As a taxpayer in Nigeria, there are certain obligations you must fulfil as required under specified tax law. Although there’s the option of engaging the services of an agent (consultant) to do the brunt work, taxpayers need to know how to correctly compute their tax liabilities, properly complete their tax returns, pay the tax, and submit the tax returns since they have the best information about their activities. In this article, our focus will be on how to calculate annual tax returns in Nigeria. In addition, we’ll discuss the obligations required of a taxpayer that chooses to handle his tax affairs by himself.
How to calculate the annual tax returns in Nigeria would be discussed below:
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What are the Obligations Required of a Taxpayer in Nigeria under the Self-Assessment Regime
If you typed in the title of this article into the search bar of a search engine like Google, chances are that you plan on computing your tax liability, completing the tax return, paying the tax, and submitting the tax return by yourself. Going the route of self-assessment is encouraged, even by the tax authority in Nigeria, because taxpayers are in the best position to assess their tax liabilities.
If you’ve made up your mind to handle your tax obligations yourself, this section of the article will shed light on the obligations required under the self-assessment regime. We want you to get everything right from the get-go. Read on to learn.
The first obligation required of a taxpayer in Nigeria is to register as a taxpayer. You’re to obtain an application form for registration from the FIRS tax office in charge of your business area of operation. Then, properly fill out the form, and submit the completed form along with all required identification means to the relevant tax office of the FIRS. Upon submission, you’d get a Taxpayer Identification Number (TIN). The registration process costs you nothing – it’s free.
Maintenance of business records is another obligation you are required to fulfil as a taxpayer in Nigeria as doing so helps to facilitate voluntary compliance and submission of correct tax returns. Keeping proper business records ensures that you have a fair view of your business at all times. The transactions to record include:
- Sales and purchases of goods and services for profit
- Purchase/acquisition and sales of fixed assets
- Expenditures on day-to-day running and expansion of business
- Additional capital into the business
- Personal drawings (cash and goods in-kind from business for private use)
- Loans to and from the business
- Books of Accounts, which are part of documents to accompany tax returns
- Bank Statements
- File of invoices and receipts
Voluntary disclosure of transactions for a given period under the relevant tax law is another obligation required of every taxpayer in Nigeria. You’re to make a correct declaration of all relevant information as required in the tax return form, compute capital allowance, and compute the tax liability by applying the correct rate(s) of the tax.
As a taxpayer in Nigeria, you’re also obligated to complete and sign tax returns. If you are an employee or running a one-man business, the tax return form must be signed by you (the taxpayer). In the case where tax returns are filed by companies, the Chairman/Managing Director of the company and the company secretary are expected to sign the tax return form.
Paying the relevant taxes to the Federal Inland Revenue Service is yet another obligation expected of every taxpayer in Nigeria. Tax in Nigeria is being paid to FIRs through collecting banks by completing the deposit slip available at the banks, accompanying the deposit slip with the amount of money to be paid and presenting it to the bank to get evidence of payment in the form of an e-ticket. You’d need to confirm from the e-ticket that the tax was paid into the appropriate tax account (eg. VAT, CIT, PPT, etc).
Filing of tax returns to FIRS as prescribed by relevant tax laws is legally required of every taxpayer in Nigeria. It involves collecting and filling up the relevant tax form from the tax office of FIRS. This completed form should be submitted to the FIRS alongside audited accounts, tax computation, capital allowance computation, schedule of fixed assets, evidence of tax payment, and any other relevant document as required by the tax authority on or before the due date.
Last but not least, as a taxpayer in Nigeria, you’re obligated to cooperate with identified FIRS officers assigned to perform tax audit duties, providing them with all relevant books of records or documents as required by the tax auditors. Tax audit exercises happen regularly to complement and support taxpayers that engage in self-assessment.
Compliance with all the above-discussed obligations is compulsory because failure to comply makes the taxpayer liable to various sanctions. Some offenses to avoid as a taxpayer in Nigeria includes:
- Failure to register for tax purposes
- Failure to keep proper business records
- Failure to file tax returns and pay tax on or before the due date
- Understatement of tax return
- Failure to produce such records or information required by the tax authority
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How to Calculate Annual Tax Returns in Nigeria
As earlier explained in the section above, filing tax returns is an obligation of every taxpayer in Nigeria. In this section of the article, we’ll discuss how to calculate annual tax returns for each type of tax in Nigeria.
