Lecture Notes Acc 311

ACC 311 (TAXATION I)
LECTURE NOTES FOR UNDERGRADUATES

Course Outline
1. Historical & Legal Background of Taxation in Nigeria
2. Taxation & Tax attributes
3. Tax Administration in Nigeria (Structures & Functions
4. Taxation of Income & Capital
5. Basis Periods & Commencement Period Rules
6. Change of accounting date & Ceasation Rules
7. Taxation of employee & sole traders / Partnership
8. Capital Allowance Computation
9. Objection and appeal procedures
10. Returns, assessment and collection procedures
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Introduction to Tax
Definition:
Tax is a compulsory monetary charge imposed by Government on Persons, entities on Income,

Properties and sales in order to generate revenue.
Every Government has to develop a tax system for economic social and reasons.
Objectives of Taxation
1. Revenue Generation
2. Redistribution of Income & Wealth
3. Management of the Economy
4. Harmonization of the Economic Objectives
5. To Improve gross national income
6. To induce economic development and influence favourable balance of payments with other
countries.
Types of tax System
1. Proportional Tax System: A system whereby tax payers pay a flat rate of tax on their income
or property. The objective of this is to redistribute income from the wealthy to the less privileged.
2. Progressive Tax System:

This one tends to apply higher rates on higher income earners. Eg. The current personal income tax
rate table. Also, the new tax rates for Companies as proposed by the Finance Act 2019. I.e. 0% on
small companies, 20% on Medium companies and 30% on large companies.
3. Regressive Tax System: This type is not common in practice. Taxes paid decreases as income
increases.
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Classification of Tax by Incidence
1. Direct Tax:
A Tax whereby both the Incidence of tax and the Impact is on the same person. It is charged directly
on the taxpayer on his Profit or Property. E.g. CITA, PITA, PPTA, CGTA, EDT, etc.
2. Indirect Tax:
These are the ones whereby the Incidence of the tax is on one party, but the
Incidence and burden of it fall another party. These are taxes charged on commodities, goods or
services before they reach the final consumer. So, the taxes are tentatively paid by the manufacturer
or the producer or distributor as the case may be, and finally passed to the Final consumers whom
the burden ultimately fall on , not as taxes, but as part of their selling Price. Eg. VAT, Stamp Duties,
Custom Duties, Excise Duties.
This type of taxes tends to make every citizen of the country to pay minimum tax as they could.
Historical & Legal Perspective of Taxation in Nigeria
Taxation in Nigeria started with personal income tax in 1904, whenLord Lugard
introduced income tax in the northern part of Nigeria. Community tax became operative
through the Revenue Ordinance of 1904. In 1917,after the amalgamation of the northern and
southern protectorates, the 1904 Revenue Ordinance was replaced by the Native Revenue Ordinance of
1917. In addition, the provisions of the 1917 Ordinance were ammended in 1918 and extended to
southern Nigeria particularly, the West and Mid-West and subsequently to eastern Nigeria in 1928.
However, the Native Revenue Ordinance was later incorporated into the
irect Taxation Ordinance No. 4 of 1940, cap 54. Still in the pre-independence era, personal
income tax was administered and collected by the native administrations or local government in the
name of direct taxation. Under the Direct Taxation Ordinance of 1940, the assessment and collection
of taxes were the primary responsibilities of the native administrations/authorities throughout
the country, and taxes so collected were their main sources of revenue.
In 1943, another ordinance known as the “Income Tax Ordinance of
1943” was promulgated to take care of Lagos residents, who had
opposed the 1940 ordinance. Unlike the 1940 ordinance, the 1943
ordinance was an a mixture of both poll tax and income tax which were
received from the native residents in the township of Lagos and non-
native residents in Nigeria by the central government for the general
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revenue of the country.
The Nigerian Income Tax Ordinance of 1943 remained in force in the

federal territory of Lagos until 1961 when the Personal Income Tax
(Lagos) act of 1961 was enacted by the federal government. The root of
the present laws on Personal Income Tax in Nigeria can be traced to the
Fiscal Commission set up in 1957, which consisted of Sir Jeremy
Rainsman as the chairman and professor R.C. Tress as a member among
others. The purpose of establishing the commission was to examine the
jurisdiction and fiscal powers of the various tiers of government in
Nigeria.
At present, the laws that regulate Personal Income Tax in Nigeria are as
follows.
1. The Income Tax Management Act (ITMA) 1961;

2. Personal Income Tax Act (PITA) 1979 as amended in 1993;
3. Tax reforms;
4. Annual pronouncements that have been gazetted.
As for Companies’ Income Tax, it was introduced in 1939 as a source of revenue for the
Federal Government of Nigeria.
First, tax on companies wasimposed under the Companies’ Income Tax of 1939. This was to cov
erthe aspect of income tax that was not covered by the Native RevenueOrdinance of 1917
with all its subsequent amendments.
In 1940, the Income Tax Ordinance of 1940 was promulgated toconsolidate theCompanies’
income tax ordinance of 1939. Tax underthe 1940 ordinance was
imposed upon any “person” and this expression was
defined to include a company. By 1943,the income tax ordinancewas enacted for Lagos resident
s and foreigners, including corporate
organisations. This took care of some major changes such as the
introduction of penalties on falsification of returns, failure to file in a
return, or failure to keep the required accounting records; which are
offences punishable with fine or imprisonment or both.
Chick Fiscal Commission preceded the 1954 constitution, which was thefirst federal constitution in
Nigeria, recommended that the two taxesimposed under the Income
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tax ordinance of 1943 be within the exclusivejurisdiction of the federal government.
The present tax system in Nigeriahas its roots in the Rainsman Fiscal Commission recommendatio
n thatjurisdiction over companies income tax be exclusive to the
federalgovernment and that the States, except for certain uniform principles,
should have jurisdiction over personal income tax.
It was in the light of this that the 1960 constitution conferred an
exclusive fiscal power upon the federal government to impose taxes on
the incomes and profits of companies. Consequently, the Companies
Income Tax Act (CITA) 1961, was enacted to repeal the Income Tax
Ordinance, Cap 85 which itself repealed the Income Tax Ordinance of
1943. CITA, 1961 has undergone several amendments.
Tax System
Tax System in every country usually involves a tripartite aspect, namely:
Tax policy
Tax Laws
Tax Administration
Tax Policy: This postulate general statements of Intention, which guide the thinking of
the concerned persons (Tax Payers & Tax Authorities) towards the realisation of the Set Goals. They
usually include:
▪️Movement of Emphasis from Income tax to Consumption Tax that is less Prone to tax evasion.
▪️Moving from Direct to indirect tax.
▪️Pursuing tax law regime with the Aim of reducing individual tax burden, widening tax net and
encouraging savings and investment.
▪️Introduction of self-assessment scheme to encourage tax payers participating in tax assessment
▪️Moving from Coercive method of taxation to Voluntary Compliance as Nigeria did in the recent
time. Eg VAIDS, VOARS.
Tax Laws: These are tax legislations which the affairs of taxation sit upon.
They include:
▪️Personal Income Tax Act 2004
▪️Companies Income Tax Act 2004
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▪️Petroleum Profit Tax Act 2004
▪️Value Added Tax 2004
▪️Capital Gains Tax Act 2004
▪️Education Tax Act 2004
▪️Stamp Duties Act 2004
In Nigeria, power to impose tax is within the exclusive list of the Federal Government, while
collection of those taxes is a concurrent list, ie. shared amongst the three tiers of government.
Tax Administration:
This involves practical interpretation and application of the Tax
Laws. The Bodies charged with this are:
▪️The Federal Inland Revenue Services (FIRS)
▪️The State Inland Revenue Services (SIRS)
▪️The Local Government Revenue Committee.
Basic Concepts in Taxation

Tax Base: This is the portion of the taxpayer's income or property which suffers tax. Eg. Is itthe
Assessable Income or the Chargeable income?
Tax Yeild: This is the return derived from tax revenue.
Tax Incidence: This is an economic term used to divide the tax burden between buyers and
sellers. It does reveal the actual person that suffers the tax liability. A very good example is VAT. If
Government increases the rate of VAT like they did in February 2020, the producer will just
increase the price of cigarette by the full amount of tax, and the buyer will suffer it.
Tax Impact: This is the effect of tax on production/consumption of Goods and services of the
product being taxed. Impact of raising the levy on tobacco might be reduction in tobacco sales.
Tax Burden: The Amount of Income, property, or consumption tax levied on an individual or
business. This varies depending on a number of factors including income level, jurisdiction, and
current taxes.
Tax Shift: Also referred to as Tax Swap. A change in taxation that eliminates or reduces one or
several taxes by increasing or establishing others, while keeping the overall revenue the same. One
might shift tax to be paid from one company to another, which may lead to transfer pricing issues.
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Tax Effect: This describes the consequences of a particular transaction with respect to tax payable.
Tax & Levies

Tax is a compulsory payment whereby tax payers does not directly expect something in return from
the Government aside from the general benefits of Good Infrastructure, Healthy living and safe
society.
While levies are paid to government in return for specific services from government to the Payer.
Examples are: Fines and penalty for erring citizens to be pardoned by Government.
Canons of Taxation
These are basic studies in Tax and principles applicable in practice which will facilitate good Tax
System in A Country.
1. Canon of Equality
2. Canon of Certainty
3. Canon of Economy.
4. Canon of Convenience
5. Canon of Productivity
6. Canon of Elasticity
7. Canon of Simplicity
8. Canon of Diversity
Explanations
1. Canon of Equality: This states that the burden of taxation must be distributed equally amongst
Tax payers. The System should be that the More You Have, the more you pay.
Rich People pay more while poor pay less. A Good system must be established on the ability to Pay.
2. Canon of Certainty: According to Adam Smith, the time of payment, Manner and the amount to
pay should be clear and plain. Taxing Payers should not be arbitrary. Also, not only the Tax
Authority should know what, how and when to tax. Taxpayers should also be educated and be aware
as well. Otherwise, there will be dispute.
3. Canon of Economy: This implies that Cost of Collecting and administering Tax should be as
economic as possible. Any tax system that involves high administration cost should be avoided.
4. Canon of Convenience: This states that over time, Manner of collection of taxes from tax payers
should be as convenient as practicable. No hitch free should be witnessed.
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5. Canon of Productivity: This implies that only those taxes that will not hamper the productive
efforts of the Community should be imposed. No one finds it comfortable paying tax because they
feel that It's the Government Responsibility to cater for them.
6. Canon of Elasticity: This Canon states that tax should be flexible an elastic. It should be flexible
that the rate of taxes can be altered according to exigencies of Situation.
7. Canon of Diversity: This is extremely useful in the era we are now. We are the age of technology
and globalisation. Things are changing in the fastest pace. A Good tax system must be adapted to the
realities of the current global development. And in practice, a lot is happening in the Taxation Sub
Sector. New Concepts are springing up. That's why you will be observing some Current Issues in
your study.
8. Canon of Simplicity: A Good Tax System should be simple that it does not encourage Tax
Evasion. Taxation in practice is so complicated that the most honest educated Tax Payer has to seek
advice of Tax Consultants to manage it for them.
Sources of Nigerian Tax Laws
Customary Laws
Statute Laws.
Case Laws
Circulars by Tax Authorities
Opinion of Tax experts and authors (In so far as the Court takes judicial notice of them).
Constitution of the Federal Government.
Multiplicity of Tax in Nigeria

This is a situation whereby Government imposes more than one tax on the same tax base. E.g.
Companies Income Tax, Education Tax and Technology Levy on Corporate Taxpayers. Also, it can
be said to be a situation where tax is levied on same person in respect of the same liability by more
than one taxing authority (Federal, state or Local). Eg VAT from Federal Government and
Consumption Tax from Lagos State Government.
Causes of Multiplicity of Tax
1. Lack of Sound Personal who can interpret the pronouncements of the tax laws properly.
2. Ambiguity of the Tax laws and statutes.
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3. Deliberate Misinterpretation of the tax laws by tax authorities which can be termed as power
abuse.
4. Aggressive nature of the Tax Officials in meeting their Financial Targets.
5. Other Reasons as may be encountered in Practice.
Impacts of Multiple Taxation

Hindering Investment Opportunities: Many Corporate Organisations have because of this move to
neighbouring countries. Leaving the Citizens with Low Disposable Incomes.
This is usually Common to local Governments and it varies from one local government to another.
Eg. Entertainment tax, road tax, refuse collection tax, market levies, loading/offloading, levies, etc.
The Problem with most of these taxes is that they are not properly accounted for by the Collectors.
Collection Techniques
They mount roadblocks
Use of revenue agents/consultants.
Administration of Tax in Nigeria

Introduction
Tax Jurisdiction is discussing taxes due to each tier of Government. There are 3 Tiers of
Government, charged with the Administration of Tax in Nigeria. The federal, state, and local
governments. Each of them has its own Tax Authority created by Federal Laws.
The authority includes:
1. The Federal Inland Revenue Service Board (FIRSB)
2. Joint Tax Board (JTB)
3. State Board of Internal Revenue (SBIR)
4. Joint State Revenue Committee
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5. Local Government Tax Authority
The Federal Inland Revenue Service (FIRS) Board

This is the Management Board of the FIRS, established by an Act of the Federal Republic of Nigeria
known as the FIRS Establishment Act 2011. They have a quiet number of Functions and Powers, but
more importantly they administer Taxation of Incorporated Companies Profits.
Composition of the Board:
1. The Executive Chairman
2. Six Members with Relevant Qualification and Expertise (Representing the 6 Geopolitical Zones
of the Country).
3. A representative of the Attorney General of the Federation
4. The Governor of the CBN or his Representative.
5. A Representative of the Minister of Finance, not below the rank of Director.
6. The Chairman of the Revenue Mobilisation Allocation and Fiscal Commission or his
representative, who shall be any of the Commissioners representing the 36 States of the Federation.
7. The General Managing Director (GMD) of NNPC or his Representative.
8. The Comptroller General of the Nigerian Customs Services (NCS) or his Representative.
9. The Registrar General of the Corporate Affairs Commission (CAC) Or His Representatives.
10. The CEO of the National Planning Commission or his Representative.
Powers and Functions of the FIRS Board
1. Providing General Policy Guidelines relating to the Functions of the Service.
2. Managing Policies of the Service on matters relating to the Administration of assessment,
collection and accounting system under this Act.
3. Employing Terms and conditions of the service including any disciplinary measures for
employees.
4. Stipulating remuneration, allowances, benefits and pensions of Staffs and Employees.
5. Do Such other things Necessary To ensure the efficient performance of the functions of FIRS.
The Board Also established a Technical Committee which assist the FIRS in performing their Duties.
Joint Tax Board (JTB)

