Withholding tax in nigeria administration and rates. Income tax amendment act, 2011 a 111 for an act to amend the personal income tax act, cap. Distinguishing withholding tax from value added tax. Nigeria as well as companies that operate in nigeria are liable to pay tax. Rate of withholding tax in nigeria the rates of withholding tax in nigeria varies among individuals, companies and corporate bodies. The double taxation agreement entered into force on 27 december 1987.
This page provides the latest reported value for nigeria personal income tax rate plus previous releases, historical high and low, shortterm forecast and longterm prediction, economic calendar, survey consensus and news. Conceptual background tax revenue mobilization as a source for financing development activities in nigeria has been a. Unfortunately, the nigerian tax system is faced with challenges, such as loss of revenue. Also, tax may have objectives other than public revenue generation. Educational tax is also prepared and submitted with annual self assessment of companies income tax to designated bank. A performance analysis of nigerian tax objectives actualization. Wht was introduced in the nigerian tax system to minimise the incidence of tax evasion, by ensuring.
Nigeria has a number of tax incentives which when fully utilized in the right manner can give a company a signi. Companies income tax cit is tax on the profits of incorporated entities in nigeria. Feb 09, 2017 a tax in nigeria is a compulsory levy imposed by the federal government of nigeria on individuals and corporate entities in respective of return of service expected from the government. The need for government to equitably increase the amount it collects as tax, increase efficiency in tax collection visavis preventing tax payers from evading the payment of taxes through various smart tax avoidance or tax evasion schemes has led to the introduction of withholding tax in many countries including nigeria. Educational tax is also prepared and submitted with annual self assessment. The direct tax is a levy on personal, corporate income or property.
Wht is not really a distinct tax type and therefore has no legislation of its own. Nigeria has a number of tax treaties referred to as double taxation agreements with a number of countries, these are designed to ensure that the tax payable in nigeria on the profits of a nigerian company being remitted into the country are reduced by the amount of foreign tax paid abroad and vice versa where an overseas company receives profits from nigeria that. Taxation in nigeria plus history of taxation in nigeria. In nigeria, the tax reform is spear headed by the federal inland revenue service in its quest to achieve greater revenue collection, encourage voluntary and willing compliance and breaking the long piercing phobia between taxpayers and tax collectors.
We have in nigeria examples of tax imposed primarily on groups rather than individuals. An effective tax system has been put in place so the government wont feel the impact of having god given natural resources. Tax is a medium which countries across the globe depend upon so as to carry out the mandate of their citizens. Nigeria personal income tax rate 20112020 data 20212022. Pkf worldwide tax guide 2012 1 nigeria nigeria currency. In nigeria, it is regulated by various income taxacts and the wht regulations. There should also be evidence of returns filed for the past three 3 years in the control file of the establishment. Download undergraduate projects topics and materials accounting, economics, education. To address this challenge, the wht amendment regulations were issued and it introduced the wht rate of 2.
This is a study of the properties of the nigerias tax system particularly the bases of the company income tax, value added tax and personal income tax. Relevant tax authority may assess and charge tax on the turnover of a business, etc. With the tax system, there is faster and smother tax payment and processing. Also in nigeria, where there is an agency arrangement. The government of a nation will typically have other sources of income besides tax such as oil revenue, revenue from government parastatals,grants,rendering of services to the public,revenue from granting of. A tax payer must apply in writing to the relevant tax authority b tax payer establishment must have filed their returns tax from a and h3 for the current year and tax form h1 for the preceding year. Withholding tax is not a separate tax on its own and does not confer an exemption from the filing of annual tax returns by the company which had. Journal of international business research and marketing. The government of a nation will typically have other sources of income besides tax such as oil revenue, revenue from government parastatals,grants,rendering of services to the public,revenue from granting of licences,sales. Its effective in nigeria from 1 january 1988 and in the uk from. The personal income tax rate in nigeria stands at 24 percent. Impact of tax administration on government revenue in a. The federal executive council, the highest executive decision making organ in nigeria, yesterday approved a new national tax policy for the country. Nigeria has a number of tax treaties referred to as double taxation agreements with a number of countries, these are designed to ensure that the tax payable in nigeria on the profits of a nigerian company being remitted into the country are reduced by the amount of foreign tax paid abroad and vice versa where an overseas company receives profits from.
Different types, forms and classes of taxes exist anyaduba, 2004 but the commonest classification in nigeria is that according to the tax payer categorised as direct or indirect. Value added tax in nigeria how to calculate vatable. Administration of current taxes in nigeria vanguard news. They enshrine best practices in terms of ethical and professional conduct. Examples are personal income tax, company income tax, petroleum profit tax, and capital gains tax. Tax morale and its effect on taxpayers compliance to the tax policies of the nigerian government was investigated. Although the rate of corporate income tax cit paid by a business varies from one country to another, it is imperative for a company owner to know what applies in hisher own country. In the longterm, the nigeria corporate tax rate is projected to trend around 30. Corporate tax rate in nigeria is expected to reach 30.
