27 Feb Are you Tax compliant?
Tax is a monetary charge imposed, by government, on companies and individuals. Companies are required to remit tax from their profits whilst individuals pay from the income they generate. Payment of tax is a statutory mandate that is governed by various regulations in Nigeria.
For the purposes of this article, the following tax laws, as it applies to companies, shall be discussed:
- Companies Income Tax (CIT)
- Personal Income Tax (PIT)
- Education Tax Fund
- Value Added Tax (VAT)
- Withholding Tax
Companies Income Tax (CIT)
Under the Companies Income Tax Act (CITA) C21 L.F.N. 2004, tax payable is at a rate of 30% based on the assessable profits of the company. The payment of tax is imposed on a Nigerian company, incorporated under the Companies and Allied Matters Act (CAMA) CAP 20, LFN, 2004 and foreign companies carrying on business in Nigeria. In Shell International Petroleum B.V v FBIR (2004) 2 NWLR (pt. 861), it was held that the location in Nigeria where a foreign company carries out business is a fixed base for that company and as such the company will be liable to pay tax in Nigeria.
It is mandatory that companies operating in Nigeria comply with CITA as it is the main legislation regulating companies’ income tax.
According to Section 82 of CITA,
‘Any person who being obliged to deduct any tax…fails to deduct or having deducted fails to pay to the Board within thirty days from the date the amount was deducted…shall be guilty of an offence…’
The Federal Inland Revenue Service (FIRS) is granted the power, by CITA, to confiscate and sell off the goods of a defaulting taxpayer to repay the tax owed. Adherence to sections of CITA as regards the registration and remittance of tax by companies attracts the issuance of a Tax Clearance Certificate (TCC) once the company has been recognised as a tax compliant business.
To adequately operate a business, either Nigerian owned or a foreign company with its fixed base in Nigeria, the company has to recognise the tax laws of the country, the sanctions for not conforming to the laws and the implications that might arise from non-compliance. This, in turn, ensures that the company pays only the tax due by them and not tax which might have attracted interest based on late payments or failure to pay same.
Personal Income Tax (PIT)
Section 18 (1) of the Personal Income Tax Act (PITA) 2004, as amended, states that:
‘Every employer of labour shall be required to file a return with the relevant tax authority of all emoluments paid to its employees, not later than 31st January of every year in respect of all employees in its employment in the preceding year.’
The penalty levied against any employer that contravenes the provision stated above can be found in Section 18 (2) of PITA.
An Education Tax of 2% of assessment profits is imposed on all companies incorporated in Nigeria. This tax is viewed as a mandatory social obligation placed on all companies in ensuring the support of the development of educational facilities in the country.
Value Added Tax (VAT)
Section 2 of the Value Added Tax (Amendment) Act (VAT Act) No. 12 of 2007 states that:
‘ …tax shall be charged and payable on the supply of all goods and services…’
Registration with FIRS is mandatory for companies within the first six months of commencement of business (Section 8 of the VAT Act). A person or company that is deemed as taxable, upon registration with FIRS, is expected to charge and collect 5% VAT on all invoices for services rendered or goods supplied.
This is slightly different from VAT as it is the tax withheld by a company, at a rate of 10%, for payments made to another towards services rendered. This 10% is remitted to FIRS, within thirty (30) days, who then issues a Tax Credit Note for the company whose taxes were withheld. Failure to remit this, by a company, attracts a penalty fine of the tax due plus interest at the current commercial rates.
Our Firm is able to provide advice on tax and duties imposed by the Nigerian government on companies and individuals.
The content of this document is solely for information purposes only and should not in any way be construed as a legal opinion. If you require specific legal advice on any of the matters covered in this article please contact firstname.lastname@example.org