Advanced Taxation · 2023

Action & Co (Tax Consultants) 2, Ojo Road, Eco City Date: ….. The Managing Director Hyland Nigeria Limited Lagos Re: Computation of adjusted profit, tax liabilities and other matters We refer to your request on computation of adjusted profit and tax liabilities for the financial year end of December 31, 2021, professional advice on implications of dividends received by the shareholders and the company, and tax benefits to a reconstituted company. We hereby present a report for your review.

(a) Adjusted profit The company made a net profit of N26.4 million during the period under review. Following the provisions of the Companies Income Tax Act 2004 (as amended) some adjustments were made on the financial statements to get the adjusted profit of N51.28 million (see attached appendix 1).

(b) Tax liabilities The company inherited loss of N55.9 million from the foreign company as well as unutilised capital allowances of N16.155 million. The adjusted profit was used to relieve part of the loss and balance of N4.62 million will be carried to 2023 assessment year. The capital allowance for the year (N7.534 million) and the one inherited from the acquired foreign company could not be utilised in the current year and therefore carried forward to next year (2023 assessment year). This amounted to N7.550,155 million. The company has zero total profit, but will be liable to pay a minimum tax of N1.402 million and 2.5% of the adjusted (assessable) profit as tertiary education tax of N1.282 million. The total tax liabilities payable amounted to N2.684 million. The company is advised to file its annual tax returns and accompany it with cheque of N2.684 million in favour of Federal Inland Revenue urgently. 59 Appendix 1: Computation of adjusted profit N’000 N’000 Net profit as per accounts 26,400 Add back: Depreciation 7,500 Subscription and donations (Royal Elites) 100 Allowance for doubtful debts (General prov.) 12,500 Repairs and maintenance: Improvement to industrial building 1,400 Legal –reacquisition of lease 630 Embezzlement by cashiers 500 Christmas/Eid Kabir gifts to customers 3,100 Other operating expenses: Increase in share capital 2500 Fines for traffic offence 250 28,480 54,880 Less: Non-taxable incomes: Dividend received (net) 3,600 Adjusted profit 51,280 Appendix 2: Computation of tax liabilities N’000 N’000 Adjusted/assessable profit 51,280 Less: Loss b/f 55,900 Relieved (51,280) (51,280) Unrelieved loss c/f 4,620 Less: Capital allowances: Nil Unutilised brought forward 16,155 For the year (see Wk 1) 7,534, Total available for utilisation 23,689 Utilised Nil (Nil) Unutilised c/f 23,689 Total profit Nil Higher of: Companies income tax @ 30% total profit and Nil Minimum tax (Wk. 2) 1,402 1,402 Tertiary education tax @ 2.5% of assessable profit 1,282 Total tax payable 2,684 60

Workings 1: Capital allowances Industrial building Manufacturing plants Capital Allowance IA 15% AA 10% Non- industrial building IA 15% IA 50% IA 50% IA 25% AA 10% AA 25% AA 25% AA 20% N’000 N’000 N’000 N’000 N’000 N’000 2022 A/Y TWDV 4,200 5,400 3,600 2,500 1,800 Additions 1,400 1,200 1,400 900 IA (210) (600) (700) (225) 1,735 AA (819) (900) (1,950) (1,425) (585) 5,679 Inv allow (120) 120 7,534 2023 A/Y TWDV 4,571 4,500 2,250 1,775 1,890

Notes on annual allowances for 2022 assessment year

(i) Industrial building Old asset (unexpired tax life = 10 – 4 = 6years) N AA = N4,200,000/6 = 700,000 AA (New asset) = N1,400,000 – N210,000 = 119,000 10 819,000 (ii) Non-industrial building Old asset (unexpired tax life = 10 – 4 = 6 years) AA = N5,400,000/6 = N900,000 (iii) Manufacturing plants Old asset (unexpired tax life = 4 – 2 = 2 years) N AA = N3,600,000/2 = 1,800,000 AA (New asset) = N1,200,000 – N600,000 = 4 150,000 1,950,00 (iv) Motor Vehicles N Old asset (unexpired tax life = 4 – 2 = 2 years) AA = N2,500,000/2 = 1,250,000 AA (New asset) = N1,400,000 – N700,000 = 4 175,000 1,425,000 61 Motor vehicles Furniture and fittings

(v) Furniture and fittings Old asset (unexpired tax life = 5 – 1 = 4 years) N AA = N1,800,000/4 = 450,000 AA (New asset) = N900,000 – N225,000 = 5 135,000 585,000

Workings 2 : Minimum tax computation N’000 Gross turnover 278,500 Gross dividend (N3,600,000) 0.9 4,000 Other operating income 1,800 284,300 Less: Franked investment income Gross turnover for minimum tax computation (4,000) 280,300 Minimum tax @ 0.5% 1,402

Note: Expense incurred on Christmas/Eid Kabir gifts to customers was disallowed because the gifts were not promotional in nature (not branded gifts).

(c) Tax implications of the dividends received by the company and its shareholders include:

i. The dividends received on equity in a Nigerian listed company (N3.6 million) under the Companies Income Tax Act 2004 (as amended) is regarded as franked investment income (FII);

ii. The tax the company has suffered, N400,000 (that is N4 million – N3.6 million) is the final tax and therefore such income should be excluded from the total profit as it is not liable to further tax;

iii. Since the company is redistributing the entire dividends to the shareholders, the shareholders will have to suffer 10% withholding tax of N360,000; and

iv. But the company is to recoup the 10% (N400,000) it suffered from the withheld deduction made by the Nigerian listed company. 62

(d) Tax benefits/incentives applicable to a reconstituted company in Nigeria include:

i. There will be no application of either the commencement or cessation rules; ii. All the qualifying capital expenditure transferred are deemed to have been made at their tax written down value; iii. In the computation of capital allowance, no initial allowance may be computed while the annual allowance would be based on the un- expired tax life of the qualifying capital expenditure; iv. Any unutilised capital allowances transferred are deemed to have been transferred prior to the sale; and v. Any unrelieved losses transferred are deemed to have been incurred on the first day of the reconstitution. Such a loss is then available for relief against the taxable profit of the year of reconstitution and the three subsequent tax years. We hope that this report adequately represents the mandate given to us. Should you need further clarification on this, we will be glad to address it. Yours faithfully, Larry Oyedele Senior Partner For: Action & Co (Chartered Accountants)

Examiner’s report The question tests the candidates’ understanding of the provisions of Companies Income Tax Act 2004 (as amended) in respect of computations of adjusted profit; companies income tax; tax implications of dividends received by the company on its shareholders and benefits/incentives applicable to a reconstituted company in Nigeria. Being a compulsory question, all the candidates attempted the question. Candidates demonstrated a fair understanding of the question and performance was average. The commonest pitfall was the inability of some candidates to identify correctly the allowable and disallowable expenses in line with the provisions of Companies Income Tax Act 2004 (as amended) and state the incentives applicable to a reconstituted company in Nigeria. Candidates are advised to familiarise themselves with issues concerning computations of companies income tax and incentives applicable to a reconstituted company in Nigeria by reading extensively the Institute’s Study Text, other relevant textbooks, and the Companies Income Tax Act 2004 (as amended). 63

Marking guide Marks Marks (a) Computation of adjusted profit Memo (heading) ½ Memo (discussion of result) ½ Net profit as per accounts ½ Depreciation ½ Subscription and donations (Royal Elites) ½ Allowance for doubtful debts (general provision) ½ Improvement to industrial building ½ Legal –reacquisition of lease ½ Embezzlements by cashiers ½ Christmas/ Eid Kabir gifts ½ Increase in share capital ½ Fines for traffic offence ½ Dividends received (net) ½ Adjusted profit ½ 7 (b) Computation of tax liabilities: Memo (discussion of results) 1 Losses b/f 1 Relieved 1 Unutilised capital allowances c/f 1 Capital allowances for the year 1 Capital allowances: utilized 1 Total profit 1 Companies income tax ½ Minimum tax 1 Tertiary education tax 1 Capital allowances computation for 2022 A/Y: Additions (Industrial building) ¼ Additions (manufacturing plants) ¼ Additions (motor vehicles) ¼ Additions (furniture and fittings) ¼ IA (Industrial building ¼ IA (manufacturing plants) ¼ IA (motor vehicles) ¼ IA (furniture and fittings) ¼ Capital allowance (IA column ¼ AA (industrial building) ¼ AA (non-industrial building) ¼ AA (manufacturing plants) ¼ AA (motor vehicles) ¼ AA (furniture and fittings) ¼ Capital allowance (AA column) ¼ Investment allowance (manufacturing plants) ¼ 64 Capital allowance (Investment allowance column) ¼ Total capital allowances ¼ 14 (c) Tax implications of the dividends received by the company and its shareholders 2 marks for each discussion on tax implications of the dividends received by the company and its shareholders, subject to a maximum of 3 points 6 (d) Comment on tax benefits/incentives applicable to a reconstituted company in line with the provisions of CITA (2004) 1 mark for each discussion on the tax benefits/incentives applicable to a reconstituted company, subject to a maximum of 3 points 3 Total 30

Colends & Co (Chartered Accountants) Colmas Road, Abeokuta INTERNAL MEMO Date: ………. From: Audit Manager To: Senior Partner Subject: In-house training programme - paper on risk and role of technology in accounting/tax practice I refer to your directive that I should prepare a paper on the above- named topic for presentation at the upcoming in-house training for our newly-employed audit officers. I hereby present a paper for your review before same is presented at the training programme.

