warehouses and the powers and duties of the Board in this regard.
Part V: Spirits
Here, the Act outlines the regulations for spirits, including licensing requirements for manufacturing spirits, offences related to the removal of spirits from premises, and penalties for unlawful manufacturing or stock deficiencies. It also covers the authorisation to manufacture methylated spirits and the prohibition of their use as beverages or medicine.
Part VI: Beer
Similar to Part V, this section focuses on beer, including licensing and regulation of its manufacture. It also mentions the remission of excise duty on beer for export or loading as stores.
Part VII: Tobacco
This part of the Act covers tobacco, including the requirement for an excise licence to manufacture tobacco and the power to make regulations governing its manufacture. It also mentions the payment of excise duty on manufactured tobacco.
Part VIII: Other Goods Subject to Excise Duty
Part VIII addresses other goods that are subject to excise duty, including the process for obtaining an excise licence to manufacture excisable goods. It outlines the powers of the Board to revoke or suspend licences and the provisions for excise control and information furnishing by manufacturers.
Subsequent Parts
The remaining parts of the Act (Parts IX-XIII) cover additional topics such as excise licences, duties and drawbacks, general provisions, forfeiture and legal proceedings, and miscellaneous matters. These parts ensure the effective implementation and enforcement of the customs and excise regulations.
Overall, the Customs and Excise Management Act provides a comprehensive framework for the management and collection of customs and excise duties in Nigeria, contributing to the country's taxation landscape and governing the movement of goods and related activities.
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Frequently asked questions
The Companies Income Tax Act (CITA), Cap C21, LFN 2004 is the main law that governs the taxation of companies in Nigeria.
Withholding tax acts as an advance payment of income tax. It applies to individuals in employment or running their own businesses, and communities, families, and trustees or executors of estates deemed resident in Nigeria.
Withholding tax rates are either 5% or 10%, depending on the payment type and whether the recipient is an individual or a corporation. For non-resident companies, a reduced withholding tax rate of 7.5% applies where Nigeria has a double tax treaty with the recipient country.
The following deductions are exempt from withholding taxes:
- When a manufacturer buys raw materials from a supplier for their production line.
- When a manufacturer delivers its products to distributors and agents for sale.
