Taxes are obligatory monetary charges that are required of an individual or a legally incorporated entity adjudged to be taxable by a government organization in order to fund government expenditures on infrastructure and also to raise revenue for the government. In Nigeria, there are several taxes that are imposed on taxable individuals and incorporated companies by the Federal Government and State Governments, with certain organizations duly empowered and charged with the administration and collection of these taxes.
This is a list of taxes that are applicable in Nigeria:
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Companies Income Tax (CIT)
Incorporated companies in Nigeria are required by the Companies Income Tax Act (CITA), Cap. 21 LFN (as amended) to pay between 20% to 30% of the total profits generated from all sources less allowable deductions for the period in generating the taxable profits. Companies with over NGN 100 Million annual profit are taxed at 30% while companies with annual profit within the range of NGN 25 Million and NGN 100 Million are charged 20%. The Companies Income Tax is one of the fundamental taxes administered and gathered by the Federal Inland Revenue Service (FIRS). It is noteworthy to state that foreign companies operating in Nigeria are also liable for the Company Income Tax (CIT) of their Nigeria-source income.
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Capital Gains Tax (CGT)
The Capital Gains Tax is executed when there is a disposal of chargeable assets. Capital sums gotten from transfer, sale, lease, compulsory acquisition, or assignment of chargeable properties are usually charged at a rate of 10% of total value realized in accordance with the Capital Gains Tax Act, Laws of the Federation, Cap. C1 LFN, 2004(as amended). However, it is important to point out that Capital Gains Tax does not apply to educational or charitable institutions of public character. Also, assets not connected with any trade done by an incorporated organization may not be charged under the Capital Gains Tax.
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Customs and Excise Duties
These taxes are charged at the nation’s entry ports on certain goods being imported and sometimes on exported goods. The Customs Service is charged with the responsibility of administering and collecting Customs and Excise Duties as empowered by the Customs and Excise Management Act. It is aimed at generating revenue and also employed to discourage the consumption of such goods which have been selected to be charged Customs and Excise Duties
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Education Tax (EDT)
The Education Tax (EDT) is imposed on all incorporated organizations and companies in Nigeria. The Education Tax Act, Cap. E4, LFN 2004, and the Education Trust Fund(Establishment, Etc) Act, 2011, are responsible for regulating and governing the Education Tax respectively. The Federal Inland Revenue Service (FIRS) is in charge of administering the Education Tax. The tax rate is 2% on the accessible profit of registered companies and organizations in Nigeria. The generated fund is distributed to tertiary institutions, which include Universities, Polytechnics, and Colleges of Education using a 2:1:1 sharing ratio.
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National Information Technology Development (NITD) Levy
This is an income tax that is imposed on certain companies that have an annual profit of at least NGN100,000,000; it is evaluated as 1% of the Profit Before Tax(PBT) of liable companies. The companies that this tax is imposed on including the following: GSM service providers and all telecommunication companies, Banks and other Financial organizations, Insurance companies, Pension Managers and Pension-related companies, and Cyber companies and Internet providers. Foreign companies in these sectors are not excluded as their profits made from Nigeria are also taxed as stipulated by the NITDA Act, 2007.
The National Information Technology Development Agency (NITDA) Act, 2007 is the governing legislation that imposes this tax on liable companies and empowers the Federal Inland Revenue Service (FIRS) to administer it.
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Personal Income Tax (PIT)
This type of tax is imposed on taxable individuals, which may include: employees, the corporate body of individuals, traders, communities, families, trustees, among others as the case may be. The tax rate for Personal Income Tax (PIT) varies from 7% to 24% depending on the amount of income of the individual. The Personal Income Tax also covers the taxation of estates and partnership assessment. The Personal Income Tax Act, Cap. P8 LFN 2004 (as amended) is the governing legislation governing the Personal Income Tax in Nigeria. The Federal Inland Revenue (FIRS), as well as State Boards of Internal Revenue Services, are charged by the Personal Income Tax Act to administer and collect this tax.
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Petroleum Profit Tax (PPT)
Petroleum Companies operating in the upstream sector of the Oil and Gas sector are required to pay tax on income in conformity with the Petroleum Profit Tax Act, Cap. P13 LFN 2004 (as amended). However, companies that are liable to the Petroleum Profit Tax have not required any remittance to Companies Income Tax (CIT) on the same revenue.
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Stamp Duties (SD)
Stamp Duty Act, Cap. S8, LFN (as amended) imposes a percentage on authorized share capital at incorporation or on registration of new shares. The tax rates for Stamp Duties vary and come in two forms, either as flat rate charges or as ad valorem charges. Stamp Duties due from individuals are administered by individual State Internal Revenue Service (IRS), while the Federal Inland Revenue Service (FIRS) is empowered to administer Stamp Duties to corporate entities for the Federal Government.
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Value Added Tax (VAT)
The Value Added Task is enforced on the sale of some specified goods and services. Initially, the tax rate of Value Added Tax was 5%, but from 2020, it was increased to 7.5%. It is also referred to as Compensation Tax, and the final consumer of these goods and services bears the brunt of the charges. The Federal Inland Revenue Service is empowered to manage and administrate the Value Added Tax in Nigeria. The Value Added Tax Act is the empowering legislation of the Value Added Tax.
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Withholding Tax (WHT)
Withholding Tax is basically advance payment of tax deductions made on any income due to an individual or a company for future remittance as when anticipated to relevant authorities empowered by the government to administer and collect taxes. After deduction is made from the income source, it is thereafter remitted to relevant authorities. The tax rate of the Withholding Tax (WHT) varies for individuals and incorporated entities hingeing on the transaction type. For individuals, the tax rate varies from 2.5% to 10% and 5% to 10% for companies.