Want to learn more about Taxes in Nigeria? If you are reading this post, then you are one of the growing numbers of Nigerian business persons and entrepreneurs who are interested in knowing what their tax obligations are, and making sure they are operating their businesses while paying the right taxes.
- Capital Gains Tax
- Companies Income Tax
- Education Tax
- Personal Income Tax
- Stamp Duties
- Value Added Tax
- Withholding Tax
Nigeria’s tax system is tasked with the responsibility of providing the government with enough resources to finance the country’s development – company tax and petroleum royalties in fact account for the primary source of government revenue.
Some taxes are payable to the Federal Government (and administered by Federal Inland Revenue Service), some are payable to the State Governments and some to Local Governments.
Taxes in Nigeria
The different taxes areas listed below
Capital Gains Tax:
Capital Gains Tax Act. Chapter 42. LFN 1990
A 10% tax is imposed on Capital Gains arising from a sale, exchange or other disposition of properties known as chargeable assets.
Please note that exemptions are granted to companies from paying capital gains tax when transferring assets between two entities during the restructuring have been abolished.
Also, capital gains tax would henceforth be paid by anyone who receives compensation in excess of N10 million after the loss of employment.
Companies Income Tax:
Companies Income Tax Act. Chapter 60. LFN 1990
A tax chargeable on all companies (other than Companies engaged in petroleum operations as defined under the PPTA) registered in Nigeria.
Resident companies in Nigeria are subject to the Company Income Tax (CIT) on their worldwide income, while only the income from Nigerian source of non-residents companies is taxed under the CIT.
Nigeria’s new Finance Bill will ensure the exemption of small businesses with an annual turnover of less than N25 million from Company Income Tax.
Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, has disclosed that the new Finance Bill, when signed into law, would have only companies doing a turnover of over N100 million pay 30% Company Income Tax while companies with turnover of between N25 million and N100 million annually will pay 20%.
The Finance Bill 2019 amends sections 9, 10, 13, 16, 19, 20, 23, 24, 27, 29, 31, 33, 39, 40, 41, 43, 53, 55, 77, 78, 80, 81, and 105 of CITA. It will also amend the third and seventh schedules of the Companies Income Tax Act (“CITA”).
Significantly, the amendments mean that companies without their TIN cannot operate corporate accounts in the country.
Also, foreign companies engaged in the ‘digital’ economy would be subjected to the payment of tax in Nigeria.
The amendments expect any digital company with a ‘significant economic presence’ in Nigeria, even without any physical presence in the country, to pay tax.
Education Tax:
Education Tax Act. No 7 of 1993
A tax that is chargeable on all companies registered in Nigeria at 2% of chargeable profits as a contribution to the Education Tax Fund.
Personal Income Tax:
Personal Income Tax Act. No 104 of 1993
A tax that is payable by all individuals and registered businesses and partnerships except those registered under Part A of Companies and Allied Matters Act 1990.
Employees simply pay their income tax through the Pay As You Earn (PAYE) system, whereby employers deduct the due tax at source from the salaries and transfer it directly to the FIRS on a monthly basis, while independent workers and beneficiaries of additional income are required to file their own tax returns.
Income tax in Nigeria is levied at a progressive rate capped at 24%. Here are the applicable rates for personal income tax in Nigeria :
Annual income (NGN):
- First 300,000: personal income tax rate of 7%
- Then the next 300,000: personal income tax rate of 11%
- Next 500,000: personal income tax rate of 15%
- Next 500,000: personal income tax rate of 19%
- Next 1,600,000: personal income tax rate of 21%
- Finally above 3,200,000: personal income tax rate of 24%
Also, the Finance Bill 2019 amends sections 33, 49, and 58 of the Personal Income Tax Act and ensure that immediately it becomes operational, those without the Tax Identification Numbers (TIN) will be barred from operating any new or existing bank accounts in the country.
The Minister of Finance, Budget and National Planning, Zainab Ahmed, said on Thursday during the presentation of the 2020 Budget details that the newly enacted Finance Bill will not take effect from January 1, 2020.
She said reports that people without TIN (tax identification number) will not be allowed to operate their accounts with banks is not true.
The minister said for the bill to come into effect, the Federal Inland Revenue Service (FIRS) will have to engage the commercial banks and work out a modality on how the new law will be implemented.
The bill will remove personal income tax relief that individuals enjoy on account of children and dependent adults.
Stamp Duties:
Stamp Duties Act. Chapter 411. LFN 1990
Stamp Duty is Chargeable according to a scale fixed by the Joint Tax Board.
The Finance Bill 2019 also affects most Nigerians directly outside of the normal VAT they pay on certain goods and services.
With the passage and harmonisation of the two versions of the bill by the Senate and House of Representatives, the president’s assent to the bill will amend sections 2 and 89 of the Stamp Duties Act.
Under the new arrangement, payment of stamp duties will now cover electronic documents.
Also, bank transfers from one account to another valued above N10,000 upward will attract a one-off stamp duty charge of N50.
People will, however, be exempted from payment when they are transferring from one of their accounts to another in the same bank.
Value Added Tax:
Value Added Tax Act. No 102 of 1993
A tax payable by the consumer at 7% of the net value added based on eligible transactions once consumed.
All registered businesses are expected to register and have a VAT registration certificate, and boldly display their VAT registration number on all invoices.
Withholding Tax in Nigeria
This is not really a tax.
It is an advance payment of tax (at 10%) to which individuals and organizations are entitled to demand a withholding tax credit note.
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