Taxation: the entrepreneurs’ concern

Now that the Nigerian oil revenue has dropped drastically, and the government has turned toward taxation – when the economy is still struggling to have a grip on stability: The concern of many businesses, especially, the growing ones – is how to go about the payment of tax, and yet – retain some meaningful profits for their various organisations.

In this article, we will try to shed light on how to support our government to achieve the task which it as set out to do, neglecting (deliberately) the illegal means of beating the ‘payment of tax’.
Unarguably, there are so many methods by which one can beat taxation, but such methods play down on individual’s integrity and may be dangerous if caught in
the act.
Hence, we will focus on the taxpayer, how to pay the tax and where to pay the tax. However, there are only two specific taxes that so much concern an entrepreneur, namely:
·        VALUE ADDED TAX (VAT).
·        COMPANIES INCOME TAX (CIT).
The taxes collected by theFederal Inland Revenue are as follow:

COMPANIES INCOME TAX (CIT)

Persons subject to the Companies Income Tax are:
  • All companies incorporated in Nigeria with the exception of companies engaged in petroleum operations.
  • All non-resident (foreign) companies that earn or derive income from Nigeria.
  • All organizations limited by guarantee (institutions of public character or charitable organizations) engaged in profit making activities other than the promotion of their primary objects.
  • The liquidator, receiver, or agent of liquidator or receiver of any taxable company or organization.
PETROLEUM PROFITS TAX (PPT)
Persons subject to the Petroleum Profits Tax:
  • Companies engaged in petroleum exploration and production operations in Nigeria (up-stream operations).
  • A person resident in Nigeria employed in
    the management of the petroleum operations carried on by a non-resident company
  • The liquidator, receiver, or agent of liquidator or receiver of any company carrying on petroleum operations in Nigeria.
VALUE ADDED TAX (VAT)
Persons subject to the Value Added Tax:
Any individual, corporation sole, group, body corporate or organization that consumes, buys, procures or imports taxable goods or services is liable to pay the tax.
How to pay the Value Added Tax
  • During direct sales or open market transactions, the buyer or consumer shall pay the tax to the seller together with the cost of the goods or services bought. The seller then nets off the VAT paid at the time of purchase of the stocks sold from the VAT collected on the stocks sold and credit the balance to FIRS.
  • Where the goods or services were supplied to a government Ministry, Department or Agency (MDA) or a company engaged in oil operations, the VAT payable by the MDA or oil company is deducted or withheld at source (at the point of payment). It is then
    credited directly to FIRS on behalf of the supplier.
  • VAT payments are made on a monthly basis
    not later than 21days of every subsequent month. Tax payers prepare and submit monthly VAT returns accompanied by evidence of payment of the tax due at designated banks.
Where to pay the Value Added Tax
VAT remittances may be made at any designated banks; an e-ticket is immediately issued as evidence of payment. This e-ticket may be presented at the ITO and an e-receipt will be issued the taxpayer.
PERSONAL INCOME TAX (PIT)
Persons subject to the Personal Income Tax:
  • Individuals resident in the Federal Capital Territory, Abuja.
  • Families, communities, trustees and estates resident in the Federal Capital Territory.
  • Persons employed in the Nigerian Army, Nigerian Navy, Nigerian Air Force and Nigeria Police other than in civilian capacity.
  • A person resident outside Nigeria who derives income or profit from Nigeria.
  • Officers of the Nigerian foreign service.

WITHHOLDING TAX (WHT)

Applicable tax law
Withholding Tax (WHT) is not a distinct tax type and therefore has no legislation of its own.
It is only a mechanism for the collection of other taxes. Consequently, its
application is provided for in the enabling law of other tax types i.e. Section 81 of Company Income Tax Act, Section 54 of Petroleum Profit Tax Act, Section 73 of Personal Income Tax Act and Section 13 of Value Added Tax Act.
Persons subject to the Withholding Tax:
Persons subject to the various tax types may be subject to Withholding Tax deductions for the purpose of offsetting their tax liabilities. WHT deductions are regarded as advance payments (or payments on account) of the relevant tax liability that will arise from the tax returns of the period concerned.

EDUCATION TAX (EDT)

Persons subject to the Education Tax:
All companies liable to Companies Income Tax are also liable to Education Tax. In other words, all companies registered or resident in Nigeria are liable to pay Education Tax.