(a) The risks of running professional tax practice in Nigeria include:

(i) Lack of expertise Inadequate experience or knowledge of practitioners could lead to errors when they advise clients on technical matters. Examples include giving wrong professional opinions on tax matters, advice of tax implications of business arrangements and re-organisations or restructuring; 65

(ii) Lack of attention to details This may lead to errors that could have been avoided if there had been procedures and controls not in place. This includes late filing of tax returns, the penalties of which are high for clients;

(iii) Lack of documentation This is the failure to maintain evidence of client engagement terms or tax filing positions in working paper files. This could result in non- detection of the client’s non-compliance with certain tax laws; and

(iv) Unpredictable income for owners Owner’s income can be unpredictable. Owners are responsible for the financial well-being of their employees and the last person to get paid is the owners. While others can mentally “check out” at the end of the work day, owner’s brain is typically plugged into business.

(b) Measures to mitigate the risks include the following:

(i) Only take on work within your circle of competence: Tax practitioners can avoid many of these risks by only accepting work for which they have either adequate experience or the ability to outsource the work to qualified tax specialists;

(ii) Implement quality control systems in professional tax practice: Quality control systems can only help avoid common pitfalls and manage risk, they can also help you improve your practice effectiveness;

(iii) Use checklists: A best practice is to create general tax preparation and review checklists for all of your staff to use;

(iv) Implementation of a task and deadline tracking system: A task tracking system can help tax practitioner monitor client filings and meet their due dates;

(v) Follow client acceptance practices: Before taking on new clients, it’s wise to determine their past filing history and any issues encountered with the relevant tax authorities and their past tax advisors;

(v) Invest in education: The Nigerian tax system is becoming complex and constantly changing, so the practice should continually invest in staff training;

(vii) Document all material advice in writing: When tax practitioners give their clients material verbal advice, they should also document a summary of the discussion in case an issue arises later; and

(viii) Obtain professional valuations: When related parties transact with each other in significant transactions including reorganisations, professional valuations should be obtained to avoid the significant risks associated with an unreasonable valuation. If the client doesn’t want to obtain a valuation, tax practitioners should decide on whether 66 the work should be done at all. At a minimum, the risks should be communicated and documented in their working paper files.

(c) Roles of technology in tax practice include:

(i) With the use of technology applications, such as cloud accounting, the tax practices are able to take advantage of powerful taxation software and services based on remote servers. This enhances the ability of the practice to share financial data with team members regardless of location or time zone;

(ii) Cloud accounting and other technology-driven tax solutions deliver a wide range of benefits to tax practice regardless of size. The primary benefit offered by cloud accounting is the ability to automate otherwise time-consuming tasks;

(iii) Modern tax technology is able to assist with the complex nature of crypto currency tax reporting. Major crypto currency exchanges can work to keep customer data extremely secure and private, which can make it difficult to track trades for capital gains or income tax reporting. By providing crypto currency - specific tools, cloud-based taxation technology establishes a future-proof foundation for crypto currency adoption and tax strategy; and

(iv) Cloud-based tax practice keeps data safe with enterprise-scale security, eliminating the threat of data breaches. Data breaches are extremely costly for practice of all sizes. Both large and small-scale tax practice are often the target of hackers that attempt to steal sensitive client’s data. Therefore, to cope with continuous changes in tax landscape, tax practice firm needs to invest heavily in technology to enhance their services offering to their clients.

(d) The benefits of adopting technology by professionals in accounting firm and/or tax practice include:

(i) Winning more clients: It is obvious that majority of clients would prefer to hire tax practice firms that are adaptive to technology changes;

(ii) Retaining more clients: Adoption and adaptation of modern technologies would make practising firms to render the much needed valuable and improved services which make clients retain them;

(iii) Cross-selling services: Technology provides platforms to enable practising firms make their services more visible to many clients; (iv) Adding greater value: Firms that adopt new technologies are able to automate most of the routine and labour-intensive tasks. This makes it possible for such firms to focus their attention on tasks that generate greater values for their clients; (v) Timely delivery of services to clients; 67

(vi) It promotes ease of filing returns and paying taxes by the clients; and

(vii) It leads to a better productivity on the part of the tax practitioners and administrators. The challenges of adopting technology by professionals in accounting firm and/or tax practice include:

(i) Low computer literacy level; (ii) Poor internet facility; (iii) Possible cyber threat; (iv) High implementation cost; (v) Lack of technical know-how; (vi) Challenge of data validation- garbage-in; garbage-out; and (vii) Resistance from the management and other users. In-house resistance to adoption and implementation of the technological-driven tools. Thank you. Nuru Odeogbo

Examiner’s report The question tests the candidates’ knowledge of risks and roles of technology in running a contemporary accounting/tax practice. About 70% of the candidates attempted the question, and they exhibited a clear understanding of its requirements. The performance was above average. The commonest pitfall was the inability of some candidates to explain the measures to mitigate the identified risks in running professional accounting firm and/or tax practice in Nigeria. Candidates are advised to pay attention to risks and role of technology in running professional accounting firm and/or tax practice by reading the Institute’s Study Text and other relevant textbooks. 68

Marking guide Marks Marks a) Risks of running professional accounting firm and/or tax practice Memo (address) ½ Memo (heading) ½ 1 mark for each discussion of risks of running professional accounting firm and/or tax practice, subject to maximum of 3 points 3 4 b) Measures to mitigate the identified risks 1 mark for each discussion of measures to mitigate the identified risks, subject to a maximum of 5 points 5 c) Roles of technology in running a contemporary accounts/tax practice 1 mark for each discussion of the roles of technology in running a contemporary accounting/tax practice, subject to a maximum of 3 points 3 d) Benefits and challenges of adopting technology by professionals in accounting firm and/or tax practice 1 mark for each discussion of benefits of adopting technology by professionals in accounting firm and/or tax practice, subject to a maximum of 4 points 4 1 mark for each discussion of challenges of adopting technology by professionals in accounting firm and/or tax practice, subject to a maximum of 4 points 4 8 Total 20 69

Level Up & Co (Chartered Accountants) 2, Jega Road, BirniKebbi Date: ….. The Managing Director PROMOT Link Sokoto Dear Sir, RE: TRANSFER PRICING DOCUMENTATION AND ARM’S LENGTH COMPARABILITY FACTORS I refer to our discussion of October 10, 2022 on the request by NADA Incorporation for advice on Nigerian transfer pricing documentation and arm’s length comparability factors. I hereby present a report for your review before same is forwarded to the Group Operating Officer, NADA Incorporated, Canada.

(a) Transfer pricing compliance report stipulates the following:

(i) The documentation retained by a connected person shall be adequate to enable the Service verify that the controlled transaction is consistent with the arm’s length principle; (ii) The burden of proof that the conditions of the controlled transactions are consistent with the arm’s length principle shall be that of the taxable person; and (iii) The taxable person will be regarded as satisfying this burden of proof if it provides documentation consistent with this regulation to support compliance with the arm’s length principle of the taxable profits derived from its controlled transactions.

(b) Transfer pricing declaration form to be submitted to FIRS The Federal Inland Revenue Service expects all taxpayers to develop appropriate transfer pricing policy and provide relevant information to be stated in transfer pricing declaration form that contains the following:

(i) Particulars of reporting company or entity; (ii) Particulars of immediate parent company; (iii) Particulars of directors of reporting company; (iv) Particulars of major shareholders of reporting company and related parties; (v) Ownership, structure of reporting entity and related parties; (vi) Particulars of subsidiaries and other connected persons; (vii) Particulars of external auditors of reporting entity; (viii) Particulars of tax consultant of the reporting entity; (ix) Particulars of company secretary of the reporting entity; (x) Particulars of the person making the declaration; and (xi) Declaration. 70

(c) Transfer pricing disclosure form to be submitted to FIRS The Federal Inland Revenue Service expects all taxpayers to develop appropriate transfer pricing policy and provide relevant information to be stated in transfer pricing disclosure form that contains the following:

(i) Particulars of reporting company or entity; (ii) Income from controlled transactions; (iii) Costs of controlled transactions; (iv) Summary of controlled transactions with connected persons; (v) Transfer pricing method and documentation; (vi) Basic financial information for reporting entity and the group; (vii) Particulars of person making the disclosure; and (viii) Declaration.

(d) Arm’s length comparability factors in transfer pricing The Federal Inland Revenue Service (FIRS), in determining whether a transaction has been conducted at arm’s length will consider the following on a comparative basis:

(i) The similarity or identical nature of the transaction to that entered into by an unconnected taxable person; (ii) The facts and circumstances of the transactions per economic relevance; (iii) The characteristics of the goods, property or services transferred or supplied; (iv) The functions undertaken by the person entering into the transaction per resources and the risk expended and the risks assured; (v) The contractual terms of the transactions; (vi) The economic circumstances in which the transactions take place; and (vii) The business strategies pursued by the connected taxable persons to the controlled transaction. We hope that this report adequately represents the mandate given to us. Should you need further clarification on this, we will be glad to address it. Yours faithfully, Kemmy Adesanya Senior Partner For: Level Up & Co (Chartered Accountants)

Examiner’s report The question tests candidates’ understanding of transfer pricing regulation and practices in Nigeria, with particular emphases on issues involving transfer pricing compliance report; transfer pricing declaration form and disclosure form to be submitted to the Federal Inland Revenue Service; and arm’s length comparability factors in transfer pricing. 71 About 80% of the candidates attempted the question, and they showed a fair understanding of the question and performance was average. The commonest pitfall was the inability of the candidates to state correctly the transfer pricing disclosure form to be submitted to the Federal Inland Revenue Service. Candidates are advised to read the Institute’s Study Text, the Nigerian Income Tax (Transfer Pricing) Regulations 2018 and other relevant textbooks on transfer pricing when preparing for future examinations.

