Tax Watch (Valid up to 31 December, 2011) It should be noted that a number of bills for amendments to tax statues have been submitted to the National Assembly for consideration and subsequent enactment. Preliminary We have taken adequate care in the compilation of this Tax Watch. However, we do not accept responsibility for any inaccuracy, moreso that the enabling laws to give effect to some of the fiscal measures might not have been passed. We request that professional advice be sought if in doubt on any portion of the write-up. Personal Income Tax (a) Personal tax rates Taxable income Rate of tax N % First 30,000 5 Next 30,000 10 Next 50,000 15 Next 50,000 20 Over 160,000 25 No tax is payable on annual income of N30,000 or less other than a flat rate tax of 0.5% of earned income. (b) Personal income relief Earned income relief N5,000 + (20% of earned Income) Disabled persons Higher of N5,000 and additional allowance 10% of earned income Children allowance (limited to four children) N2,500 per child Dependent relative (maximum of two) N2,000 each Provident Fund Limited to 10% of basic salary Life Assurance Premium Actual premium paid.
Allowable allowances (i) Rent subsidy (ii) Transport (iii) Meal subsidy (iv) Utility (v) Entertainment (vi) Leave bonus Upper limit of exemption N 150,000 per annum N 20,000 per annum N 5,000 per annum N10,000 per annum N 6,000 per annum 10% of annual basic salary Gratuities Maximum of N100,000 allowable for private sector for period of service not less than 10 years. Compensation for loss of employment: Wholly allowable Annual interest paid on loan for an owner-occupied residential house Actual amount of interest paid (c) Rates of withholding taxes to set off against ultimate tax payable Type of payment Rate All aspects of building construction and related activities 5% All types of contracts other than sale and purchase of goods and property in the ordinary course of business 5% Consultancy and professional services 5% Management services 5% Technical services 5% Commissions 5% Directors fees 10% Royalties 10% Rent (including equipment hire) 10% Dividend 10% Interest 10%
Companies Income Tax (Companies Income Tax Act, 1979 as amended) Owing to the re-organisation that took place in the Federal Inland Revenue Service, more tax offices have been opened. All aspects of taxation, that is, companies income tax, value added tax, and withholding tax have been integrated as a unit for the purpose of easy cross-references and revenue collection. Tax audits have also been decentralized to make tax audit exercise more regular than before. (Companies Income Tax Act, 1979 as amended) (a) Type of tax Rate Company tax on total profit 30% Education tax on assessable profit (allowable charge for Petroleum Profit Tax [PPT] 2% Deemed profit of offshore companies calculated on turnover 20% (b) Minimum tax (i) With turnover of N500,000 or less, highest of: 0.5% of gross profit; 0.5% of net assets; 0.25% of paid-up capital; and 0.25% of turnover. (ii) (iii) With turnover higher than N500,000, minimum tax is the total of whatever is payable as per (i) above plus 0.125% of turnover in excess of N500,000. Exemption from minimum tax is applicable to: a company during its first four calendar years of operations; a company in agricultural trade or business; a company with at least 25% foreign equity participation.
(c) (i) Withholding taxes To be set against ultimate tax liability Type of payment Rate All types of contracts other than sale and purchase of goods and property in the ordinary course of business 5% Consultancy services 10% Management services 10% Technical services 10% Commissions 10% Rent (including equipment hire) 10% Fees (directors, agency etc) 10% Interest or royalty 10% (ii) Dividend 10% (d) Capital allowances (i) Qualifying expenditure Initial Annual Allowance Allowance Non-industrial buildings 15% 10% Industrial buildings 15% 10% Mining 95% Nil Plant (excluding furniture & fittings) 50% 25% Plant (Agricultural Production) 95% Nil Furniture and fittings 25% 20% Motor vehicles 50% 25% Motor vehicles (public transportation minimum of 3 buses) 95% Nil Ranching and plantation equipment 95% Nil Housing Estate 50% 25% Ranching and plantation 30% 50% Research and development 95% Nil (ii) Capital allowances granted in any year are restricted to 66 2/3 % of the year s assessable profit for companies not engaged in manufacturing or agricultural business.
(iii) (e) However, acceptance certificates are to be obtained from the Inspectorate Division of the Federal Ministry of Industries in support of capital expenditure which exceeds N500,000 on a unit of fixed asset in a year. Interest exempted (i) Interest earned by lender, including banks on loans granted for agricultural and/or export businesses is exempted from tax as follows: Repayment period Grace Interest (including period Proportion moratorium) exempted Above 7 years Not less than 2 years 100% 5-7 years Not less than 18 months 70% 2-4 years Not less than 12 months 40% Below 2 years Nil Nil (ii) (iii) Bank interest on agricultural loans will continue to enjoy 100% tax exemption, provided the loan has a moratorium period of not less than 18 months, and interest rate of not more than the base lending rate. Interest earned by a bank on loan granted for purposes of agricultural trade or business, fabrication of local plant and machinery and as working capital for cottage industries established under the Family Economic Advancement Programme shall be exempted from tax if moratorium period is not less than 18 months. (f) Capital Gains Tax (Capital Gains Tax Act, 1967) Rate of tax: 10% of capital gain. Capital gains on disposal of shares and stocks are exempted from capital gains tax. (g) Industrial Training Fund (Industrial Training Fund Act, 1971) Rate of contribution - 1% of total payroll.
(h) Pension Reform Act 2004 With effect from 25 June 2004, this enactment replaced all previous pension or provident funds Deduction of 7.5% from employees monthly emoluments 7.5% to be added by employers (Monthly emoluments is the basic salary plus housing and transport allowances) (i) Employees Compensation Act 2010 with effect from July 2011 employers shall remit 1% of monthly payroll to the NSITF towards the scheme to provide compensation for accidents and injuries sustained in the workplace. It replaces the workman s compensation Act 2004. The rate of contribution is subject to review after the initial period of 2 yrs. (j) Petroleum Profits Tax Rates of Royalty Type of Tax Rate On exports 85% On domestic sale of oil and gas 65.75% On-shore production 20% Off-shore production in areas up to 100 metres water depth 181/2% Off-shore production in areas beyond 100 metres water depth 162/3% Capital Allowances Year 1 to Year 4 (per annum) 20% Year 5 19% Investment Tax Credit On-shore operations 5% Off-shore operations in areas up to 100 metres water depth 10% Off-shore operations in areas between 100 and 200 metres water depth 15%
Off-shore operations in areas beyond 200 metres water depth 20%