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How to Calculate Annual Companies Income Tax Returns
The Companies Income Tax Act mandates every company in Nigeria to file returns with the Federal Inland Revenue Service (FIRS), even if the company is exempted from the law from paying tax. Here, we’d be discussing how to calculate annual returns for Companies Income Tax. In addition, the computation of capital would be explained.
CIT is imposed on the profit of a company from all sources at the rate of 30%. There are some profits exempted from CIT, however, they must not be derived from trade or business activities carried out by the company. Additionally, Education Tax is imposed on all companies in Nigeria at the rate of 2% of assessable profit.
If at the end of the accounting year a company makes a loss, has no tax payable, or the tax payable is less than the minimum tax payable, the CITA provides for the minimum tax to be paid.
Minimum tax is charged at the rate of 0.5% of a company’s annual gross turnover less franked investment income. For insurance companies, minimum tax is charged at the rate of 0.5% of gross premium and other income for non-insurance businesses, and 0.5% of gross income for life insurance businesses.
Aside from tax computations which we’ve just discussed above, filing annual CIT returns also involves capital allowances computation. Capital allowance is a tax relief within the ambit of the Companies Income Tax Act granted relief within the ambit of the Companies Income Tax Act which is granted on tangible non-current in generating taxable profits, in place of accounting depreciation. However, capital allowance does not apply to assets exclusively used to generate tax-exempt profits for companies in Nigeria. And when qualifying assets are partially utilised for generating profits, the capital allowance will be prorated.
There are three types of capital allowances allowed by the Companies Income Tax Act. These include initial allowance, annual allowance, and investment allowance. Initial allowance is granted to a taxpayer once in the first year of purchase and when an asset is used for the company’s business. An annual allowance, on the other hand, is granted to a taxpayer every year that an asset is in use by the taxpayer until the asset is fully written off. Schedule II of the Companies Income Tax Act contains rates for calculating initial allowance and an annual allowance of qualifying expenditure.
Investment allowance, the third type of capital allowance, is granted at the rate of 10% to companies that incur expenditure on plant and equipment.
Below is the table containing the rates of initial allowance and annual allowance for qualifying fixed assets:
| Qualifying Expenditure | Initial Allowance (%) | Annual Allowance (%) |
| Building ( industrial & non-industrial) | 15 | 10 |
| Mining | 95 | NIL |
| Plant and machinery for Agricultural production | 95 | NIL |
| Plant and machinery for other purposes aside from agricultural production | 50 | 25 |
| Furniture & fittings | 25 | 20 |
| Motor vehicle for public transportation | 95 | NIL |
| Motor vehicle for other purposes aside from public transportation | 50 | 25 |
| Plantation equipment | 95 | NIL |
| Housing estate | 50 | 25 |
| Ranching and plantation | 30 | 50 |
| Research & Development | 95 | NIL |
Below are the formulae for determining initial allowance, annual allowance, and investment allowance when calculating capital allowance in taxation in Nigeria:
- Initial allowance (IA) = Initial allowance rate × cost of the asset
- Annual allowance (AA) = Annual allowance rate × (Cost of the asset minus initial allowance)
- Investment allowance = 10% × cost of the asset
The Companies Income Tax Act provides that the maximum capital allowance that a taxpayer can claim is two-thirds of assessable profits, however, this rule doesn’t apply to agro‐allied and manufacturing industries in Nigeria. So companies in the agro-allied and manufacturing industries can claim their entire capital allowance.
Here’s an illustration of how to compute capital allowance:
In January 2022, Prudent & Sons purchased plant and machinery for NGN15,000,000. The accounting year ends in December 2022. Calculate the capital allowance.