STAMP DUTIES (STD)

Persons subject to Stamp Duties:
The items and persons subject to stamp duties are instruments (written documents) relating to matters executed between a company and an individual, group or body of individuals. Instruments which may be subject to stamp duties include financial instruments/transactions, company memorandums and articles of association, statements of share capital ownership, bonds, conveyances on sale, depositions, blease agreements, mortgage bonds, debentures, etc.
CAPITAL GAINS TAX (CGT)
Persons and properties subject to the Capital Gains Tax:
All companies incorporated in Nigeria which earns any capital gains or gains on the disposal of all forms of assets. All forms of property (whether situated in Nigeria or not) that are liable to capital gains tax include:
  • Options, debts and incorporeal property generally;
  • Any currency other than Nigerian currency; and
  • Any form of property created by the person disposing of it, or otherwise coming to be owned without being created.
NATIONAL INFORMATION TECHNOLOGY DEVELOPMENT FUND (NITDF) LEVY
Persons subject to the NITDF Levy:
Companies and enterprises with an annual turnover of N100, 000, 000.00 and above operating as:
  • GSM Service Providers or telecommunications companies;
  • Cyber companies and internet providers;
  • Pensions managers and pension related companies;
  • Banks and other financial institutions;
  • Insurance companies.

There are two categories of tax payers in Nigeria: Individuals and Corporations.

  • INDIVIDUAL TAXPAYERS:  this category of taxpayer is further sub-categorised for ease of administration into- 
    • Resident individuals- taxpayers who reside in Nigeria for a period or periods amounting to 183 days or more in any 12 month period commencing in a calendar year and ending either
      within that same year or the following year.
    • Non-resident individuals- this category include immigrants and any individual who is in Nigeria for some temporary purpose only and not with intent to establish residence.
  • Corporations:  any company incorporated under the Companies and Allied Matters Act.
It is noteworthy at this junction – that all entrepreneurs understood the categories of taxes that apply to them. All entrepreneurs would pay or collect VAT where applicable, and they must pay their companies income taxes, when due.

Tax Payment Guidelines – listed below:

  • Taxpayers must be registered with relevant Tax Office nearest to them and obtain a Taxpayer Identification Number (TIN).
  • Taxpayers should render appropriate tax
    returns.
  • Taxpayers should obtain Assessment and
    Demand Notices where applicable.
  • Taxpayers should remit all taxes to the approved collecting Banks in the various forms designed for such purposes and obtain an Electronic Ticket (e-ticket).
  • Taxpayers should present the e-ticket for the issuance of FIRS official receipts.
  • Taxpayers can now process their Tax Clearance Certificate accordingly.
How would you calculate your individual taxes?
According to Dr. Alaba Olusemoore, the CEO of Nesbet Consulting, the following method could be used in determining the amount of your tax – payable to the government.
ITEMS                                                                            N
NET SALES                                                                 XX
LESS COST OF GOODS SOLD                               XX
GROSS PROFIT                                         =              XX
LESS EXPENSES:
TRANSPORT
ENTERTAINMENT
LIGHT & POWER
SALARIES
ETC                                                                             XX
NET PROFIT BEFORE TAX                     =              XX
LESS TAX                                                               30%
PROFIT AFTER TAX                                 =              XX
In view of this method, your payable tax would be 30% of your income, after deducting some of your expenses and other cost of production (charges). You might need to consult an auditor for proper book record of your expenditures.

There are few benefits of paying your tax as a business owner, and these benefits are enumerated below

Nigeria as a country and indeed all socially responsible and law abiding individuals, groups, organisations and corporate citizens will derive valuable benefits from imbibing a culture of tax compliance. The benefits derivable include but are not limited to:
  • Providing sustainable finance and funding for governance, public and social services and economic development.
  • Promoting civic responsibility, patriotism by citizens and social responsibility by corporate citizens.
  • Stimulating priority social and economic activities and sectors while discouraging less preferred ones.
  • Bringing about the redistribution of wealth and bridging sharp disparities in living standards.
  • Giving taxpayers the moral and legal right to demand for (thereby engendering) a culture of accountability.
  • Serving as a gauge for measuring the level, growth and health of economic units and economic activities.
  • Individuals and corporate organisations are conferred with definite benefits, rights and privileges in the system based on their tax compliance status.
  • Tax compliance enables law abiding citizens to avoid the consequences, penalties and sanctions of non-compliance.
Even, the scripture mandated that we should give what belongs to the government – to the government: “When they had come to Capernaum, those who received the temple tax came to Peter and said, “Does your Teacher not pay the temple tax?” He said, “Yes.” And when he had come into the house, Jesus anticipated him, saying, “What do you think, Simon? From whom do the kings of the earth take customs or taxes, from
their sons or from strangers?”
Peter said to Him, “From strangers.” Jesus said to him, “Then the sons are free. Nevertheless, lest we offend them, go to the sea, cast in a hook, and take the fish that comes up first. And when you have opened its mouth, you will find a piece of money; take that and give it to them for Me and you.”
(Matt 17:24-27, NKJV).
Now that you understood how to go about the payment of your taxes – it is left to your opinion if you will support the government partially or fully in your tax payment, but know that if you are caught cheating the government – it might not be an easy ride.
Therefore, remember that you are informed not to be deformed, because you deserve the best.
Thanks for reading this.

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