what is assessable profit in nigeria

Capital allowances are given in place of depreciation for the use of business assets. Depreciation is usually added back to profit because of the different policies and rates used by companies which are capable of producing different profits. C21 LFN, 2004 as amended). Nevertheless, expenses such as penalty, fine, depreciation are not allowed in the calculation of income tax. This means that every basis period determined on preceding year basis must be up to 12 months ending on a company’s permanent year end. (a) Profit subject to Tax or Chargeable Profit: The act in section 8 imposes tax on the profits of any company accruing in, derived from, brought into or received in Nigeria. under Commencement of new business, Change of date or cessation of business. Capital allowances is the tax systems In Nigeria, Partners are assessed in their individual names, based on the share of partnership profits allocated to them. That is the profit of petroleum companies are assessable to tax on Actual Year Basis (AYB) 8 profits of 1st January to 31st December of the second and third years of assessment). ... Taiwo Oyedele is the Head of Tax and Regulatory Services at PwC Nigeria and Tax Leader for PwC West Africa. Distinguish between the treatment of loss relief under Companies Income Tax Act and Petroleum Profits Tax Act. 1. Finally, a taxpayer may have no taxable profits even after making these adjustments. h. Amendments to the ‘Minimum Tax Rule’ Abnormal cases are when the basis period is greater than or less than 12 months. Small companies with an annual turnover of below NGN25 million. Resident companies are incorporated under the Companies and Allied Matters Act (CAMA) 2004 Any trade or business for whatever period of such trade or business may have been carried on However, unlike preceding year basis period, the year of account will coincide with the year of assessment. Nigeria is a Federal Republic. For companies subject to PPT, tertiary education tax is to be treated as an allowable deduction. Objectives/Aims of Business Taxation in Nigeria 3. Every business has its accounting year end (accounting period) as it suits the company’s operations except for few industries in Nigeria where the permanent year end is determined by the applicable authority. Second, a business requires an annual turnover above NGN100 million for listing on the Nigerian Stock Exchange. The tertiary education tax is payable within 60 days of an assessment notice from the Federal Inland Revenue (FIRS). (d) For the third year, it may not be possible to obtain a realistic basis period as the period might begin in a month earlier than the month of commencement. Ascertainment of assessable tax and of chargeable tax 21. Second, total profit is the assessable profit minus the capital allowances relief in the year of assessment. In simple terms, assessable profit is simply computed as adjusted profit less losses (unrelieved c/f) before taking into consideration capital allowances, balancing allowance and or balancing charge. assessable profit Education Tax Fund ETF-In addition to the CIT, all registered companies are required to pay ... Nigeria on the profit of a Nigerian company being remitted into the country is reduced by the amount of Foreign Tax’’ paid abroad and where an overseas company receives profits from It is only calculated when a company is computing its tax liabilities. Assessable profit is obtained prior to deducting capital allowances. Basis period is simply time within which an assessment is raised/computed on a taxpayer for the purpose of establishing the correct amount of tax liability in a particular period. The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted from dividend … The tertiary education tax is levied on a company registered in Nigeria at the rate of 2% of the assessable profit. R ecently at a public seminar it was asserted that the tax regime for insurance companies operating in Nigeria as contained in the Companies Income Tax Act as amended puts insurance companies at a disadvantage relative to other companies operating in the financial sector. charged on the assessable profit of a company registered in Nigeria (in this Decree referred to as "a company"). show that we basically have two (2) types of basis period applicable to every company liable to tax. … It is only calculated when a company is computing its tax liabilities. NOTE: Assessable profit is adjusted profit or part thereof that is assessed to Companies income tax in an assessment year. There must be continuity. Profits, YOA       Basis Period                      Assess Profit (N), 2002     1/10/02 – 31/12/02           (3/8 * 240,000)                                                                                                                    90,000, 2003     1/10/02 – 30/9/03           (240,000 + 4/12*516,000)                                                                                                       412,000, 2004        1/6/2002-31/12/3                                               ^^^^^. State and local taxes (business rates) … A company with a turnover between N25 Million and N100 Million- 20% on assessable profit; A company with above N100 Million turnover- 30% on assessable profit. Examples of income exempt from income tax are export profits, as long as proceeds is brought into Nigeria through government-approved channels and invested in raw materials, spare parts, and plant and machinery. Small companies have a zero rate of income tax. (c) Third Year: Shall be computed in accordance with Section 29 (1) as earlier highlighted. Nigeria as a