Taxes in Nigeria are of two categories:

1.       FEDERAL TAXES

Federal taxes include Companies Income Tax, Value Added Tax, Tertiary Education Trust Fund, etc.

Companies Income Tax

This is a tax chargeable on all companies (other than companies engaged in petroleum operations) registered in Nigeria. It is an annual tax on the profits of registered companies, which profits must accrue in, derived from, brought into, or received in Nigeria.

The rate of a company’s income tax is fixed at 30% of taxable income. This tax is remitted to the Federal Inland Revenue Service, and it is payable on a preceding year basis.

Value Added Tax (VAT)

VAT is a consumption tax payable by the consumer at 7.5%. It is a tax imposed on the supply of goods and services. All registered businesses are expected to register with the Federal Inland Revenue Service (FIRS) as a VAT agent. Businesses are mandated by the law to charge VAT on all VATable sales and services, collect VAT from consumers, then remit to the relevant tax authority.

Therefore, the business is an agent of the government for the purposes of collecting VAT. A failure to charge VAT is an offence that attracts sanctions within the law. VAT filing is monthly, and always due on the 21st day of the month following the month of transaction.

Goods exempted from VAT

There are however some goods that are exempted from VAT; some examples are medical and pharmaceutical products, basic food items, baby products, Fertilizer, locally produced agricultural and veterinary medicine, farming machinery and farming transportation equipment, all exports, etc.

Services exempted from VAT

The following services are exempted from VAT:

Medical services, services rendered by Micro-finance Bank, People’s Bank and Mortgage Institutions, Plays and performances conducted by educational institutions as part of learning, all exported services, tuition relating to nursery, primary, secondary and tertiary education, airline transportation tickets issued and sold by commercial airlines registered in Nigeria, hire, rental or lease of tractors ploughs and other agricultural equipment for agricultural purposes.

The following services are charged to VAT at zero rate

Non-oil exports, goods and service purchased by diplomats, goods purchased for use in humanitarian donor funded projects(projects undertaken by Non-Governments Organisations and religious and social clubs or societies recongnised by law whose activity is not for profit and in the public interest.

Tertiary Education Trust Fund

This fund is charged with the responsibility for imposing, managing and disbursing the tax to public tertiary institutions in Nigeria. All registered companies in Nigeria are required to pay a percentage of their assessable profit into an Education Tax Fund. The tax is charged at 2.5% of the assessable profit.

2.       STATE TAXES

State taxes, on the other hand, include Personal Income Tax, Business Premises Tax, Development levy, etc.

Personal Income Tax

This is an amount to be determined from the tax table set out in the Sixth Schedule, which shall be payable for each year of assessment on total income of every individual, registered business and partnerships.

Pay-As-You-Earn (PAYE)

PAYE is a scheme by the tax law to ensure that employees pay their taxes, and puts the duty on the employer to deduct the taxes of the employees at source. The employees are paid their salaries net of PAYE. The employer on a monthly basis remits the tax to the relevant State’s Internal Revenue Service.

Personal Income Tax Rates

Graduated Tax rates’ with consolidated allowance of N200,000+20% of Gross Income, subject to a minimum tax of 1% of Gross Income whichever is higher.

1.       First N300,000@ 7 per cent

2.       Next N300,000@ 11 per cent

3.       Next N500,000@ 15 per cent

4.       Next N500,000 @ 19 per cent

5.       Next NI,600,000 @ 21 per cent

6.       AboveN3,200,000@24 per cent

The State Inland Revenue Service administers the tax.

OTHER TAXES COLLECTIBLE BY FIRS AND SIRS

Withholding Tax (WHT)

Withholding Tax (WHT) is not a separate tax in itself. It is an advance payment of income tax to be deducted at source at the point of payment for every taxable transaction. The rationale is to capture as many tax payers into the tax net.

The tax authority would expect every Company to deduct appropriate withholding tax on every payment made to vendors and remit same within the statutory period to the relevant tax authority. WHT so deducted shall be remitted to FIRS in case of incorporated entities and to State Internal Revenue Service(s) where the beneficiary is an individual, enterprise or partnership.

Taxpayer who suffers the WHT is entitled to set off the credit note value against the final tax payable. WHT rates vary between 5% – 10%, depending on the type of transaction.

Capital Gains Tax (CGT)

This is a 10% tax imposed on Capital Gains (Profit) arising from a sale, exchange or other disposition of properties known as chargeable assets. Capital gains are the profits that an investor realizes when he sells the capital asset for a price higher than the purchase price. Capital gains taxes are initiated when an asset is sold and gains realised. The basis of CGT is the gains, not sale price.

Every person having disposed a chargeable asset shall, not later than 30 June and 31 December of that year, compute the capital gains tax, file self-assessment return and pay the tax computed in respect of the chargeable assets disposed in the periods.

Stamp Duty

Stamp duty is a tax on instruments (written or electronic documents). It is tax paid to the federal or state governments on documents such as conveyances on sale, bills of exchange, promissory notes, agreements, contracts, etc. The federal government has the sole authority to charge and collect stamp duties in respect of documents relating to matters between a company and an individual, group or body of individuals.

While, the state government, on the other hand, has authority to collect stamp duty in respect of documents executed between individuals or persons at such rates imposed or agreed within the Act.