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Filing Tax Returns in Nigeria: Key Steps

Knowledge Bank
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KEY STEPS IN FILING TAXES OR FINANCIAL RETURNS IN NIGERIA

Individuals and organisations are required by law to pay taxes and file tax returns with the government. There are several taxes stipulated by laws and regulations in Nigeria, and they are broadly classified into direct and indirect taxes. Taxes differ according to the tax base which could range from income, property, assets to consumption, transactions, or other economic activities subject to taxation by the relevant tax authority. In Nigeria, the relevant tax authorities include the Federal Inland Revenue Service (FIRS) and States/Federal Capital Territory (FCT) Inland Revenue Services (SIRS). Tax administration in Nigeria is generally done on a self-assessment basis under the provisions of the applicable tax legislations, legal interpretations and judicial precedents. There are specified timelines for payment and filing of tax returns for the various taxes, as well as penalties that apply to tax offences such as failure to file by the stipulated due dates. Some of the major taxes that apply to a vast number of individuals and establishments are explored below.

  1. Type of Tax: Companies Income Tax (CIT)

Law: Companies Income Tax Act (CITA) 2004 and Finance Act 2019, Finance Act 2020.

Nature of Tax: CIT is charged on taxable profit derived from tax computation.

Administrative Authority: Federal Inland Revenue Service (FIRS)

Entities:

      • Medium companies registered in Nigeria with annual gross turnovers above N25 million but below N100m million are charged at the rate of 20%.
      • Large companies registered in Nigeria with annual gross turnovers higher than N100m are charged at the rate of 30%.
      • Non-resident entities carrying on business or that have significant economic presence in Nigeria.

Exemption: Small companies with annual gross turnovers of N25 million or less are exempt from paying CIT but are required to file it.

Requirements:

      • Audited financial accounts (prepared by a chartered accountant)
      • Income Tax computation done by the company or an accounting professional
      • Duly completed Companies Income Tax Form 001
      • Evidence of payment
      • It is filed on a preceding year basis (PYB)
      • Due Date for filing: CIT is to be filed within six months of the company’s accounting year end. However, a new company must file its returns within 18 months from the date of incorporation or six months after the end of its first accounting period, whichever is earlier.

 

  1. Type of Tax: Tertiary Education Tax (TET)

Law: Tertiary Education Trust Fund (Establishment) Act 2011

Nature of Tax: 2% of assessable profit

Administrative Authority: FIRS

Entities: All (private and public) companies registered in Nigeria.

Exemptions:

      • Non-resident companies
      • Unincorporated entities
      • Small companies with annual turnovers of N25 million and below

Requirements: Education Tax returns are filed alongside Companies Income Tax, with evidence of payment.

 

TAX

Photo Credit: Brand Spur

  1. Type of Tax: Personal Income Tax (PIT)

Law: Personal Income Tax Act (PITA) 1993, Personal Income Tax (Amendment) Act 2011

Nature of Tax : Assessable on the income of individuals. It is calculated based on source and residency rules and ranges from 7% to 24% depending on the amount of chargeable income.

The system for administering this tax is Pay As You Earn (PAYE), which provides for a graduated/progressive system for charging and collecting.

Administrative Authority: Relevant tax authority in an individual’s State of residence (States/FCT Internal Revenue Services). For non-residents, members of the Armed Forces, Police and Nigerian Foreign Service, the Federal Inland Revenue Service (FIRS) is the appropriate authority.

Entities: Individuals and partnerships. Individuals include employees of companies and incorporated trustees. The income of sole proprietors, partnerships, unincorporated trusts, joint ventures, families, communities are subject to PIT.

Exemptions: Persons who earn minimum wage or less.

Requirements:

      • Employers are to file Employers’ Declaration Form (form H1), Employers’ Remittance Card (Form G) and Declaration of estimated income and application for tax reliefs (Form A).
      • Due Date for filing: Individuals are required to file PIT returns not later than 31st March annually in respect of the preceding year.
      • PAYE ought to be remitted on or before the 10th day of the month following salary payment.

 

  1. Type of Tax: Value Added Tax (VAT)

Law: Value Added Tax Act 1993, Value Added Tax (Amendment) Act 2007, Finance Act 2020

Nature of Tax: It is a consumption tax, chargeable on the purchase of all goods and rendering of all services produced in or imported into Nigeria. It is 7.5% of the value of the goods and services.

Administrative Authority: Federal Inland Revenue Service (FIRS). It is important to note however, that this is now a basis of contention between some State governments and the Federal Government, with the former seeking to collect VAT for the supply of goods and services within their respective States.

Entities: Individuals and corporations, who carry out economic activities/transactions.

