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All You Need to Know About Taxation System in Nigeria

All You Need to Know About Taxation system in Nigeria: In Nigeria, the three tiers of government are responsible for enforcing taxation.

Under present Nigerian legislation, the Federal, State, and Local Governments each have a clearly defined mandate for tax and levy collection.

In Nigeria, tax income is defined as the mandatory transfer of funds to the central government for public purposes.

In a contemporary economy, tax revenue accounts for a sizable portion of national income.

The amount of revenue generated by the government for the provision of infrastructure facilities is directly proportional to the growth of a country. When it comes to releasing the resources required for public investment and infrastructure growth, taxation is the most important tool.

It is a demanding activity for everyone to deal with taxes and tax administration, but it is extremely unpleasant for business owners and entrepreneurs. Selling taxable goods or services in any state of Nigeria, as well as earning some money through employment in the country virtually always entails the payment of tax duties. You are therefore legally compelled to collect, file, and remit sales and use tax to the appropriate government agencies.

HISTORY OF TAXATION SYSTEM IN NIGERIA

Taxation in Nigeria has a long history that extends back to when the country was given its current name. During this historical period, the tax administrators served as the traditional chiefs of taxation agents and officers.

PRE-COLONIAL TAXATION SYSTEM IN NIGERIA

Before 1914, when Lord Lugard united the Southern and Northern Protectorates of Nigeria, it was common knowledge that the country is known as “Nigeria” did not exist. However, there was a population that existed before the establishment of that state, and their history has been ‘taxified’.

In the northern areas of Nigeria, a centralized system of taxation existed, under which the Emirs (rulers) were able to impose a variety of taxes that were in conformity with Islamic beliefs on their subjects. Taxes like the Zakat, Kudin-Kasa, and Shuka-Shuka, among others, were collected and levied on the basis of land utilization, cattle husbandry, and a variety of other factors.

The southern region of Nigeria did not have a centralized form of administration, and as a result, taxation was not organized in a logical manner. The Yorubas and the Igbos were the two most important tribes in the southern hemisphere. The Yorubas had monarchs, and Isha-Kole was a tax that was to be paid to the community leaders or chiefs; Owo-Ori was a tax that was assessed on those who offered services to the community.

Despite the fact that it may not have been in the exact sense that tax administration is known today, the imposition of financial charges has never been a foreign notion in Nigeria’s history!

COLONIAL TAXATION SYSTEM IN NIGERIA

Because of the emergence of colonialism in Africa, as well as the relentless drive to exploit natural resources, colonial powers have implemented a wide range of policies. The British administration of Nigeria formally began in 1861, and Lagos was designated as the region’s crown colony at the time of the establishment of the administration. Taxation was not centralized even while the formal administration was in place.

The Stamp Duties Proclamation of 1903 was the first official document in Nigeria to regulate taxation, and it was followed by the Natives Revenue Proclamation of 1906, which was created to harmonize the various taxes in the country. The Stamp Duties Proclamation of 1903 was the first official document in Nigeria to regulate taxation, and it was followed by the Natives Revenue Proclamation of 1906. The latter proclamation systematized all pre-colonial taxes by defining taxable taxes, as well as assessment and collection procedures, as well as penalties for non-compliance, so reducing the arbitrariness that had previously defined the Nigerian tax system.

It was also significant in that it established the four key elements of taxation: what to pay, when to pay, where to pay, and who to pay.

Other significant events occurred during the colonial period, such as the re-issue of the Native Revenue Proclamation as the Native Revenue Ordinance in 1917 to encompass the Southern region, and the extension of the Ordinance to cover the entire country by 1927. In the same way, the Inland Revenue Department was founded in 192.

PRESENT TAXATION SYSTEM IN NIGERIA

To begin with, the Inland Revenue Department was renamed the Federal Board of Inland Revenue in 1958, marking the beginning of the modern-day Federal Inland Revenue Service’s existence (FIR).

Several legal and institutional reforms were implemented following the country’s independence in 1960, including the establishment of the Federal Board of Inland Revenue (FBIR) and The Body of Appeal Commissioners as the first point of call for tax dispute resolution. The Joint Tax Board (JTB) was established in the same year, with the primary responsibility of ensuring uniformity in the standards and application of personal income tax. When the Raisman Commission issued its report in 1958, it established standardized tax rules. After considering the recommendations of the commission, the Nigerian government ultimately decided to implement them. Another significant reform was the founding of the Chartered Institute of Taxation of Nigeria in 1982, as well as the revision of the FBIR’s composition in 1993, both of which were enacted in 1982.

As a result of today’s economic realities and commercial complexities, it has become necessary to enact numerous taxation legislations. As a result, different pieces of legislation have been enacted overtime to deal with the issue of taxing increases. According to Nigerian law, there are three legal entities that can levy taxes in the country: the Federal Internal Revenue Services, the State Board of Internal Revenue, and the Local Government Revenue Services. The Federal Internal Revenue Service is the primary taxing authority in Nigeria.