Solution:
According to the Companies Income Tax Act, the capital allowance rate for addition to plant and machinery are as follows:
10% – investment allowance
50% – initial allowance
25% – annual allowance
Investment allowance = NGN15,000,000 × 10% = NGN1,500,000
Initial allowance = NGN15,000,000 × 50% = NGN7,500,000
Annual allowance = NGN(15,000,000 – 7,500,000) × 25% = NGN1,875,000
Total capital allowance = NGN (1,500,000 + 7,500,000 + 1,875,000) = NGN10,875,000
These are the contents of the Companies Income Tax returns below:
- Duly completed Self-Assessment form
- Audited Financial Statement comprising: (a) Balance Sheet (b) Profit and Loss Account © Statement of changes in equity (d) Statement of cash flows (e) Notes on significant Accounting Policies and other explanatory information (f) Comparative figures of accounting year on the Generally Accepted Accounting Principles (GAAP) basis to be included in the returns
- Tax computations
- Capital allowances computation
- Schedule of Fixed Assets
- Evidence of payment of the taxes due
N/B: The Audited Financial Statement would have to be signed by two Directors. Also, external auditors who are members of a recognised professional body should audit and sign the accounts
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How to Calculate Annual Personal Income Tax Returns
Annual tax returns for Personal Income Tax in Nigeria are to be filed by self-employed individuals, individuals in employment, and employers according to Personal Income Act LFN 2004 (as amended). The rate of PIT imposed on the income of individuals, corporate sole or body of individuals, families and trustees or executors of any settlement ranges from 7% to 24%, depending on the amount of chargeable income.
The PITA also grants taxpayers a Consolidated Relief Allowance of N200,000 or gross income whichever is higher, plus 20% of gross income. There are certain tax-exempt items that are not subject to Pay-As-You-Earn(PAYE). Also, whenever a taxpayer fails to earn a gross income of less than N300,000 per annum, such an individual will not be subject to the Pay-As-You-Earn (PAYE) system of computing PIT, instead a minimum tax of 1% of gross income.
Here’s a table showing the PAYE rates across income bands:
| Yearly Taxable Income (Gross income – allowable deductions) | Tax Rate | Total Amount Payable Per Year |
| First N300,000 | 7% | N21,000 |
| Next N300,000 | 11% | N33,000 |
| Next N500,000 | 15% | N75,000 |
| Next N500,000 | 19% | N95,000 |
| Next N1.6 million | 21% | N336,000 |
| Over N3.2 million | 24% |
With the modalities for calculating annual PIT returns being established, let’s use an illustration of how it is calculated. But first, we will provide a list of tax-exempt items within the ambit of the Personal Income Tax Act.
Below are the deductions allowed to be deducted from the gross emoluments of a taxpayer (employee) under the Personal Income Tax Act:
- NHF contribution
- National Health Insurance Scheme
- Life Assurance Premium
- Pension Scheme and Gratuities
- Reimbursements
- Interest and dividend
- Disability Allowance
Allowable business deductions include:
- Interest on money borrowed for business purposes.
- Rent and premium payable on land or buildings occupied for the purpose of acquiring the income.
- Repairs and maintenance expenses for premises, plant, or machinery used in generating income.
- Bad debts.
- Subscriptions, provided they relate to the business or profession.
Illustration on how annual tax returns for Personal Income Tax is calculated: Mr John Bull earned N4,000,000 as gross emolument for 2022. How would he calculate his tax returns for Personal Income Tax assuming he’s entitled to a few allowable deductions that include National Housing Fund, National Health Insurance Scheme, and Pension?
Solution
First, let’s ascertain the value of the tax-exempt items Mr John Bull is entitled to. They are as follows:
NHF contribution = 2.5% of N4,000,000 = N100,000
NHIS contribution = 5% of N4,000,000 = N200,000
Pension contribution = 8% of N4,000,000 = N320,000
Total of tax-exempt contributions = N(100,000 + 200,000 + 320,000) = N620,000.
Now, let’s calculate what his Consolidated Relief Allowance would be:
Consolidated Relief allowance =Higher of N200,000 and 1% of gross income (GI1), plus 20% of gross income*(GI2)
N/B: Gross income (GI) refers to gross emoluments, while ” gross income* (GI2) means income from all sources less all non-taxable income, income on which no further tax is payable.
Annual Gross income (G1) = N4,000,00
Annual Gross income* (G2) = N4,000,000 – (Tax-exempt items contributions, i.e.NHIS+NHF+Pension)
Therefore, Gross income* (GI2) = N4,000,000 – N620,000 = N3,380,000
CRA = N200,000 + 20% of N3,380,000 (we chose N200,000 because it is higher than N40,000 which is 1% of N4,000,000)
= N200,000 + N676,000
= N876,000
The taxable income to which PAYE would be subject is the difference between the gross emolument of Mr John Bull and the value of the CRA.
