{"id":295683,"date":"2023-07-25T16:02:18","date_gmt":"2023-07-25T15:02:18","guid":{"rendered":"https:\/\/nigerianfinder.com\/?p=295683"},"modified":"2023-07-25T16:02:18","modified_gmt":"2023-07-25T15:02:18","slug":"how-to-calculate-tax-relief-in-nigeria","status":"publish","type":"post","link":"https:\/\/nigerianfinder.com\/how-to-calculate-tax-relief-in-nigeria\/","title":{"rendered":"How to Calculate Tax Relief in Nigeria\u00a0"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Many taxpayers in Nigeria do not know that there exists tax reliefs put in place to reduce certain tax burdens they bear. In this article, we&#8217;ll be revealing those tax reliefs and the class of taxpayers who benefit from them. In addition, we&#8217;ll be providing explanations on how to calculate tax relief in Nigeria. Keep on reading to learn the legal way employees and companies can lessen their total tax liability in Nigeria. We&#8217;ll be discussing Consolidated Relief Allowance as a tax relief for taxpayers under the Personal Income Tax and Capital Allowance for taxpayers under the Companies Income Tax.\u00a0<\/span><\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter size-full wp-image-295684\" src=\"https:\/\/nigerianfinder.com\/wp-content\/uploads\/2023\/07\/How-to-Calculate-Tax-Relief-in-Nigeria-.jpg\" alt=\"How to Calculate Tax Relief in Nigeria\u00a0\" width=\"590\" height=\"410\" srcset=\"https:\/\/nigerianfinder.com\/wp-content\/uploads\/2023\/07\/How-to-Calculate-Tax-Relief-in-Nigeria-.jpg 590w, https:\/\/nigerianfinder.com\/wp-content\/uploads\/2023\/07\/How-to-Calculate-Tax-Relief-in-Nigeria--576x400.jpg 576w\" sizes=\"(max-width: 590px) 100vw, 590px\" \/><\/p>\n<p><span style=\"font-weight: 400;\">How to calculate tax relief in Nigeria would be discussed below:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">How to Calculate Consolidated Relief Allowance\u00a0<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Consolidated relief allowance is a tax relief allowed under the Personal Income Tax Act and is eligible to taxpayers who earn business income or employment income. They include employees, partners in a partnership, unincorporated trusts, joint ventures, families, and communities.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Consolidated relief allowance is calculated as Higher of N200,000 and 1% of gross income, plus 20% of gross income*.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For clarity, we need to point out that the &#8220;Gross income&#8221; above with an asterisk means income from all sources less all non-taxable income, income on which no further tax is payable. That is to say, all tax-exempt items, business allowances and capital allowances must first be deducted from the gross emoluments to arrive at the gross income.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The deductions allowed to be deducted from the gross emoluments of a taxpayer under the Personal Income Tax Act include the following:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">NHF contribution<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">National Health Insurance Scheme<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Life Assurance Premium<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Pension Scheme and Gratuities<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Reimbursements\u00a0\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Interest and dividend\u00a0\u00a0\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Disability allowance<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Allowable business deductions include:\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Interest on money borrowed for business purposes.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Rent and premium payable on land or buildings occupied for the purpose of acquiring the income.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Repairs and maintenance expenses for premises, plant, or machinery used in generating income.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Bad debts.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Subscriptions, provided they relate to the business or profession.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Illustration on how to calculate consolidated relief allowance:\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">What would be the value of the consolidated relief allowance for Mr. John Bull, an architect whose annual gross emoluments for 2022 was N4,000,000? Let&#8217;s assume he&#8217;s entitled to a few allowable deductions that include National Housing Fund, National Health Insurance Scheme, and Pension.<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Solution<\/span><span style=\"font-weight: 400;\">\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Consolidated Relief allowance =Higher of N200,000 and 1% of gross income, plus 20% of gross income*<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Remember &#8220;Gross income* (GI2)&#8221; means income from all sources less all non-taxable income, income on which no further tax is payable.