Exemptions:

        • Companies with taxable supplies below N25million in a calendar year are not required to file VAT returns or include VAT on their invoices.
        • Certain goods and services are exempt from VAT. Some of these include: oil exports, medical and pharmaceutical products, books and educational materials, all exported services, tuition for nursery, primary, secondary and tertiary education, airline transportation tickets sold by registered commercial airlines in Nigeria, residential rent, renewable energy, etc.

Requirements:

      • Duly completed Value Added Tax Returns Form 002
      • VAT schedule showing Tax Identification Number (TIN), name and address of payee, details of transaction, tax paid and month of return.
      • Due Date for filing: VAT must be remitted by the 21st day of the month following the month of transaction.

 

  1. Type of Tax: Withholding Tax (WHT)

Law: Companies Income Tax Act (CITA) 2004, Personal Income Tax Act (PITA) 1993, Personal Income Tax (Amendment) Act 2011, Withholding Tax Regulations

Nature of Tax: WHT is a method of collecting income tax in advance by deducting it at source on specific transactions.

Administrative Authority: Federal Inland Revenue Service (FIRS) for WHT deducted from companies. Relevant State/FCT tax authority for WHT deducted from individuals and unincorporated entities.

Entities: Companies, unincorporated entities, individuals.

Requirements:

      • Duly completed Withholding Tax Returns Form 007, indicating the vendor’s name, address and Tax Identification Number (TIN), as well as the type of contract, amount of contract and evidence of payment.
      • Due Date for filing: WHT from companies must be remitted to the FIRS within 21 days after the duty to deduct WHT arose. For unincorporated entities, remittance of WHT to the relevant State tax authority is due within 30 days after the duty to deduct WHT arose.

 

  1. Type of Tax: Capital Gains Tax

Law: Capital Gains Tax Act 2004

Nature of Tax: Tax on profit derived from the disposal of assets, which is charged at a flat rate of 10%.

Administrative Authority: Federal Inland Revenue Service (FIRS)

Entities: Individuals and companies.

Exemptions:

      • Shares and stocks
      • Nigerian government securities
      • Life insurance policies
      • Compensation for wrong or injuries suffered by an individual
      • Gains realised from takeovers and business reorganisation (between related parties that have been related for a period of 365 days)
      • Decorations awarded for valour or gallant conduct
      • Main residence or dwelling house of an individual

Requirements:

      • CGT computation
      • Duly completed Capital Gains Tax Returns Form 003
      • Due Date for filing: CGT is to be filed not later than 30th June or 31st December of the year of disposal. This does not apply to replacement of business assets.

In addition to these taxes, there are also are industry specific taxes which apply to companies operating within those industries. Some of these include the Information Technology Tax, Petroleum Industry Tax, Petroleum Profits Tax, etc.

For NGOs: It is important to note that non-profit organisations are liable to pay PIT, VAT and collect WHT in applicable transactions. Where they dispose of assets at a profit, then CGT is also applicable.

 

Practical Experience/Challenges with the Tax Filing Process

Traditionally, tax filing in Nigeria had always been done manually. This involves preparation of physical copies of accounts and tax computations, filling of physical tax forms and filing same at the relevant tax authority along with physical evidence of payment. This manual process places administrative costs on taxpayers for tax compliance.

Tax authorities in Nigeria, led by the Federal Inland Revenue Service (FIRS), have made attempts to digitalise tax filing by introducing online portals for filing of tax returns. The FIRS launched the TaxPro-Max filing platform effective 7th June 2021. In reality, taxpayers would still have to go to banks to make payments. However, they can file their Naira-denominated returns online using the TaxPro-Max platform.

The introduction of the TaxPro-Max still has some teething issues. It is not yet configured for the filing of Companies Income Tax returns for Insurance Companies and Upstream Oil & Gas Companies whose tax computation processes are different. The platform recognises only Naira (NGN) as the reporting currency which does not allow for tax filing for income in other currencies accepted by the FIRS – British Pounds (GBP) and Euros.

Payment of taxes is expected to be completed within 24 hours after initiation of payment/ generation of Remita Retrieval Reference (RRR) Number. This is not realistic considering that the Remita platform is usually prone to down times. There are no provisions for correction or amendment of tax returns, as well as instalment payment on TaxPro-Max. At the end of the filing process, the platform does not generate any report for the user.

On the level of the State tax authorities, only a few such as Lagos State Internal Revenue Service (LIRS), Rivers State Internal Revenue Service (RIRS), and Kaduna State Internal Revenue Service have provided online filing platforms to help ease the burden of tax compliance for taxpayers in their respective States.

 

Sources

  1. https://pwcnigeria.typepad.com/files/pwc—2021-nigeria-tax-data-card-1.pdf
  2. https://www.firs.gov.ng/
  3. https://pedabo.com/firs-launches-taxpro-max-for-online-returns-filing-and-payment-of-taxes/

Cover Photo Credit: India News Republic

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