Every individual, whether a Nigerian or a non-Nigeria resident, persons in paid jobs or businesses or persons who get their income from Nigeria, as well as companies operating in Nigeria, are all subject to pay tax. Failure to deduct and remit tax, or to pay any form of tax, as the case may be, is punishable by fines and penalties.
The major function of the Nigerian tax system, like that of other countries, is to generate income for the operation of the government at all levels and to provide public infrastructure. Tax reform and efficient tax administration are the keys to a successful tax push. These components also contribute to the development of tax culture and the reduction of corruption and tax evasion.
Taxes and Tax Laws in Nigeria
Various tax laws in Nigeria have provided for various levies over the years. A review of Nigeria’s numerous tax legislation provides insight into the various levies;
Companies Income Tax (CIT)
This is a tax on a company’s profit from all sources. The Federal Inland Revenue Service administers and collects it as one of the most important taxes (FIRS). It is a tax on the profits of incorporated businesses. The Companies Income Tax Act (CITA), Cap. C21, LFN 2004, governs company income taxes (as amended). This tax is calculated at 30% of a company’s total earnings less any reasonable expenses for the period in which the taxable profit was generated.
Personal Income Tax (PIT)
Individuals (employees), corporations (single or group of individuals), communities, families, or trustees or executors of any settlement are all subject to this tax. It also includes lone trader taxation, partnership taxation, and estate taxation. PIT is governed by Cap P8 LFN 2004 (as amended). The competent tax authority charged with administering this form of tax under the law may range from the FIRS to various State Boards of Internal Revenue.
Value Added Tax (VAT)
This is a 5% tax levied on the sale of certain products and services. It’s also known as a consumption tax, and it’s primarily paid by the final consumer. In Nigeria, the FIRS has administrative and managerial authority for VAT. The VAT Act and the VAT (Amended) Act 2007 govern it. The Nigerian Federal Government recently approved a 50% rise in VAT for the provision of goods and services, from 5% to 7.5 percent. The increased tariff went into effect in 2020.
Capital Gains Tax (CGT)
This tax is imposed upon the sale of assets. When a capital sum is obtained by the sale, lease, transfer, assignment, compulsory acquisition, or any other disposition of chargeable assets. The Capital Gains Tax Act, Laws of the Federation CAP C1 LFN, 2004 governs it (as amended). On chargeable assets, CGT is normally charged at a flat rate of 10%. CGT cannot be charged on assets that are not related to the organization’s business. CGT does not apply to charity or educational institutions with a public purpose.
Withholding Tax (WHT)
This is an advance tax payment deduction made on any taxable person’s or taxable corporation’s income or disbursement for remittance to the appropriate government body. This tax is deducted at the source and then remitted to the appropriate tax authorities. WHT in Nigeria varies according to the type of the transaction, ranging from 2.5 to 10% for firms and 5 to 10% for individuals. Section 78 of the Companies Income Tax Act (as amended) states that when a company pays another company or an individual interest (including interbank deposit and royalty payments), rent, dividends, or other similar payments, the company must deduct an advance tax of 10% of the gross amount paid at the time of payment and remit the deducted and withheld tax to the FIRS immediately.
Stamp Duties
Stamp duties in Nigeria are governed by the Stamp Duties Act, CAP S8 LFN 2004 (as modified). State governments collect individual stamp duties, while the federal government collects corporate stamp duties. The stamp duty rates applied by FIRS are divided into two categories: flat rate charges and ad valorem charges. The Federal Inland Revenue Service (Establishment) Act gives FIRS the authority to administer stamp duties mentioned in the Act’s first schedule. It is also managed by the Internal Revenue Services of the individual states (IRS)
Education Tax (EDT)
The Education Tax Act, CAP E4, Laws of the Federation of Nigeria, 2004, governs this tax, which is administered by the FIRS. The Tertiary Education Trust Fund (Establishment, Etc.) Act 2011 also governs it. Every company registered in Nigeria is subject to EDT. The tax is levied at a rate of 2% of the assessable profit. The funds are allocated in a 2:1:1 ratio among universities, polytechnics, and colleges of education.