single commodity dependent economy has over the years relied principally on the proceeds from oil exploitation. Overview of Business Taxation in Nigeria 2. According to the aforementioned section, a new business is entitled, on giving notice in writing within two years after the end of the second year to the Board to require that the assessable profits both for the second year and third year (but not for one or other only of those years) shall be the actual profits of the respective years of assessment (i.e. deduction from assessable profit to arrive at total profit. Based on the above, it can be said that for the sake of equity; which is one of the qualities of the Nigerian tax system, the Nigerian government through the TaxAuthorities provides for the basis upon which taxes would be computed on a common ground. Assessable tax. A company can have an assessable loss or taxable loss in a year of assessment. Distinguish between the treatment of loss relief under Companies Income Tax Act and Petroleum Profits Tax Act. This arises where the month of commencement is after the month chosen as the permanent year end. Manager of companies, etc., to be answerable. KILOBADE Limited commenced business on 1st March 2001. it makes up accounts annually to 31st August and its profits as agreed for tax purposes, were: Period ended 31st August, 2001     300,000, Year ended 31st August, 2002         720,000, Year ended 31st August, 2003         900,000, YOA       Basis Period      Assess Profit(N), 2001 1/3/01 – 31/12/01                 (300,000 + 4/12 * 720,000)                                                                                                                540,000, 2002   1/3/01 – 28/2/02   (300,000 + 6/12*720,000)                                                                                                                    660,000, 2003     1/9/01 – 31/8/02               720,000, 2002   1/1/02 – 31/12/02                 (8/12 *720,000 + 4/12*900,000)                                                                                                                          780,000, 2003     1/1/03 – 31/12/03 (8/12 *900,000 + 4/12 * 960,000)                                                                                                                  920,000. The two rules are the minimum tax and excess dividend tax. Nigeria: Companies income tax assessment not allowed The Federal High Court sitting in Abuja issued a judgment for the taxpayer in a case concerning the authority of the Federal Inland Revenue Service (FIRS) to assess a company’s liability for Nigeria’s companies income tax … Contribution of Business Taxation in Nigeria 4. Depreciation is usually added back to profit because of the different policies and rates used by companies which are capable of producing different profits. 27. Chargeable tax. Distributions made by a real estate investment company to its shareholders from rental income and dividend income. The rate of Tertiary Education tax is 2 percent (2%) of the Assessable profit of a company registered in Nigeria. the tax codes allow tax payers to claim certain benefits in relation to their business investments in the country as well as reduce the certain tax burdens which they would have borne, were such provisions not available. Oil in Nigeria accounts for about 90-95per cent of its export revenues, over 90percent of foreign exchange earnings and about 80% of government revenue.as a result of this the main objectives of this research study is to assess the problem and prospect of petroleum profit tax administration in Nigeria. The educational charge is pegged at 2 percent of the assessable profit while a 10 percent withholding tax is deducted from dividend … They are; ii. (a) Loss relief is a form of relief granted to all companies incorporated in Nigeria. ... (ai) the aggregated deduction from assessable profit or income in respect of any such loss State and local taxes (business rates) … (b) Second Year: the amounts of the profits of one year (i.e. It should be noted that treatment of this profit depends on the tax type as companies income tax treatment differs from petroleum profit tax treatment. 6.6. Imposed on all companies registered in Nigeria The rate of the tax is 2% of assessable profit The due date for filing returns is the same as that of CIT and PPT The tax is an allowable deduction in computing the assessable profits of companies engaged in petroleum operations(Up stream) This is same as actual year basis discussed earlier. 23. It is allowed as a deduction from assessable profit to arrive at total profit. 26. A basis period is considered to be normal if the following conditions are fulfilled: • The number of months in the basis period must be exactly twelve (12) because year of assessment literally means twelve months, • The basis period must have commenced the day after the end of the previous one. Net Profit (as per account)                                              ****, Add:   disallowable expenses taxable income (not reported), Less: allowable expenses (not reported) non-taxable income (reported). All registered companies in Nigeria are required to pay a percentage of their assessable profit into an Education Tax Fund. 2017: NGN540,000. Companies within the first four calendar years of operation. Nigeria: Companies income tax assessment not allowed The Federal High Court sitting in Abuja issued a judgment for the taxpayer in a case concerning the authority of the Federal Inland Revenue Service (FIRS) to assess a company’s liability for Nigeria’s companies income tax … Carrying on business in Nigeria may be at profit