Taxable Income = N(4,000,00 0 – 876,000)
= N3,124,000
Now, let’s calculate what the PIT liability of Mr. John Bull was for 2022:
1st N300,000@7% = N21,000 (remaining N2,824,000)
Next N300,000@11%= N33,000 (remaining N2,524,000)
Next N500,000@15%= N75,000 (remaining N2,024,000)
Next N500,000@19%= N95,000 (remaining N1,524,000)
Next N1,600,000@21%= N1,524,000 × 21%
= N320,040
The total PAYE tax payable per annum= N21,000 + N33,000 + N75,000 + N95,000 + N320,040 = N544,040 P.A.
The above is what the tax computation for Mr. John Bull’s annual PIT returns should look like.
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How to Calculate Annual Petroleum Profit Returns
The Petroleum Profit Tax imposes Petroleum Profits Tax on the income of companies in petroleum operations (upstream). Below are the rates of PPT:
- 65.75% of chargeable profit for Joint Venture and Sole Risk Companies in their first five years of operations
- 85% of chargeable profit for Joint Venture and Sole Risk Companies in operation for more than five years
- 50% of chargeable profit for a company under Protection Sharing Contract
Petroleum Profit Tax annual returns also require the computation of capital allowances. The calculation for capital allowances was handled in the “How to Calculate Annual Companies Income Tax Returns” section. Revisit that section to get how the calculation for capital allowance is done.
Additionally, Education Tax is imposed on all companies in Nigeria at the rate of 2% of assessable profit. So this should be taken into account when filing annual returns for Petroleum Profit Tax.
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How to Calculate Annual Returns for Value-Added Tax (VAT)
The recent amendments to the Value Added Tax Act increase the rate for VAT from 5% to 7.5% and also put N25 million annual turnover as the threshold to qualify as a VATable person. The tax VATable persons receive when their customers purchase their goods or use their services is referred to as Output VAT. And when a VATable person pays VAT for purchasing or importing goods for resale to customers, or on raw materials to be used for production, such tax is known as Input VAT.
Every month, VATable persons are expected to file VAT returns with FIRS. When the Output VAT realised in a month exceeds the Input VAT, the difference is to be paid to the FIRS. But in the month when the Input VAT exceeds Output VAT, the taxpayer can claim a refund for that month.
Therefore, the calculation for annual returns for Value Added Tax put into account the calculation of the monthly VAT returns for the twelve (12) months that make an accounting year.
Below are the contents of the VAT returns expected to be contained in a duly completed VAT form 002:
- The total value of supplies made during the period
- Disclosure of the value of output tax charged on its invoices
- The total value of purchases on which input tax was paid
- Schedules of both input and output tax attached to the VAT returns, together with any adjustment made during the period, for bad debts, credit notes, etc.
- Net VAT due, i.e. the excess of Output VAT over Input VAT, with evidence of the payment of VAT
- A signed declaration of completeness and correctness of the returns
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How to Calculate Annual Returns for National Technology Development Levy (NITDL)
The National Information Technology Development Agency Act of 2007 imposes a levy of 1% of the profit before tax of companies and enterprises with an annual turnover of N100 million and above operating in the business areas listed below:
- GSM Service providers and telecommunication Companies
- Cyber companies and Internet Providers
- Pensions managers and pension-related companies
- Banks and other financial Institutions
- Insurance companies.
The computation of the tax payable for the National Technology Development Levy is simply multiplying the profit before tax of the annual turnover of the companies in the above-listed industries by 1%.
The contents of National Technology Development Levy returns should include:
- Computation of tax payable
- Evidence of payment of tax due
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How to Calculate Annual Returns of Capital Gains Tax (CGT)
Capital Gains Tax (CGT) arises when a chargeable asset is disposed of for a gain. This tax is charged at the rate of 10% of the cost of disposing of the chargeable asset. Filing annual CGT returns is done along with the various tax returns for individuals and companies.
The contents of CGT returns include:
- Duly completed self-assessment forms
- Computation of Capital Gains Tax payable
- Schedule of Assets including proof of sale
- Evidence of asset and asset management
- Evidence of payment of the CGT
- Other relevant information
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How to Calculate Annual Returns for Education Tax (EDT)
Tertiary Education Tax (EDT) is imposed on the assessable profits of all companies in Nigeria at the rate of 2%. Filing of EDT returns is rendered along with the annual returns of Companies Income Tax or Petroleum Profit Tax as the case may be.