This is established by Personal Income Tax Act of 2004 as amended.
Composition
1. The Chairman of the FIRS.
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2. One member from each state.
3. The Secretary, who is not a member of the board and is appointed by the Federal Civil Service
Commission (FCSC).
4. The Legal Adviser of the FIRSB.
Their Functions
1. Advice the Federal Government on request in respect of double Taxation Arrangement with any
other Country.
2. Promote Uniformity both in the Application of Personal Income Tax and in the incidence of Tax
On Individuals throughout Nigeria.
3. Impose its decision on matters of interpretation of PITA on any state.
Quorum: Seven Members or their representatives shall constitute a Quorum.
State Board of Internal Revenue (SBIR)

At the state level of jurisdiction, they administer all taxes relating to each state of the Federation.
Composition:
1. Executive Chairman
2. Directors and Head of Department (HOD)
3. A Director from the state ministry of Finance
4. 3 Persons Nominated by the Commissioner of Finance in the state of their personal Merit.
5. A Legal Adviser to the state service.
6. The Secretary to the state who shall be an Ex-officio Member.
Functions:
1. Assessment of PAYE and other taxes that relates to Individuals, eg. WHT for individuals.
2. Ensure effectiveness and optimum collection of all Taxes and Penalties Due to State
Governments.
3. Making recommendations to the JTB on tax policy.
4. Appointing, promoting, transferring and Imposing discipline on employees of the state service.
The State Board also have a technical committee like that of Federal Board.
Joint State Revenue Committee

According to the Act, each state of the Federation Should have a joint state revenue committee,
comprising of:
1. The Chairman of the SBIR as the Chairman.
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2. The Chairman of the Local Government Revenue Committee.
3. A Representative of the Revenue Mobilisation, allocation and fiscal commission, as observer.
4. A Representative of the Bureau of Local Government Affairs.
5. Legal Adviser to the SIRS.
6. A Secretary to the Committee usually a Staff of SIRS.
Function:
1. They implement decisions of the Joint Tax Revenue Service.
2. They advise on Tax Matters.
3. They harmonise Tax Administration in the State.
The Local Government Tax Authority

It establishes a Local Government Revenue Committee with the following composition:
1. The Supervisor for finance as Chairman
2. 3 Local Government Councillors as members
3. Two other Persons experienced in revenue matters.
Function:
1. Assessment and collection of all taxes, fines and rates under its Jurisdiction.
2. Accounting for all amounts so collected as prescribed by the chairman.
3. The Committee is autonomous of the local government treasury department and shall be
responsible for the Day to day administration of the Department which form its Operational Arm.
Fiscal Federalism / Taxing Power

Power to impose tax on Individuals and Corporate Bodies is the Exclusive list of the Constitution.
I.e. Exclusive to the Federal Government. While the collection of those taxes is a Concurrent List.
I.e. split between the 3 Tiers of Government. This is contained in the Taxes and Levies (Approved
List for Collection) Act Cap T2 LFN 2004 (As amended).
The Contents relating to each Tier of Government are:
▪️To the Federal Government
Companies Income Tax
Petroleum Profit Tax
WHT on Companies and residents of Abuja & Non-residents.
Value Added Tax
Tertiary Education Tax
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Capital Gains Tax for Companies, residents of Abuja & Non-residents.
Stamp Duties on Companies, and residents of FCT.
Personal Income Taxes in respect of the Armed Forces, Police Men, Ambassadors and residents of
FCT.
▪️To the State Government
Personal Income Tax (PAYE & Self-Assessment). This covers anyone living in that state
irrespective of where they work.
WHT on Individuals.
Capital Gains on Individuals
Stamp Duties on Instruments executed by individuals
Business Premises Registration Fee
Development Levy
Right of Occupancy Fees/Land Use Charge/Ground Rent (As the case may Be).
Road Taxes
Pools betting, lotteries, gaming and Casino Taxes
Road Worthiness
Market Taxes and levies where the state finance is involved.
▪️Local Government
Shops and Kiosk Rates
Tenement Rates
Liquor Licence Fees
Marriage, birth and death registration fees
Naming of Streets registration excluding those in the state capital.
Motor park Levies e.t.c.
Limitations Of Tax Administration
1. Poor Public Enlightenment
2. Poor Governance
3. Tax Evasion
4. Loopholes in the Tax Laws
5. Improper Use of Tax Consultants
6. Inadequate funding of Tax Authorities
7. Lack of Qualifying Tax Officials at state and Local Levels.
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To provide tax payers time-limited Opportunity to regularise their tax status relating to previous
periods and pay their liabilities.
To Implement the policy of Voluntary Declaration as embedded in the National Tax Policy.
To grant Taxpayers Forgiveness of overdue interest and penalty
To assure them that they would not face criminal prosecution for tax offences or future tax
audit/investigations.
Eligibility to Participate
Those who Earned Income or owned assets but were yet to register with the relevant tax
authority.
Those who registered but were not filing returns, or did not update their disclosure.
Those who were not fully declaring their Taxable Income & Assets.
Those who were underpaying or under Remitting their taxes.
Those who were under a process of Tax audit/investigations with the relevant tax authorities.
Those who were in a tax dispute with the relevant tax authority but were willing to settle it
out of Court.
Requirements for a Valid Declaration

For an application to the scheme to be valid, the following requirements must be met:
▪️The Disclosure by the Tax payer should be Voluntary
▪️The Disclosure must be Complete, Frank, and Verifiable in all material respects.
▪️The Must be made using the VAIDS forms.
▪️The assessment of the Tax payable must be carried out by the relevant tax authority.
Reliefs/Benefit from the Scheme

Any Taxpayer who participated, paid all tax dues and certified for the Purpose of the Scheme
enjoyed the Following Benefits:
▪️Immunity from Tax Audit/Investigation.
▪️Immunity from prosecution for tax offences.
▪️Waiver of interest and penalties.
▪️Option of spreading payment of outstanding liabilities over a maximum period of 3 years as may be
agreed with the relevant tax authority.
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Provided that the waiver granted under this scheme shall not prejudicially invalidate any court order
or judgement already obtained or established in the court of law. The reliefs mentioned above are
available in respect of all taxes administered by the FIRS and SIRSs.
Consequences of failure to participate

Any defaulter who did not promptly take advantage of the scheme, shall at the expiration of the
scheme result into the following:
▪️Liability to pay in full, the principal sum due.
▪️Liability to pay all interest and penalty
▪️Liability to undergo Comprehensive tax audit exercise.
▪️Liability to be prosecuted for any tax offence
National Tax Policy (NTP), 2017

The National Tax Policy provides the fundamental guidelines for the orderly development of the
Nigerian Tax System. The Policy is expected to achieve the following objectives:
To guide the Operation and review of the Tax System.
To provides the basis for future tax legislations and administration.
To serve as a point of reference for all stakeholders on Taxation
To Provide benchmark on which stakeholders shall be held accountable.
To Provide Clarity on the roles and responsibilities of stakeholders in the tax system.
Guiding Principles of Nigerian Tax System
According to the NTP, all existing and future taxes are expected to align with the following
fundamental principles:
▪️Equity and Fairness - Relating to Taxes imposed.
▪️Simplicity, Certainty and Clarity - Relating to Tax Laws.
▪️Convenience - This relates to Time, Manner and approach of collection.
▪️Low Compliance Costs
▪️Low Cost of Administration
▪️Flexibility - Relating to present economic reality.
▪️ Sustainability - There should be a connection between tax policies and other economic policies
like sustainable revenue, economic growth and development.
Taxation as a tool for Economic Management and development
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To achieve that, tax system should be geared towards meeting the following goals:
Wealth Creation and Employment
Focus on Indirect Taxes which are easier to collect and administer and difficult to evade.
Convergence of Tax Rates: It should be progressive and design and to promote equality.
Special Arrangements and other Incentives: Special Arrangements should be Sector based and not
directed at persons or entities. Also , special arrangements like Free Trade Zones, other tax
incentives should not be arbitrarily terminated except as provided in the Enabling legal framework.
Also, process of granting renewal of incentives should be transparent.
Creating A Competitive Edge by:
▪️Reducing number of Taxes, and
▪️Avoiding Multiple Taxation
International and Regional Treaties:

A wide network of international and Regional treaties
would be beneficial to the economy. In this regard, Nigeria shall continue to expand its treaty
network to in the Best interests of the Nigerian State. Therefore, existing treaties should be reviewed
regularly and where necessary renegotiated in line with international Best practices.
Responsibilities of the Stakeholders

For an orderly and sustainable development of the Nigerian Tax System, the federal and state
ministries of finance shall have the Primary responsibility for tax policy matters and initiate
proposals for amendments to tax laws. The Key stakeholders in the Nigerian Tax Systems can be
broadly categorised as follows:
1. The Government - All arms of Government and MDAs: They implement and regularly review tax
laws and policies.
2. The Taxpayer: The Most critical stakeholder and Primary focus of the Tax system.
3. Revenue Agencies, like FIRS SIRS, etc: They are responsible for the Administration and
collection of tax revenue.
4. Professional Bodies, tax practitioners, consultants and agents: Example are ICAN, CITN, ANAN,
and Consulting Forms.
5. Media and advocacy groups: They shall ensure awareness of Tax education and accountability.
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Registration of Taxable Persons.
All Taxable persons (Corporate or Individual) shall be registered and issued with Taxpayer's
Identification Number (TIN). Tax authorities in carrying out that, should Leverage on the database
of the CBN, BVN, CAC, Nigeria Communication Commission (NCC), Nigeria
Immigration Services, etc.
Tax Compliance
Government shall apply all available resources and tools at their disposal to ensure that taxpayers
voluntarily comply with their tax obligations. In order to ensure and improve voluntary compliance,
tax authorities should:
1. Establish Option for self assessment and make the process simple.
2. Develop frameworks for tax amnesty
3. Constant Education and enlightenment.
4. Recognise and Honour Compliant Taxpayers.
Efficiency of Administration
The Following Are Important in ensuring an efficient tax administration:
▪️Payment and collection process - It Should Leverage on Modern Technology.
▪️ Record Keeping - Tax Authorities should ensure electronic systems of record keeping in line with
global practices.
▪️Enforcement of Tax Laws
▪️Exchange of information between tax authorities in different states and jurisdictions.
▪️ Funding of Tax Authorities - Government should provide an adequate percentage of revenue
collected as provision to Tax Authorities.
▪️Funding of Tax Refunds - Adequate funding should be provided to meet refund obligations.
▪️Ease of paying taxes
Technology and tax intelligence: Tax authorities shall deploy necessary technology to aid all aspects
of tax administration.
Dispute Resolution: In the event of Tax dispute, tax authorities shall Leverage on amicable means of
dispute resolution including arbitration and Only resort to judicial determination as a resort.
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Taxation of Income and Capital
Taxation of Income
Income accruing in Nigeria (income producing assets), derived fromNigeria (incomeproducing
activities), brought into Nigeria remittances) and received in Nigeria (emoluments) are all subject to
income tax. Income tax is payable on income from a source inside or
outside Nigeria and in particular, but not restricted to the following:
(a) profit or gains from a trade, business, profession or vocation;
(b) remunerations from and employment which may be salary, wage, fees, allowances or gains from
employment; including compensations, commissions, bonuses, premiums or benefits in kind.
Individuals and companies alike are assessed on any taxable incomes they received or
earned. For individuals, graduated tax rates are used in assessing them, while companies/corporate
organisations are assessed using fixed and uniform rates as determined by the relevant legislation or
the policy prevailing in that period.
Taxation of Capital
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Basically, taxation of capital gains arises from the disposal of assets byboth private
and business entities. It was introduced in Nigeria through the capital gains tax act,
Cap 42, LFN, 1990. Capital gains tax is charged on the proceeds of assets disposed of by a
taxpayer. It is remarkable that whiletaxation of income had been a permanent feature of the
English tax systemsince 1799, capital gains were not introduced until
1962. Even then, thetaxwas introduced solely for the limited purpose of levying speculative gains.
Acomprehensive version of capital gains tax was instituted in the UnitedKingdom only in
1965. One would have suggested that the decisionto taxcapital gains could have been implement
ed by integrating such gains into the mainstream of taxable income.
Basis of Assessment
This has to do with the number of Months a period of Tax is covered. And for existing companies, it
is usually on Preceding Year Basis (PYB).
That is a period of 12 Months preceding the year of assessment a tax is paid. That is applicable in a
normal case scenario. There is usually a different case if there are unusual cases in the business
which may lead to an abnormal period.
These Scenarios include:
▪ Commencement of Business.
▪ Cessation of an existing business
▪ Change of Accounting Date
Special rules have been applicable for the 3 Scenarios under CITA to take care of the 3 Scenarios.
However, due to potential double taxation threat and irregularities in the basis periods leading to
Gaps, Coincidence and Overlapping, rules guiding commencement and cessation have been
amended by the New Finance Act 2020.
According to the New Finance Act 2019 and FIRS Circular No: 2020/06 published on 29th
April 2020, the following guidelines apply:
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❖ Commencement of Business
Section 29(3) of CITA is amended to eliminate the occurrence of overlap of basis period upon
commencement of trade thereby ensuring that the profits of a particular year are only assessed to tax
once.
Basis of Assessment for Commencement of Trade or Business
Section 29 of CITA, as amended, clearly provides that the basis of taxation is the preceding year
basis (PYB). As such, the income of a given year is assessed to tax in the immediate following year
of assessment.
First Year of Assessment
Section 29(3)(a) of CITA provides thus:
“for the first year, the assessable profits shall be the profits from the date in which it commenced to
carry on such trade or business in Nigeria to the end of its first accounting period”.
This provision indicates that a company shall not be assessed to tax (on the basis of the actual profit)
in the year in which it commenced business.
The profits of the first accounting period are assessed to tax in the year of assessment immediately
following the year in which it commenced business.
Illustration 1
A company commenced business on 1st July 2020 and makes up its accounts to 31st October.
The first Assessment Year is 2021 and profits to be assessed are those of 1st July to 31st October,
2020.
Illustration 2
A company commenced business on 1st January 2019 and makes up its account to 31st
December. The first Assessment Year is 2020 and profits to be assessed are those of 1st January, to
31st December 2019.
Illustration 3
A company commenced business on 1st April 2019 and company makes up its account to 31st
March. The first Assessment Year is 2021 and profits to be assessed are those of 1st April 2019 to
31st March 2020.
Second Year of Assessment
The Act stipulates that “for the second year, the assessable profits shall be the profits from the first
day after its first accounting period to the end of its second accounting period”.
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Consequently, the profits assessable to tax in the second year of assessment shall be the profits
arising in the second accounting period only, that is, the accounting period immediately following
that of the year of commencement. Illustration 1 A company commenced business on 1st July 2020
and makes up its account to 31st October.
2020. The second Assessment Year is 2022 and profits to be assessed are those of 1st November,
2020 to 31st October 2021. 2.1.3
Third Year of assessment