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Annual Gross income (G1) = N4,000,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Annual Gross income* (G2) = N4,000,000 &#8211; (Tax-exempt items contributions, i.e.NHIS+NHF+Pension)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">NHF contribution = 2.5% of N4,000,000 = N100,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">NHIS contribution = 5% of N4,000,000 = N200,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Pension contribution = 8% of N4,000,000 = N320,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Total of tax-exempt contributions = N(100,000 + 200,000 + 320,000) = N620,000.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Therefore, Gross income* (GI2) = N4,000,000 &#8211; N620,000 = N3,380,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">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)<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= N200,000 + N676,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">= N876,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The tax relief due to Mr John Bull for\u00a0 2022 is N876,000.\u00a0<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\">\n<h2><span style=\"font-weight: 400;\">How to Calculate Capital Allowance in Taxation in Nigeria\u00a0<\/span><\/h2>\n<\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The Companies Income Tax Act grants capital allowance as a tax relief to businesses and companies in Nigeria for purchasing non-current assets used in generating taxable profits, in lieu of accounting depreciation. However, if these qualifying assets are utilised towards generating tax-exempt profits, the capital allowance will not be claimable. Also, capital allowance will be prorated if qualifying assets are partially used for generating taxable profits.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Before we proceed to provide the formula for calculating capital allowance, let&#8217;s briefly explain the types of capital allowances in Nigeria. Initial allowance and annual allowance are the two major capital allowances granted on non-current assets used in generating taxable profits, in lieu of accounting depreciation. Initial allowance is granted once in the first year of purchase and when the asset is first used to generate taxable profits. Annual allowance, on the other hand, is granted every year that the asset is used until it is fully written off.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">An additional allowance under the Company Income Tax Act is the investment allowance which is granted at the rate of 10% of the cost of incurring expenditure on plant and equipment. Investment allowance is granted once.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Below is a table showing the qualifying expenditure for capital allowance and their respective applicable rates:<\/span><\/p>\n<p>&nbsp;<\/p>\n<table>\n<tbody>\n<tr>\n<td><span style=\"font-weight: 400;\">Qualifying Expenditure\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Initial Allowance (%)<\/span><\/td>\n<td><span style=\"font-weight: 400;\">Annual Allowance (%)<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Building ( industrial &amp; non-industrial)\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">15<\/span><\/td>\n<td><span style=\"font-weight: 400;\">10<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Mining\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">95<\/span><\/td>\n<td><span style=\"font-weight: 400;\">NIL<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Plant and machinery for Agricultural production\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">95<\/span><\/td>\n<td><span style=\"font-weight: 400;\">NIL<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Plant and machinery for other purposes aside from agricultural production\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">50<\/span><\/td>\n<td><span style=\"font-weight: 400;\">25<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Furniture &amp; fittings\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">25<\/span><\/td>\n<td><span style=\"font-weight: 400;\">20<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Motor vehicle for public transportation\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">95<\/span><\/td>\n<td><span style=\"font-weight: 400;\">NIL<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Motor vehicle for other purposes aside from public transportation<\/span><\/td>\n<td><span style=\"font-weight: 400;\">50<\/span><\/td>\n<td><span style=\"font-weight: 400;\">25<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Plantation equipment\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">95<\/span><\/td>\n<td><span style=\"font-weight: 400;\">NIL<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Housing estate<\/span><\/td>\n<td><span style=\"font-weight: 400;\">50<\/span><\/td>\n<td><span style=\"font-weight: 400;\">25<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Ranching and plantation\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">30<\/span><\/td>\n<td><span style=\"font-weight: 400;\">50<\/span><\/td>\n<\/tr>\n<tr>\n<td><span style=\"font-weight: 400;\">Research &amp; Development\u00a0<\/span><\/td>\n<td><span style=\"font-weight: 400;\">95<\/span><\/td>\n<td><span style=\"font-weight: 400;\">NIL<\/span><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"font-weight: 400;\">A new addition to the above-mentioned qualifying expenditure list is the development or acquisition of software and capital outlays on electronic applications. But at the time of writing this piece, the rates for initial allowance and annual allowance are unspecified for software\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Below are the formulae for determining initial allowance and annual allowance\u00a0 calculating capital allowance in taxation in Nigeria:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Initial allowance (IA) =\u00a0\u00a0<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Initial allowance rate \u00d7 cost of the asset<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Annual allowance (AA) =\u00a0 Annual allowance rate \u00d7 (Cost of the asset minus initial allowance).