26. Abnormal cases are when the basis period is greater than or less than 12 months. Assessable tax. Zero taxable profits may trigger minimum tax or excess dividend tax. The assessable profits of any company from any trade or business for the year of assessment in which it commenced to carry on trade or business (or in the case of a company other than a Nigerian Company, for the year of assessment in which it commenced to carry on the trade or business in Nigeria) and for two following years of assessment (which years are in this subsection respectively referred to as “the first year” “the second year” and “the third year” shall be ascertained in accordance with the following provisions: (a) First Year: the assessable profits shall be the profits of that year(i.e. Original Assessment (without Election), YOA Basis Period Assess Profit(N), 1999 1/11/99 – 31/12/99 (2/6 * 420,000) 140,000, 2000 1/11/99 – 30/10/00 (420,000 + 6/12*480,000) 660,000, 2001 1/11/99 – 30/10/00 (Repeated) 660,000. This is because the definition is important in the administration and computation of personal income tax in Nigeria, more so where wage employee’s PAYE and Sole proprietor’s Personal Income tax computations are concerned. charged on the assessable profit of a company registered in Nigeria (in this Decree referred to as "a company"). 1. Nigeria is a Federal Republic. Small companies with an annual turnover of below NGN25 million. Companies within the first four calendar years of operation. They are: Section 29 (1) of the Companies Income Tax Act, C21 LFN 2004 (as amended) provides that; ….the profit of any company for each year of assessment from such source of its profits (hereinafter referred to as the “assessable profits”) shall be the profits of the year immediately preceding the year of assessment from each such source. Company wound up, etc. Since adjusted profit is computed based on a company’s accounting year while the assessable profit is determined and assessed to tax in an assessment year, the question that arises is “how do we determine the assessment year when the profit of an accounting year is assessable to tax”. A taxpayer can carry forward any unused balance in capital allowances for an indefinite period. i.e. This is because in ascertaining the accounting profit some expenses which are not allowed for tax purposes may have been reported and some income included in the accounting profit are tax-free. However, there are different methods of calculating depreciation which […] Note that for companies, profit is being ascertained on an annual basis. Assessable profit is the profits from all sources in the year immediately preceding the year of assessment. Over 90% of the foreign exchange earnings is from this commodity. Taxes that are assessed on actual year basis include: Petroleum Income Tax, Capital Gains Tax, Personal Income Tax etc. 25. Total profits in the first three years = NGN (100,000 + 460,000 + 540,000) = NGN1,100,000 However, the Finance Act 2019 removed the cessation and commencement rules in corporate tax effective 13 January 2020. In essence, disallowable expenses are added back to the accounting profit which will increase the assessable profit. Nigeria: Companies income tax assessment not allowed The Federal High Court sitting in Abuja issued a judgment for the taxpayer in a case concerning the authority of the Federal Inland Revenue Service (FIRS) to assess a company’s liability for Nigeria’s companies income tax … If there is no capital allowance, then the total profit is the same as the assessable profit. A company with a turnover between N25 Million and N100 Million- 20% on assessable profit; A company with above N100 Million turnover- 30% on assessable profit. Companies not resident in Nigeria. Computation of Assessable Profit of a Trade or Profession 7. State and local taxes (business rates) … An abnormal basis period can be obtained under the following circumstances: The above requires special treatments as adequately provided for in the relevant tax laws. Nevertheless, expenses such as penalty, fine, depreciation are not allowed in the calculation of income tax. (c) Third Year: Shall be computed in accordance with Section 29 (1) as earlier highlighted. Tertiary education tax is imposed on every Nigerian resident company at the rate of 2% of the assessable profit for each year of assessment. Oil and gas companies involved in downstream operations are to be taxed under CITA and not PPTA. Welcome! In other words, manufacturing and agro-allied businesses have no restriction for capital allowance. For other companies, income/profit taxes are not deductible in arriving at taxable income. The amount charged is 30% o the profit earned in the year preceding assessment. Medium-sized companies with a turnover above NGN25 million but less than NGN100 million will