The withholding tax rates in nigeria wht varies among individuals and companies corporate bodies. Under the companies income tax act of nigeria, a resident or nonresident company incorporated in nigeria must pay companies income tax. Two very important types of tax in nigeria are value added tax vat and withholding tax wht and our emphasis today is the meaning and applicability of these taxes to your business. Nigeria taxation question 1 a list seven sources of nigerian tax laws b identify and explain any 6 canons of taxation c highlight some of the purpose for the imposition of tax question 2 emey resources limited is a company engaged in the incorporation and sale of new electric cookers. Introduction the president of the federal republic of nigeria in line with national tax policy signed into law the bill for an act to amend the provisions of the personal income tax act, cap. Understanding companies income tax the guardian nigeria. Under nigerian personal income tax laws all taxable persons are entitled to a consolidated relief allowance of 20% of gross income plus higher of 1% of gross income or n200,000. This study examines the determinants of tax administration efficiency. Pml offers a scalable solution to address the compliance needs of corporations, partnerships, and other business entities.
It also includes the tax on the profits of nonresident companies carrying on business in nigeria. P8 lfn 2004 and related matters connected therewith. Pre 2002 tax reform efforts the federal government had taken farreaching steps aimed at reforming the nations tax system before the pre 2002 reform efforts. Tax morale and its effect on taxpayers compliance to tax. Primary data via structured questionnaire was used. The educational charge is pegged at 2 percent of the assessable profit while the a 10 percent withholding tax is deducted from dividend payments to companies and individuals. The policy will now be endorsed by the national economic council to recognize the federal system of government given the application of the policy to all tiers of government. According to the presidential committee on national tax policy 2008, the central objective of the nigerian tax system is to contribute to the. A tax in nigeria is a compulsory levy imposed by the federal government of nigeria on individuals and corporate entities in respective. Tax table from 14 june 2011 where an individual does not have any chargeable income, or his chargeable income. These also vary amongst either the individuals or companies involved.
Rate on royalties increased from 15% to 20 % as from 1 january 2019. All of these are expected to work together in order to achieve the economic goal of the nation. Nigerian companies pay 30 percent of their worldwide profit while foreign companies pay 30 percent of only the profit made in nigeria. All the companies registered in nigeria, in other words, all the companies subject to companies income tax cit are also liable to educational taxedt. This was in january 2015 when the federal government issued an official gazette amending the companies income tax rates etc. Petroleum profits tax this is imposed on the profits of all corporate entities that are registered in nigeria or who get their income from oil and gas operations in nigeria. In principle, wht is a payment on account of the ultimate income tax liability of the taxpayer or company. The tax system in nigeria is made up of the tax policy, the tax laws and the tax administration. The aim of this research is to bring to bare the reason for low tax compliance in nigeria. It has been used as a tax mechanism in the united states and united kingdom as far back as the second world war but only introduced into nigerias tax regime in 1977. Nigeria pkf assurance, audit, tax, advisory and business. The conclusion from these two benchmarks is that nigeria needs to embark on a significant tax reform to improve its ranking. The purpose was to simplify the process so tax collection in nigeria.
This tax is imposed on the profits of all corporate entities who are registered in nigeria or derive income from nigeria, other than those engaged in petroleum operations. There are two main areas, based on the 2017 wbg report, which nigeria needs to address. This page provides the latest reported value for nigeria personal income tax rate plus previous releases, historical high and low, shortterm forecast and longterm prediction, economic calendar, survey consensus and. Tax compliance can be challenging for companiesoften burdening inhouse tax staff with specialized tax compliance demands that take the focus off of valueadded tax department activities.
Where a person rents or hires propertyservices from another, withholding tax at the rate of 10% will apply. Interest payments are subject to final withholding tax of 20 % 15 % if on loan with term of one year or more, and 5% if on loan granted for development of certain infrastructure programs. Withholding tax withholding tax is basically an advance and indirect source of taxation deducted at source from the invoices of the tax payer. All the companies registered in nigeria, in other words, all the companies subject to companies income tax cit are also liable to educational tax edt. Activities of nonnigerian companies, which would attract tax in nigeria and other special issues, are spelt out in the laws. In most cases, however, the withholding tax rates for individuals is anythin g from 5 percent to 10 percent while for companies, it is between 2. Call for returns, books, documents and information. For example, section 1 of the personal income tax pita contemplates the imposition of tax on communities and families, although such is rare in practice.
In nigeria, non resident recipients of income in the form of interest, dividends and royalties, upon deduction of withholding tax, are not liable to further tax payments, under nigerian law, provided that for the tax year, they remain nonresident. As a general rule, income on a property rent, hire or lease payments or rights royalties situated in nigeria is liable to tax in nigeria, the place of payment not withstanding. Challenges and prospects, a case study of lagos state board of internal revenue service, largest undergraduate projects repository, research works and materials. In the light of this reality and the general realisation that it would be foolhardy if nigeria continues to solely depend on oil revenues whilst neglecting other nonoil sources, adapting the tax administrative. Income tax is levied at progressive rates as shown below. These tax incentives are designed to result in tax savings pwc t ax academ y lagos. Examples are turnkey projects, allocation of income and expenditure between the foreign company and its branch in nigeria, transfer pricing etc. A valueadded tax vat, known in some countries as a goods and services tax gst, is a type of general consumption tax that is collected incrementally, based on the surplus value, added to the price on the work at each stage of production, which is usually implemented as a destinationbased tax, where the tax rate is based on the location of the customer. Tax credit allowable against tax payable on income derived from outside nigeria. This is an automated tax system and it helps to track the tax position of every nigerian that has the tin and those who do not have are compelled to go for theirs in order to make tax tracking very easy. Business or trade only partially carried on or deemed to be carried on in nigeria. Delta state university asaba campus delta statenigeria abstract. Tax laws provide a welldefined legal backing to the administration of each tax type states in clear terms the applicable rate, tax laws stipulate what constitutes offence and the appropriate sanctions to each offence.
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