TYPES OF TAXES IN NIGERIA

The following is a list of pertinent taxes levied by the government on either individuals or corporate entities.

1. Value-added Tax

VAT is a consumption tax that is levied on all goods and services sold or imported into Nigeria. Individuals, businesses, and government entities are all required to pay VAT at the current rate of 7.5 percent. VAT is not applicable to some goods and services, including medical and pharmaceutical products, medical services, basic food items, books and educational materials, and exports. The FIRS is empowered by the VAT Act, 1993 (as modified) to administer the collection of VAT from taxable people in Nigeria.

2. Capital Gain Tax

This is a yearly tax that applies to any gains made by a taxpayer on the sale, lease, or other transfer of proprietary rights in a chargeable interest that are subject to a 10% capital gains tax.

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Capital Gains Tax is calculated on an annual basis. It applies to all gains realized by a taxpayer (individual or business) as a result of the sale, lease, or other transfer of proprietary rights in a chargeable interest that are subject to a 10% capital gains tax.

Chargeable assets may be corporeal or incorporeal, and it makes no difference whether the asset is physically located in Nigeria. Where the taxpayer is a non-resident company or individual, however, the tax is levied only on the amount received or brought into Nigeria.

Capital gains tax is calculated by subtracting from the amount received or receivable the cost of acquisition incurred by the person realizing the chargeable gain, plus any expenditure incurred.

On asset enhancements or expenses incurred in connection with the asset’s realization.

Certain capital gains are tax exempt in Nigeria under section 26 of the Capital Gains Tax Act. For example;

• Profits earned by religious, charitable, or educational institutions, as well as statutory and diplomatic bodies, are tax exempt.

• Because trustees or nominees are not considered to be disposing of assets when they transfer them to beneficiaries, the transaction is not subject to capital gains tax.

• Other exemptions include gains on the sale of business assets used to acquire new business assets.

Gains derived from the disposition of, or an interest in, any person’s rights under any life insurance policy or contract for the deferred annuity;

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Compensation or damages received by an individual for a wrong or injury suffered, and gains realized on the sale of a dwelling house.

3. Education Tax

The tertiary education tax is imposed on every Nigerian company at the rate of 2.5 percent of the assessable profit for each year of assessment. The tax is payable within two months of an assessment notice from the FIRS. In practice, many companies pay the tax on a self-assessment basis along with their CIT.

This tax is viewed as a social obligation imposed on all businesses to ensure they give their fair share to the development of educational institutions in Nigeria.

4. Personal Income Tax

The Personal Income Tax Rate in Nigeria is a tax levied on individuals and is based on several sources of income such as work, pensions, interest, and dividends. The benchmark we utilize is the Individual Maximum Tax Rate. Personal Income Tax Revenues are a significant source of revenue for the Nigerian government.

This is the total amount of tax paid on a person’s income, whether earned within or outside Nigeria.

Salary, pay, fees, allowances, and other earnings or advantages given or granted to an employee are included in this category. Employers of labor are liable for remitting taxes deducted from employee salaries.

5. Income Tax on Corporations

This is the tax due on the profits of any business for each year of assessment, and it is levied at a fixed rate of 30%.

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The revenue collected has proven to be a powerful stimulant of economic growth and development in Nigeria throughout time.

Additionally, several bodies have been established to ensure conformity with tax regulations.

Administration of Nigeria’s taxation system

Tax administration is delegated to a number of different tax administrations, each of which is responsible for a specific sort of tax. There are three (3) authorities in Nigeria, which are as follows:

(a) Federal Board of Inland Revenue

The Federal Board of Inland Revenue is responsible for collecting taxes on behalf of the federal government; the organization is responsible for administering Revenue legislation that deals with taxes paid by citizens of the Federal Capital Territory as well as taxes paid by corporations (Limited Liability Companies). They are in charge of keeping accurate records for the Federal Government about all taxes collected.

(b) State Inland Revenue Board

The State Board of Internal Revenue is responsible for collecting taxes on behalf of the states; the agency is primarily responsible for administering the Personal Income Tax Act, but some states of the federation have enacted additional revenue statutes, which they are responsible for administering. They are in charge of keeping track of all revenue collected and reporting it to the state government.

(c) Local Government Revenue authorities

Generally, the Local Government collects taxes through the Local Government Revenue Committee; this committee is responsible for the assessment and collection of all taxes, fines, and rates that fall under its jurisdiction, and it reports to the chairman of the Local Government Revenue Committee on all revenue collected.

Conclusion

All taxable individuals and enterprises are expected to complete and submit yearly self-assessment tax returns within 90 days of the beginning of each calendar year, which must indicate the amount of tax owed on their income. During each tax year of assessment, you are obliged to file a return of income with the appropriate Tax authority in each jurisdiction where the taxable person or business is deemed to be located.

In order to address this, the Nigerian government has introduced the Voluntary Assets and Income Declaration Scheme (VAIDS). Known as the Voluntary Asset and Income Declaration Scheme (VAIDS), it provides taxpayers with a limited time window to update their tax status relative to past tax periods and pay any taxes that may be owed.

 

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