Marking guide Marks Marks a) Transfer pricing compliance report Memo (address) ½ Memo (heading) ½ 1 mark for each discussion of transfer pricing compliant report, subject to maximum of 2 points 2 3 Transfer pricing documentation report b) Transfer pricing documentation report 1 mark for each discussion of transfer pricing declaration Form to be submitted to FIRS, subject to a maximum of 6 points 6 c) Transfer pricing disclosure form to be submitted to FIRS 1 mark for each discussion of transfer pricing disclosure form to be submitted to FIRS, subject to a maximum of 6 points 6 d) Arm’s length comparability factors in transfer pricing 1 mark for each discussion of arm’s length comparability Factors in transfer pricing, subject to a maximum of 5 points 5 Total 20 72

(a) Jaga Petroleum Limited Computation of hydrocarbon tax liability For 2022 assessment year N’million N’million Revenue: Value of crude oil sold: Bonny light (7.5m barrels x $77 x N440) 254,100 Forcados medium (5.2m barrels x $70 x N440) 160,160 Value of condensate from associated gas sold(4m barrels x $55 x N440) 96,800 Value of gas liquid from associated gas sold(3.8m barrels x $50 x N440) 83,600 Gross revenue 594,660 Balancing charge Nil Total gross income 594,660 Allowable deductions (Section 263): Royalty incurred and paid for 118,900 Production cost 112,660 Concession rentals 25,200 Repairs of plant, machinery and fixtures 2,680 First exploration well 2,770 Repairs of production implement utensils 1,850 Cost of gas reinjection wells 1,250 NDDC charge 200 Purchase of information (N305 – N85) 220 First two appraisal wells cost 3,900 Decommissioning and abandonment 1,500 Environmental remediation fund 1,800 State government ground rent levy 22 Host community costs 1,400 Miscellaneous (N1,129 – N720 – N132 – N90) 187 Total allowable cost 274,539 Total costs subject to CPR limit (Wk 1) (131,539) (131,539) Excess allowable cost carried forward 143,000 Adjusted profit 463,121 Less: Loss relief Nil Assessable profit 463,121 Less: Section 266 and 6th Schedule deductions: Capital allowances 4,500 458,621 Less: Production allowances: Onshore operations 800 Shallow water operations 1,100 1,900 Chargeable profit 456,721 73

Workings on cost price ratio N’million N’million Gross revenue 594,660

(i) Maximum allowable @ 65% 386,529 Total operating cost 274,539 Capital allowances 4,500 Total eligible costs 279,039 Less: Exempted costs incurred (Section 263): Royalty paid 118,900 NDDC charge 200 Concession rentals 25,200 Host community funds 1,400 Environmental remediation fund 1,800 147,500 (ii) Net total costs to be subject to CPR 131,539 Maximum allowable cost is the lower of (i) and (ii), which is N131,539

(b) Jaga Petroleum Limited Companies income tax liabilities For 2022 assessment year N’million N’million Gross total income 594,660 Less: Section 263 allowable deductions CITA allowable deductions: 274,539 Administrative cost 1,980 Finance costs 25 Donations to orphanage 132 2,137 276,676 Assessable profit 317,984 Add: Balancing charge Nil 317,984 Less: Loss relief Nil 317,984 Less: Capital allowances 4,500 Total profit 313,484 Companies income tax @ 30% of total profit 94,045.20 Tertiary education tax @ 2.5% of assessable profit 7,949.60 Total tax payable 101,994.80 74

Examiner’s report The question tests candidates’ knowledge of computations of hydrocarbon tax and companies income tax of a company in upstream petroleum operations in line with the provisions of Petroleum Industry Act 2021. About 50% of the candidates attempted the question, but majority of them lacked a good understanding of its requirements, hence their performance was below average. The major pitfall of the candidates was their inability to identify correctly the allowable and disallowable expenses relevant in the computations of cost-price ratio, hydrocarbon tax and companies income tax. Candidates are advised to study extensively the template provided by the Federal Inland Revenue Service on computations of hydrocarbon tax and companies income tax and relevant sections of the Petroleum Industry Act 2021.

Marking guide (a) Computation of hydrocarbon tax: Marks Marks Value of crude oil sold (Bonny) ½ Value of crude oil sold (Forcados) ½ Value of condensate from associated gas sold ½ Value of gas liquid from associated gas sold ½ Royalty incurred and paid for ½ Production cost ½ Concession rentals ½ Repairs of plant, machinery and fixtures ½ First exploration well ½ Repairs of production implement utensils ½ Cost of gas reinjection wells ½ NDDC charge ½ First two appraisal wells cost ½ Decommissioning and abandonment ½ Purchase of information ½ Environmental remediation fund ½ State government ground rent levy ½ Host community costs ½ Miscellaneous ½ Total costs subject to CPR limit (Wk 1) ½ Excess allowable cost carried forward ½ Adjusted profit ½ Assessable profit ½ Capital allowances ½ Production allowances (onshore) ½ Production allowances (shallow water) ½ Chargeable profit ½ Hydrocarbon tax @ 30% ½ 75

Workings on CPR: Total operating cost ½ Capital allowances ½ Net total costs to be subject to CPR ½ Max allowable cost ½ 16

(b) Computation of companies income tax: Administrative cost ½ Finance costs ½ Donations to orphanage homes ½ Assessable profit ½ Capital allowances ½ Total profit ½ Companies income tax ½ Tertiary education tax ½ 4 Total 20

(a) Fashion Stitches Limited Computation of capital gains tax For 2022 assessment year Property N N Sales proceeds 65,100,000 Deduct: Cost of acquisition 18,220,000 Incidental cost of disposal: Estate valuers’ fee 1,627,500 Renovation expenses 1,800,000 Advertisement cost 250,000 21,897,500 Capital gains record 43,202,500 Less: Roll-over relief ((B)(i)) 43,202,500 Net capital gains Nil Capital gains tax @ 10% Nil Sewing machine and other tailoring equipment N Sales proceeds 2,800,000 Deduct: Cost of acquisition 3,300,000 Capital loss (500,000) 76 Generating set N Sales proceeds 1,900,000 Deduct: cost of acquisition 1,500,000 Capital gains record 400,000 Less: Roll-over relief ((b)(iii)) 400,000 Net capital gains Nil Capital gains tax @ 10% Nil

(b) Computation of roll-over relief Property N The lower of: Sales proceeds 65,100,000 And amount re-invested 80,000,000 Less: Cost of old asset 18,220,000 Roll-over relief 46,880,000 This is restricted to the capital gains record of N43,202,500 Sewing machine and other tailoring equipment No roll-over relief is available for asset that has a capital loss Generating set N The lower of: Sales proceeds 1,900,000 And amount re-invested 2,450,000 Less: Cost of old asset 1,500,000 Roll-over relief 400,000

(c) Costs at which capital allowances will be granted on the newly acquired assets. This is the cost of acquisition of each of the newly acquired assets, as indicated below: Property: N80,000,000 Sewing machine and other tailoring equipment: N7,130,000. Generating set: N2,450,000 77

Examiner’s report The question tests candidates’ understanding of capital gains tax computations. About 90% of the candidates attempted the question. Candidates showed a good understanding of the requirements of the question, and their performance was satisfactory. The major pitfall was the inability of some candidates to identify correctly the costs at which capital allowances will be granted to the company by the tax authorities in line with the provisions of Capital Gains Tax 2004 (as amended). Candidates are advised to read the Institute’s Study Text, other relevant textbooks and the Capital Gains Tax Act 2004 (as amended), as this will go a long way in assisting them to pass future examinations.

Marking guide Marks Marks (a) Computation of capital gains tax: Property: Sales proceeds ½ Cost of acquisition ½ Estate valuers’ fee ½ Renovation expenses ½ Advertisement cost ½ Net capital gains ½ Capital gains tax ½ Sewing machine and other tailoring equipment: Sales proceeds ½ Cost of acquisition ½ Capital loss ½ Generating set: Sales proceeds ½ Cost of acquisition ½ Net capital gains ½ Capital gains tax ½ 7

(b) Computation of roll-over relief: Property: Sales proceeds ½ Amount re-invested ½ Less: Cost of old asset ½ Roll-over relief ½ Sewing machine and other tailoring equipment: No roll-over relief 1 Generating set: Sales proceeds ½ Amount re-invested ½ Less: Cost of old asset ½ 78 Roll-over relief ½ 5

(c) Costs at which capital allowances will be granted: Property: N80,000,000 1 Sewing machine and other equipment: N7,130,000 1 Generating set: N2,450,000 1 3 Total 15

(a) Concept of thin capitalisation A company is said to be thinly capitalised when its capital is made up of a much greater proportion of debt than equity, that is, its gearing, or leverage, is too high. This is perceived to create problems for two classes of people. These are the:

(i) Creditors who bear the solvency risk of the company, which has to repay the bulk of its capital with interest; (ii) Tax authorities, who are concerned about abuse by excessive interest deductions.

(b) Provisions of Finance Act, 2019 on thin capitalisation

(i) Prior to the commencement of Finance Act, 2019, there were no thin capitalisation rules in Nigeria. However, in practice, FIRS sometimes seeks to disallow interest deductions considered excessive, which in most cases are usually done arbitrarily. (ii) The Finance Act, 2019 now introduces a specific benchmark of thirty percent (30%) of earnings before interest, taxes, depreciation and amortisation (EBITDA) in a year as the limit for interest deduction on loans by a foreign ’connected person’.

(iii) Where there is excess interest, such is considered as a disallowable deduction in that year.