The Act provides that “for the third year and for each subsequent year, the assessable profits shall be
the profits from the day after the accounting period just ended.” That is, the profits of the accounting
year immediately preceding the year of assessment.
Illustration 1
A company commenced business on 1st July 2020 and makes up its account to 31st October.
2020. The second Assessment Year is 2022 and profits to be assessed are those of 1st November,
2020 to 31st October 2021.
The third Assessment Year is 2023 and profits to be assessed are those of 1st November 2021 to
31st October 2022.
NOTE:
There will not be any overlap of basis period where the profits of all the relevant years on
commencement is computed in line with the new provision. However, there may be an overlap of
basis period in the third year of assessment due to transitional issues. As such, overlap of basis
period may only occur in the third year of assessment for a company that commenced business in
2018.
Illustration 2
A company commenced business on 1st July 2018 and makes up its account to 31st October.
*The company’s first Assessment Year falls under the old provision, hence its first year of
assessment is 2018 and profits to be assessed are those of 1st July to 31st December 2018.
*The second Assessment Year also falls under the old provision which is 2019 and profits to be
assessed shall be that of: 1st July 2018 to 30th June 2019.
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*The third Assessment Year is 2020 and profits to be assessed shall be that of: 1st November 2018
to 31st October 2019. An overlap occurs in 1st Nov 2018 – 30th Jun 2019 due to transition.
Determination of the End of First Accounting Period

The determination of the first year of assessment and the relevant basis period shall be based on the
company's accounting year-end. Therefore, the first accounting period of a company is the date of
commencement to the end of its first accounting year-end. Where a company submits financial
statement for a period shorter or longer than the first accounting period, the assessable profits for the
first accounting period shall be ascertained (on pro-rata basis) up to the indicated accounting year-
end.
NOTE:
There will not be gap of basis period where the profits of all the relevant years are computed in line
with the new provisions. There may be a gap (of YOA) between the first and second years of
assessment due to transitional issues.
Illustration
ABC Limited was incorporated in July 2019 and commenced business on 1st September 2019.
The Company prepared its first set of financial statements covering 16 months (1st September 2019
to 31st December 2020).
The company’s first accounting year end is December 2019 and not December 2020.
✓ Therefore, its first Assessment Year is 2019 which falls under the old provision. The
profits to be assessed shall be that of 1st September to 31st December 2019.
✓ The second Assessment Year is 2021 which falls under the new provision. The profits to
be assessed shall be that of 1st January to 31st December 2020.
✓ The third Assessment Year is 2022 and profits to be assessed shall be that of: 1st January
to 31st December 2021.

There was a gap between 2019 (1st YOA) and 2021 (2nd YOA). The gap was not a gap of
“basis period” but a gap of YOA. This means the company has no CIT returns for 2020 YOA.
❖ Cessation of Business
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Section 29(4) of CITA provides that:
“Where a company permanently ceases to carry on a trade or business (or in the case of a company
other than a Nigerian company, permanently ceases to carry on a trade or business in Nigeria) in an
accounting period, its assessable profits therefrom shall be the amount of the profits from the
beginning of the accounting period to the date of cessation and the tax thereof shall be payable
within six months from the date of cessation.”
Basis of Assessment
Based on the above provision, a company that permanently ceases operation must file tax returns for
the year of cessation within six months. The due date of filing may fall in the year of cessation or in
the year following the year of cessation depending on the date on which the company ceased
operation in the year. If the Company ceased operations between January and June, returns would be
filed and payment made in that year of cessation. However, if it ceased operations between July and
December, filing of tax returns and payment of tax due would fall into the following year.
There is the possibility of filing tax returns of two years of assessment in the year of cessation.
Where this occurs, the company must file the outstanding tax returns in addition to those arising
upon cessation of business.
Illustration 1
XYZ Nigeria makes up its account to 31st December and permanently ceased operation on 30th
April, 2020.
The relevant years of assessment and the due date for payment of tax due are as follows:
YOA Basis Period Due Date of Payment

2020 1/1/2019-31/12/2019 30th June 2020 (PYB)
2020 1/1/2020-31/04/2020 31st October 2020 (cessation)
In the above scenario, the company would file tax returns twice in the same year – one based on the
normal preceding year basis (PYB) and the other being cessation returns.
Illustration 2
XYZ Ltd makes up its account to 31st December and permanently ceased operation on 31st July,
2020.
The relevant years of assessment and the due date for payment of tax due are as follows:
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YOA Basis Period Due Date of Payment
2021 1/1/2020-31/07/2020 31st January 2021
In the above scenario, the cessation returns fall into the year following the year of cessation.
Returns, assessment and collection Procedures

Registration with Tax Authorities
The FIRS/SIRS have a standard questionnaire expected to be completed by Tax Payers for the
registration under the Provision of CITA, PITA, PPTA, Etc.
The Following details shall be submitted together with Certificate Of Incorporation:
▫️Name, Registration Number and Date of Incorporation.
▫️Registered/Residential Address.
▫️The Business Address
▫️Names and address of the Directors.
▫️Names and addresses of the Shareholders (Together with their Shareholders).
▫️The Precise Nature of the Business.
▫️Whether the Business has any predecessor.
▫️The Date of Commencement of Business.
▫️The Accounting Year End.
▫️Details of Company Secretary (Where Applicable).
▫️Details of Appointed Auditors & Tax Consultants.
▫️Details of appointed Bankers.
▫️Any other Relevant Information which may help the tax authority in this Regard.
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VAT Registration
A Vatable person or VAT Agent is required to file application for VAT registration at the Nearest
FIRS Office. The application will be backed up with the Certificate of Tax Clearance of registration.
Upon registration, a company will be issued VAT Registration Number.
Filing of Tax Returns
Any Company registered in Nigeria must submit prescribed information to the Relevant Tax
authority within 6 Months of Accounting Year End.
A new company shall file its own return within 18 months of Incorporation or 6 Months after the 1st
Accounting Year, (Whichever is earlier).
For Annual Returns, the following documents are submitted:
➖ Signed Audited Financial Statements, together with a Covering Letter from the Tax
Consultant.
➖ Capital Allowance and Income Tax Computation.
➖ Assessment Forms for Income Tax and Education Tax.
➖ Evidence of Payment.
Assessment Procedures
Where a company has filed a self assessment return comprising of Tax computation and audited
accounts, the FIRS May accept if found satisfactory. At the expiration of the time limit specified
by Section 55 (3), CITA for the submission of Tax returns, the FIRS shall proceed to assess
every company that fails to file its self assessment returns. We have the following kinds of
assessments:
Self-Assessment: Self-Assessment is a tax system where Taxpayer is granted rights by law to
compute his own tax liability by himself, pay the tax due, but file his tax returns with evidence of
payment of the tax paid on or before the due date.
A company that file self assessment return is required to pay the tax due in one lump sum or on
instalments not exceeding six months as approved by the FIRS.
Additional Assessment: Where FIRS discovers through Desk Review or Audit Exercise or is of the
opinion that a company liable to pay tax has assessed himself for a lower amount that's chargeable.
They can raise additional assessment on the Tax Payer. They can go as far back as 6
25
Years.
Best of Judgement (BOJ) Assessment/Administrative Adjustment: The FIRS will subject a company
to this assessment under the following situations:
▪️Where a company fails to submit a self assessment return, or ▪️Where the authority refuses to
accept the return filed.
Back Duty Assessment: Where a tax payers or its representative has committed fraud, wilful
default, FIRS is empowered to assess such Companies to additional tax. This can be raised by the
revenue at any time necessary without time limit.
Notice of Assessment: Where the FIRS has observed that a tax payer who supposed to remit tax has
not done so, they can send him a notice of assessment, showing Amount of total profits, tax payable
and where to pay it.
Final and conclusive assessment: This assessment is raised upon the following circumstances:
▪️Where no valid objection or appeal has been lodged against the profit assessed.
▪️Where the amount of Total Profit has been agreed by a Taxpayer after his objection has been
determined by FIRS.
▪️The Amount of total profit has been determined on appeal.
Enforcement Procedures
Where a company has failed to pay any income tax assessed on it, the FIRS is empowered to
enforce or recover tax paid through any of the following methods stated:
▪️Distrain on the taxpayer's goods, other chattels, bonds or other securities.
▪️Distrain upon land, premises, or places owned by the tax payer.
Such properties distrained may be sold by the Tax Authority.
▪️FIRS may sue such Taxpayer in the court of Law.
Tax Clearance Certificate (TCC)
This is document issued by Tax authorities to Taxpayer indicating the applicant's tax affairs are in
order.
In Nigeria, TCC is issued upon application by the Taxpayer. In issuing the certificate, the relevant
tax authority would have satisfied itself that, the tax assessed on the income of the Applicant for the
3 Years immediately preceding the current year of assessment, has been fully paid.
The TCC must be issued within two weeks of demand. Otherwise, the relevant tax authority must
give reasons for the delay or denial. Meanwhile, the payment of current year tax shall not be made a
condition to collect it, unless the applicant is leaving the country finally.
Content/Disclosure on TCC
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TCC number, tax office, date of issue, name of Company, RC Number, date of incorporation, TIN,
effective business address
Revenue
Assessable Profit
Total Profit
Tax Payable/Paid
Tax Outstanding (If Any)
Source of income
Expiration Date
Transactions requiring TCC
Section 101 (4) of CITA provides that TCC shall be required in relation to the following
transactions:
▪️Application for Government Loan
▪️Registration of Motor Vehicle
▪️Application for exchange control permission to remit funds outside Nigeria.
▪️Application for Certificate of Occupancy
▪️Application for awarding contracts by Government and its agencies.
▪️Application for trade license
▪️Application for Transfer of real Property
In applying for TCC, any company who gives incorrect information in relation to its tax affairs shall
be liable to Penalty.
Objection and appeal procedure
Introduction
In practice, a lot do arise between Tax Authorities and tax payers which leads to dispute.
Generally, Tax disputes put tax payers in Precarious Situations as they are faced with a commercial
dilemma of making prompt business decisions in the face of Uncertain Tax Positions.
There are Number of reasons that lead to Tax Dispute, amongst them are:
1. Interpretation of Tax Laws
2. Inconsistency in Tax Authorities' Position
3. Inconsistency in the Provision of the Laws.
4. Inability of Tax Payer to keep Records for Long.
5. Audits/Tax Investigation Exercises.
Objection and Appeal Procedures
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Where a tax Payer receives a notice of assessment he either agrees with it or objects, thus:
▪️If he agrees with the assessment, the position of the Law is that he remits with in the statutory time
limit of Sixty (60) Days from the date of receipt of Such Assessment.
▪️If he disagrees, he is expected to raise a Notice of Objection. The Notice must be valid with the
following criteria:
⚩ Must have been made in Writing.
⚩ Must have been made within 30 Days of the receipt of the Notice of assessment.
⚩ Must Contain the Grounds of Objection.
▪️Upon receipt of the Valid Notice by the relevant Tax Authority, they will examine the grounds
of objection to determine their validity.
Where the grounds are found to be valid, the tax computations would be reviewed and a revised
assessment will be raised. Payment will now be based on that.
▪️Where the tax authority believes the objection grounds are not valid, then a "Notice of refusal
to amend" would be sent to the Tax Payer.
▪️If the Tax Payer still disagrees with the refusal, he should file a Notice to appeal to the Tax
Appeal Tribunal (TAT) within 30 Days of the receipt of the refusal notice.
Content of Tax Appeal

Tax File Number
Relevant year of assessment
Date the refusal notice was received
Assessable Profit for the Year of Assessment being proposed.
Taxable Profit being disputed
Amount of Tax Payable
Grounds of appeal’
The Tax Appeal Tribunal (TAT)
This is established by Section 59 (1) of the FIRS Establishment Act 2007 as Provide in the
5thSchedule of the Act.
➢ Power of the Minister: According to the act, he shall specify the jurisdictions of the
Tribunal.
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➢ Composition of the Tribunal: 5 Commissioners appointed by the Minister.
➢ Constitution of the Tribunal:
It specifies appointment Criteria upon which Commissioners can be based.
➢ Jurisdiction of the Tribunal: They attend to Disputes arising from all Tax Laws. E.g.
CITA, PITA, PPTA, VAT, CGT, Etc.
Criminal Prosecution
Where in the Course of the tax payer’s adjudication, the tribunal discovers evidence of possible
criminality, it shall be obliged to pass such information to the appropriate prosecuting authority, such
as the office of the Attorney General of the Federation or state or relevant Law Enforcement Agency.
Appeal to the Federal High Court
 Any Person dissatisfied with a decision of the tribunal may appeal against such decision to the
Federal High Court.
 A Notice of that should be given to the secretary to the tribunal within 30 Days after such decision
was given.
 Even if it is the FIRS that is dissatisfied, he shall also appeal to the Federal High Court.
Right to Legal Representation

