Tax payment is a must task for every business owner in a particular country and business owners in Nigeria are not exempted. Therefore, if you are selling or rendering taxable goods or services in any state in Nigeria or you earn some income from working in the country, it simply implies that you are have tax obligations. If you are an entrepreneur or business owner in Nigeria and don’t know about taxation in Nigeria, reading this article is a wise choice because you will learn all that you need to know here.
TAXATION IN NIGERIA: A BEGINNER’S GUIDE TO NIGERIA’S TAX SYSTEM
Taxation in Nigeria is a legal requirement, and also a civic right for every citizen in the country to perform. It is important that you pay your tax to avoid been labelled a tax evader which will attract punishment and other penalties which can tarnish your business image. As long as you are a business owner in Nigeria, making money from rendering or selling services or products, you are legally required to collect, file and remit sales and use tax.
First of all, you need to know the different types of taxes in Nigeria. They are listed below.
- Companies’ income tax
- Personal income tax
- Capital gains tax
- Value added tax
- Stamp duties
- Withholding tax
- Petroleum profit tax
- Education Tax
- Technology Tax
- #1. Companies’ income Tax
Companies’ income tax is demanded to be paid by resident or non-resident company incorporated in Nigeria
- #2. Personal income Tax
This is a common tax that is compulsory for every individual in Nigeria to pay and it varies with respective income or profits (taxable income). The actual personal income tax is calculated as the product of a tax rate times taxable income.
- #3. Capital Gains Tax
All the companies registered in Nigeria which earns profits realized on the sale of a non-inventory asset commonly capital gains are earned from the sale of stocks, bonds, precious metals, real estate, and property. Companies Income Tax is remitted to FIRS through Designated Bank.
- #4. Value-added Tax
Otherwise known as VAT is a type of tax imposed on any individual, corporate sole, organizations who purchase or make use of any taxable product or service.
- #5. Stamp Duties
This type of tax is imposed on Items or persons subject to Stamp Duties tax which are written documents relating things between individuals or companies. Bonds, statements, financial transaction, article of association between companies, statements, deals, etc. are all part of stamp duties
- #6. Withholding Tax
Withholding Tax deductions is considered to be an advance payment of the relevant tax liability that is incurred from the tax returns within the set period.
- #7. Petroleum Profit Tax (PPT)
The Petroleum Profit Tax is imposed to any resident company or person in charge of a non-resident company who are exploring for or producing petroleum in Nigeria.
Having had an understanding of the various taxation in Nigeria, we will also show you the different tax administration in Nigeria. As of the time we compiled this article, tax administration in Nigeria cut across the three tiers of government, these are:
- Federal government
- State government
- Local government
- #1. Federal Government
Tax payed to or collected by the federal government of Nigeria is administered by the Federal Inland Revenue Service (FIRS). The agency is created to administer Revenue laws that concerns taxes that are paid by the residents of the Federal Capital Territory and taxes that are paid by corporate bodies (Limited Liability Companies). FIRS is responsible for accounting for the Federal Government for all taxes collected.
- #2. State Government
Tax payed to or collected by the state government in Nigeria is administered by the State Board of Internal Revenue (SBIR). The agency is created primarily with the aim of attending to Personal Income Tax Act. Also, some states in however, some states in Nigeria also creates additional revenue statutes, which they administer. SBIR are responsible for accounting to the State Government for all revenue collected.
- #3. Local Government
The Local Government collects taxes through the Local Government Revenue Committee/Council. The committee or council are responsible for collecting and evaluating all taxes, fines, and rates under the local government jurisdiction and account for all revenue collected to the chairman of the Local Government.
With that been said, we will also discuss briefly about tax rates in Nigeria. Tax paid in Nigeria is not equal and it varies by the income you earn. Below are the tax rates in Nigeria.
- Corporate Tax
- Individual Tax
- #1. Corporate Tax
Nigerian Companies pay 30% of profits made both from their local and international companies/organizations while foreign companies pay 30% of only the profit made from their companies established in Nigeria. The educational charge is fixed at 2% of the assessable profit while a 10% withholding tax is deducted from dividend payments to companies and individuals.
- #2. Individual Tax
Citizens of Nigeria are obligated by law to pay 25% of total income made worldwide while foreign individuals are to pay 25% of the profit made in Nigeria only.
- Tax Identification Number (TIN)
Nigerians and those residing in the country are required to obtain a Tax Identification Number (TIN). a unique number issued and allocated to individuals or companies to recognize them as registered taxpayers in Nigeria. So, you are required to have TIN if you are working with the Government, the private sector or you are a business owner. A TIN must be included on Returns, Statement, and other Tax related documents.
Conclusion on Taxation in Nigeria: A Beginner’s Guide to Nigeria’s Tax System
We have come to the end of our discourse and we hope you had fun reading and at the same time learnt something new while reading through the article. I bet you no know that tax payment is compulsory in Nigeria as long as you are a citizen or you reside in the country. By and large, what you must know is that it is compulsory to pay tax been a business owner in Nigeria.
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