(iv) Any unclaimed interest as a result of the restriction can be claimed within 5 years, after which it is lost. The Act exempts Nigerian subsidiaries of foreign companies engaged in banking and insurance from this rule.

(c) Non-tax factors The tax regime that applies in a specific location is generally an important consideration of a holding company and usually plays a role in the decision of where the company should be established. However, non-tax factors cannot be undermined as they are key to the success of the investment that is undertaken. The more important non-tax factors include: 79

(i) Economic and political stability: A tax jurisdiction that is not stable economically and politically will not attract foreign investors and will also lose its local investment to other tax jurisdictions with fair or stable economy;

(iii) Adequate physical, business, accounting and legal infrastructure: Availability of infrastructures that support business, accounting, and legal operation in a country is an encouraging factor usually considered by some entities in citing a fixed base in a country;

(iv) The absence (or limited presence) of bureaucratic obstacles: Little or no bureaucratic bottle-necks give confidence to investors in locating their business entities in a tax jurisdiction;

(v) Adequate communication channels: Availability of information source, reliable medium of communication, security of information and adequate communication channels play vital role in affecting the choice of an entity in citing its holding company in a country;

(vi) The availability of an adequate dispute resolution mechanism: A tax jurisdiction with an independent and effective dispute resolution process and procedures is often considered ahead of countries without such process in citing of business entity and holding company;

(vii) Effective banking system: A country with a standard and reliable system of banking operation and financial sector shall be deemed suitable for facilitating financial transactions if the holding company or branch of the entity is present in such tax jurisdiction;

(vii) Ability to repatriate profit freely;

(viii) The social, economic and political stability, and risks within different countries are major considerations in the decision-making, especially where the need for raising of finance is important;

(ix) A factor that supplements the social, economic and political stability is the functionality of the country’s legal system and rule of law. Thus, not only should the legal system be suitable for transacting business, but it should also be possible for legal subjects to enforce their legal rights;

(x) Alternative dispute resolution as a legal process is normally an expedient and cheap alternative to the often lengthy legal processes. Where available, it should also be reliable. The country’s government should also respect the rule of law and ideally have an enshrined constitution that protects the rights of the country’s subjects; 80

(xi) The commercial language of the host country is also important. It is important that the language used is the same as the language of the investor (or at least a common language such as English or French);

(xii) Linked to the prevailing commercial language, are reliable communication channels such as telecommunication, fax and email, without which the performance of various roles would be impaired; and

(xiii) Business deals with control and management (including investment management) and the discharging of such services requires a few highly skilled people in the areas of law, financing and financing structures, economics, accounting and auditing. Most holding companies do not necessarily require large numbers of employees to be stationed in the host country.

Examiner’s report The question tests candidates’ knowledge of thin capitalisation concept and rules as provided for in Finance Act 2019; and non-tax factors, which may affect the choice of location of a corporate entity by a holding company in another tax jurisdiction. About 70% of the candidates attempted the question. Candidates displayed fair understanding of the question, and performance was average. The major pitfall was the inability of some candidates to correctly explain the thin capitalisation rules put in place by the Federal Government via the provisions of the Finance Act 2019. Candidates are advised to read the Institute’s Study Text, and other relevant textbooks, when preparing for future examinations.

Marking guide Marks Marks a) Concept of thin capitalisation and the problems it may create to both creditors and tax authorities 1 mark for explanation of the concept of thin capitalisation 1 2 marks for discussion of problems of thin capitalisation to the creditors. 2 2 marks for discussion of problems of thin capitalisation to the tax authorities. 2 5 b) Thin capitalisation rules put in place by the Federal Government via the provisions of Finance Act 2019 4 2 marks for each discussion of thin capitalisation rules put in place by the Federal Government in Finance Act 2019, subject to a maximum of 2 points

c) Important non-tax factors, which may affect the choice of location of a corporate entity by a holding company in another tax jurisdiction 1 mark for each discussion of important non-tax factors which may affect the choice of location of a corporate entity by a holding company in another tax jurisdiction, subject to a maximum of 6 points 6 Total 15

Colphys & Co (Chartered Accountants) Ore-Benin City Road, Okada INTERNAL MEMO Date: …….. From: Tax Manager To: Principal Partner Subject: TAX INCENTIVES IN SPECIFIC SECTORS I refer to our client’s request for professional advice in respect of tax incentives available to businesses in the mining, gas utilisation (downstream operations) and a company that is eligible for road infrastructure tax credit scheme. I hereby present a report for your review before same is presented to our client.

(a) Mining incentives The key incentives available to companies engaged in mining operations under the Mining Act are summarised below:

(i) Tax holiday for an initial period of 3 years from commencement of operations and renewable for additional 2years. Any dividend recorded during the tax holiday period will not be subject to withholding tax upon distribution to shareholders;

(ii) Exporters of mineral products may be permitted to retain part of their foreign exchange earning in a domiciliary account for the purpose of acquiring spare parts and other mining inputs;

(iii) Exemption from customs and import duties in respect of plant, machinery equipment and accessories imported exclusively for mining operations. However, the plant and equipment can only be disposed of locally upon payment of the applicable customs and import duties;

(iv) Free transferability of foreign currency through the Central Bank of Nigeria (CBN) for the following:

• Payment for servicing of certified foreign loan; and

• Remittance of foreign capital in event of sale or liquidation of the business;

(v) Grant of personal remittance quota for expatriate personnel free from any tax imposed by any enactment for the transfer of external currency out of Nigeria;

(vi) Accelerated capital allowance on mining expenditure (95% initial allowance and retention of 5% until asset is disposed);

(vii) Grant of investment allowance of 10% on qualifying plant and machinery;

(viii) All infrastructure cost provided by the mining company and approved by the Mining Cadastre Office to be capitalised and capital allowance claimed at 95% in the first year of operation;

(ix) A company may also be entitled to claim an additional rural investment allowance on its infrastructure cost, depending on the location of the company and the type of infrastructure provided;

(x) Annual indexation of unutilised capital allowance carried forward by 5% for mines that commenced production within five (5) years from the date of enactment of the Act. Whilst the period for new companies to enjoy this incentive lapsed in 2012, new producers may apply to the Minister of Finance, through the Minister of Mines and Steel Development, to enjoy this incentive. Such application may be considered on a case by case basis; and

(xi) The Minister may grant a concession for the royalty payable on any mineral to be deferred for a number of years, subject to the approval of the Federal Executive Council.

(b) Incentives for gas utilisation (downstream operations) as provided under the Companies Income Tax Act (CITA)- Section 39 of CITA A company engaged in gas utilisation (downstream operations) shall be granted the following incentives:

(i) An initial tax free period of three years which may be subject to the satisfactory performance of the business, be renewed for an additional period of two years. This tax free period shall start on the day the company commences production as certified by the Ministry of Petroleum Resources;

(ii) As an alternative to the initial tax free period granted under (a) above, an additional investment allowance of 35 percent which shall not reduce the value of the asset. However, a company that claims this shall not be entitled to claim investment allowance of 15 percent;

(iii) Accelerated capital allowance after the tax relief period as follows:

• An annual allowance of 90 percent with 10 percent retention for investment in plant and machinery; and

• An additional investment allowance of 15 percent which shall not reduce the value of the asset;

(iv) Tax free dividend during the tax free period where:

• The investment for the business is in foreign currency; and

• The introduction of imported plant and machinery during the period was not less than 30 percent of the equity share capital of the company; and

(v) Interest payable on loan obtained with the prior approval of the Minister for a gas project shall be deductible. Provisions of Finance Act, 2020 on Incentives for gas utilisation are:

(vi) The Finance Act, 2020 amended section 39(1) of CITA (as amended) to grant the incentives only to companies whose trade or business involves gas utilisation in downstream operations. The mere consumption of gas does not qualify for the claim of this incentive;

(vii) The tax-free period is to start on the day the trade or business commences production as certified by the Ministry of Petroleum Resources (MPR);

(viii) A company which had claimed incentive for the trade or business of gas utilisation under any law including the former PPTA and IDITRA is barred from claiming this incentive; and

(ix) The erstwhile restriction based on intention to claim this incentive has now been removed.

(c) The Executive order 007- Companies Income Tax (Road Infrastructure Development and Refurbishment Investment Tax Credit Scheme) Order 2019 provides that:

(i) The Scheme is a public-private partnership, which enables private companies fund the construction and refurbishment of eligible roads in Nigeria. In return, participants in the Scheme are entitled to recover the project funds by way of tax credits, claimable against Companies Income Tax (CIT) payable;

(ii) The Scheme will be implemented and administered by a special management committee (the Committee), consisting of representatives from relevant Ministries and Agencies, including Federal Inland Revenue Service (FIRS) and chaired by the Minister of Finance;

(iii) The Scheme is open to Nigerian companies (other than corporation sole), institutional investors and a pool of companies operating through a special purpose vehicle set up as an infrastructure fund. Eligible road refers to any road approved by the President as eligible for the Scheme on the recommendation of the Minister of Finance and as duly notified to participants;

(iv) The primary benefit of this Scheme to participants is the ability to recover the project cost as tax credit against CIT payable. This credit is represented by the Road Infrastructure Tax Credit (RITC). RITC covers:

• Project cost (any expenditure wholly, reasonably, exclusively and necessarily incurred by a participant for the construction or refurbishment of an eligible road as quoted by the participant in its project cost bid and as certified by the Committee); and

• A single uplift (similar to interest), which is equivalent to the prevailing monetary policy rate (MPR) of the Central Bank of Nigeria (CBN), plus 2% of the project cost. The uplift (income) would not constitute taxable income in the hands of a participant. and

(v) The Scheme will be in force for a period of 10 years from the date of commencement in January 2019 to 2029. Thank you. Debby Ogunmade

Examiner’s report The question tests candidates’ understanding of tax incentives available to companies in the mining sector in line with the provisions of Minerals and Mining Act 2007 (as amended); gas utilisation (downstream operations); and those that are eligible for road infrastructure tax credit scheme. About 80% of the candidates attempted the question, and they showed a fair understanding of it, making the performance average. The commonest pitfall was the candidates’ inability to identify correctly and explain the incentives available for a company that is eligible for road infrastructure tax credit scheme. Candidates are advised to prepare adequately for future examinations by reading the Institute’s Study Text, other relevant textbooks and tax laws in respect of tax incentives in Nigeria.