▫️A Complainant/Appellant may either appear in Person or authorise its legal practitioners to
represent him before the Tribunal.
▫️If the person is of a Good Cause unable to attend hearing thereof, the tribunal shall adjourn the
hearing as it deems fit.
Powers & Procedures of Tribunal

They have the power to:
Summon and enforce the attendance of any person and examine him on Oath.
Require the discovery and production of Documents.
Receive evidence of affidavit.
Call for the examination of witnesses or documents Review its Decision.
Court of Appeal: If any party is still not satisfied with the decision of the federal High Court, he
shall appeal to the Court of appeal and further to Supreme Court.
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Value Added Tax (VAT)
Nature of VAT
The advent of VAT concept in the earliest part of the 21st Century brought about a global acceptance
in many countries. This was due largely to the ease of administration and high collection yield. VAT
as a consumption tax is a multi stage levy collected at every stage of
production and sales of goods or services.
Objectives of VAT
To Increase Government Revenue
To Avoid cascading effects
To reduce tax evasion practices
To increase exports
To Simplify tax collection procedures
The law Guiding VAT in Nigeria is The Value Added Tax Act 2014 and section 7 of the act
specifically says that VAT should be administered by the FIRS.
Registration for VAT

As obtainable in act, the following categories of persons must register For VAT:
▪️Taxable Persons - They shall register within 6 Months of the commencement of this act or 6
Months after the business commences.
▪️Government Ministries, Departments, etc. - They serve as agents of the FIRS.
▪️Non resident companies - Those Business carrying on businesses in Nigeria.
VAT Exempt Items
The following are exempt from VAT:
Goods
▪️All Medical & Pharmaceutical Products
▪️Basic Foods Items
▪️Baby Products
▪️Books & Educational Materials
▪️Plants, Machinery & Goods imported for use in the Free Trade Zones.
▪️Plants, Machinery & Equipment purchased for Utilisation of gas in downstream petroleum
operation.
▪️Tractors, Ploughs & Agricultural Equipments
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▪️Locally Produced Fertilisers & Veterinary Medicine
▪️Vegetable Oil
▪️All Exports
▪️Motorcycle, bicycle and their spares.
Services Exempted from VAT
▪️Medical Services
▪️Plays and performances conducted by educational institutions as part of learning.
▪️All Exported Services
▪️Services rendered by unit micro-finance Banks and mortgage institutions
▪️Training and education organised by non profit making institutions.
The New Finance Act 2019 added the following as VAT Exempt Items:
▪️Flour and starch
▪️Bread
▪️Fish of all kinds
▪️Fruits
▪️Live or Raw Meat and poultry
▪️Cereals like maize, rice, wheat, barley, sorghum etc.
▪️Milk whether fresh or powder
▪️Salt for culinary use only
▪️Vegetables e.g. Pepper, melons, okra, carrots.
▪️Water
▪️Exported Service
Zero-rate Supplies and Services
Non-oil Export
Goods & Services purchased by Diplomats

Humanitarian Donor funded project includes project undertaken by NGO A, religious bodies,
social activities who is not for profit making.
Computation of VAT liability

VAT payable/refundable for the period is calculated by Lessing Input VAT from Output VAT.
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VAT input is determined by applying 7.5% on Purchases after necessary adjustment have been
made. VAT output can be determined by applying 7.5% on the Net Sales after adjusting any sales
returns. This appropriate figures shall be filled in the VAT form 002
Registration, records keeping and Valid VAT Invoice
A Taxable person shall within six months of the commencement of Business register for VAT with
the FIRS and obliged to keep such records and all transaction documents relating to Taxable goods
and services. A Taxable person who fails to register with the FIRS, failed to notify change of address
or permanent cessation of trade shall be liable to Penalty of an amount:
▪️N50,000 for the 1st Month the failure occurs, and
▪️N25,000 for each subsequent month the failure continues.
Failure to remit VAT payable within the time specified in Section 15 of the Act attracts a penalty of a
sum equal to 10% of the total tax not remitted and interest at the prevailing CBN Minimum
Rediscount Rate.
Also, according to the New Finance Act 2019, a company with turnover less than #25Million in a
year (A small company) is exempted from VAT.
Output VAT - VAT on Sales
Input VAT - VAT on Purchases
If the output VAT exceeds the input VAT, the excess is VAT payable and it should be remitted to the
FIRS. While a Taxpayer is entitled to refund if the Input VAT exceeds the Output VAT.
Such excess could be used as a set off against future VAT liability.
Limitation on Input VAT
According to Section 13 of the VAT Act, input tax allowed as a deduction from output tax is limited
to tax on Goods purchased or imported directly for resale which form the stock in trade used for the
direct production of Products, on which output VAT is charged.
Consequently, the following Input VAT are not allowed as deduction from Output VAT. Input tax
on:
▪️Overheads, services, and administration expenses - Such should be written off to Income
Statement.
▪️Capital Assets - Such should be capitalised together with the Cost of the Item, in the Balance
Sheet.
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VAT Technical Committee
The Act established a VAT Committee which comprises of:
▪️The FIRS Chairman
▪️All Directors of the Revenue
▪️The Legal adviser to the Revenue
▪️A Director in the Nigeria Customs Services
▪️3 Representatives of the State Governments who are members of the JTB.
Functions of the Committee

Advise the service on matters relating to VAT.
Consider all Tax Matters that require Professional and Technical Expertise and make
recommendations to the Service.
Address any matter as referred to it by the Service.
VAT Tribunal.
The Minister shall establish, by notice in the Federal Gazette, zonal VAT Tribunals, spread
geographically throughout the Country. Each of the Zonal VAT tribunal shall consist of not more
than 8 Persons, none of whom shall be a serving public officer and one of whom shall be designated
as Chairman by the Minister.
The chairman of each zonal VAT tribunal shall:
▪️Be a legal practitioner of not more than 15 years post call experience, and
▪️Preside over the proceedings of the Tribunal Other members shall be appointed by the Minister and
shall hold office for a period of 3 Years.
Any Taxable person who is aggrieved by an assessment or demand notice made upon him shall
appeal to the VAT tribunal. Any judgement passed by The Tribunal is equivalent to that of Federal
High Court.
Merits of VAT
1. Reliable source of income
2. Being a consumption tax, its very easy to collect.
3. It can be used as a tool for fiscal policy. Items can be exempted, tax rates can be changed as the
case may be.
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Demerits of VAT
1. High Administrative Costs on the part of FIRS
2. High cost of keeping records on the part of the Taxpayer.
3. Injustice in the Distribution of VAT Proceeds.
4. Corruption on the part of Tax officials.
Tax Jurisdiction is discussing taxes due to each tier of Government. There are 3 Tiers of
Government, charged with the Administration of Tax in Nigeria. The federal, state, and local
governments. Each of them has its own Tax Authority created by Federal Laws.
The authority includes:
1. The Federal Inland Revenue Service Board (FIRSB)
2. Joint Tax Board (JTB)
3. State Board of Internal Revenue (SBIR)
4. Joint State Revenue Committee
5. Local Government Tax Authority
Let us take them one after Another:
The Federal Inland Revenue Service (FIRS) Board
This is the Management Board of the FIRS, established by an Act of the Federal Republic of Nigeria
known as the FIRS Establishment Act 2011. They have a quiet number of Functions and Powers, but
more importantly they administer Taxation of Incorporated Companies Profits.
Composition of the Board:
1. The Executive Chairman
2. Six Members with Relevant Qualification and Expertise (Representing the 6 Geopolitical Zones of
the Country).
3. A representative of the Attorney General Of the Federation
4. The Governor of the CBN or his Representative
5. A Representative of the Minister of Finance, not below the rank of Director.
6. The Chairman of the Revenue Mobilisation Allocation and Fiscal Commission or his
representative, who shall be any of the Commissioners representing the 36 States of the Federation.
7. The General Managing Director (GMD) of NNPC or his Representative.
8. The Comptroller General of the Nigerian Customs Services (NCS) or his Representative.
9. The Registrar General of the Corporate Affairs Commission (CAC) Or His Representatives.
10. The CEO of the National Planning Commission or his Representative.
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Powers and Functions of the FIRS Board
1. Providing General Policy Guidelines relating to the Functions of the Service.
2. Managing Policies of the Service on matters relating to the Administration of assessment,
collection and accounting system under this Act.
3. Employing Terms and conditions of the service including any disciplinary measures for
employees.
4. Stipulating remuneration, allowances, benefits and pensions of Staffs and Employees.
5. Do Such other things Necessary To ensure the efficient performance of the functions of FIRS.
The Board Also established a Technical Committee which assist the FIRS in performing their Duties.
Joint Tax Board (JTB)

This is established by Personal Income Tax Act of 2004 as amended.
Composition
1. The Chairman of the FIRS.
2. One member from each state.
3. The Secretary, who is not a member of the board and is appointed by the Federal Civil Service
Commission (FCSC).
4. The Legal Adviser of the FIRSB.
Their Functions
1. Advice the Federal Government on request in respect of double Taxation Arrangement with any
other Country.
2. Promote Uniformity both in the Application of Personal Income Tax and in the incidence of Tax
On Individuals throughout Nigeria.
3. Impose its decision on matters of interpretation of PITA on any state.
Quorum: Seven Members or their representatives shall constitute a Quorum.
State Board of Internal Revenue (SBIR)
At the state level of jurisdiction, they administer all taxes relating to each state of the Federation.
Composition:
1. Executive Chairman
2. Directors and Head of Department (HOD)
3. A Director from the state ministry of Finance
4. 3 Persons Nominated by the Commissioner of Finance in the state of their personal Merit.
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5. A Legal Adviser to the state service.
6. The Secretary to the state who shall be an Ex-Officio Member.
Functions:
1. Assessment of PAYE and other taxes that relates to Individuals, eg. WHT for individuals.
2. Ensure effectiveness and optimum collection of all Taxes and Penalties Due to State Governments.
3. Making recommendations to the JTB on tax policy.
4. Appointing, promoting, transferring and Imposing discipline on employees of the state service.
The State Board also have a technical committee like that of Federal Board.
Joint State Revenue Committee
According to the Act, each state of the Federation Should have a joint state revenue committee,
comprising of:
1. The Chairman of the SBIR As the Chairman.
2. The Chairman of the Local Government Revenue Committee.
3. A Representative of the Revenue Mobilisation, allocation and fiscal commission, as observer.
4. A Representative of the Bureau of Local Government Affairs.
5. Legal Adviser to the SIRS.
6. A Secretary to the Committee usually a Staff of SIRS.
Function:
1. They implement decisions of the Joint Tax Revenue Service.
2. They advise on Tax Matters.
3. They harmonise Tax Administration in the State.
The Local Government Tax Authority

It establishes a Local Government Revenue Committee with the following composition:
1. The Supervisor for finance as Chairman
2. 3 Local Government Councillors as members
3. Two other Persons experienced in revenue matters.
Function:
1. Assessment and collection of all taxes, fines and rates under its Jurisdiction.
2. Accounting for all amounts so collected as prescribed by the chairman.
3. The Committee is autonomous of the local government treasury department and shall be
responsible for the Day to day administration of the Department which form its Operational Arm.
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Fiscal Federalism / Taxing Power
Power to impose tax on Individuals and Corporate Bodies is the Exclusive list of the Constitution.
I.e. Exclusive to the Federal Government. While the collection of those taxes is a Concurrent List.
I.e. split between the 3 Tiers of Government. This is contained in the Taxes and Levies (Approved
List for Collection) Act Cap T2 LFN 2004 (As amended).
The Contents relating to each Tier of Government are:
▪️To the Federal Government
Petroleum Profit Tax
WHT on Companies and residents of Abuja & Non-residents.
Value Added Tax
Tertiary Education Tax
Capital Gains Tax for Companies, residents of Abuja & Non-residents.
Stamp Duties on Companies, and residents of FCT.
Personal Income Taxes in respect of the Armed Forces, Police Men, Ambassadors and residents of
FCT.
▪️To the State Government
Personal Income Tax (PAYE & Self Assessment). This covers anyone living in that state irrespective
of where they work.
WHT on Individuals.
Capital Gains on Individuals.
Stamp Duties on Instruments executed by individuals.
Business Premises Registration Fee.
Development Levy.
Right of Occupancy Fees/Land Use Charge/Ground Rent (As the case may Be).
Road Taxes
Pools betting, lotteries, gaming and Casino Taxes.
Road Worthiness.
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Market Taxes and levies where the state finance is involved.
▪️Local Government
Shops and Kiosk Rates.
Tenement Rates.
Liquor Licence Fees.
Marriage, birth and death registration fees.
Naming of Streets registration excluding those in the state capital.
Motor park Levies Etc.
Limitations Of Tax Administration

1. Poor Public Enlightenment
2. Poor Governance
3. Tax Evasion
4. Loopholes in the Tax Laws
5. Improper Use of Tax Consultants
6. Inadequate funding of Tax Authorities
7. Lack of Qualifying Tax Officials at state and Local Levels.
Registration of Taxpayers with Tax Authorities

