Income tax is one of the most important components of the economy of any country and when it comes to the Nigeria the laws and related regulations make sure that the life of the tax payers is always eased so that the inflow of cash for the government remains there to support the public welfare work. Unfortunately most of the individuals and most of the companies in the country are unaware of the income tax laws that prevail in the country and hence they never pay what is being paid and how one can enjoy deductions. Though professional tax services for calculating income tax in Nigeria are there to support the individuals and the companies but still the general public should be aware of the laws according to which the income tax in Nigeria is calculated. If the laws seem to be complex then at least a general overview is mandatory to make sure that the concept of income tax in Nigeria becomes crystal clear and the individuals can take steps to make sure that the income tax is deductions are enjoyed. From companies to personal income tax in Nigeria the laws and regulation are very simple and they should be followed to ensure that the tax returns are filed within time so that the economy flourishes and gets the best results for the people at grass root level. Following are some of the forms according to which the income tax in Nigeria is collected by the government:
- Personal income tax
It can be regarded as the first and foremost form of income tax in Nigeria. It makes sure that all Nigerians and the expats who earn their livelihood in Nigeria pay a part to the government in form of tax. Liability to pay income tax solely depends upon the fact that whether a person is a Nigerian or Non Nigerian and the amount that is earned while the entity is settled in Nigeria. The most common points that are to be noted are as follows:
- A person is a Nigerian and earns the livelihood within the country.
- The person has a business that is settled in Nigeria
- The person is a non Nigerian and earns livelihood in the country.
- VAT or value added tax
It is the second form of income tax in Nigeria that can be easily calculated. According to this law the purchasers of goods and services had to make sure that 5% of tax is paid on top of the sale price of the good. The Federal Inland Revenue Service or FIRS is the sole authority which makes sure that this form of income tax is collected. The mentioned authority also collects the VAT on behalf of the central, local and state governments. The sharing of the tax proceedings is also done by this authority.
Income tax in Nigeria is a relatively broad term and it includes several types of incomes taxes that have been imposed on the individuals as well as the companies that are working in Nigeria. Following are some of the mist important income tax terms that are used when it comes to Nigeria:
- Rental Income tax
- Taxation of Expats
- Personal income tax
Rental income tax
Rental income tax in Nigeria is calculated annually according to the income that has been generated from apartment, property or land within the country. Following are most important assumptions that are made by the government while calculating taxes in this regard:
- Gross rental income should be $1500 per month
- The property should be directly or jointly owned by husband and wife
- Both husband and wife are non residents in Nigeria and most importantly foreigners
- No other local income set up has been established by them in this regard
- There is no loan or mortgage taken for the purchase of the property rented.
- In Nigeria the value of the house or the place rented is calculated based on assumptions as there are no stats of house pricing published by the government of Nigeria. General economic stats are however available with the Central Bank of Nigeria.
Taxation of Expats
Income tax in Nigeria is also collected from the people who are non residents and are earning their livelihood within the country. In the recent years all the advanced countries of the world have their focus on Africa for business expansion and establishment of new facilities. In this regard the Nigerian economy is one of the main factors that are considered by large corporate organizations and it is all due to the fact that the country now has a stable political structure as well as immense population that has been estimated over 165 M. In relation to taxation of expats there are no rules and regulations clearly defined by the government instead the income tax structure with respect to Nigerian personal income tax is applied to all expats living in the country. It is however to be noted that with the increase in the number of expats the government is now taking steps to set up an act or legislation which is yet to be announced in this regard.
Personal Income tax
Personal income tax in Nigeria is calculated at a rate of 24%. It is solely related to the individuals who are working within the country. It is also to be noted that under the personal income tax in Nigeria the sources of income charged are labor, pension, interest and dividends. The benchmark that has been set by the taxation authorities is also known as Top Marginal Tax Rates. The government is taking serious measures to ensure that PITA or Personal Income Tax Act is enforced due to the fact that it is one of the major sources of government’s income.
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