or loss. A Careful study of the provisions in the Nigerian tax laws (CITA,PPTA,CGTA,PITA etc.) Its assessable profits were as follows: Period ended 31st May, 2003                          240,000, Year ended 31st May, 2004                              516,000, OWOGOKE Ltd – Computation of Assess. Imposed on all companies registered in Nigeria The rate of the tax is 2% of assessable profit The due date for filing returns is the same as that of CIT and PPT The tax is an allowable deduction in computing the assessable profits of companies engaged in petroleum operations(Up stream) However, there are different methods of calculating depreciation which […] Nigeria as a single commodity dependent economy has over the years relied principally on the proceeds from oil exploitation. In other words, manufacturing and agro-allied businesses have no restriction for capital allowance. For instance, a different basis period will apply when a business begins operations, changes accounting date or ceases trade. An abnormal basis period can be obtained under the following circumstances: The above requires special treatments as adequately provided for in the relevant tax laws. What differs are the “accounting year” and “tax year”. iii. This simply means that the months in the basis period of a year of assessment shall be within the same year. The laws equally provide for how the taxes are to be computed on the company’s profits and when they should be paid. More so a company’s accounting date may not correspond with the government fiscal year; which is 1st January to 31st December. Other Domestic Resources Federal Inland Revenue Service Consult Doing Business Website, to obtain a … Tax adjustments include expenses, income and any other transaction with tax impact on the income statement. If there is no tax adjustment to the financial statement, the net profit of a … A company eligible to pay Education tax in Nigeria will complete a tertiary education tax (TET) return containing details such as assessable profit, rate of tax and amount payable. BRAND NEW SOLUTION!!! Right now, Nigeria is one the countries in Africa where landed properties are most expensive. It applies only to companies and it is paid alongside company income tax. Note that for companies, profit is being ascertained on an annual basis. In this case, if the source country has no DTT with Nigeria, the foreign tax paid is allowed as a deduction for CIT purposes. Education Tax Act LFN 2004; This tax is imposed on the assessable profit of all companies at a flat rate of two percent 2%. Examples of income exempt from income tax are export profits, as long as proceeds is brought into Nigeria through government-approved channels and invested in raw materials, spare parts, and plant and machinery. First, assessable profit is the profit adjusted for income tax purposes using the information in the financial statements. Section 33(1) of CITA states that where the total, assessable profits of a company from all sources result in a loss, or, profits result in no tax payable or tax payable which is less than the minimum tax, whether a company pays dividends out of profits in the same year or previous year in which the company declared dividends, FIRS offers more tax concessions during COVID-19, Nigeria Police Trust Fund (Establishment) Act 2019, Private sector can now get tax credit for funding road construction, Federal Executive Council has approved two executive orders and five amendment bills, FIRS extends filing deadline, gives waiver amid COVID-19, Nigerian Senate passes 2021 Budget adds N505b expenditure, TAT says WHT is exempt on specific sales – TetraPak Vs. FIRS, EndSARS: FIRS Nigeria grants tax palliative, President Buhari presents 2021 Budget to National Assembly, FIRS Public notice on stamp duties – Finance Act 2019, Lagos State reverses Land Use Charge to pre-2018 rates, FIRS extends filing of 2020 tax returns, others by one week. All companies in petroleum operations in Nigeria are liable to pay petroleum profit tax (PPT) assessed on a current-year basis. Overview of Business Taxation in Nigeria 2. First, a business must register as a public limited liability company to pay dividends. 22. Types of Assessable Income Copyright © 2020. Total profits in the first three years = NGN (100,000 + 460,000 + 540,000) = NGN1,100,000 Under normal circumstance, the basis period is the same as the accounting period. Consider a company whose permanent year end is October 30 every year. The tax rate is 30% of the chargeable profit. PART V Persons chargeable SECTION 24. The Nigeria personal income tax act 2014 has the answer to these. Capital Allowance is a claim against Assessable Profits by companies when computing their tax liabilities. OWOGOKE Limited commenced business on 1st October, 2002 and makes up its account annually to 31st May. In financial accounting, net profit arises when revenue is greater than the cost otherwise it is a loss. then the company paying the dividend will pay income tax at the applicable rate. Since adjusted profit is computed based on a company’s accounting year while the assessable profit is determined and assessed to tax in an assessment year, the question that arises is “how do we determine the assessment year when the profit of an accounting year is assessable to tax”. Nevertheless, expenses such as penalty, fine, depreciation are not allowed in the calculation of income tax. within two years after the end of the second year – 2000). Capital Allowance is a claim against Assessable Profits by companies when computing their tax liabilities. 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