use a rate of 20%. Companies in Nigeria pay 30 percent of their worldwide profit while foreign companies pay 30 percent of only the profit made in Nigeria. According to the aforementioned section, a new business is entitled, on giving notice in writing within two years after the end of the second year to the Board to require that the assessable profits both for the second year and third year (but not for one or other only of those years) shall be the actual profits of the respective years of assessment (i.e. In simple terms, assessable profit is simply computed as adjusted profit less losses (unrelieved c/f) before taking into consideration capital allowances, balancing allowance and or balancing charge. Overall, the only abnormal basis period in Nigerian taxation is when a company changes its financial year-end to a new date. If there is no tax adjustment to the financial statement, the net profit of a … It is only calculated when a company is computing its tax liabilities. The dividend paid replaces the taxable profits for the particular year of assessment in which the company declared dividends. In this case, if the source country has no DTT with Nigeria, the foreign tax paid is allowed as a deduction for CIT purposes. 2. (a) Profit subject to Tax or Chargeable Profit: The act in section 8 imposes tax on the profits of any company accruing in, derived from, brought into or received in Nigeria. show that we basically have two (2) types of basis period applicable to every company liable to tax. The two rules are the minimum tax and excess dividend tax. Expenses must be Wholly, Reasonably, Exclusively and Necessarily (WREN) incurred in generating the income of the business for a tax year. DORO-DAPO Limited commenced business on November 1, 1999 and decided to prepare its accounts to April 30 annually. Overview of Business Taxation in Nigeria 2. 2017: NGN540,000. Nigeria in any Accounting period shall be assessed to tax in the year of assessment in which the profit accrued. The agro allied and manufacturing industries are two economic sectors that have been adjudged critical to Nigeria's rapid industrialization but whose potentials have become sabotaged due to the propensity for rent seeking from the resource sector resulting in non-implementation or ineffective implementation of defined You can buy, resell immediately, and make a profit, or buy and sell later. The law equally gives a taxpayer the opportunity to revoke his earlier request for an election by giving notice in writing to the FIRS within twelve months after the end of the third year of assessment. Objectives/Aims of Business Taxation in Nigeria 3. The tax is charged at 2%. Non-resident companie… on or before 31st December, 2004). Imposed on all companies registered in Nigeria The rate of the tax is 2% of assessable profit The due date for filing returns is the same as that of CIT and PPT The tax is an allowable deduction in computing the assessable profits of companies engaged in petroleum operations(Up stream) BRAND NEW SOLUTION!!! from date of commencement up to the end of the same year). According to the Nigerian Tax Laws it is mandatory for companies deriving income from Nigeria to pay various forms of taxes. Assessable profit is adjusted profit or part thereof that is assessed to Companies income tax in an assessment year. Any apportionment shall be made in proportion to the number of months in the respective periods. Usually, when companies prepare income statement they always charge depreciation as an expense before arriving at their profit before tax. 27. your password Oil in Nigeria accounts for about 90-95per cent of its export revenues, over 90percent of foreign exchange earnings and about 80% of government revenue.as a result of this the main objectives of this research study is to assess the problem and prospect of petroleum profit tax administration in Nigeria. Some payments are exempt such as; Get the latest content delivered to your inbox.. Reserve a seat in our professional accounting and tax training, Copyright 2020 - Bomes Resources Consulting. In other words, the taxpayer reserves the right to be assessed to tax in the second and third year on actual year basis instead of the rule highlighted under the commencement of business. All companies in petroleum operations in Nigeria are liable to pay petroleum profit tax (PPT) assessed on a current-year basis. Carrying on business in Nigeria may be at profit or loss. Considering the earlier example, the year of assessment will not be 2014 but 2013 and the basis period will be 1/1/2013 – 31/12/2013. Click Here To See My Breakthrough! Assessable profit is a calculation used in tax law to determine an individual's taxable income based upon gains or losses on funds held in taxable investment accounts. All registered companies in Nigeria are required to pay a percentage of their assessable profit into an Education Tax Fund. Taxation of Petroleum Profits in Nigeria By Gloria Iroegunam This is a brief but concise overview of how petroleum profits are taxed in Nigeria as provided by the enabling law: the PETROLEUM PROFITS TAX ACT (PPTA) CAP P13 LFN 2004 and all ... Assessable Tax … Its adjusted profits were as follows: Period ended 30th April, 2000 420,000, Year ended 30th April, 2001 480,000, Year ended 30th April, 2002 600,000. This means that all registered companies in Nigeria are required to pay a percentage of their assessable profit into an Education Tax Fund. Companies are mandated by law to pay Company Income Tax (CIT) in Nigeria based on the profit. 