Navigating Nigeria’s intricate tax system is essential for both individuals and businesses. This guide breaks down the major types of taxes in Nigeria, helping you stay informed and compliant.

1. Personal Income Tax

Individuals in Nigeria pay personal income tax on their employment, business, and investment income. The tax rates range from 7% on the first ₦300,000 to 24% on income over ₦3,200,000. Employers handle tax deductions through the Pay-As-You-Earn (PAYE) system and file monthly returns, while independent contractors must file their annual returns by March 31st.

2. Company Income Tax (CIT)

Company Income Tax is levied on the profits of all companies, partnerships, and similar entities operating in Nigeria. The rates are progressive based on turnover:

• Companies with a turnover of less than ₦25 million pay 0%.
• Companies with a turnover between ₦25 million and ₦100 million pay 20%.
• Companies with a turnover over ₦100 million pay 30%.

Non-resident companies with a Significant Economic Presence (SEP) in Nigeria are taxed on the portion of profits attributable to their Nigerian activities. Companies must prepare audited financial statements and file CIT returns within six months of the end of their financial year.

3. Capital Gains Tax

Capital Gains Tax (CGT) is set at 10% of the profit made from disposing of assets. The taxable amount is calculated by subtracting the acquisition cost, any improvement expenses, and costs directly related to selling the asset from the amount received or due.

4. Value Added Tax (VAT)

VAT is charged at 7.5% on the supply of goods and services within Nigeria and on imported goods, with certain exemptions such as basic foodstuffs. Businesses with an annual turnover exceeding ₦25 million must register for VAT, charge it on sales, remit it, and can claim refunds on business purchases. Monthly VAT returns are due by the 21st of each month.

5. Withholding Tax (WHT)

Withholding Tax acts as a prepayment of income tax, deducted from specific transactions like rent, dividends, interest income, and professional fees. Rates range from 5-10% depending on the payment type. Filings and remittances are due by the 21st of the month following the deduction, with penalties for late submissions.

6. Petroleum Profit Tax (PPT)

PPT applies to companies engaged in upstream petroleum activities, including exploration, development, and production of oil and gas. The tax rates vary:

• 50% for companies operating under Production Sharing Contracts (PSCs) with the Nigerian National Petroleum Corporation (NNPC).
• 65.75% for non-PSC operations, including joint ventures and sole risk companies, during their first five years.
• 85% for non-PSC operations after their first five years.

Companies subject to PPT are exempt from standard Company Income Tax (CIT) on the same income.

7. Customs Duties

Customs duties are levied on imported goods based on commodity type and origin. Rates are published annually by the Nigerian Customs Service. Importers must verify and pay the appropriate duties, with bonded terminals allowing for duty-free imports of qualified goods.

8. Stamp Duty

Stamp duty applies to legal documents, including cheques, receipts, military commissions, agreements, bills of exchange, and contracts. For instance, electronic transfers over ₦10,000 through traditional banks incur a ₦50 stamp duty fee.

9. Education Tax

An education tax of 2% is charged on the assessable profits of companies, payable monthly to state authorities to fund the Tertiary Education Trust Fund (TETFUND). This tax is collected and remitted by the Federal Inland Revenue Service.

10. National Information Technology Development Levy (NITDL)

The NITDL is a 1% tax on the pre-tax profits of companies with an annual turnover exceeding ₦100 million. It supports technological growth and infrastructure, benefiting sectors such as telecommunications, financial services, and insurance.

Impact and Benefits:

• Improved technology infrastructure.
• Enhanced digital literacy.
• Innovation and investment in the tech sector.

Companies subject to NITDL must file returns and ensure timely payment.

Conclusion

Taxation is vital for government operations, providing the revenue needed for infrastructure, public services, and social programs. Understanding Nigeria’s tax system helps individuals and businesses contribute to and benefit from the nation’s economic and social development.

For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Inner Konsult Ltd at www.innerkonsult.com at Lagos, Ogun state Nigeria offices, or www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.