Marking guide Marks Marks a. Tax incentives available to a mining business under the Minerals and Mining Act 2007 Memo (address) ½ Memo (heading) ½ 1 mark for each discussion of tax incentives available to a mining business, subject to a maximum of 5 points 5 6 b. Tax incentives available to a gas utilisation (downstream operations) business 1 mark for each discussion of tax incentives available to a gas utilisation (downstream operations) business, subject to a maximum of 5 points 5 c. Tax incentives available to a company that is eligible for road infrastructure tax credit scheme 1 mark for each discussion of tax incentives available to a company that is eligible for road infrastructure tax credit scheme, subject to a maximum of 4 points 4 Total 15 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

BFN & Co (Tax Consultants) 9, Alabata Road, Abeokuta Date: The Managing Director Paper World Nigeria Limited 2, Oyo-Ogbomoso Road Ibadan. Dear Sir, Re: Computation of adjusted profits, tax liabilities and other matters We hereby present a report in response to your request on computation of Company’s adjusted profits, tax liabilities and other tax matters.

a. Adjusted profits During the pioneer period (2018, 2019 and 2020), the company made a total adjusted loss of N45,720,000 (see attached Appendix 1). The adjusted profit for the year ended April 30, 2021, was N36,630,000 (see appendix 2).

b. Tax liabilities payable for 2022 assessment year With no total profit, the company is not liable to pay any companies income tax. However, payment of tertiary education tax, which is 2.5% of the assessable/adjusted profit, N915,750, is to be paid to the Federal Inland Revenue Service (FIRS). Given the fact that the company is not up to 48 calendar months in business, the company is exempted from paying minimum tax. The Management is advised to immediately file its annual tax returns and accompany it with a cheque of N915,750 in favour of FIRS.

c. Provisions of the Industrial Development (Income Tax Relief) Act 2007 (as amended) in respect of: i. Dividend payment

• Dividends can only be made out of profit.

• Dividends declared out of pioneer profit are not taxable (that is, free of withholding tax).

• Also, there is a limitation on a distribution of company’s dividends. No dividends may be distributed in excess of a certain balance on its profit and loss account. 52

ii. Losses made during the pioneer period

• The pioneer company shall be deemed to have set up and commenced a new trade or business on the day next following the end of its tax relief period.

• Thus, any losses made during the pioneer period and certified by the Federal Inland Revenue Service may be available for relief during the new trade. The practice of the Service is to restrict the relief to the first year of the new trade.

• Any unrelieved losses outstanding at the end of the first year of the new trade will be deemed to have been lost permanently.

iii. Capital allowances for qualifying capital expenditure (QCE) acquired during the pioneer period

• Any qualifying capital expenditure incurred during the pioneer period will be aggregated and assumed to have been incurred on the first day of the new trade.

• These QCEs will now qualify for both initial and annual allowances as from the first assessment year of the new trade. Please do not hesitate in contacting us if you need any further clarification on the above subject. Yours faithfully, Dan Owoeye Principal Partner Appendix 1: Adjusted profits during pioneer period (for the year ended April 30, 2018, 2019 and 2020) Year ended 30/4/2018 Year ended 30/4/2019 Year ended 30/4/2020 N’000 N’000 N’000 N’000 N’000 N’000 Net loss as per accounts (28,700) (25,500) (20,200) Add back: Depreciation 6,800 7,530 8,600 Donations 100 0 250 General allowance for doubtful debts 1,850 8,750 1,750 9,280 1,800 10,650 Adjusted profit/ (loss) (19,950) (16,220) (9,550) 53 Working 1: Total adjusted profit/(loss) during the pioneer period Year ended April 30 Amount N’000 2018 (19,950) 2019 (16,220) 2020 (9,550) (45,720) Appendix 2: Adjusted profit for the year ended April 30, 2021 N’000 N’000 Net profit as per accounts 14,930 Add back: Repairs and maintenance (improvement) 1,200 Depreciation 15,300 General and admin expenses (reserve) 1,300 Legal fees: Fine for late filing of returns 50 Expenses on new issue of shares 1,350 Allowance for doubtful debts (general prov) 3,700 22,900 37,830 Less: Income not taxable (dividends) 1,200 Adjusted profit 36,630 Appendix 3: Computation of tax liabilities N’000 N’000 Adjusted profit (from above) 36,630 Less: Loss brought forward 45,720 Loss relieved (36,630) (36,630) Unrelieved loss that lapse 9,090 Nil Capital allowances for the year (W2) 23,218 Recouped (Nil (Nil) Capital allowances c/f 23,218 Total profit Nil Companies income tax @ 30% Nil Tertiary education tax @ 2.5% of assessable profit 915.7 54

Workings 2: Capital allowances Non-ind building Industrial Manuf Building Ind. plant Capital allow IA 15% AA 10% IA 15% AA 10% IA 50% AA 25% IA 25% AA 20% IA 50% AA 25% N’000 N’000 N’000 N’000 N’000 N’000 2022 A/Y Cost 10,000 25,600 12,600 3,400 4,000 Additions 1200 - - 500 2,200 11,200 25,600 12,600 3,900 6,200 IA (1,680) (3,840) (6,300) (975) (3,100) 15,895 AA (952) (2,176) (1,575) (585) (775) 6,063 Inv. Allow - - (1,260) - - 1,260 23,218 2023 A/Y TWDV 8,568 19,584 4,725 2,340 2,325

Note 1: Any QCE bought during the pioneer period is assumed to be acquired on the first day of the new trade (May 1, 2020).

Note 2: Annual allowances for 2022 assessment year Non-industrial building = N11,200,000 – N1,680,000 = N952,000 10 Industrial building = N25,600,000 – N3,840,000 =- N2,176,000 10 Manufacturing industrial plant = N12,600,000 – N6,300,000 = N1,575,000 4 Furniture and fittings = N3,900,000 – N975,000 = N585,000 5 Motor vehicle = N6,200,000 – N3,100,000 = N775,000 4 Examiner’s report The question is divided into two parts. The first part tests the candidates’ understanding of the provisions of Companies Income Tax Act 2004 (as amended) in respect of computations of adjusted profit and companies’ income tax payable for the relevant assessment year. The second part tests the candidates’ knowledge of the provisions of the Industrial Development (Income Tax Relief) Act 2007 (as amended), in respect of a pioneer company’s dividend payment and losses made during the pioneer period. Being a compulsory question, all the candidates attempted the question. 55 Furniture and fittings Motor Vehicle Candidates demonstrated a fair understanding of the question and performance was average. The commonest pitfall was the inability of some candidates to identify correctly the allowable and disallowable expenses in line with the provisions of the Companies Income Tax Act 2004 (as amended). Candidates are advised to familiarise themselves with issues concerning computations of companies’ income tax by reading extensively the Institute’s Study Text, other relevant textbooks, and the Companies Income Tax Act 2004 (as amended).

Marking guide Marks Marks a. Computation of adjusted profits Memo (address or heading) ½ Memo (discussion of results) ½ Adjusted profits (30/4/2018): Net profit/(loss) ½ Depreciation ½ Donations ½ General provision for doubtful debts ½ Adjusted profit/(loss) ½ Adjusted profits (30/4/2019): Net profit/(loss) ½ Depreciation ½ General provision for doubtful debts ½ Adjusted profit/(loss) ½ Adjusted profits (30/4/2020): Net profit/(loss) ½ Depreciation ½ Donations ½ General provision for doubtful debts ½ Adjusted profit/(loss) ½ Total adjusted losses during the pioneer period ½ Adjusted profits (30/4/2021): Net profit as per accounts ½ Repairs and maintenance (improvement) ½ Depreciation ½ General and admin expenses (transfer to reserve) ½ Legal fees: Fine for late filing ½ 56 Expenses on new issue of shares ½ Allowance for doubtful debts (general prov) ½ Income not taxable (Dividends) ½ Adjusted profit ½ 13 b. Computation of tax liabilities Memo (discussion of results) 11/2 Losses b/f ½ Relieved ½ Losses that lapse ½ Capital allowances for the year ½ Total profit ½ Companies income tax ½ Tertiary education tax ½ Capital allowances computation: IA (Non-industrial building) ½ AA (Non-industrial building) ½ IA (Industrial building) ½ AA (Industrial building) ½ IA (Manufacturing industrial plants) ½ AA (Manufacturing industrial plants) ½ Investment allow (Manufacturing industrial plants) ½ IA (Furniture and fittings) ½ AA (Furniture and fittings) ½ IA (Motor vehicle) ½ AA (Motor vehicle) ½ Total capital allowances ½ 11 c. i. Provisions of the Act in respect of a pioneer company’s dividend payment 1 mark for the discussion of the provisions of the Act in respect of a pioneer company’s dividends payment, subject to a maximum of 2 points . 2

ii. Provisions of the Act in respect of a pioneer company’s losses made during the pioneer period 1 mark for the discussion of the provisions of the Act in respect of a pioneer company’s losses made during the pioneer period, subject to a maximum of 2 points. 2

iii. Provisions of the Act in respect of a pioneer company’s capital allowances for qualifying capital expenditure acquired during the pioneer period 1 mark for the discussion of the provisions of the Act in 57 respect of a pioneer company’s capital allowances for QCE acquired during the pioneer period, subject to a maximum of 2 points. _2_ Total 30

