This edition of Tax Alexa will attempt to simplify how the Tax Act, which took effect in January, directly impacts on individuals and small scale businesses in Nigeria.
What is ‘Significant Economic Presence’?
A non-resident is deemed to have a significant economic presence if they transmit signals, sounds, messages, images or data to Nigeria for activities such as e-commerce, digital content, online advertising, cloud computing, etc and profit is attributable to such activities (Section 17 (9)(b))
What is the tax treatment of digital or virtual assets?
Profits or gains from transaction in digital or virtual assets (crypto currencies, etc) are taxable under the Act (Section 4(1)(j))
What is the tax rate for individuals?
Individual income tax rates are specified in the Fourth Schedule and apply to chargeable income after allowable deductions (Section 58)
How is employment income defined?
Employment income includes salaries, wages, allowances, bonuses, benefit-in-kind, and other perquisite (Section 58).
What are the tax rates for companies?
Small companies are taxed at zero percent. Other companies are taxed at 30 percent, subject to a proposed reduction to 25 percent by presidential order. However, there is a minimum effective tax rate of 15% for certain large companies (Section 56-57).
What is the ‘Development Lev’?
A four percent development levy on assessable profits of companies (excluding small and non-resident companies) which harmonises various earmarked taxes under the old law. Proceeds are allocated to funds such as Tertiary Education Trust Fund, Nigerian Education Loan, Cybersecurity Fund, etc (Section 59)
What is the tax treatment of benefits-in-kind?
Benefits-in-kind are valued at 5% of the employer’s acquisition cost or market value, or the annual rent/hire cost and are taxable in the hands of the employees (Section 14).
What incentives are available for priority sectors?
Priority sectors listed in the Tenth Schedule may qualify for Economic Development Tax incentives, including tax credit and exemptions for up to five years (Section 166 – 184)
What VAT supplies are zero-rated?
Zero-rated supplies include basic food items, medical and pharmaceutical products, educational materials, agricultural equipments and exported goods and services (except oil and gas) (Sections 186 – 187)
How are stamp duties applied?
Stamp duties are imposed on instruments such as bills of exchange, conveyances on sale, leases, share capital, loan capital and marketable securities. Rates are specified in the Eighth Schedule (Sections 124-143)
How are petroleum operation taxed?
Petroleum operations are subject to Hydrocarbon Tax (for upstream crude oil operations), income tax under Chapte Two and Royalties (as per Seventh Schedule) (Sections 65 – 89)
How are mining operations taxed?
Mining operations are subject to income tax under Chapter Two, with specific deductions for environmental and rehabilitation funds, and royalties as per the Eighth Schedule (Section 64)
What is the surcharge on fossil fuels?
A 5% surcharge is imposed on chargeable fossil fuel products supplied or produced in Nigeria, with exemption for clean energy, household kerosene, cooking gas and CNG (Section 159-162). The charge will only come into effect subject to an order published in the Gazette by the Finance Minister.
What are the compliance requirements for partnerships?
Partnerships must register with the tax authorities and file returns. Partnerships are taxed separately on their share of profit (Sections 11, 15)
What is the penalty for non-compliance with partnership registration?
Failure to register partnership particulars may result in tax authorities assessing tax as it deems just and reasonable (Section 15)
Can losses be carried forward?
Yes, losses can be carried forward and deducted from future profits subject to certain conditions and limitations (e.g. Sections 27, 70, 97)
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