22. The accounting profit arrived at in the trading, profit & loss account is not usually the same as “tax profit”. 12 months) from the date of commencement of the business. That is the profit of petroleum companies are assessable to tax on Actual Year Basis (AYB) 8 R ecently at a public seminar it was asserted that the tax regime for insurance companies operating in Nigeria as contained in the Companies Income Tax Act as amended puts insurance companies at a disadvantage relative to other companies operating in the financial sector. Assessable profit is obtained prior to deducting capital allowances. Other Domestic Resources Federal Inland Revenue Service Consult Doing Business Website, to obtain a … Foluke Akinmoladun. Capital allowances are given in place of depreciation for the use of business assets. First, assessable profit is the profit adjusted for income tax purposes using the information in the financial statements. For companies subject to PPT, tertiary education tax is to be treated as an allowable deduction. Any trade or business for whatever period of such trade or business may have been carried on they have assessable profits. Noticeably, the basis period for 2004 YOA begins in a month earlier than the date of commencement. Expenses must be Wholly, Reasonably, Exclusively and Necessarily (WREN) incurred in generating the income of the business for a tax year. Under normal circumstance, the basis period is the same as the accounting period. Its assessable profits were as follows: Period ended 31st May, 2003 240,000, Year ended 31st May, 2004 516,000, OWOGOKE Ltd – Computation of Assess. This is because the definition is important in the administration and computation of personal income tax in Nigeria, more so where wage employee’s PAYE and Sole proprietor’s Personal Income tax computations are concerned. Resident companies are incorporated under the Companies and Allied Matters Act (CAMA) 2004 Act make companies assessable and chargeable to corporation taxes. (a) Loss relief is a form of relief granted to all companies incorporated in Nigeria. deduction from assessable profit to arrive at total profit. ... Taiwo Oyedele is the Head of Tax and Regulatory Services at PwC Nigeria and Tax Leader for PwC West Africa. However, if an application for election had already been made, the company should renounce it in writing before the expiration of 12 months from the end of the third year of assessment (i.e. Imposed on all companies registered in Nigeria The rate of the tax is 2% of assessable profit The due date for filing returns is the same as that of CIT and PPT The tax is an allowable deduction in computing the assessable profits of companies engaged in petroleum operations(Up stream) Tax adjustments include expenses, income and any other transaction with tax impact on the income statement. Any tax on income or profit is not deductible except where such tax was paid on profit earned outside Nigeria. Taxable/ Assessable Income. 3. Section 33(1) of CITA states that where the total, assessable profits of a company from all sources result in a loss, or, profits result in no tax payable or tax payable which is less than the minimum tax, whether a company pays dividends out of profits in the same year or previous year in which the company declared dividends, FIRS offers more tax concessions during COVID-19, Nigeria Police Trust Fund (Establishment) Act 2019, Private sector can now get tax credit for funding road construction, Federal Executive Council has approved two executive orders and five amendment bills, FIRS extends filing deadline, gives waiver amid COVID-19, Nigerian Senate passes 2021 Budget adds N505b expenditure, TAT says WHT is exempt on specific sales – TetraPak Vs. FIRS, EndSARS: FIRS Nigeria grants tax palliative, President Buhari presents 2021 Budget to National Assembly, FIRS Public notice on stamp duties – Finance Act 2019, Lagos State reverses Land Use Charge to pre-2018 rates, FIRS extends filing of 2020 tax returns, others by one week. Distributions made by a real estate investment company to its shareholders from rental income and dividend