<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Remember, investment allowance is calculated as 10% of the cost of acquiring plant and equipment for a business.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Another important information to note is that the maximum capital allowance that a taxpayer can claim is two-thirds of assessable profits. Only taxpayers in the agro-allied and manufacturing industries are exempted from this restriction.\u00a0\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Illustration 1<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">In January 2022, Prudent &amp; Sons purchased plant and machinery for NGN15,000,000. The accounting year ends on December 2022. Calculate the capital allowance.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Solution:<\/span><span style=\"font-weight: 400;\">\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to the Companies Income Tax Act, the capital allowance rate for addition to plant and machinery are as follows:\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">10% &#8211; investment allowance\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">50% &#8211; initial allowance\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">25% &#8211; annual allowance\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Investment allowance = NGN15,000,000 \u00d7 10% = NGN1,500,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Initial allowance = NGN15,000,000 \u00d7 50% = NGN7,500,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Annual allowance = NGN(15,000,000 &#8211; 7,500,000) \u00d7 25% = NGN1,875,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Total capital allowance = NGN (1,500,000 + 7,500,000 + 1,875,000) = NGN10,875,000<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Illustration 2<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">Carseal Logistics bought furniture and fittings for their Lagos office in April 2021 at the cost of N10,000,000. Accounting years ends on 31 December. Calculate the capital allowance.\u00a0<\/span><\/p>\n<h2><span style=\"font-weight: 400;\">Solution:\u00a0<\/span><\/h2>\n<p><span style=\"font-weight: 400;\">The capital allowance rates for addition to furniture and fittings are<\/span><\/p>\n<p><span style=\"font-weight: 400;\">25% \u2013 initial allowance<\/span><\/p>\n<p><span style=\"font-weight: 400;\">20% \u2013 annual allowance<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Therefore:\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Initial allowance (IA) = NGN 10,000,000 \u00d7 25% = NGN 2,500,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Annual allowance (AA) = NGN (10,000,000 \u2013 2,500,000) \u00d7 (9 \/ 12) \u00d7 20% = NGN 1,125,000<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Total capital allowance = NGN (2,500,000 + 1,125,000) = NGN 3,625,000<\/span><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Many taxpayers in Nigeria do not know that there exists tax reliefs put in place to reduce certain tax burdens &#8230; <\/p>\n<p class=\"read-more-container\"><a title=\"How to Calculate Tax Relief in Nigeria\u00a0\" class=\"read-more button\" href=\"https:\/\/nigerianfinder.com\/how-to-calculate-tax-relief-in-nigeria\/#more-295683\" aria-label=\"More on How to Calculate Tax Relief in Nigeria\u00a0\">Read more<\/a><\/p>\n","protected":false},"author":2534,"featured_media":295684,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3093],"tags":[],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/nigerianfinder.com\/wp-content\/uploads\/2023\/07\/How-to-Calculate-Tax-Relief-in-Nigeria-.jpg","jetpack_shortlink":"https:\/\/wp.me\/p6w1sx-1eV5","jetpack-related-posts":[],"_links":{"self":[{"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/posts\/295683"}],"collection":[{"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/users\/2534"}],"replies":[{"embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/comments?post=295683"}],"version-history":[{"count":1,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/posts\/295683\/revisions"}],"predecessor-version":[{"id":295685,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/posts\/295683\/revisions\/295685"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/media\/295684"}],"wp:attachment":[{"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/media?parent=295683"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/categories?post=295683"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/nigerianfinder.com\/wp-json\/wp\/v2\/tags?post=295683"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}