Taxation Guide for Nigerian Entrepreneurs
Tax is a levy imposed on individuals, groups or corporate bodies in some pre-determined fashion for payment to the government, which is to be used for public purposes. It could be seen as that which the state, in its absolute power, takes away from the income, resources or wealth of a target person. Over the years tax revenue has proven to be a reliable source of revenue for government at all levels. Nations of the world leverage on tax to boost their revenue. Nigeria is not left out in this regard with a special interest in upgrading from the analogue means of generating tax revenue to the digital method. The introduction of digital skills makes the entire process less stressful for taxpayers and tax organs of government. Individuals and corporate bodies are issued a Tax Identification Number by the Nigerian government. With this unique code and other features so embraced, the process of paying tax is as easy as paying utility bills from the comfort of your home.
Taxation is levied by all levels of government, including the federal, state, and local governments; and it is classified as follows:
- National tax: This is a tax imposed by the federal government and it is applied in all the states of the federation. These include Company income tax, value-added tax etc.
- State tax: This is a tax levied by the state which includes personal income tax, stamp duty, among others.
- Local rates and levies: These are rates levied at the local government level that include tenement rate, radio, television, and advertisement rates etc.
Taxes and levies to be collected by different tiers of government according to decree # 21 of 1998 are explained herein:
- Taxes and levies collected by the federal government are:
- Companies income tax
- Withholding tax on companies, residents of the federal capital territory (FCT), Abuja, and non-residents individuals
- Petroleum profit tax
- Value added tax
- Education tax
- Capital gains tax on residents of the FCT, Abuja, involving corporate bodies and non-resident individuals
- Stamp duties on corporate bodies and residents of the FCT, Abuja
- Personal income tax in respect of:
- Members of the Armed Forces of the Federation
- Members of the Nigeria Police Force
- Residents of the Federal Capital Territory Abuja and
- Staff of the Ministry Of Foreign Affairs and non-resident individuals
- Taxes and levies collected by the state government are:
- Personal Income Tax in respect of pay-as-you-earn (PAYE); and direct taxation (self-assessment)
- Withholding Tax (Individuals Only)
- Capital Gains Tax (Individuals only)
- Stamp Duties on Instruments executed by Individuals
- Pools Betting and lotteries, gaming and casino taxes
- Road tax
- Business premises registration in respect of –
- Urban areas as defined by each state, maximum of #10,000 for registration and #5,000 per annum for renewal of registration, and
- Rural areas at #2,000 for registration and #1,000 per annum for renewal of registration
- Development levy (individuals only) not more than #100 per annum on all taxable individuals
- Naming of street registration fees in the state capital
- Right of occupancy fees on lands owned by the state government in urban areas of the state
- Market taxes and levies where state finance is involved
- Taxes and levies collected by the local government include:
- Shops and kiosks rates
- Tenement rates
- On and off Liquor License fees
- Slaughter slap fees
- Marriage, birth, and death registration fees
- Naming of the street registration fee, excluding any street in the state capitals
- Right of occupancy fees on lands in rural areas excluding those collectable by the federal and state governments
- Market taxes and levies excluding any market where state finance is involved
- Motor Park levies
- Domestic animals license fees
- Bicycle, truck, canoe, wheelbarrow and cart fees other than a mechanically propelled truck
- Cattle tax payable by cattle farmers only
- Merriment and road closure levy
- Radio and television license fees (other than radio and television transmitter)
- Vehicle radio license fees (to be imposed by the local government of the state in which the car is registered
- Wrong parking charges
- Public convenience, sewage, and refuse disposal fees
- Customary burial ground permit fee
- Religious places establish permits fees
- Signboard and advertising permit
In Nigeria, Federal inland revenue service (FIRS) is the organ saddled with the responsibility of tax collection. FIRS, established in 2007 under Act #57, is charged with the powers of assessment, collection of, and accounting for revenues accruable to the government of the federation; and for related matters. An excerpt from the Act reads as follows:
- There is established a body to be known as the Federal Inland Revenue Service
- (in this Act referred to as “the Service”). Therefore, FIRS shall be a body corporate with perpetual succession and a common seal; may sue or be sued in its corporate name; and may acquire, hold or dispose of any property, movable or immovable, for the purpose of carrying out any of its functions under this Act.
- The Service shall have such powers and duties as are conferred on it by this Act or by any other enactment or law on such matters on which the National Assembly has power to make law.
- Objects of the Service shall be to control and administer the different taxes and laws specified in the First Schedule or other laws made or to be made, from time to time, by the National Assembly or other regulations made by the Government of the Federation and to account for all taxes collected.
- The Executive Chairman of the Service shall be experienced in taxation and appointed by the President subject to the confirmation of the Senate. Six members with relevant qualifications and expertise shall be appointed by the President to represent each of the six geo-political zones. The other people on the commission shall a representative of the Attorney-General of the Federation; the Governor of the Central Bank of Nigeria or his representative; a representative of the Minister of Finance not below the rank of a Director; the Chairman of the Revenue Mobilization, Allocation and Fiscal Commission or his representative who shall be any of the Commissioners representing the 36 States of the Federation; and the Group Managing Director of the Nigerian National Petroleum Corporation or his representative who shall not be below the rank of a Group Executive Director of the Corporation or its equivalent; the Comptroller-General of the Nigeria Customs Service or his representative not below the rank of Deputy Comptroller-General; the Registrar-General of the Corporate Affairs Commission or his representative not below the rank of a Director; and the Chief Executive Officer of the National Planning Commission or his representative not below the rank of a Director.
The information provided above is not exhaustive, but we at www.kusnap.com are happy to provide our readers with specific information should the need arise. So, in a nutshell, with all the modalities supported by known laws of the land, the system is not error-free as most taxpayers do not know their rights. Relevant authorities tend to take undue advantage of their ignorance, especially in the area of assessment of goods and services of taxpayers. Taxpayers on the other hand, more often than not, present false documents relating to their income to avoid payment of tax or amount otherwise payable. On this note, there is room for constitutional review to measure up with the present-day reality to establish a healthy system for tax administration.
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