Registration The FIRS/SIRS have a standard questionnaire expected to be completed by Tax Payers
for the registration under the Provision of CITA, PITA, PPTA, Etc.
The Following details shall be submitted together with Certificate Of Incorporation:
▫️The Business Address
▫️Names and addresses of the Shareholders(Together with their Shareholders).
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VAT Registration
A Vatable person or VAT Agent is required to file application for VAT registration at the Nearest
Tax Amnesty, including Voluntary Assets and Income Declaration Scheme (VAIDS).
For the First time In Nigeria, the Federal Government recently approved the VAIDS with the Aim of
providing Tax Defaulters an opportunity to defray all Unsettled Tax Liabilities. Under the scheme,
tax defaulters were required to voluntarily disclose any Undisclosed Income and
assets relating to the preceding six (6) years of assessment within 9 Months Period from July 1 2017.
This has been described as giving Tax Amnesty to defaulters for a limited period. At the expiration
of the scheme on March 31 2018, the federal government extended the scheme by an additional three
months due to a clamour for extension by the Public. The VAIDS window
eventually closed on 30th June 2018.
Objectives:
To provide tax payers time-limited Opportunity to regularise their tax status relating to previous
periods and pay their liabilities.
To Implement the policy of Voluntary Declaration as embedded in the National Tax Policy.
To grant Taxpayers Forgiveness of overdue interest and penalty
To assure them that they would not face criminal prosecution for tax offences or future tax
audit/investigations.
Eligibility to Participate
Those who Earned Income or owned assets but were yet to register with the relevant tax authority.
Those who registered but were not filing returns, or did not update their disclosure.
Those who were not fully declaring their Taxable Income & Assets.
Those who were underpaying or under Remitting their taxes.
Those who were under a process of Tax audit/investigations with the relevant tax authorities.
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Those who were in a tax dispute with the relevant tax authority but were willing to settle it out of
Court.
Requirements for a Valid Declaration
For an application to the scheme to be valid, the following requirements must be met:
▪️The Disclosure by the Tax payer should be Voluntary
▪️The Disclosure must be Complete, Frank, and Verifiable in all material respects.
▪️The Must be made using the VAIDS forms.
▪️The assessment of the Tax payable must be carried out by the relevant tax authority.
Reliefs/Benefit from the Scheme
Any Taxpayer who participated, paid all tax dues and certified for the Purpose of the Scheme
enjoyed the Following Benefits:
▪️Immunity from Tax Audit/Investigation.
▪️Immunity from prosecution for tax offences.
▪️Waiver of interest and penalties.
▪️Option of spreading payment of outstanding liabilities over a maximum period of 3 years as may be
agreed with the relevant tax authority.
Provided that the waiver granted under this scheme shall not prejudicially invalidate any court order
or judgement already obtained or established in the court of law. The reliefs mentioned above are
available in respect of all taxes administered by the FIRS and SIRSs.
Consequences of failure to participate

Any defaulter who did not promptly take advantage of the scheme, shall at the expiration of the
scheme result into the following:
▪️Liability to pay in full, the principal sum due.
▪️Liability to pay all interest and penalty
▪️Liability to undergo Comprehensive tax audit exercise.
▪️Liability to be prosecuted for any tax offence.
40
Returns, assessment and collection Procedures
Registration with Tax Authorities
The FIRS/SIRS have a standard questionnaire expected to be completed by Tax Payers for the
registration under the Provision of CITA, PITA, PPTA, Etc.
The Following details shall be submitted together with Certificate of Incorporation:
▫️The Business Address.
▫️Names and addresses of the Shareholders (Together with their Shareholders).
VAT Registration
A Vatable person or VAT Agent is required to file application for VAT registration at the nearest
41
Taxation of Employment In Contract of Employment
This is an agreement whereby a person is engaged to carry out an assignment or a project for a
company or client.
The Law Guiding taxation of an Employee is Personal Income Tax Act 2004 and it defines it asany
appointment or office whether public or otherwise for which Remuneration is payable.
An Employee is different from a self employed person. Though, same Act guides them but they
are not assessed the same way.
For example, an employer is different from employee in the following instances:
▪️ A Self Employed Person earns Profit, but an employee earns Remuneration
▪️ A Self Employed Person is assessed through Direct Assessment and
that's PYB. While anemployee is assessed using Pay as you earn scheme and that's AYB.
▪️A Self employed person is required to register for VAT, while an employee does not.
Types of Employment
Nigerian Employment: The one that's being performed in wholly or partly in Nigeria.
Foreign Employment: That one that it's duty is wholly performed outside Nigeria.
Employment, Vocation and Profession
Employment: This is an agreement between the employer and the employee that the employee will
provide services to the employer to facilitate the employers Goal and mission in return for
compensation. In employment, the employer determines where, when, how and what is performed by
the employee.
Vocation: This is a specified occupation or trade that someone engages in as a source of livelihood.
Profession: This refers to an occupation that requires specialised training, education, skills and
ethics. People who does this maintain common standards in the society. Example is Accountancy
Profession.
Itinerant Worker
This an individual which works in any state during a year of assessment for wages or salaries in more
than one state for a minimum of 20 days in at least 3 Months in every year of assessment.
Composition of Employment Income
Cash Emoluments: This includes Salary, wages, fee, allowances, bonuses, compensations, share of
profits provided they are received in Cash.
Benefits in Kind (BIK): These are other provisions by the employer made to the employee to make
working condition easy for him. Such includes living accommodation, official car, furniture,
42
domestic servants, etc. These employees are regarded as part of the employee's Taxable income. The
major issue with BIK in Practice is how to Quantify them.
Rules applicable to Benefits in Kind (BIK)
Use of Assets
▪️Where owned by the Employer: Where assets like Motor Vehicle, furniture and fittings, plant and
machinery are acquired by the employer and provided for the exclusive use of the employee, the
employee is deemed to have derived income equal to:
▫️5% of the assets costs if known; or
▫️5% of the market value at date of acquisition, where cost is not known (to be determined by the tax
authorities).
Rented or hired by the Employer
If an employee is provided with an asset for which an employer pays a rental charge, the employee is
deemed to have derived income equal to the Annual Rental Amount paid by the employer.
Note: Where an employee has made any refund in respect to the rented or hired asset, the Taxable
income shall be the difference between the total amount and the refund.
Provision of Residential Accommodation:
If an employer with a residential accommodation in Nigeria and employee pays no rent at all or
lesser rent, the employee is deemed to have derived income equal to the annual rateable value of the
premise which is to be determined by the Tax Authority.
Domestic Staff paid by the employer: Such as drivers, housemaid, cook, wash man, gardener, etc.
The salary of the staff shall be deemed as Taxable income in the hands of the employee.
Note: The Income of a domestic staff shall only be deemed to be Taxable income in the hands of the
employee where the domestic staff is not a permanent employee of the employer (i.e. A contract
staff).
BIK exempted from Tax
Some expenses borne by the employer on behalf of the employee are not regarded as BIK, and
therefore, not Taxable in the hands of the Employee. Example are:
▪️Expenses in connection with the provision of Meal/Lunch for all staffs of non assignable.
▪️Expenses incurred with the provision of uniforms, overall, and other protective clothing.
▪️Expenses Connected with Employee's change of residence as a result of change in his employment
or transfer.
Determination of Residence
43
In Personal Income Taxation, determination of residence is very important. PITA is paid on
residence basis and so, identifying the relevant authority of a Taxpayer is very key. The 1st schedule
to PIT Act provides details for the determination of residence.
A Resident Individual: An individual is regarded as resident in Nigeria in any year of assessment if:
▪️He is domiciled in Nigeria
▪️He stays in Nigeria for a period up to or more than 183 days in a year.
▪️If he's a diplomat of the country to another nation.
A Non resident individual: That one who is not domiciled in Nigeria or stays for less than 183 days
in a 12 Month's Period, but derives income in Nigeria.
Such person becomes liable to tax from the day he commences business or trade or vocation or
profession in Nigeria. He's not Taxable on Employment Income until he becomes resident.
Residence and Nationality
Residence should not be confused with Nationality. The Nigerian Tax laws attached Importance to
Residence and not Nationality. Therefore, whether you are a citizen of Nigeria or an expatriate, the
same standard applies to you so far you reside in Nigeria.
Also, the same condition applies to a Non Resident Whether he is a Nigerian Citizen or not.
Place of Residence
This is one of the grey areas in Personal Income Tax as relates to an individual only and its very
important as far as Personal Income Tax is concerned. This is a place available for his domestic use
in Nigeria on a relevant day, and does not include any hotel, rest house, or other place at which he's
temporarily lodging, unless no more permanent place available for his use that day.
Principal Place of Residence
This comes into play when an individual has 2 or more places of residence (States) in Nigeria. This
creates confusion as to which state is to receive tax on him. The following rules apply in that case:
▪️If his source of income is Earned Income, other than pension: The State nearest to his usual place of
work.
▪️If he's got no other source of income than Pension: Place(s) he usually resides.
▪️An Individual with sources of unearned Income: Same as that of Pension.
▪️An individual who works in an office or operational site of a company - The place which the
branch office or operational site situates provided the operational staff can accommodate a minimum
of 50 Workers.
Residence of Categories of Individuals Taxable under PITA
An Employee: A State/Place available for his domestic use.
44
An Executor: He is deemed to be resident in a state/territory in which the deceased individual was
last deemed to be resident.
A Trustee or any trust or settlement: He's deemed to be resident where the income of the settlement
or trust arises. Where the income arises from more than one territory or tax authority not
determinable, FIRS is the Tax Authority.
Partners: Partners in partnership business is resident where the principal office of the partnership
business is situated on the first Day of the year.
An itinerant worker: He is resident where he is found in a year of Assessment.
An individual whose only Source of earned income is Pension: Principal place of residence.
Earned and Unearned Income

For the purpose of Personal Income Tax, and place of residence, income is classified into:
▪️Earned Income - Incomes derived from Employment, profession, trade and vocation.
▪️Unearned Income: Income from investments such as rent, dividend, Royalties, interests, technical
fees, etc.
They are referred to as unearned because individuals do not actively participate in the business
activities, they put in money that bring in returns for them.
Anytime dispute or controversies arise as a result of determining place of residence, the JTB resolves
it.
Computation of Personal Income Tax

Pay-as-you-earn (PAYE) Scheme
An employer shall register with relevant tax authority for the processes of deducting tax from
employee's income and remit the tax 10 Days after the end of the month the Salary is paid.
The employer does this on monthly basis and upon payment, keeps the receipt for record purpose.
45
The relevant tax authority is the state of which the Employee resides and not where the business is
carried out. This is very important to note because it creates dispute in practice.
Allowable and Non-allowable Deductions
Allowable Deductions are:
▪️Interest paid for the Purpose of the business.
▪️Rent paid for the Purpose of acquiring the income.
▪️Repairs of premises, plant, machinery, fixtures.
▪️Specific Provision for bad debts.
▪️Bad Debts written off.
▪️Contribution to a pension scheme approved by The JTB.
▪️Legal Expenses that are limited to:
▫️General Legal Advisory Services.
▫️Retainership Fees.
▫️Cost of protecting or defending the business or properties of the business.
▫️Renewal of short lease.
▪️All other expenses as considered by the Revenue Authority that they are incurred Wholly,
Reasonably, Exclusively and Necessarily (WREN) for the purpose of the business.
Non-allowable Deductions
▪️Domestic or private expenses
▪️Any withdrawal from the business.
▪️Capital Expenditure
▪️Loss or expenses recoverable under an insurance agreement.
▪️Any Rent incurred for purposes not for Business.
▪️Depreciation
Basis of assessment
The basis of assessment of Personal Income tax is on Actual Year Basis (AYB). That is for Earned
income, but for unearned incomes, it's on Preceeding Year Basis (PYB) because companies you own
investments in will pay returns after they have done AGM which will make it to enter another
financial year.
Consolidated Relief Allowances (CRA)
This is computed as
N200,000 or 1% of Gross Income, (Whichever is higher)
PLUS + 20% of Gross Income.
46
It is to be noted that Gross Income includes all incomes of the employee whether received in cash or
in kind, excluding those specifically exempted. Ie. Earned Plus Unearned Income
(Excluding Franked Investment Income).
Tax-Exempt Deductions
National Housing Fund (NHF) Contribution: The NHF Act 2004 provides that every Nigerian
earning an income of #3,000 and above per month in either public or private sector of the economy
shall contribute 2.5% of his Basic Monthly Salary to the Fund.
The fund is managed and administered by the Federal Mortgage Bank of Nigeria. Failure to deduct
attracts #50,000 fine for the employer, while self employed pay #5,000 as penalty or 1 Year
Imprisonment or both.
National Health Insurance Scheme (NHIS): This was also set up by NHIS Act 2004. This is not
compulsory as the act dictates.
Life assurance Premium: If the individual has a life assurance scheme that he pays premium into.
Note that this defers from that one the employer might be paying for all his staff.
National Pension Scheme (NHS): The pension reform Act 2014 establishes a uniform contributory
rate for all employees in both private and public sector. Any organisation with more than 15
employees must adapt to this. This shall be paid to employee's RSAs before the 7th day of payment
of the Salary. The rate of contribution is 10% Employer, 8% Employee. However, Contribution
made by the employee shall be tax deductible.
Gratuities: Money paid to an employee who is retiring or leaving his employer's job after serving for
several years. Gratuity is tax deductible.
PITA Table
(I) 7% for the 1st #300,000 from the total taxable Income
(ii) 11% for the Next #300,000 out of balance from (i) above
(iii) 15% for the Next #500,000 out of balance from (ii) above
(iv) 19% for the #500,000 out of balance from (iii) above
(v) 21% for the Next #1,600,000 out of balance from (iv) above
(vi) 24% for income above #3,200,000 Excess out of balance from (v) above
Format for Personal Income Tax
47
Earned Income:
Employment Income XX
Business Income XX
Partnership Income XX
Vocational Income XX
Unearned Income:
Rental Income (Gross) XX
Dividend (Gross) XX
Interest (Gross) XX
Royalties (Gross) XX
Gross Income XX
Less: Dividend Income (X)
Total Income XX
Less Consolidated Relief Allowance (X)
Less Tax exempt items:

NHF Contribution X
NHIS Contribution X
National Pension Fund X
Life Assurance Premium X
Gratuity X (X)
Chargeable Income XX
Then apply the Tax Table
Illustration
Madam Arama Ichameyno retired as a Director in the Federal Ministry ofJustice on 31 December 20
11. On retirement, she was paid a gratuity of
N30,000,000.On 1 January 2012, she was employed by Septraco
Limited as theCompany Secretary, on a salary of N60,000,000 per annum.
Madam Arama Ichameyno is married and has five children.
The following information was also provided at the end of his first yearin his new employment:
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(i).The eldest son, Onyebuchi, is gainfully employed with Golf Bank Limited.
(ii) The company provides Mrs. Amara Onyemachi with an official
car – Toyota Prado- with a market value of N15,000,000.
(iii)The company pays N7,500,000 per annum on her official accommodation.
(iv)Madam Ichameyno has a life assurance policy with Mutual
Assurance Plc. The sum assured is N50,000,000, while premiumpaid is
N6,000,000 in 2011.
(v)She contributed N400,000 monthly to an approved Pension Scheme.
(vi)She spent N150,000 during the year for the upkeep of his two aged parents who
have no source of income.
Required:
Compute Madam Arama Ichameyno’s monthly and annual tax liabilities for the relevant
year of assessment.
2)Mr. Olasumbo Adejumo retired from the Public Sector of LagosState Government on 31 March 201
3. He subsequently securedemployment with First Bank Nigeria Plc as a Marketing Manager,
effective 1 July 2013.
The following information has been provided by Mr. Adejumo:
(a)Salary 1 January to 31 March 2013: N360,000 per
month
(b) New employment: N2,640,000 per annum.
(c)Pension income, effectively 1 April 2013: N720,000 per
annum.
(d)Transport allowance new employment: N80,000 per
annum.
(e)Rent allowance – new employment: N240,000 per annum.
(f)Contribution to National Housing Fund and National
Pension
Scheme: 21/2 % and 71/2% of Consolidated gross income
respectively.
(g) Rental income received (Gross)
N
49
3/3/2012 250,000
9/8/2012 380,000
20/7/2011 180,000
2/12/2011 75,000
(h)Mr. Adejumo is married and has four children, aged
between 2and 19 years. All except one named Olawole aged 19 are still
in school.
(i)Mr. Adejumo has a life assurance policy on his life with a
sum assured of N5,000,000 and annual premium of N350,000.
(j)His aged parents live with him. They have no income of
their own.
Required:
Compute the Personal income tax payable by Mr. Adejumo for the relevant year of assessment.
3)In accordance with the provisions of the Personal Income Tax Act 2004(as amended) to dateexplai
n the the provisions of minimum tax as they apply to an individual taxpayer.
Solution 1
Madam ARAMA ICHAMEYNO
COMPUTATION OF THE MONTHLY AND ANNUAL TAX LIABILITY FOR
2012 TAX YEAR
N N
Annual salary 60,000,000
B.I.K –
Official car – 5% X N15,000,000 750,000
Accommodation – Rent
– 5% X 7,500,000 375,000 1,125,000
Gross Income 61,125,000
Less: Reliefs and Allowances:
Consolidated Relief Allowance –
(20% X N61,125,000 + Higher
of N200,000) or (1% X N61,125,000) 12,836,250
Life Assurance Policy – Premium 6,000,000
Pension - N400,000 X 12 4,800,000 (23,636,250)
Taxable Income 37,488,750
50
N
Applying Tax Table of Rate
1st N300,000 @ 7% 21,000
Next N300,000 @ 11% 33,000
Next N500,000 @ 15% 75,000
Next N500,000 @ 19% 95,000
Next N1,600,000 @ 21% 336,000
Next N34,288,750 @ 24% 37,488,750 8,229,300
Annual Tax Liability 8,789,300
Monthly Tax = N8,789,300/12 = N732,441.67
Solution 2
MR OLASUMBO ADEJUMOCOMPUTATION OF PERSONAL INCOME TAX PAYABLE
IN 2013 TAX YEAR
N N
Earned Income:
Employment Income:
Income from Public Servic 1/1/12-31/3/12
Salary – 3 x N360,000 1,080,000
Income from Public Limited company 1/7/12-31/12/12
Salary – 6/12 x N2,640,000 1,320,000
Transport Allowance – 6 x N80,000 480,000
Rent Allowance – 6 x N240,000 120,000 1,920,000
Gross Emoluments 3,000,000
Add: Unearned Income
Rental income:
3/3/2012 250,000
9/8/2012 380,000 630,000
Gross Income 3,630,000
Less: Reliefs and Allowances:
Consolidated Relief allowance-
Higher of 1% x N3,000,000 or N200,000 +
20% x N3,000,000 800,000
51
Pension – 7.5% x N3,630,000 272,000
NHF – 2.5% x N3,630,000 90,750
(1,163,000)
Taxable Income 2,467,000
Applying Tax Table of Rate
N
1st N300,000 @ 7% 21,000
Next N300,000 @ 11% 33,000
Next N500,000 @ 15% 75,000
Next N500,000 @ 19% 95,000
Next N867,000 @ 21% 182,070
Tax Payable 406,070
Solution 3
In accordance with the Personal Income Tax Act 2004 (as amended), minimumtax shall be
payable where:
(a)there is no chargeable income for an individual; or
(b)where the tax payable on the chargeable income of that individual isless than 1 per centum of his t
otal income; or
(c) the individual earned income does not exceed N300,000.
52
Computation of Minimum Tax for Individuals
Every employee is required to pay a minimum amount of tax to the Government and that is 1
%of the Total Income. This is applicable where:
️ The Tax Payer has no Taxable Income due to large tax reliefs
▪️ Taxable Income produces a lower tax than the Minimum Tax
▪️ Earned Income does not exceed #300,000.
Baba Gardner was employed on a monthly minimum wage of N18,000. Compute his tax
liability for the relevant tax year.
Solution.
Employment income (N18,000 X 12) = N216,000
Less: CRA = N200,000 + 20% of N216,000 = (243,200)
Taxable Income (27,200)
Tax liability is restricted to 1% of N216,000 for the year = N2,160
53
Filing of Returns: Employers & Employees
Employers
Not later than 31st January of each Year, An employer is required to file a return with
the relevant tax authority of all emoluments paid to the employee in the preceding year,
and tax relief if any.This shall be accompanied by a statement and a
declaration on Form H1.
Any employer who contravenes this provision shall be liable to pay a penalty of #500,000
(in case of corporate body) and #50,000 (in case of individual)
Employees
Every Taxable Person resident in a given state, within 90 Days from the commencement of
every
year of assessment, is required to file with the relevant tax authority a return showing the
amount of income from every source.
Filing of Tax Returns Companies

Any Company registered in Nigeria must submit prescribed information to the Relevant Tax
Authority within 6 Months of Accounting Year End.
A new company shall file its own return within 18 months of Incorporation or 6 Months after
the first Accounting Year, (Whichever is earlier).
For Annual Returns, the following documents are submitted:
➖ Signed Audited Financial Statements, together with a Covering Letter from the Tax
Consultant.
➖ Capital Allowance and Income Tax Computation.
➖ Assessment Forms for Income Tax and Education Tax.
➖ Evidence of Payment.
Assessment Procedures
Where a company has filed a self-assessment return comprising of Tax computation and
audited accounts, the FIRS May accept if found satisfactory. At the expiration of the time
limit specified by Section 55 (3), CITA for the submission of Tax returns, the FIRS shall
proceed to assess every company that fails to file its self assessment returns. We have the
following kinds of assessments:
54
Self-Assessment: Self-Assessment is a tax system where Taxpayer is granted rights by law
to compute his own tax liability by himself, pay the tax due, but file his tax returns with
evidence of payment of the tax paid on or before the due date.
A company that file self-assessment return is required to pay the tax due in one lump sum or
on instalments, not exceeding six months as approved by the FIRS.
Additional Assessment: Where FIRS discovers through Desk Review or Audit Exercise or
is of the opinion that a company liable to pay tax has assessed himself for a lower amount
that is chargeable. They can raise additional assessment on the Tax Payer. They can go as far
back as 6 Years.
Best of Judgement (BOJ) Assessment/Administrative Adjustment: The FIRS will subject a
company to this assessment under the following situations:
▪️Where a company fails to submit a self assessment return, or ▪️Where the authority refuses
to accept the return filed.
Back Duty Assessment: Where a tax payers or its representative has committed fraud, wilful
default, FIRS is empowered to assess such Companies to additional tax. This can be raised by
the revenue at any time necessary without time limit.
Notice of Assessment: Where the FIRS has observed that a tax payer who suppose to remit
tax has not done so, they can send him a notice of assessment, showing Amount of total
profits, tax payable and where to pay it.
Final and conclusive assessment: This assessment is raised upon the following circumstances:
▪️Where no valid objection or appeal has been lodged against the profit assessed.
▪️Where the amount of Total Profit has been agreed by a Taxpayer after his objection has
been determined by FIRS.
▪️The Amount of total profit has been determined on appeal.
Enforcement Procedures
Where a company has failed to pay any income tax assessed on it, the FIRS is empowered to
enforce or recover tax paid through any of the following methods stated:
▪️Distrain on the taxpayer's goods, other chattels, bonds or other securities.
▪️Distrain upon land, premises, or places owned by the tax payer.
Such properties distrained may be sold by the Tax Authority.
▪️FIRS may sue such Taxpayer in the court of Law.
Tax Clearance Certificate (TCC)
55
This is document issued by Tax authorities to Taxpayer indicating the applicant's tax affairs
are in order.
In Nigeria, TCC is issued upon application by the Taxpayer. In issuing the certificate, the
relevant tax authority would have satisfied itself that, the tax assessed on the income of the
applicant for the 3 Years immediately preceding the current year of assessment, has been
fully paid.
The TCC must be issued within two weeks of demand. Otherwise, the relevant tax authority
must give reasons for the delay or denial. Meanwhile, the payment of current year tax shall
not be made a condition to collect it, unless the applicant is leaving the country finally.
Content/Disclosure on TCC
TCC number, tax office, date of issue, name of Company, RC Number, date of incorporation,
TIN, effective business address, Revenue, Assessable Profit, Total Profit Tax Payable/Paid,
Tax Outstanding (If Any), Source of income, Expiration Date
Transactions requiring TCC;

Section 101 (4) of CITA provides that TCC shall be required in relation to the following
transactions:
▪️Application for Government Loan
▪️Registration of Motor Vehicle
▪️Application for exchange control permission to remit funds outside Nigeria.
▪️Application for Certificate of Occupancy
▪️Application for awarding contracts by Government and its agencies.
▪️Application for trade license
▪️Application for Transfer of real Property
In applying for TCC, any company who gives incorrect information in relation to its tax
affairs
shall be liable to Penalty.
Taxation of Investment Income (Unearned Income)
Investment incomes are incomes received primarily from investment decisions such as purch
ase
56
of shares, investment properties, placement of cash in fixed deposit, etc. Example of the inco
mes
are Rent, royalty, interest, dividend, etc.
Rental Income
The Gain or Profit arising from other Persons for the use or occupation of any propert
y ischargeable to tax. Mostly, rent are received in advance and in such instance, it will be
spreadover the period it belongs to (Provided its not more than 5 Years). However, if the Rent
receivedcovers a period more than 5 Years, it will only be spread over 5 Years. For tax purp
oses, rentalincome from a property is only arrived at after deducting allowance expenses dir
ectly incurred
for the purpose of earning the income.
Allowable Rental Expenses are:

▪️ Tenement Rate or Land Use Charge
▪️ Cost of collecting rent. Eg. Fees paid to Caretaker, estate agents, legal representative, etc.
▪️ Cost of advertising for Tenants
▪️ Any Expense incurred for repairs and maintenance of the Building
▪️ Bad Debt Incurred
▪️ Interest on money borrowed and employed in acquiring or renovating the property.
▪️ Commission paid to agents or caretaker
▪️ Insurance Premium paid on the property
▪️ Water Rate.
Disallowable Expenses
▪️ Depreciation on the building
▪️ Appropriation of Profit including income tax, drawings, reserves, etc.
▪️ Any Expenditure of Capital Nature
▪️ Any expense not incurred for the purpose of rental income.
Income from Dividend, interest and royalty are assessable to tax. Though, there are some
specific incomes exempted from tax as they are made known in the relevant Tax Laws.
Basis of assessment for Investment income is on Preceding Year Basis.
57
Taxation of Sole Traders or Self Employed Individuals
Introduction
The Profit of an enterprise, being unincorporated entity is taxable in the hands of the owner.
Incomes of Sole traders are assessible to tax under Direct Assessment.
All rules applicable regarding Commencement, change of accounting date and cessation of
business also apply here.
58
Loss relief
The procedure here is similar to that of incorporated companies except for current year loss.
That
is carry forward loss relief is the same thing with that applicable under CITA.
Current Year Loss Relief (Section 36)
▪️The trade lose can be set off from the current year's gains or profits from other sources of
income.
▪️Such losses can also be set off from the preceding year's gain or profit, provided that it is
claimed in writing within 12 months after the end of the year of assessment.
▪️It only covers trade losses and not personal stuff.
Carry forward loss relief

The procedure for granting such are as follows:
▪️This relief is in respect of the loss brought forward from the Preceding year of assessment.
▪️It is automatically granted hence no need for claiming it by writing to the tax authority as
applicable under current year's.
▪️The relief is available only against the gains or profit of the same trade as the source, from
where the loss arises.
▪️Aggregate deduction from assessable income must not exceed amount of the loss.
▪️The Amount must not have been earlier relieved under the current year's relief provision.
▪️With effect from 2007 Year of Assessment, Losses can be carried forward indefinitely.
Capital Allowance
This is a relief granted to Taxpayer who incurs Qualifying Capital Expenditure (QCE) during
a Basis Period in respect of assets in use for the purpose of trade or business at the end of the
basis period. This is given in lieu of Depreciation which is treated as non allowable expense
for tax purposes.
Condition for granting Capital Allowance
59
For any capital allowance claimable on QCE to be valid, the following conditions must stand:
▪️The QCE must have been incurred in the Basis Period.
▪️The QCE must have been put into use for the Purpose of the Business.
▪️The Assets must be in use as at the end of the basis period, and not disposed off before the
year
end.
▪️Application for Certificate of Acceptance of Fixed Assets (CAFA) must be made to the
Federal Ministry of Industry, where total value of additions exceed #500,000 in a given
Financial Year.
In Practice, capital allowance goes beyond calculation as it is usually seen in exam questions.
Companies must reach a point where CAFA is granted on Additional Fixed Assets. If not,
allowances earlier claimed may be disallowed by the tax authority.
Types of capital allowance