Baba Tee & Co (Chartered Accountants) Plot 5, Osara Road, Abeokuta INTERNAL MEMO Date: ……. From: Tax Manager To: Managing Director Subject: Computation of Hydrocarbon Tax and Companies Income Tax Liabilities Payable I refer to your directive on the above subject and a draft report for your review and further action is hereby presented.

a. Determination of hydrocarbon tax liabilities for the 2021 assessment year With losses relieved brought forward from last year and the grant of capital allowances and production allowances, the company made a chargeable profit of N150.622 billion. Hydrocarbon tax is at the rate of 15% of chargeable profit, which amounted to N22,593,300,000.

b. Determination of companies income tax liabilities for the 2022 assessment year The company made a total profit of N90.872 billion. Companies income tax is 30% of total profit and this gives N27,261,600,000. The company is also to pay 2.5% of assessable profit as tertiary education tax (N2,330,375,000). Thank you. Tobby Babatolu 58 Appendix 1: Hydrocarbon tax for the 2021 assessment year N’million N’million Revenue: Value of crude oil sold (6.2 million barrels x $72 x N425) 189,720 Value of condensate from associated gas sold (3.7 million barrels x $30 x N425) 47,175 Value of natural gas liquid from condensate gas sold (2.8 million barrels x $35 x N425) 41, 650 Gross Revenue 278,545 Balancing charge 32 Total gross revenue 278,577 Allowable deductions (section 263 of PIA) Production cost 106,470 Cost of gas reinjection wells 600 Drilling cost 4,360 Decommissioning and abandonment 1,900 Repairs and maintenance 5,750 Royalty cost paid 40,990 NDDC charge 250 Terminaling cost 1,380 Concession rentals 20,470 Host community fund 1,000 Local government municipal levy 100 Environmental remediation fund 1,420 Total allowable cost 184,690 Total costs subject to CPR limit (W1) (122,280) (122,280) Excess allowable cost carried forward 62,410 Adjusted profit 156,287 Less: Loss relief 655 Assessable profit 155,642 Less: Section 266 and 6th Schedule deductions: Capital allowances: Brought forward 320 For the current year 1400 1720 153, 922 Less: Production allowances 3,300 Chargeable profit 150,622 Hydrocarbon tax @15% of chargeable profit 22,593.3 59

Workings on Cost-Price-Ratio limit N’million N’million Gross revenue 278,545 Maximum allowable costs @65% 181, 054.25 Total operating cost incurred 184,690 Capital allowances 1,720 Total eligible costs 186, 410 Less: Exempted costs incurred (Section 263) Royalty paid 40,990 NDDC charge 250 Concession rentals 20,470 Host community fund 1,000 Environmental remediation fund 1,420 64,130 Net total costs to be subjected to CPR 122,280 Maximum allowable cost: The lower of: Net total costs to be subjected to CPR 122,280 And CPR @ 65% of gross income 181,054.25 Appendix 2: Companies income tax for 2022 assessment year N’million N’million Revenue: Value of crude oil sold 189,720 Value of condensate from associated gas sold 47, 175 Value of natural liquid from condensate 41,650 Gross revenue 278,545 Less: Allowable deductions (section 263 of PIA) Production cost 106,470 Cost of gas reinjection wells 600 Drilling cost 4,360 Decommissioning and abandonment 1,900 Repairs and maintenance 5,750 Royalty cost paid 40,990 NDDC charge 250 Terminalling cost 1,380 Concession rentals 20,470 Host community fund 1,000 Local government municipal levy 100 Environmental remediation fund 1,420 Total allowable cost 184,690 Less: CITA allowable deductions: 60 Bank charges (Finance cost) 510 Donations to recognised Charity home 130 640 185,330 Assessable profit 93,215 Add: Balancing charge 32 93,247 Less: Losses b/f 655 92,592 Less: Capital allowances: Brought forward 320 For the current year 1,400 1,720 Total profit 90,872 Companies income tax @ 30% of total profit 27,261.60 Tertiary education tax @ 2.5% of assessable profit 2,330.375 Total tax liabilities payable 29,591.975

Examiner’s report The question tests candidates’ knowledge of computations of hydrocarbon tax and companies income tax of a company that operated in both onshore and shallow water in line with the provisions of Petroleum Industry Act 2021. About 80% of the candidates attempted the question, but majority of them showed a fair understanding of its requirements, hence their performance was average. The major pitfall of the candidates was their inability to identify correctly the allowable and disallowable expenses relevant to the computations of cost-price ratio, hydrocarbon tax and companies income tax. Candidates are advised to study extensively the template provided by the Federal Inland Revenue Service on computations of hydrocarbon tax, companies’ income tax and relevant sections of the Petroleum Industry Act 2021.

Marking guide Marks Marks a. Computation of Hydrocarbon tax Memo (Heading) ½ Memo (Discussion of result) 1 Value of crude oil sold ½ Value of condensate from associated gas sold ½ Value of natural gas liquid from condensate gas sold ½ Balancing charge ½ Allowable deductions (section 263 of PIA): 61 Production cost ½ Cost of gas reinjection wells ½ Drilling cost ½ Decommissioning and abandonment ½ Repairs and maintenance ½ Royalty cost paid ½ NDDC charge ½ Terminaling cost ½ Concession rentals ½ Host community fund ½ Local government municipal levy ½ Environmental remediation fund ½ Total allowable cost ½ Total cost subject to CPR limit (W1) ½ Excess allowable cost carried forward ½ Less: Loss relief ½ Total capital allowances ½ Production allowances ½ Chargeable profit ½ Hydrocarbon tax @ 15% of chargeable profit ½

Workings (CPR limit): Net total cost to be subjected to CPR (N122,280) ½ 14

b. Computation of income tax payable Memo (Discussion of result) ½ Gross revenue total (N278,545) ½ Section 263 allowable deductions total (N184,690) ½ Bank charges ½ Donations ½ Assessable profit ½ Balancing charge ½ Losses b/f ½ Capital allowances total (N1,720) ½ Total profit ½ Companies income tax ½ Tertiary education tax ½ 6 Total 20 62

a. The provisions of the Capital Gains Tax Act in respect of tax payable on disposal of assets situated outside Nigeria by a non-Nigerian company Section 4 of Capital Gains Tax Act 2004 (as amended) provides that Capital gains tax shall be charged on the amounts (if any) received or brought into Nigeria in respect of any chargeable gains, such amounts being treated as gains accruing when they are received or brought into Nigeria.

b. (i) Damaturu Nigeria Limited Computation of capital gains tax payable For 2022 assessment year Land Plant & equipment Factory building N’000 N’000 N’000 N’000 N’000 N’000 Sales proceeds 32,000 15,000 38,000 Less: Cost of acquisition 25,000 13,000 30,000 Incidental expenses: Legal (1%) of sale proceeds 320 150 380 Professional Valuers (3%) of sale proceeds 960 26,280 450 13,600 1,140 31,520 Capital gains record 5,720 1,400 6,480 Less: Roll-over relief (b)(ii) 3,000 1,400 Nil Net capital gains 2,720 Nil 6,480 Capital gains tax @ 10% 272 Nil 648 In line with the provisions of Section 2, Finance Act 2020, the expected due date of payment of the tax liability is December 31, 2022. 63

b. (ii) Roll-over relief Land Plant & equipment Factory building N’000 N’000 N’000 Lower of: Sales proceeds 32,000 15,000 38,000 And Amount re-invested 28,000 18,000 30,000 Less: Cost of acquisition of old asset 25,000 13,000 30,000 Roll-over relief 3,000 2,000 Nil NB: The roll-over relief in respect of plant & equipment is restricted to N1,400,000 (as in the capital gains record).

Examiner’s report The question tests candidates’ understanding of the provisions of Capital Gains Tax Act 2004 (as amended) in respect of disposal of assets situated outside Nigeria by a non-Nigerian company, capital gains tax computations, and roll-over relief. About 80% of the candidates attempted the question. Candidates showed a good understanding of the requirements of the question and their performance was satisfactory. The major pitfall was the inability of some candidates to correctly compute the roll- over relief. Candidates are advised to read the Institute’s Study Text and other relevant textbooks, when preparing for future examinations.

