It is important that any aspiring entrepreneur as well as existing ones know the types of taxes levied on business owners in Nigeria. It is sad that many entrepreneurs are unfamiliar with their tax obligations. Many think it is not so much their concern and they should focus on other parts of the business. However, they start to panic when they realize how taxes affect the business and how a proper understanding of it can help the sustainability of their business.
As you already know, tax payment is a legal issue and an important aspect of business in Nigeria. It can neither be ignored nor misunderstood. In this article, we will be explaining all you need to know about the Education Tax in Nigeria and how it is calculated and levied.
Education in Nigeria
Education is a way of learning that is crucial in inculcating the proper attitudes on people which has an impact on society at large. Tertiary education refers to any form of education acquired after secondary school.
Tertiary institution refers to certificates from polytechnics, colleges of education, and universities. It is important to develop educational facilities in any society. This is because tertiary education enhances the ability of individuals to be transformation agents in any given society.
In Nigeria, the educational sector has witnessed a number of setbacks. Inadequate infrastructure coupled with the incompetence of human resources, student riots, and staff strike has led to a deteriorating standard of education in the country.
In the 1980s, Nigeria was experiencing a rise in illiteracy which spurred extensive discussions on how to resolve the educational crises at the time.
One of the recommendations at the time was to create a fund. The Tertiary Education Trust Fund (Establishment Etc.) Act was established in 2011. The Tertiary Education Tax Act of 2011 (TETA) repealed the Education Tax Act. Its aim was the rehabilitation and harmonization of tertiary education policies in Nigeria. It was also founded to aid the management and disbursement of the fund’s revenue to public tertiary institutions in Nigeria.
The Tertiary Education Trust Fund Act also imposed tertiary education tax on any company registered in Nigeria. The Education Tax was levied at the rate of 2% of the assessable profit. The only companies exempted from tertiary education taxes are non-resident companies and unincorporated businesses such as sole proprietorship.
Tertiary Education Taxes (EDT)
The Tertiary Education Tax is governed by Tertiary Education Trust Fund Act, 2011. All companies registered in Nigeria are liable to pay this tax. The Tertiary Education Tax is calculated as 2% of the assessable profit. The funds gathered from Education taxes are used for rehabilitation, restoration and consolidation of tertiary institutions in Nigeria. This is governed by the Tertiary Education Trust Fund (TETFUND)
Offense and Penalties
The first recorded offence against the Tertiary Education Taxes (EDT) in Nigeria attracts a fine of N1,000,000 or 6 months of jail time and in some cases, both. Any other offence after this attracts a fine of N2,000,000 or 12 months jail term, in some cases, both.
A company eligible to pay Education tax in Nigeria will complete a tertiary education tax (TET) return containing details such as assessable profit, rate of tax and amount payable.
How is an Education Tax paid by a Nigerian Company
The tertiary education tax is payable within 60 days of an assessment notice from the Federal Inland Revenue (FIRS). This essentially means that the Federal Inland Revenue gives notice to the eligible company. After this, the company must pay within 60 days.
However, in practice, many companies pay their Tertiary Education Tax on a self-assessment basis. It is often paid together with their company’s income tax (CIT).
Note: Tertiary Education Tax is not an allowable deduction in calculating taxable income under Company Income Tax. This means that the fact that a company pays a Company Income Tax does not mean that they are exempted from the Tertiary Education Tax.
A company may have to pay the Tertiary Education Tax as long as the assessable profit is positive, even when there is a taxable loss. On the other hand, TET is an allowable deduction for companies that perform upstream petroleum activities. This means that companies that perform upstream petroleum activities pay petroleum profit tax and the Tertiary Education Tax is a deductible expense under the Petroleum Profit Tax Act. Hence, these companies do not pay Education taxes.
There are certain companies exempted from paying the tertiary education tax. In 2015, the Tax Appeal Tribunal (TAT) confirmed that the income of a company, whose goal is to provide educational services is not taxable under the Companies Income Tax Act (CITA). The Tribunal also noted that since such companies are not subject to CITA, they are also exempted from paying Tertiary Education Tax (TET)
Under the Company Income Tax Act, all Nigerian companies are subject to pay taxes based on their profits. Section 9 of CITA also states that profits of a Nigerian company that are derived from or brought into Nigeria from any trade or business shall be liable to tax. However, section 23 of the CITA exempts companies engaged in specific activities from tax. Such companies include those involved in ecclesiastical, charitable or educational activities of a public character. These companies are exempted from tax provided the profits are not gotten from a trade or business.
Summary of the Tertiary education tax
Tertiary education tax is imposed on every company resident in Nigeria. It is levied at the rate of 2% of the assessable profit for each year of assessment. The Tertiary Education tax is payable within two months of an assessment notice from the Federal Inland Revenue Service. However many companies pay the tax on a self-assessment basis along with their Company Income Tax.
For companies that pay Petroleum Profit Tax, the tertiary education tax is to be treated as an allowable deduction. For other companies, the tertiary education tax is not an allowable deduction. Companies not resident in Nigeria or that are unincorporated entities are exempt from tertiary education tax.