Initial Allowance: This is a relief granted once in the lifetime of the asset in the 1st Year of
Incurring the QCE. It is never prorated on account of the Basis period less than 12 Months.
Annual Allowance: Granted annually over the useful life of the asset. Its calculated by
dividing the residue after deducting Initial Allowance from the useful life of the asset. Annual
allowance is prorated where Basis Period is less than 12 months and its calculated on straight
line basis.
Investment Allowance: This is granted once in the life of a Plant and Machinery and not any
other QCE, at an applicable rate of 10%. This is not used in determining the Tax Written
down Value of the QCE. Ie. Should not be deducted from TWDV like Annual allowance and
initial allowance.
Balancing Adjustment: This arises upon disposal of QCE which can either result into:
▪️Balancing Allowance: This is arrived at when the TWDV of the QCE exceeds Sales
Proceed at the time of disposal. Its an additional allowance.
▪️Balancing Charge: When the TWDV is less than the Sales Proceed. Ie. When asset is sold
at Profit. This is added to assessable profit. However, balancing charge is restricted to the
total allowance
Rates of Capital Allowance
60
Building - 15% Initial 10% Annual
Furnitures & Fittings - 25% Initial 20% Annual
Plant - 50% Initial 25% Annual
Motor Vehicle - 50% Initial 25% Annual
For Mining Expenditure, Agriculture, Plantation Equipment, R & D, Public Transport - 95%
Initial Allowance 0% Annual Allowance.
Capital Allowance Under Hire Purchase Agreement

When assets are acquired under hire purchase agreement, the hirer does not pay the cost of
the asset at once. It is paid based on the agreement of higher purpose. I.e. Initial Deposit and
annual instalments. It is to be noted that Interests are included in the Instalments and Being
an allowable expense, it should be deducted from it. Only the Cash Price will attract Capital
Allowance.
Also, timing of payment of the Instalments should be considered in claiming capital
allowance because payments are not made at once. So also capital allowance will be spread
over the years of assessment the instalments pass across.
Interest Element to be eliminated is calculated thus:
Initial Deposit
Add: Total Instalments
Less: Cash Price
Balance is interest element
Capital Allowance Under Lease Agreement

For Finance Lease: The Lessee claims capital allowance.
For Operating Lease: The Lessor claims capital allowance.
ILLUSTRATION:
S-D Nigeria Limited commenced business as a textile manufacturing
company on 1 June 2001, even though it was incorporated on 15 March 2001.
Its accounts for the first few years of its operations showed the following adjusted
profits:
N’000
61
Ten (10) months period ended 31 March 2002 7,500
Year ended 31 March 2003 12,000
Year ended 31 March 2004 18,000
The company incurred the following qualifying capital expenditure:
N’000
25 March 2001 – Factory Building 3,500
18 May 2001 – Machinery 2,800
15 October 2001 – Furniture 750
28 February 2002 – Delivery van 500
20 May 2002 – Motor car 1,200
21 January 2003 – Office Equipment 600
Required:
(a) Determine the basis period for assessment and for capital allowances
for the first three (3) assessment years; (8 Mks)
(b) Compute the Capital allowances due for five (5) years of assessment in
respect of the qualifying capital expenditure incurred by the company;
Rates are:- Building15/10, Plant, Machinery/Equip. 50/25, Motor Vehicles50/25,
Furniture & Fittings 25/20. (10 Mks)
SOLUTION:
SD NIGERIA LIMITED
DETERMINATION OF BASIS PERIOD FOR THE ASSESSMENT
YEARS AND CAPITAL ALLOWANCES
Assessment Basis Period Basis Period for
Year for Assessment Capital Allowances
2001 1/6/01 - 31/12/01 1/6/01- 31/12/01
2002 1/6/01 - 31/5/02 1/1/02 - 31/5/02
2003 1/6/01 - 31/5/02 -
2004 1/4/02 - 31/3/03 1/6/02 - 31/3/03
2005 1/4/03 - 31/3/04 1/4/03 - 31/3/04
62
Note: Basis periods for 2nd and 3rd years overlap, therefore basis period forCapital Allowan
ces will be same for 2nd Assessment Year so no Capital
Allowances since already claimed in 2nd year.
(b) COMPUTATION OF CAPITAL ALLOWANCES
BUILDING P&M F&F MV
EQUIP Total
Allowances
% % % % %
Rate-initial Allowance 15 50 25 50 50
Annual Allowance 10 25 20 25 25
N‘000 N’000 N’000 N’000
N’000 N’000
Assessment Year 2001
25/3/01-Factory Building 3,500

18/5/01 – Machinery 2,800
15/10/01 – Furniture 750
Allowa nce s:
Initial allowance (525) (1,400) (188) 2,113
Annual allowance (w.1) (174) (204) (66) 444
Written Down Value c/f2,801 1,196 496 2,557
Assessment Year-2002
Ad d itio ns
- 28/2/02-Delivery van 500
- 20/5/02 – Motor car 1,200
2,801 1,196 496 1,700
Allowa nce s:
Initial allowance - - - (850) 850
Annual allowance (w.2) (297) (350) (112) (212) 971
W.D.V. c/f 2,504 846 384 638 1,821
Annual allowance (297) (350) (112) (212) - 971
W.D.V. c/f 2,207 496 272 426 - 971
63
Addition
-12/1/03-Office Equipment 600
Allowa nce s:
Initial allowance - - - - (300) 300
Annual allowance (297) (350) (112) (212) (75) 1,046
W.D.V.c/f 1,910 146 160 214 225 1,346

Annual allowance (297) (136) (112) (204) (75) 824
W.D.V.c/f 1,613 10 48 10 150 824
Workings
(i) Annual allowance – 2001 Assessment Year
(7 months’ basis period)
= N297 x 7/12 N350 x 7/12 N112 x 7/12 - -
= N174 N204 N66 - -

(ii) Annual allowance: 2002 – 2005 Assessment Years
3,500 – 525 2,800 - 1,400 750 – 188 1,700 – 850 600 - 300
10 years 4 years 5 years 4 years 4 years
= N297 N350 N112 N212
N75
Note; Qualifying capital expenditure incurred before date of commencement of
business is deemed to have been incurred on the first day of commencing
business. Consequently, factory building and machinery purchased on 25/3/01
and 18/5/01 respectively, that is, before commencement date are deemed to
have been incurred on 1/6/01, that is, date of commencement of business.
Keys
IB = Industrial Building
P&M = Plant and Machinery
F&F = Furniture and Fittings
MV = Motor Vehicles
Equip = Equipment
64
Taxation of Partnership Business
Introduction
Partnership is an association of two or more persons who come together with a view to
making profits. The law Guiding the activities of a partnership business is bound by
Partnership Act 1890, but with the advent of the new CAMA 2020, there is an introduction to
Limited Liability Partnership (LLP). This makes partners' liability to be limited to their
capital contribution upon liquidation or winding up. Agreement and conduct of a partnership
is usually binded by a partnership deed.
For Tax Purposes, the law applicable to partnership arrangements under the Nigerian Tax
system is the Personal Income Tax Act 2004, which states that it is the Share of Profit to each
partners. that is taxable in the hands of the Partners. I.e. It is the Partners that pay tax and not
the Partnership Business itself.
65
The Computation of income of partnership business is same with that of a sole trader.
Allowable expenses remain the same under section 17 of PITA. Only that Salaries, interest on
capital are allowable expenses here.
Any loss on the partnership business shall be shared amongst partners on the agreed rate the
same way profits are shared. Losses can be set off against other income of partners (Current
Year loss relief). Any unrelieved loss shall carried forward and set off against future profits
of partners (Carry Forward loss relief).
Tax Treatment of change in partnership Structure

A change in the Composition of Partnership Business shall include the following:
▪️Admission of a New Partner
Where a new partner is admitted into a partnership, he is deemed to have commenced a new
business, hence commencement rule applies. However, where a partner resigns from another
partnership business in the same or similar line of business before forming a new one or
joining another one, he is deemed to be in a Continuous Business, hence there is no
application of commencement rule. He will continue to be assessed based on Preceding Year
Basis (PYB).
▪️Retirement of a Partner
Where a partner retires, resigns, or dies, he is deemed to have Ceased business, hence
cessation rule applies. However, where he resigns from one partnership to Join another one of
a similar nature, the cessation rule does not apply. He will continue to be assessed based on
Preceding Year Basis.
▪️Amalgamation of Partnerships
Where two or more partnership joins together, there is no application of commencement or
cessation rule. So, the QCEs transferred to the new partnership is deemed to have been
transferred at its TWDV, hence no initial allowance or balancing adjustment calculation.
Only initial allowance is claimable.
▪️Conversion of Partnership to a Limited Liability Company
In this case, commencement rule applies to the New company and cessation rule applies to
the old partnership business. All QCEs transferred are deemed to be transferred at agreed
values and there would be Computation of Balancing Adjustment. However, in computing
capital allowances for the transferred assets, initial allowance is not allowed, while capital
allowance is claimable using the remaining useful life of the Asset after taking into
consideration the time spent in the Previous partnership business.
66
ILLUSTRATION 1
Erewa, Sola and Wole have been in partnership as medical practitioners.for about seven years.
The operational result of the partnership for the year ended 30 June 2013, was as follows:
N N N
Gross Profit 40,200,000
Deduct:
Salaries and wages 13,550,000
Transport and travelling 1,600,000
Insurance 350,000
Rent and rates 800,000
Office expenses 1,400,000
Professional fees 3,000,000
Bad debt provisions 650,000
Staff loan written off 270,000
Depreciation 7,800,000
Interest on Loan by Erewa 455,000
Interest on Capital Accounts:
Erewa 225,000
Sola 315,000
Wole 360,000 900,000 (30,775,000)
Net Profit for the year 9,425,000
Other relevant information are as follows:
(i) Bad debts provision was based on 20% of debts over 9 months
old.
(ii) Office expenses include a donation of N800,000 to an old people’s
home.
(iii) Capital allowances agreed with the Revenue was N9,500,000.
(iv) Only Erewa is married with two children below 16 years of
age.
(v) Partners’ profit sharing ratio is Erewa - 5, Sola -7 and Wole - 8
You are required to compute:
(a) The Adjusted income of the partnership for tax purposes;
(b) The chargeable income of each partner for tax purposes; and
67
(c) The tax payable by each of the partners.
SOLUTION:
EREWA, SOLA AND WOLE
COMPUTATION OF ADJUSTED INCOME OF THE
PARTNERSHIP FOR 2008 YEAR OF ASSESSMENT
N N
Net Profit for the year 9,425,000
Add Disallowable Expenses:
Bad debts Provision 650,000
Office Expenses (Donation) 800,000
Depreciation 7,800,000
Staff Loans Written Off 270,000 9,520,000
Adjusted/Assessable Income 18,945,000
(b) COMPUTATION OF PARTNERS’ CHARGEABLE INCOME

EREWA SOLA WOLE
N N N
EARNED INCOME
Interest on Capital 225,000 315,000 360,000
Share of Profit [5:7:8] 4,736,250 6,630,750 7,578,000
4,961,250 6,945,750 7,938,000
UNEARNED INCOME
Interest on Loan 455,000 -
5,416,250 6,945,750 7,938,000
Deduct:
Capital Allowance[5:7:8] (2,375,000) (3,325,000) (3,800,000)
TOTAL INCOME 3,041,250 3,620,750 4,138,000
Deduct: Reliefs
Consolidated Relief
Allowance 808,250 924,150 1,027,600
Chargeable Income 2,233,000 2,696,600 3,110,400
68
(c) COMPUTATION OF TAX PAYABLE BY PARTNERS
EREWA SOLA WOLE
N N N
Chargeable Income 2,233,000 2,696,600 3,110,400
Tax Liability
First N300,000 @ 7% 21,000 21,000 21,000
Next N300,000 @ 11% 33,000 33,000 33,000
Next N500,000 @ 15% 75,000 75,000 75,000
Next N500,000 @ 19% 95,000 95,000 95,000
Next N1,600,000 @ 21%
Erewa:
(N2,233,000-N1,600,000)@21% 132,930
Sola:
(N2,696,600 -N1,600,000)@21% 230,286
Wole:
(N3,110,400-N1,600,000)@21% 317,184
WORKINGS
Consolidated Relief Allowance
Erewa: N200,000 + 20% of N3,041,250 = N808,250
Sola:N200,000 + 20% of N3,620,750 = N924,150
Wole: N200,000 + 20% of N4,138,000 = N1,027,600
ILLUSTRATION II:
Dejo, Akanbi and David have been in partnership for many years,
providing specialized engineering services to the oil sector. Accounts
are made to 31 December each year. The following are the adjusted
profits for:
N
Year ended 31 December 2009 1,440,000
Additional information is provided as follows:
69
(i) Partners are to share profits in the ratio 1:2:1
(ii) Salaries are drawn in this order:
Dejo N360,000
Akanbi N240,000
David N180,000
(iii) Interest on Capital is 6%
(iv) The Capital account of each partner is:

Dejo N150,000
Akanni N300,000
David N210,000
(v) On 31 May 2011, Dejo retired and Dandy was admitted on 1

June of same year, on a salary of N180,000 per annum. He brought in a capital
of N210,000 and was to have the sharing ratio which Dejo used to enjoy.
You are required to:
(a). Compute each partner’s income from the partnership business for 2011 Year of
Assesment.
(b) Itemise the rules of commencement in respect of partnership income.
Solution
DEJO, AKANNI & DAVID IN PARTNERSHIP
COMPUTATION OF PARTNERSHIP INCOME
2011 is the year of cessation; Basis period is 1/1/11 – 31/5/11

