If you earn an income in Nigeria whether as an individual or a business, it’s expected that you remit a given amount of your earnings as tax to the government.
Paying your tax as an individual or a company is non-negotiable because tax funds serves as one of the ways the Government develops the nation.
Interestingly, over 70% of business owners in the country do not pay tax. However, this is changing in states like Lagos where the State Government is coming down hard on tax defaulters through its tax agency, the Lagos Inland Revenue Service (LIRS).
There are different types of taxes and several laws govern them. Some of these taxes are paid to the Federal Government through the Federal Inland Revenue Service (FIRS) while some are paid to the State Governments.
In cases where you have issues relating to tax, there are departments that you can contact to lay your complaint. For example, there is a Body of Appeal Commissioners which is the court of first instance that handles Tax appeal cases.
Nigerian tax laws
Below is a highlight of the different tax laws:
- Associated Gas Re-Injection Act
- Capital Gains Tax Act
- Companies Income Tax Act
- Deep Offshore and Inland Basin Production Sharing Contracts Act
- Tertiary Education Trust Fund Act
- Federal Inland Revenue Service (Establishment) Act
- Income Tax (Authorised Communications) Act
- Industrial Development (Income Tax Relief) Act
- Industrial Inspectorate Act
- National Information Technology Development Act
- Nigerian Export Processing Zones Act
- Nigeria LNG (Fiscal Incentive Guarantees and Assurances) Act
- Oil and Gas Export Free Zones Act
- Personal Income Tax Act
- Petroleum Profits Tax Act
- Value Added Tax Act
- Stamp Duties Act
- Taxes and Levies (Approved List for Collection) Act
- Casino Act
We’ve taken it a step further by highlighting the most popular taxes that are enabled by these laws.
#1 Capital Gains Tax
It was enabled by the Capital Gains Tax Act, Chapter 42, LFN 1990. The Capital Gains Tax is a 10% tax imposed on Capital Gains arising from a sale, exchange or other disposition of properties known as chargeable assets.
#2 Companies Income Tax
The Companies Income Tax was enabled by the Companies Income Tax Act, Chapter 60, LFN 1990. The tax is chargeable on all companies (other than companies engaged in petroleum operations as defined under the PPTA) registered in Nigeria.
#3 Education Tax
This tax is enabled by the Education Tax Act of No 7, 1993. The tax is chargeable on all companies registered in Nigeria at 2% of chargeable profits as contribution to the Education Tax Fund.
#4 Personal Income Tax (PITA)
This is enabled by the Personal Income Tax Act No 104 of 1993. PITA is payable by all individuals and registered businesses and partnerships except those registered under Part A of Companies and Allied Matters Act 1990.
#5 Petroleum Profits Tax (PPTA)
Enabled by the Petroleum Profits Tax Act, Chapter 354, LFN 1990, this tax is charged at 85% of the chargeable income for companies engaged in petroleum operations as specified under the Act.
#6 Stamp Duties
This tax was enabled by the Stamp Duties Act, Chapter 411, LFN 1990. It is chargeable according to a scale fixed by the Joint Tax Board.
#7 Withholding Tax
This is an advance payment of tax (at 10%) that individuals and organizations are entitled to demand for credit payments.
If you’re a small business, apart from your personal income tax as a private individual, you’re also expected to pay a business tax. These include
#8 Self-employment Tax
This tax is primarily paid by individuals who work for themselves. These include sole proprietors and partners and it is base on the income of the business. Also, if you’re a LLC owner, you ought to also pay the self-employment tax. However, if you’re the chairman or CEO of a corporation and you work as an employee you don’t have to pay the self-employment tax.
#9 Sales tax or Value Added Tax (VAT)
VAT was enabled by the Value Added Tax Act, No 102 of 1993. This tax is payable by the consumer at 5% of the net value added based on eligible transactions once consumed.
The Sales Tax or VAT is usually paid to the State’s Department of revenue. However, if you’re a business, you should find out which products are sales-tax eligible so that you don’t have to over-pay by paying VAT on the wrong items.
As a business, here’s how you can calculate your VAT. You can either use the invoice-based method or the accounts-based method.
For the invoice-based method, sales transactions are taxed, with the customer informed of the VAT on the transaction. This is the most widely employed method.
It is expected that all registered businesses possess a VAT registration certificate with the VAT registration number boldly displayed on all invoices.
As a consumer, you can always look out for the VAT registration number to ensure that the VAT being charged is legal.
#10 Employment Taxes
If you run or own a business, it is expected that a certain amount of your company’s tax responsibilty fall on your employees and you’re expected to file these when submiting your tax returns to the State Government.
If you need more clarity on taxes in the country and the laws governing them, you can visit the State or Federal Department of Revenue that is close to you. Or you can employ the services of a tax consultant (usually an accountant).
However, if you think employing a tax consultant is an expensive option, you can choose to learn the ropes of taxation on your own. In this case, you can hire a tax consultant to put you through the process after which you can start doing it by yourself. This is quite cheaper but it will certainly take some of your precious time.
Also, if you earn a salary, you can use the FIRS tax calculator as a tool to assist you in calculating your tax returns.