Marking guide Marks Marks a. Provisions of capital Tax Act in respect of tax payable on disposal of assets situated outside Nigeria by a non- Nigerian company 2 marks for discussing the provisions of the Act in respect of tax payable on disposal of assets situated outside Nigeria by a non-Nigerian company 2 b.i Computation of the capital gains tax payable as the date of payment of the tax date Heading ½ Land: Sales proceeds ½ 64 Land: Cost of acquisition ½ Land: Legal fees ½ Land: Professional valuers’ fees ½ Land: Capital gains record ½ Land: Less: roll-over relief ½ Land: Net capital gains ½ Land: Capital gains tax @ 10% ½ Plant & equipment: Sales proceeds ½ Plant & equipment: Cost of acquisition ½ Plant & equipment: Legal fees ½ Plant & equipment: Professional valuers’ fees ½ Plant & equipment: Capital gains record ½ Plant & equipment: Less: roll-over relief ½ Plant & equipment: Net capital gains ½ Plant & equipment: Capital gains tax @ 10% ½ Factory building: Sales proceeds ½ Factory building: Cost of acquisition ½ Factory building: Legal fees ½ Factory building: Professional valuers’ fees ½ Factory building: Capital gains record ½ Factory building: Less: roll-over relief ½ Factory building: Net capital gains ½ Factory building: Capital gains tax @ 10% ½ Due date of payment of tax 11/2 14

ii. Roll-over relief computation: Land: Sales proceeds ½ Land: Amount re-invested ½ Land: Cost of acquisition of old asset ½ Plant & equipment: Sales proceed ½ Plant & equipment: Amount re-invested ½ Plant & equipment: Cost of acquisition ½ Factory building: Sales proceeds ½ Factory building: Amount re-invested ½ 4 Total 20 65

Being a Paper on Nigerian Double Taxation Agreements and the United Kingdom

a. Provisions of double taxation agreement with the UK with regards to:

i. Income from immovable property may be taxed in the country in which the property is situated (Article 6);

ii. Business profits not arising through a permanent establishment are to be taxed only in the country of the taxpayer’s residence. Profits attributed to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Article 7);

iii. Profits or gains arising from the operation of ships and aircraft in international traffic are to be taxed only in the country of residence of the operator (Article 8);

iv. Dividends derived by one company which is resident in one country from a company resident in another country may be taxed in that country in which the dividend is derived. The withholding tax applicable in Nigeria is reduced to 7.5%; and

v. Interest arising in one country and paid to a resident of the other country may be taxed in that other country. The rate of tax in the source country is, in general, not to exceed 12.5 per cent. However, interest arising in one country and paid to the government or any government agency of the other country is to be exempt in the country of source (Article 11).

b. Foreign incomes exempted from Nigerian tax With effect from January 1, 1988, investment incomes, namely; dividends, interests, royalties and rents, derived by a company from outside Nigeria, is exempted from Nigerian tax, provided that such income is brought into Nigeria through government approved channels. Government approved channels means the Central Bank of Nigeria, any bank or other corporate body appointed by the Minister as authorised dealers under the Second-tier Foreign Exchange Market, Act or any enactment replacing that Act. In such situations, there would not have been any double taxation and therefore there would be no need to grant any relief in form of tax credit. 66

c. Resolution of conflicts between double taxation agreements (DTAs) and Nigerian tax laws include: Where a resident of a contracting State considers that the action of one or both of the contracting States result or will result in taxation not in accordance with this agreement; The competent authority shall endeavour, if the objection appears to it to be justified and if it is not itself able to resolve the case by mutual agreement with the competent authority of the other contracting State. Then; The competent authorities of the contracting State shall endeavour to resolve by mutual agreement any difficulties or doubt arising as to the interpretation or application of the agreement; and The competent authorities of a contracting State may communicate with each other directly for the purpose of reaching an agreement in the sense of the preceding paragraphs.

d. Benefits of double taxation agreement include:

• Avoidance of double taxation;

• Clarification of taxing rights of each contracting State;

• Encouragement of economic cooperation between States;

• Prevention of fiscal evasion with anti-avoidance provision;

• Lowering of compliance cost;

• Promotion of bilateral investment between contracting States;

• Access to mutual agreement procedure (MAP) for dispute resolution;

• Non-discrimination in taxation matters; and

• Encouragement of uninterrupted exchange of information between the contracting States.

Examiner’s report The question tests the candidates’ knowledge of the provisions of the Nigerian double taxation agreements with the United Kingdom. About 40% of the candidates attempted the question and they exhibited a fair understanding of its requirements. The performance was average. The commonest pitfall was the inability of some candidates to explain the resolution mechanisms being used by the Nigerian government to mitigate the effect of the conflicts between double taxation agreements and the Nigerian tax laws. Candidates are advised to read widely the Institute’s Study Text and other relevant textbooks, when preparing for future examinations. 67

Marking guide Marks a. i. Provision of the Nigerian double taxation agreements with the UK in respect of income arising from immovable properties 2 marks for discussing the provisions of the double taxation agreement with the UK in respect of income arising from immovable properties 2

ii. Provisions of the Nigerian double taxation agreements with the UK in respect of business profits not arising through a permanent establishment 2 marks for discussing the provisions of the double taxation agreement with the UK in respect of business profits not arising through a permanent establishment 2

iii. Provisions of the Nigerian double taxation agreements with the UK in respect of profits or gains arising from the operations of ships and aircraft in international traffic 2 marks for discussing the provisions of the double taxation agreement with the UK in respect of profits or gains arising from the operations of ships and aircraft in international traffic 2

iv. Provisions of the Nigerian double taxation agreements with the UK in respect of dividends derived by a company resident in one country from a company resident in another country. 2 marks for discussing the provisions of the double taxation agreement with the UK in respect of dividends derived by one company which is resident in one country from a company resident in another country 2

v. Provisions of the Nigerian double taxation agreements with the Uk in respect of interest arising in one country and paid to a resident of the other country 2 marks for discussing the provisions of the double taxation agreement with the UK in respect of interest arising in one country and paid to a resident of the other country 2

b. Foreign incomes exempted from Nigerian tax 1 mark for each item of foreign income exempted (interests, royalties, dividends and rents) from Nigerian tax, subject to a maximum of 3 items 3

c. Resolution mechanisms being used to mitigate the effect of the conflicts between double taxation agreements and Nigerian tax laws 1 mark for discussing each resolution of conflict mechanism, 68 Subject to a maximum of 3 points 3

d. Benefits of double taxation agreements 1 mark for discussing each benefit of double taxation agreement, subject to a maximum of 4 points 4 Total 20

SMAP & Co (Chartered Accountants) 67, Wheno Avenue, Badagry INTERNAL MEMO Date: From: Audit Senior To: Principal Partner Subject: Zola Nigeria Limited I refer to our client’s request on objectives of tax audits; stages of tax audit process and schedule of requirements required for Federal Inland Revenue Service tax audit. I hereby present a report for your consideration before same is presented to the client.

a. The objectives of a tax audit are to enable the tax inspectors determine that:

i. Adequate accounting books and records exist for the purpose of determining the taxable profits or loss of the taxpayer and consequently, the tax payable; ii. The tax computations submitted to the tax authority by the taxpayer agree with the underlying records; iii. All applicable tax legislations have been complied with; iv. There is provision of an avenue to educate taxpayers on various provisions of the tax law; v. Tax evasion is discouraged; vi. Accounting and/or arithmetical errors in tax returns are detected and corrected; vii. Feedback to the management on various provisions of the law and recommend possible changes; viii. Cases involving tax fraud and recommend them for investigation; ix. Taxable persons’ failure to render tax returns are captured; 69

x. Taxable persons’ rendering incomplete or in accurate returns are identified; and xi. Voluntary compliance (which is one of the strong reasons in support of the self-assessment scheme) is encouraged.

b. Stages in tax audit process include:

i. Selection of the taxpayer to be audited; ii. Preliminary review of the taxpayer’s file; iii. Notification of taxpayer; iv. Pre-audit meeting; v. Fieldwork; vi. Post-audit meeting; vii. Interim audit report; viii. Post-audit review by regional/headquarters’ audit unit; ix. Reconciliation meetings; and x. Final audit report.

c. List of required documents for FIRS tax audit include:

i. Audited accounts for the relevant years; ii. Management accounts; iii. Chart of accounts; iv. Year-end final trial balance; v. General ledgers/ledger printouts; vi. Back up documents for entries in the General Ledger; vii. Audit adjustment journals; viii. Relevant schedules; ix. Sales invoice file; x. Purchases invoice file; xi. Payment vouchers for bank and petty cash payments; xii. Import documents; xiii. Export documents (where applicable); xiv. Fixed assets register/schedules; xv. Value added tax file(s); xvi. Evidences of Input VAT claimed; xvii. Evidences of VAT deducted at source (if any); xviii. Evidence of zero rated/exempted VAT items; xix. Withholding tax file(s); xx. Capital gains tax records; 70

xxi. Schedule of bankers and the bank statements for each of the period of audit coverage; xxii. Minutes of Board’s meetings; xxiii. Inventory count records; xxiv. Schedule of contracts executed, contract agreements/offer letters and valuation certificate for company engaged in construction; xxv. Rent agreements; and xxvi. Any other documents required for the audit, as the documents stated above are not exhaustive. Thank you. Sunny Posu

Examiner’s report The question tests candidates’ understanding of the objectives of tax audits; stages in a typical tax audit process; and schedule of requirements for Federal Inland Revenue Service (FIRS) tax audit. About 60% of the candidates attempted the question and they showed a good understanding of the question and performance was above average. The commonest pitfall was the inability of the candidates to state correctly the schedule of requirements for FIRS tax audit. Candidates are advised to read the Institute’s Study Text and other relevant textbooks on tax audits and investigation when preparing for future examinations.