income. Section 19 of CITA as amended states that where a business pays dividends out as profit on which no tax is payable due to –. the tax codes allow tax payers to claim certain benefits in relation to their business investments in the country as well as reduce the certain tax burdens which they would have borne, were such provisions not available. Corporation tax is charged by reference to profits. Examples of income exempt from income tax are export profits, as long as proceeds is brought into Nigeria through government-approved channels and invested in raw materials, spare parts, and plant and machinery. The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted from dividend … It is only calculated when a company is computing its tax liabilities. (d) For the third year, it may not be possible to obtain a realistic basis period as the period might begin in a month earlier than the month of commencement. It is 2% of assessable profit. Some companies are exempt from minimum tax. In practice, many companies pay the tax on a self-assessment basis along with their CIT. Taxation of Petroleum Profit under the Nigeria’s Petroleum Profit Tax Act Lawal, K. T. 1 ABSTRACT The aim of this paper is to examine the ownership, the legal framework as well as the basic components of the petroleum profits, which components are revenue, adjusted profits, assessable profit, chargeable profit, assessable tax and chargeable tax. Capital allowances is the tax systems In practice, this is usually obtainable under the abnormal situations. Section 3(1) of PITD 1993 demand that tax shall be paid on the aggregate income of every taxxable person, fo each year, from all sources within or outside Nigeria. The country’s legal system is based on the English legal tradition, and the law governing voluntary not-for-profit organizations is a product of English common law. Overview of Business Taxation in Nigeria 2. However, the provisions of the Companies Income Tax Act 2004 as amended (CITA) and Finance Act 2019 have alternative ways of determining the corporate tax payable. Determine the tax year and basis period for company that has just filed 2013 financial statement, having 30th September as its permanent year end. Contribution of Business Taxation in Nigeria 4. However, there are different methods of calculating depreciation which […] (3) The assessable profit of a company shall be ascertained in the manner specified in the Companies Income Tax Act or the Petroleum Profits Tax Act (in this Decree referred to as "the Act") as the case may be. Police Fund levy (0.005% of the net profit of companies operating business in Nigeria) Tertiary education tax (2% of the assessable profit for each year of assessment). The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted from dividend … 1. R ecently at a public seminar it was asserted that the tax regime for insurance companies operating in Nigeria as contained in the Companies Income Tax Act as amended puts insurance companies at a disadvantage relative to other companies operating in the financial sector. There must be continuity. TET is payable within 60 days of an assessment notice from FIRS. 28. The general practice is to repeat the basis period for the second year. • There must be only one permanent year end. Section 29 (6) allows for the apportionment and aggregation of profits in order to arrive at the profit of a year of assessment. A company with a turnover between N25 Million and N100 Million- 20% on assessable profit; A company with above N100 Million turnover- 30% on assessable profit. What will be the basis period for assessable profits for 2012 to 2014 years of assessment? Distinguish between the treatment of loss relief under Companies Income Tax Act and Petroleum Profits Tax Act. Nigeria as a single commodity dependent economy has over the years relied principally on the proceeds from oil exploitation. 2000 1/1/00 – 31/12/00 (4/6 *420,000 + 8/12*480,000) 600,000, 2001 1/11/99 – 30/10/00 (4/12 *480,000 + 8/12 * 600,000) 560,000 1,160,000, It is to the advantage of Doro-Dapo Ltd to exercise its right of election to be assessed on the profits of 2000 and 2001 years of assessment since this result in tax savings of N160,000 (1,320,000 – 1,160,000), YOA Assessable Profits (N), Note: Based on the requirement of the law, the right of election must be exercised on or before 31st December, 2002 (i.e. Computation of Assessable Profit of a Trade or Profession 7. Any tax on income or profit is not deductible except where such tax was paid on profit earned outside Nigeria. Second, a business requires an annual turnover above NGN100 million for listing on the Nigerian Stock Exchange. For large companies with an annual turnover of NGN100 million and above, the corporate tax rate is 30%. ... Law, Nigeria, Profit, Rights, Tax, Taxes. The rate is 30% of total profit for income tax and 2% of assessable profit for education tax. Companies resident in Nigeria are liable for CIT on their worldwide income and non-resident companies are liable only to CIT on their Nigerian-source income. within two years after the end of the second year – 2000). A Careful study of the provisions in the Nigerian tax laws (CITA,PPTA,CGTA,PITA etc.) 6.6. Based on the above, it can be said that for the sake of equity; which is one of the qualities of the Nigerian tax system, the Nigerian government through the TaxAuthorities provides for the basis upon which taxes would be computed on a common ground. In such situation, the repetitive rule will be applied. Lagos seals event centre for contravening protocols, Nine passengers escape death as vehicles catch fire in Anambra, Lagos-Ibadan train stations for inauguration next month, Trump makes U-turn, signs $900bn COVID-19 relief package, Five killed as rival cult groups clash in Bayelsa, Navy rescues 12 passengers in Lagos boat accident, Notorious bandit, Nasiru Kachalla, others killed in Kaduna, Insecurity: ‘Nigerians harbour too much hatred to handle guns’, CAN to govt officials, politicians: adhere to guidelines, COVID-19 won’t be last pandemic, says WHO chief, COVID-19 death toll more than double in one month, NCAA to slam $3,500 fine on defaulting passenger on airlines. In Nigeria, Partners are assessed in their individual names, based on the share of partnership profits allocated to them. Capital Allowance is a claim against Assessable Profits by companies when computing their tax liabilities. “assessable profits” or; (b) the assessable profits, in FIRS’ opinion, are less than might be expected to arise from that trade or business; or (c) the true amount of the assessable profits of the company cannot be ascertained. Foreign companies not resident in Nigeria, but with a fixed base in Nigeria are only required to pay company income tax on their incomes derived from Nigeria. The equation is different when it comes to assessable profit. ... (ai) the aggregated deduction from assessable profit or income in respect of any such loss Compute the assessable profits for the first 3 years of assessments and decide whether or not Doro-Dapo should exercise its right of election. then the company paying the dividend will pay income tax at the applicable rate. All Rights Reserved. Chargeable tax. First, a business must register as a public limited liability company to pay dividends. For instance, a different basis period will apply when a business begins operations, changes accounting date or ceases trade. Partnershi ps, etc. Types of Assessable Income The tax is payable within two … Challenges/Problems of Business Taxation in Nigeria 5. It is allowed as a deduction from assessable profit to arrive at total profit. This is also a profit in which education tax is treated at 2%. Objectives/Aims of Business Taxation in Nigeria 3. 31st December, 2002 is 26 months from the date of commencement. Nigeria as a single commodity dependent economy has over the years relied principally on the proceeds from oil exploitation. your username. Ascertainment of assessable tax and of chargeable tax 21. In practice, many companies pay TET on a self-assessment basis together with their CIT. Net Profit (as per account) ****, Add: disallowable expenses taxable income (not reported), Less: allowable expenses (not reported) non-taxable income (reported). The assessable profits for the second year of assessment are based on the profit from the first day after its first accounting period to the end of its second accounting period while the profits earned during third and subsequent years of assessment shall be assessed to tax on preceding year bases. It should be noted that treatment of this profit depends on the tax type as companies income tax treatment differs from petroleum profit tax treatment. This simply means that the profit to be subjected to tax in a particular year will not be that earned that same year but the profit of the immediate past year. Tertiary education tax is imposed on every Nigerian resident company at the rate of 2% of the assessable profit for each year of assessment. (2) The tax at the rate of 2 percent shall be charged on the assessable profit of a company registered in Nigeria (in this Act referred to as “a company”). Using the basis period in step 2, the assessable profit is 2015: NGN100,000. "assessable profits" means assessable profits for the purpose of section 9 of this Act; ... "Nigeria" includes the submarine areas beneath the territorial waters of Nigeria and submarine areas beneath any other waters which are or at any time shall in respect of However, excess dividend tax rarely affects small and medium-sized companies for two reasons.
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