The contents of EDT returns include:
- Computation of education tax payable
- Duly completed Self-Assessment form attested to by a Director or Secretary of the company
- Evidence of payment of the education tax due
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How to Calculate Annual Returns for Withholding Tax (WHT)
WHT arises when there is a need to collect Income Tax in advance for certain pacts such as the hiring of equipment, royalties, and management fees. This tax rate of WHT varies depending on the type of transaction. Below is a table showing the WHT rates for individuals and companies on various transactions:
| Types of payment | WHT for companies (%) | WHT for individuals (%) |
| Dividends, interest, and rents | 10 | 10 |
| Director fees | N/A | 10 |
| Hire of equipment | 10 | 10 |
| Commission, consultancy, technical, and service fees | 10 | 5 |
| Management fees | 10 | 5 |
| Construction (roads, buildings, and bridges) | 2.5 | 5 |
| Contracts other than sales in the ordinary course of business | 5 | 5 |
| Royalties | 10 | 5 |
Returns for WHT which should be filed within 21 days after the duty to deduct arose for deductions from companies, can be calculated by multiplying the applicable rate of WHT with the cost of the transaction. Petroleum companies, however, can file WHT returns within thirty (30) days from the date the amount or the time the duty to deduct arose.
Therefore, computations for filing annual returns for WHT should include the details of monthly WHT returns throughout the accounting year.
Contents of WHT returns:
- Schedule of WHT tax deducted, showing suppliers for the month, the tax identification number (TIN), address of the suppliers, the nature of the transaction, WHT deducted, and invoice number.
- Evidence of payment
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What are the Due Dates for Filing Self Assessment Tax Returns?
Filing annual tax returns in Nigeria is to be done within a specific time of the year. Below are the due dates for filing self-assessment tax returns:
- Personal Income Tax (PIT): returns filed and tax paid by self-employed individuals on or before the 31st of March of every year.
- Companies Income Tax (CIT):
(a) for old companies:- within six (6) months from the end of the accounting year (b) for new companies:- within eighteen (18) months from the date of incorporation or not later than six (6) months after the end of its accounting period, whichever is earlier. According to the CITA, new companies are expected to file returns with FIRS within eighteen (18) months of incorporation or six (6) months after the accounting year end, whichever comes first.
- Pay-As-You-Earn (PAYE): Filing of annual returns for PAYE should not be later than 31st January of every year.
- Value Added Tax (VAT): VAT returns are to be filed and paid on or before the 21st day of the month following that in which the transaction was made.
- Petroleum Profits Tax: Annual returns for Petroleum Profits Tax should be filed within five months after the expiration of the accounting year.
- Capital Gains Tax: CGT annual returns are to be filed along with the various tax returns for individuals and companies (e.g. PIT, CIT, PTT).
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Summary of What to Do When Filing for Tax Returns with the FIRS
The general procedures for filing tax returns with the FIRS are mentioned below:
- Relevant returns forms should be obtained from the closest FIRS office – for free.
- Filing up the returns forms carefully and correctly
- Getting the returns form signed correctly
- Completing all relevant information on the relevant form for paying the tax (pay-in slip) at the applicable collecting banks.
- Taking a look at the tax payment forms for the second time to ensure all the information provided is correct.
- Payments of VAT tax through WHT-approved banks
- Collecting e-tickets as evidence of tax payment from approved collecting bank
- The documents to present to the FIRS when filing tax returns include: an e-ticket issued by the bank as evidence of payment; a duly completed return form; and all other documents as may be required
- Collecting tax receipts from the tax authority and
- Reconciliation of accounts with the tax authority to ensure no outstanding tax remains
The FIRS encourages taxpayers in Nigeria to learn how to handle their tax affairs. That is why we explained the obligations expected of every taxpayer under the self-assessment regime, including how annual returns are calculated. In each of the types of tax in Nigeria, we’ve provided in-depth explanations to make it easy for taxpayers to replicate calculating annual tax returns for the various taxes on their own without recording understatement of tax in the return filed. We also provided the due dates which within which filing tax returns and paying taxes should be performed. Failure to file returns or pay tax before the due date is a punishable offense under several tax laws in Nigeria. Individual and corporate taxpayers in Nigeria can rely on the wealth of verifiable information contained in this piece for what they need to know on how to handle their tax affairs by themselves.