Marking guide Marks Marks a. Objectives of tax audits Memo (address) ½ Memo (heading) ½ ½ mark for each objective of tax audit, subject to a maximum of 8 points 4 5

b. Stages in a typical tax audit process ½ mark for each stage in a typical tax process, subject to a maximum 8 points 4 71

c. Schedule of documents required for FIRS tax audit ½ mark for each schedule of requirements for FIRS tax audit, subject to a maximum of 12 points _6_ Total 15

a. Guiding principles of Nigeria tax system According to the National tax policy 2017, all existing and future taxes are expected to align with the following fundamental features:

i. Equity and fairness: Nigeria tax system should be fair and equitable, devoid of discrimination. Taxpayers should be required to pay according to their ability;

ii. Simplicity, certainty and clarity: Tax laws and administrative processes should be simple, clear and easy to understand;

iii. Convenience: The time and manner for the fulfillment of tax obligations shall take into account the convenience of taxpayers and avoid undue difficulties;

iv. Low compliance cost: The financial and economic costs of compliance to the taxpayer should be kept to the barest minimum;

v. Low cost of administration: Tax administration in Nigeria should be efficient and cost-effective in line with international best practices;

vi. Flexibility: Taxation should be flexible and dynamic to respond to changing circumstances in the economy in a manner that does not retard economic activities; and

vii. Sustainability: The tax system should promote sustainable revenue, economic growth and development. There should be a synergy between tax policies and other economic policies of government.

b. The fundamental principles and guidance for accountants (IESBA codes) The fundamental principles of ethics as specified by the International Ethics Standards Board for Accountants (IESBA) are:

i. Integrity; ii. Objectivity; iii. Professional competence and due care; iv. Confidentiality; and v. Professional behaviour. 72

i. Integrity

• A professional accountant shall comply with the principle of integrity, which requires an accountant to be straightforward and honest in all professional and business relationships. Integrity implies fair dealing and truthfulness.

• A professional accountant shall not knowingly be associated with reports, returns, communications or other information where the accountant believes that the information contains materially false or misleading statements.

ii. Objectivity

• A professional accountant shall comply with the principle of objectivity, which requires an accountant not to compromise professional or business judgment because of bias, conflict of interest or undue influence of others.

• A professional accountant shall not undertake a professional activity if a circumstance or relationship unduly influences the accountant’s professional judgment regarding the activity.

iii. Professional competence and due care A professional accountant shall comply with the principle of professional competence and due care. This requires an accountant to attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organisation receives competent professional service, based on current technical and professional standards and relevant legislation and act diligently and in accordance with applicable technical and professional standards.

iv. Confidentiality A professional accountant shall comply with the principle of confidentiality, which requires an accountant to respect the confidentiality of information acquired as a result of professional and business relationships. The principle of confidentiality imposes an obligation on all professional accountants to refrain from:

• Disclosing outside the firm or employing organisation confidential information acquired as a result of professional and business relationships without proper and specific authority or unless there is a legal or professional right or duty to disclose; and

• Using confidential information acquired as a result of professional and business relationships to their personal advantage or the advantage of third parties. 73

v. Professional behaviour

• A professional accountant shall comply with the principle of professional behaviour, which requires an accountant to comply with relevant laws and regulations and avoid any conduct that the accountant knows or should know might discredit the profession.

• A professional accountant shall not knowingly engage in any business, occupation or activity that impairs or might impair the integrity, objectivity or good reputation of the profession, and as a result would be incompatible with the fundamental principles.

Examiner’s report The question tests candidates’ understanding of the fundamental features provided for in the Nigerian Tax Policy 2017, which existing and future taxes are expected to align with and the principles and guidance of accountants as specified in the International Ethics Standards Board for Accountants (IESBA) codes. About 70% of the candidates attempted the question. Candidates showed a fair understanding of the requirements of the question and their performance was satisfactory. The major pitfall was the inability of some candidates to identify correctly the principles and guidance for accountants as specified in the IESBA codes. Candidates are advised to read the Institute’s Study Text, Institute of Chartered Accountants of Nigeria Act, and other relevant textbooks, as this will go a long way in assisting them to pass future examinations.

Marking guide Marks Marks a. Fundamental features as provided for in the NTP 2017, which the existing and future taxes are expected to align with 1 mark for each discussion on fundamental features as provided for in the NTP 2017, which the existing and future taxes are expected to align with, subject to a maximum of 5 points 5

b. Principles and guidance of accountants as specified in the IESBA codes ½ mark for each identification of principles and guidance for accountants as specified in the IESBA codes, subject to a maximum of 4 points 2 2 marks for each discussion on principles and guidance of accountants as specified in the IESBA codes, subject to a maximum of 4 points 8 10 Total 15 74

EPS & Co (Tax Consultants) 15, Enugu Road, Udi Town Date: The Managing Director Udi Nigeria Limited 15, Enugu Road Udi Town Dear Sir, Re: Computation of Tax Liabilities for 2022 Assessment Year and Tax Neutralities I refer to your requests on the computation of the company’s tax liabilities for 2022 assessment year and explanation of the concept of tax neutralities. I hereby present a report for your consideration.

a. Computation of tax liabilities for 2022 assessment year In line with the provisions of Companies Income Tax Act 2004 (as amended), the companies income tax liability payable for 2022 assessment year is N18,213,000 (that is 30% of total profit). The company is also liable to pay tertiary education tax at the rate of 2.5% of assessable profit and this amounted to N20,022,750. The company is hereby advised to urgently file its self-assessment annual returns with the Federal Inland Revenue Service and accompany it with a cheque of the sum of N20,235,750, being the amount of total tax liabilities payable for the 2022 assessment year.

b. The concept of tax neutrality

i. The primary purpose of the tax system is to raise the revenue needed to pay for government spending. As such, the goal is to raise this revenue without distorting the decisions that individuals and firms would otherwise make for purely economic reasons.

ii. Non-neutralities in the tax system lead people and firms to devote more socially wasteful effort to transforming the form or substance of their activities to reduce their tax payments, for example, by hiring accountants to structure financial transactions in a manner that minimizes tax liability.

iii. In some cases, deviations from a neutral tax system are unavoidable. It is widely agreed that tax payment should increase with some measure of well-being, like income, consumption or wages.

iv. One inevitable consequence of this agreement is that the market consumption of goods and services will be taxed, either directly (as in a 75 consumption tax) or indirectly (as in an income or employment tax, both of which tax the money used to purchase consumption goods). In other cases, deviations from a neutral tax system reflect the goals of policy makers. Applications of neutrality to specific policy issues

i. Overall tax reform: A broader base and lower rates One of the traditional mantras of tax reform is to "broaden the base and lower the rates”. This involves two objectives:

• Broadening the base helps make the tax code more neutral between different activities by including more types of income in the definition of income and allowing fewer deductions and credits for specified activities; and

• Lowering tax rates makes the tax code more neutral about the choice between working and not working.

ii. Using the tax code to encourage desired behaviour: Credits instead of deductions In some cases, policy makers may want to encourage desired activities like home ownership or a college education. In these cases, it is worth examining whether the specific goal could be better accomplished through a spending program or through the tax code. In many cases, a spending program can be more effectively targeted and delivered to serve the goal in question. In some cases, subsidising these activities through the tax code may be more efficient.

iii. Discouraging undesired activity Just as it can sometimes be appropriate to introduce non-neutralities into the tax system to encourage desired activities, it can also be appropriate to use the tax system to discourage undesirable ones like smoking, drinking alcohol, or emitting carbon. This can lead businesses and consumers to take the social costs of their actions into account, helping to ensure that the outcome of decentralised decisions and market competition leads to overall social efficiency. Please do not hesitate in contacting us if you need any further clarification on the above subject. Yours faithfully, Paulo Ojeaga Senior Partner for: EPS & Co (Tax Consultants) 76 Appendix 1: Tax liabilities computation N’000 N’000 Net profit as per accounts 50,810 Add back: Depreciation 15,400 Allowance for bad debts 6,200 Repairs and maintenance 1,500 Certified exploration expenditure 4,500 Development and processing expenditure 2,500 30,100 Adjusted/assessable profit 80,910 Less: Capital allowances (Note 1) 20,200 Total profit 60,710 Companies income tax @ 30% 18,213 Tertiary education tax @ 2.5% of assessable profit 2,022.75 Total tax liabilities payable 20,235.75 Capital allowances of new acquisitions Certified exploration Development Capital and allowances processing IA 95% IA 95% IA25% AA Nil Nil AA 20% N’000 N’000 N’000 N’000 2022 A/Y Cost 4,500 2,500 1,500 IA (4,275) (2,375) (375) 7,025 AA (0) (0) (225) 225 7,250 2023 A/Y TWDV 225 125 900

Note 1: capital allowances claimable: N’000 Brought forward 750 Current year (without additions during the year) 12,200 Current year additions 7,250 Total 20,200 Furniture and fitting 77

Examiner’s report The question tests the candidates’ understanding of the concept of tax neutralities and the provisions of the Nigerian Minerals and Mining Act 2007 (as amended), in respect of computations of tax liabilities of a mining company. About 70% of the candidates attempted the question and they showed a fair understanding of it, making the performance average. The commonest pitfall was the candidates’ inability to identify correctly the allowable and disallowable expenses in the determination of adjusted profit and the tax liabilities. Candidates are advised to prepare adequately for future examinations by reading the Institute’s Study Text, other relevant textbooks and tax laws in respect of mining operations in Nigeria.

Marking guide Marks Marks a. Computation of tax liabilities Memo (heading) ½ Memo (discussion of results) 1 Net profit as per accounts ½ Depreciation ½ Repairs and maintenance ½ Certified exploration expenditure ½ Development and processing expenditure ½ Adjusted/assessable profit ½ Capital allowances ½ Total profit ½ Companies income tax ½ Tertiary education tax ½ Capital allowance computation: IA (Development and processing expenditure) ½ IA (Certified exploration expenditure) ½ IA (Furniture and fittings) ½ AA (Furniture and fittings) ½ Total capital allowances ½ 9 b. Concept of tax neutralities and its applications to specific policy issues 1 mark for each discussion on the concept of tax neutralities, subject to a maximum of 3 points 3 1½ marks for each discussion on applications of neutrality to specific policy issues, subject to a maximum of 2 points 3 6 Total 15 78 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA