Tax laws in Nigeria are laws and regulations guiding the collection and administration of taxes. The types of taxes collectable in Nigeria, as well as the bodies in charge of collecting, managing and regulating taxation, are stipulated by the following tax laws in Nigeria-
- Personal Income Tax Act
- Companies Income Tax Act
- Finance Act
- Value Added Tax Act
- Stamp Duties Act
- Petroleum Profit Tax Act
- Capital Gains Tax Act
- Taxes and Levies (Approved List of Collection) Act, Cap T2, LFN 2004.
- Education Tax Act (as amended)
- Federal Inland Revenue Service Act
Types of Taxes in Nigeria
Companies Income Tax – This tax is paid by all companies incorporated in Nigeria. All companies are subject to this tax, except those involved in petroleum activities (upstream sector), which are covered by the Petroleum Profit Tax Act.
A company’s income is profit accrued from all sources after required deductions, and the tax is imposed upon such profits.
Currently, companies with an annual turnover lesser than 25 million are exempted from paying taxes. Companies with an annual turnover between 25 to 100 Hundred million Naira are liable to pay taxes of 20%, while companies with turnovers of over 100 million Naira are to pay 30%. of their profits.
The Federal Inland Revenue Service (FIRS) is the government agency in charge of the collection and administration of company income tax in Nigeria
Personal Income Tax – Personal Income Tax is the tax the individuals are liable to pay to the various states they reside. It is imposed on the income/profits of individuals, a group of people (families, communities, etc) among others. Personal Income tax is administered by a relevant State Government through their various Internal Revenue Agency. For instance, the Lagos State Internal Revenue Service (LIRS) is the government agency in charge of collection and administration of personal income tax in Lagos State.
Personal Income Tax is regulated by the Personal Income Tax Act.
Value Added Tax- Value Added Tax (VAT) is also known as the consumption tax, as it covers specified goods and services that are often used by final consumers, on whom the tax is charged. The Value Added Tax rate is 7.5%. The VAT is regulated by virtue of the Valued Added Tax Act.
Education Tax: This is a tax chargeable at the rate of 2% is imposed on assessable profits of all companies to fund the Tertiary Education Trust Fund. The amount generated from education tax contributes to the funding of universities, polytechnics, and colleges of education in Nigeria.
Capital Gains Tax: This tax is imposed upon the disposition of chargeable assets, whether by sale or exchange at a rate of 10%.
Petroleum Profits Tax: At a rate of between 50% to 85%, this tax is imposed upon the chargeable profit of the companies operating in the upstream petroleum sector in Nigeria. Companies charged under this tax are exempted from the Companies Income Tax. The tax is regulated by virtue of the Petroleum Tax Act.
Stamp Duties: Stamp duty is the tax or duty payable on any agreement executed in Nigeria, especially in respect of any property situated in any state in Nigeria. It is also imposed at the rate of 0.75% on the authorized share capital at the incorporation of a company or increase of share capital. Stamp duty is chargeable either at a fixed rate or ad valorem. In line with the recent amendment of the Stamp Duty Act, all financial institution in Nigeria are required to charge stamp duties of N50 on every eligible transaction above N10,000. It is governed by virtue of the Stamp Duty Act
Apart from all other above, there are other taxes and levies imposed on companies operating in Nigeria. Some of these levies include Industrial Training Fund levy, which represents 1% of the payroll in companies having more than 5 employees or more than N50 Million turnover; and National Social Insurance Trust Fund levy, which also is 1% of the payroll in all companies operating in Nigeria.
Withholding Tax: Withholding tax in Nigeria is the advance payment of income tax. It is applicable to company income and personal income tax. It is imposed at the rates ranging from 2.5% to 10% for companies and 5% to 10% for individuals depending on the specific transaction. It is governed by both the Companies Income Tax Act and Personal Income Tax Act.
Tax Administration in Nigeria
Three bodies across the different levels of government administer taxation in Nigeria namely: the Federal Board of Inland Revenue (administers personal tax of residents of the Federal Capital Territories and Companies Income Tax); the State Inland Revenue Board, which administers individuals personal income; and the Local Government Revenue authorities that administer charges, and levies in their respective jurisdictions.
Finally, it is noteworthy to state that payment of taxes is a duty of all Nigerian residents, as well as companies incorporated in Nigeria.
Within three months of every year, every taxable entity is obliged to prepare and tender self-assessment tax returns, including the amount of tax payable to relevant tax administrators where the entity is resident.
By Tax Laws Team at Resolution Law Firm