Taxes are levies imposed by the Government for the development of infrastructure. In Nigeria, there are various legislations and institutions regulating the tax system in Nigeria which are important for persons interested in doing business in Nigeria. The major bodies in charge of collection are Federal Inland Revenue Service (FIRS), Internal Revenue Services of various states and the relevant institution is dependent on the type of tax..
Federal taxes are collected by the Federal Inland Revenue Service, and this includes company income tax, value-added tax, education tax, capital gains tax, stamp duty, withholding tax, information technology development fees, etc. In addition, the Federal Inland Revenue Service collects personal income tax, personal withholding tax, capital gains tax, stamp duty of residents of the Federal Capital Territory.
State taxes are collected by the State Board of Inland Revenue in each state, and they are responsible for collecting personal income tax, personal withholding tax, capital gains tax, gambling and lottery tax, and commercial establishment registration fees, state capital road registration fees, etc.
The Local Government Authorities of various states are responsible for collection of certain rates and levies such as shops and kiosks rates; Marriage, birth and death registration fees; Motor Park levies; Public convenience, sewage and refuse disposal fees; Wrong parking charges among other things.
Tax Clearance Certificate (TCC) is issued after due compliance of payment of tax with the Federal Inland Revenue Service by the body. TCC is issued annually after necessary and due compliance with the payment of tax.
Detailed below are descriptions of some important taxes payable in Nigeria:
Companies Income Tax (CIT): This is a levy imposed on profit of companies and the rate of company tax is 30%. This tax is payable by companies in Nigeria and also foreign companies are deemed as Nigerian companies for the purpose of the payment of CIT. This particular tax is administered by Federal Inland Revenue Service.
Personal Income Tax (PIT): Individuals and sole proprietorships must pay this tax, which is managed and collected by the State Internal Revenue Service. The tax authority responsible for administration of PIT is mainly State Internal Revenue Services of various states. This is normally paid through the Pay As You Earn (PAYE) scheme for people who are employed.
Value Added Tax (VAT): This is a type of consumption tax charged on the sale of specified goods and services. The rate is 7.5% on the supply of goods and services. It is essential for every business to register with the Federal Inland Revenue Service (FIRS) for remittance of VAT.
Capital Gains Tax (CGT): This is a tax that is imposed when assets are sold. The rate is 10% of profit upon disposal of a chargeable asset. This is tax that is imposed on Profits from sale of land, lease, and tenancy among other things. CGT is not applicable to charitable or educational institution of public purpose.
Withholding Tax (WHT): This is an advance tax payment deduction made on any taxable person’s or corporation’s income for remittance to the appropriate government body. WHT in Nigeria varies according on the type of the transaction, ranging from 2.5 to 10% for firms and 5 to 10% for individuals.
Stamp Duties: Individual stamp duties are paid to the state government, whereas corporate stamp duties are paid to the federal government. The stamp duties rates applied by FIRS are in two forms, namely; Fixed rate and ad valorem charges. Stamp duties are levies imposed on documents. The rate of stamp duties is dependent on the type of documents.
Custom and Excise Duties: These are tariffs levied on various imported items at the Nigerian Port of Entry. Nigerian Customs is normally in charge of administering and collecting it. At the Nigerian Port of Entry, there are two types of taxes: one on certain imported commodities and the other on some exported goods. Customs and excise taxes are imposed on commodities for a variety of reasons, including revenue generation and consumer deterrence. Import duties are also ad valorem, meaning they are based on the worth of the imported item.
Education Tax (EDT): A company’s assessable profits are taxed at a rate of 2% for this type of tax. This is administered by the Tertiary Education Trust Fund (TETFUND). The funds have been allocated to be distributed by Universities, Polytechnics and Colleges of Education.
Petroleum Profit Tax (PPT): This form of tax is tasked on income of companies in petroleum operations (Upstream). Companies susceptible to PPT aren’t susceptible to Companies tax (CIT) on an equivalent income.
National Information Technology Development Agency Levy: It is regulated by the Federal Inland Revenue Service (FIRS). The rate is 1% of the profit of companies that are involved in GSM Service Providers, telecommunications, internet services, banks and insurance companies.
Taxes are fees that must be paid to the relevant authority in charge of collection. Refusal or deliberate actions to avoid paying tax is an offence in Nigeria and punishable under the law. It is advisable for companies to ensure payment of tax on income annually to avoid penalties.