Small Business Taxation in Nigeria

In spite of the awareness by Tax authorities to sensitize the business owners of the need to perform their tax obligations in other to avoid penalties and embarrassment, some are still not privily about the way to go about it.

The details of Nigeria taxes for small business are as follows:

Major Types of Taxation in Nigeria

Company Income Tax (CIT): Resident companies (e.g. Dangote) are liable to CIT on their worldwide income while non-residents (e.g. Unilever) are subject to CIT on their Nigeria-source income. The CIT rate is 30%, assessed on a preceding year basis (i.e. tax is charged on profits for the accounting year ending in the year preceding assessment). This administered by Federal Government through the Federal Inland Revenue Service

Personal Income Tax (PIT): This is the most common type of tax in the country, it is deducted as a result of trade, business, profession, vocation for a period of time and applicable to personal such as wages, salaries, gratuity as well as any other income derived by reason of employment. This is remitted to state government via state Inland Revenue Service.

Value Added Tax (VAT): is a tax imposed on the supply of goods and services. Under Nigerian law, the tax is charged at 5% of the value of the taxable goods and services. It is an indirect tax wherein the burden of the payment is borne by the final consumer of the goods and services. This is remitted to the Federal Inland Revenue Service.

Capital Gains Tax accrues on an actual year basis. It pertains to all gains accruing to a taxpayer (individual or company) from the sale or lease or other transfer of proprietary rights in a chargeable interest which are subject to a capital gains tax of 10%. Federal Inland Revenue Service deals with the taxation of capital gains arising from the disposal of property by corporate entities while the State Internal Revenue deal with gains on disposal by individual sole traders.

Withholding Tax (WHT) is the tax required by law to be withheld by a party from each payment made to another contracting party from the income or service it rendered. When this tax is withheld, it is required to be remitted periodically to either the Federal Inland Revenue Service (for a corporate entity) or the respective state internal revenue service(for an individual/sole proprietorship) who will then issue Withholding tax credit note for the benefit of the party whose income is withheld.

Key Tax Obligations for Various Types Of Businesses

Major Type of TaxSole ProprietorshipLimited Company (Ltd)Non-governmental Organisations (NGOs)
Company Income Tax NO YESNO
Personal Income Tax YES YES YES
Value Added Tax (VAT) YES YES YES
Capital Gains Tax YES YES YES
Withholding Tax (WHT) YES YES YES

Other Things to Know About Taxation

·         You must file your tax return to avoid arbitrary tax levies on your organization. This was one of the reasons for the recent blocking of some bank accounts by the Federal Inland Revenue Service.

·         Keep up to date financial records. This will enable you challenge an arbitrary tax levy or justify self-assessment of your tax levy.

·         Get a Tax Identification Number (TIN). This helps you reconcile all tax payments.

·         When you are in doubt, seek professional advice from tax consultants.

·         Tax authorities (State or Federal) do not have the final say on the tax you pay, you have the option of going to a tax tribunal or the courts to appeal your case if you feel you are unfairly assessed.

”It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

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