Income Assessable:
Dejo Akanni David
Dandy
N N N
N
Salary (5 months) 150,000
70
Salary (7 months) 105,000
Salary (12 months) 240,000 180,000
Interest 3,750 18,000 12,600
7,350
Share of Profit 250,000 825,000 41,250

350,000
403,750 1,083,000 605,100
462,350
Basis period is 1/1/11 – 31/5/11 1/1/10-31/12/10 1/1/10-31/12/10 1/6/11–

31/12/11
(Actual) (PYB) (PYB) (Actual)
Notes Ref. 1 3 3 2
Notes:
(i)Dejo is deemed to have ceased business on 31/5/11, having retired on
same date. Accordingly, applying the cessation provisions, he is
assessed in 2011 tax year on his income from the partnership for the
period 1/1/11 - 31/5/11, namely:
N
- Salary (5/12 x 360,000) 150,000
- Interest on capital 150,000 at 6% x 5/12 3,750
Share of profit - N2,400,000
(Profit -Y/E 31/12/11 x 5/12 x 1/4 (profit share) 250,000
The Internal Revenue Service may revise Dejo’s assessment for 2010tax year to actual, if th
is will produce a higher assessable income thanPYB on which he would hitherto
have been assessed.
(ii) Dandy will be deemed to have commenced business on 1 June 2011, being the date
of his admission into partnership. Consequently, the commencement provision will apply
to the determination of his income for 2011 assessment year, and will therefore, be
assessed on actual year basis, that is, actual income of the period; 1/6/11 - 31/12/11, namely:
N
- Salary 7/12 x N180,000 105,000
- Interest on capital - N210,000 at 6% x 7/12 7,350
71
- Share of profit N2,400,000 (profit)
Y/E 31/12/11 x 7/12 x 1/4 (profit share) 350,000
(iii) Both Akanni and David, the continuing partners, will continue to be assessed on
preceeding year basis.
Consequently, for 2011 assessment year, their Assessable income is the share of each of them
from the partnership income for the year ended 31 December 2010, namely:
N N
- Adjusted profit - Y/E 31/12/10 1,650,000
shared as follows:-
- Dejo - (1/4 x N1,650,000) 412,500
- Akanni - 1/2 x N1,650,000 825,000
- David - 1/4 x N1,650,000 412,500
1,650,000
As stated in note 1 above, Dejo’s share of N412,500 may be assessed on

him in 2010 assessment year if it is higher than his assessment on
preceding year basis PYB.
(b) It is true that partnership income is subject to the commencement rules.

The commencement rules provisions are as follows:
(i). The assessable income of the year of commencement shall be the profit from the date
of commencement to the end of the year of assessment.
(ii) The assessable income for the second year of assessment, that is, the year suceeding
the year of commencement shall be the profit from the date of commencement
to a period of 12 months thereafter, that is, the profit of the first twelve months
from commencement.
(iii) The assessable income for the third year of assessment after commencement
shall be profit of the business for the year ended in the preceding year of assessment.
(iv) A retiring partner’s income will be determined by preference to ceasation rules while a new
partner joining the partnership will have is case determined by reference to
commencement rules. Continuing partners will be assessed on preceding year basis.
72
Introduction
Companies are subjected to tax under the provision of Companies Income Tax Act 2004.
There is a distinction between Accounting Profit and profit chargeable to tax. The Taxable
Profit is prepared by a financial accountant under certain concepts and conventions such
accruals, matching concepts, and management judgements as regards different provisions.
While Profits chargeable to tax is the adjustment of the accounting profit.
For any expense to be allowed for tax purpose, it must be Wholly, Reasonably, Exclusively
and Necessarily (WREN) incurred for the business or for the purpose of deriving the Profits.
These 4 Criteria have their technical meaning thus:
▪️Wholeness: This means that such expense must be completely incurred for the Business
Purpose. Some parts must not be for personal use.
▪️Reasonableness: This says that such expense that will be allowed for tax purpose must be
proportional to the profit made of level of activity of such business. Reasonable in the sense
of size of the Amount of the expense. Though, this is highly subjective because what is
reasonable to one might not be to another.
▪️Exclusiveness: Means that the expense must be solely incurred for the purpose of the
business. Not for something else other that business.
▪️Necessary: The Expense is so important to the generation of Profit. It answers the Question
"Is it needed"?
Allowable Expenses
73
Under the provision of CITA, the following are considered admissible for Tax Purposes:
1. Contribution to a Pension Fund approved by Joint Tax Board (JTB).
2. Any interest on Loan obtained for the Purpose of the Business.
3. Bad Debts written off.
4. Specific Provision for Doubtful Debt.
5. Rent of accommodation for a staff provided this does not exceed the annual basic salary of
the staff.
6. Repairs and Maintenance of Premises, plant and machinery.
7. Entertainment provided it's not cigarette.
8. Legal Expenses which include:
▪️General Legal Advisory Service.
Retainership Fee (Fees paid to company's lawyer).
Renewal of short lease.
Cost of protecting or defending the Business.
9. Donations, provided the following conditions are satisfied:
▪️ It must be made out of Profit
(Not when the company make loss).
▪️ It must not exceed 10% of assessable profit.
▪️ It must not be of capital in nature.
▪️ It must have been made to one of the Bodies listed in schedule 5 of CITA.
10. Any other expense not considered above which fulfils WREN Criteria.
Non-allowable Expenses
The following expenses are not allowable for tax purpose:
1. Depreciation
2. Any Expenditure of Capital Nature.
3. Any Contribution to a pension fund not approved by JTB.
4. General Provisions for Doubtful Debt.
5. Personal Expenses on business proprietors.
6. Fines and penalties.
7. Preliminary Expenses
8. Legal Expenses including:
▪️ Cost of defending tax appeal.
▪️ Cost of defending traffic offence.
74
▪️ Stamp Duties on share capital
▪️ Cost of acquiring new lease
▪️ Cost of renewing a long lease.
9. Loss on Disposal of Fixed Assets.
It should be noted that in Practice, allowing or disallowing expenses goes beyond this. It
usually creates a lot of dispute between the Tax Authorities and tax payers, which at times
may lead to Tax Appeal Tribunal (TAT).
Taxable Profits
The following profits of a company, provided it is received or brought into Nigeria, are
Subjected to Income Tax:
▪️Profits from trade or business.
▪️Rent or any premium earned for property occupation.
▪️Dividend, Interest, royalties or any other income.
Non Taxable Profit

▪️Profit on Sales of Fixed Assets.
▪️Unrealised Exchange Gains.
COMPANIES INCOME TAX

ASCERTAINMENT OF TOTAL PROFIT (SECTION 27)
N N
Profit as per Accounts XXX
Add Back: All disallowed items, for example:
Depreciation XX
Capital expenses on shares XX
Rent disallowed XX
Donations XX
General provision for bad debts XX
Diminution in value of invest. XX XXX
XXX
Less:
Profit on sales of fixed assets XX
Profit on export sales XX
Non-taxable incomes
75
(Interest on Agric or Export loans) XX XXX
Assessable Profit (AP) XXX
(Education Tax: 2% of AP) XXX
Add: Balancing charge (Schedule 2) XXX
Less: Loss Relief (Sec. 27) (XXX) XXX
Less: Investment Allowance (Sec. 28) XXX
XXX
Less: Capital Allowance (Schedule 2)

Initial XX
Annual XX
Balancing Allowance (Sch. 2) XX
Restricted to 66 2/3% of Ass. Profit (XX) (XX)
Capital Allowance c/f XX
Total Profit XXX
Companies income tax payable (30% of Total Profit) XXXX
Tertiary Education tax payable (2% of Assessable Profit) XXXX
XXXX
76
Objection and appeal procedure
Introduction
In practice, a lot do arise between Tax Authorities and tax payers which leads to dispute.
Generally, Tax disputes put tax payers in Precarious Situations as they are faced with a
commercial dilemma of making prompt business decisions in the face of Uncertain Tax
Positions.
There are Number of reasons that lead to Tax Dispute, amongst them are:
1. Interpretation of Tax Laws.
2. Inconsistency in Tax Authorities' Position
3. Inconsistency in the Provision of The Laws.
4. Inability of Tax Payer to keep Records for Long.
5. Audits/Tax Investigation Exercises.
Objection and Appeal Procedures

Where a tax Payer receives a notice of assessment he either agrees with it or objects, thus:
️ If he agrees with the assessment, the position of the Law is that he remits within the
statutory time limit of Sixty (60) Days from the date of receipt of Such Assessment.
️ If he disagrees, he is expected to raise a Notice of Objection. The Notice must be valid with
the following criteria:
⚩ Must have been made in Writing.
⚩ Must have been made within 30 Days of the receipt of the Notice of assessment.
⚩ Must Contain the Grounds of Objection.
️ Upon receipt of the Valid Notice by the relevant Tax Authority, they will examine the
grounds of objection to determine their validity.
77
Where the grounds are found to be valid, the tax computations would be reviewed and a
revised assessment will be raised. Payment will now be based on that.
️ Where the tax authority believes the objection grounds are not valid, then a "Notice of
refusal to amend" would be sent to the Tax Payer.
▪️ If the Tax Payer still disagrees with the refusal, he should file a Notice to appeal to the
Tax Appeal Tribunal (TAT) within 30 Days of the receipt of the refusal notice.
Content of Tax Appeal

Tax File Number
Relevant year of assessment
Date the refusal notice was received
Assessable Profit for the Year of Assessment being proposed.
Taxable Profit being disputed
Amount of Tax Payable
Grounds of appeal
The Tax Appeal Tribunal (TAT)

This is established by Section 59 (1) of the FIRS Establishment Act 2007 as Provide in the 5th
Schedule of the Act.
➢ Power of the Minister: According to the act, he shall specify the jurisdictions of the
Tribunal.
➢ Composition of the Tribunal: 5 Commissioners appointed by the Minister.
➢ Constitution of the Tribunal: It species appointment Criteria upon which
Commissioners can be based.
➢ Jurisdiction of the Tribunal: They attend to Disputes arising from all Tax Laws. Eg.
CITA, PITA, PPTA, VAT, CGT, Etc.
Criminal Prosecution
Where in the Course of the tax payers adjudication, the tribunal discovers evidence of
possible criminality, it shall be obliged to pass such information to the appropriate
prosecuting authority, such as the office of the Attorney General of the Federation or state or
relevant Law Enforcement Agency.
78
Appeal to the Federal High Court
Any Person dissatisfied with a decision of the tribunal may appeal against such decision to
the Federal High Court.
A Notice of that should be given to the secretary to the tribunal within 30 Days after such
decision was given.
Even if it is the FIRS that is dissatisfied, he shall also appeal to the Federal High Court.
Right to Legal Representation

▫️A Complainant/Appellant may either appear in Person or authorise its legal practitioners to
represent him before the Tribunal.
▫️If the person is of a Good Cause unable to attend hearing there of, the tribunal shall adjourn
the hearing as it deems fit.
Powers & Procedures of Tribunal

They have the power to:
Summon and enforce the attendance of any person and examine him on Oath.
Require the discovery and production of Documents.
Receive evidence of affidavit.
Call for the examination of witnesses or documents.
Review its Decision.

Court of Appeal: If any party is still not satisfied with the decision of the federal High Court,
he shall appeal to the Court of appeal and further to Supreme Court.
79

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ACC 311 (TAXATION I)

LECTURE NOTES FOR UNDERGRADUATES

1. Historical & Legal Background of Taxation in Nigeria

2. Taxation & Tax attributes

3. Tax Administration in Nigeria (Structures & Functions

4. Taxation of Income & Capital

5. Basis Periods & Commencement Period Rules

6. Change of accounting date & Ceasation Rules

7. Taxation of employee & sole traders / Partnership

8. Capital Allowance Computation

9. Objection and appeal procedures

10. Returns, assessment and collection procedures

Tax is a compulsory monetary charge imposed by Government on Persons, entities on Income,

2. Redistribution of Income & Wealth

3. Management of the Economy

4. Harmonization of the Economic Objectives

5. To Improve gross national income

Types of tax System

2. Progressive Tax System:

The Nigerian Income Tax Ordinance of 1943 remained in force in the

1. The Income Tax Management Act (ITMA) 1961;

▪️Personal Income Tax Act 2004

▪️Companies Income Tax Act 2004

▪️Value Added Tax 2004

▪️Capital Gains Tax Act 2004

▪️Education Tax Act 2004

▪️Stamp Duties Act 2004

Basic Concepts in Taxation

Tax & Levies

Multiplicity of Tax in Nigeria

Impacts of Multiple Taxation

Administration of Tax in Nigeria

The Federal Inland Revenue Service (FIRS) Board

Joint Tax Board (JTB)

State Board of Internal Revenue (SBIR)

Joint State Revenue Committee

The Local Government Tax Authority

Fiscal Federalism / Taxing Power

Requirements for a Valid Declaration

Reliefs/Benefit from the Scheme

Consequences of failure to participate

National Tax Policy (NTP), 2017

Taxation as a tool for Economic Management and development

International and Regional Treaties:

Responsibilities of the Stakeholders

Third Year of assessment

Determination of the End of First Accounting Period

profits to be assessed shall be that of 1st September to 31st December 2019.

be assessed shall be that of 1st January to 31st December 2020.

to 31st December 2021.

YOA Basis Period Due Date of Payment

2021 1/1/2020-31/07/2020 31st January 2021

Returns, assessment and collection Procedures

➖ Capital Allowance and Income Tax Computation.

➖ Assessment Forms for Income Tax and Education Tax.

⚩ Must have been made in Writing.

⚩ Must Contain the Grounds of Objection.

Content of Tax Appeal

➢ Constitution of the Tribunal:

It specifies appointment Criteria upon which Commissioners can be based.

CITA, PITA, PPTA, VAT, CGT, Etc.

Right to Legal Representation

Powers & Procedures of Tribunal