Advanced Taxation · May 2026

ai. WILCOX & Co (CHARTERED ACCOUNTANTS) Date: The Managing Director ROMO Agro-allied Industries Limited Port-Harcourt Dear Sir, RE: COMPUTATION OF ADJUSTED PROFIT AND TAX LIABILITIES FOR THE RELEVANT ASSESSMENT YEARS AND OTHER RELATED MATTERS We refer to your request on computation of adjusted profit for the year ended June 30, 2025 and tax liabilities for 2022, 2023, 2024, 2025, and 2026 assessment years. Our comments are as follows:

ai. Adjusted profit for the year ended June 30, 2025 As shown in the attached appendix 1, the adjusted profit of the company for the year ended June 30, 2025 is N77,500,000. aii. Tax liabilities for 2022- 2026 assessment years Appendix 2 presents the report of the companies income tax and tertiary education tax payable for 2022 through 2026 assessment years. The summary of the result is as follows: Assessment year 2022 2023 2024 2025 2026 N N N N N Companies income tax 3,810,000 - - - 18,462 Tertiary education tax 317,500 627,500 879,000 1,086,000 2,325,000

b. Factors that can lead to revocation of certificate granted to a company include: • where the production day is more than one year from the day stated original application; • value of qualifying capital expenditure (QCE) is less than the threshold of N10 million; • information provided by the applicant company during application was found to be misleading or false; ----- | | | :-: | | [**Page 23**]() | 54 • the company did not utilise its tax savings judiciously; there is a clear case of abuse of the incentives; • the company engages in any tax evasion under the cover of the pioneer status granted it; and • when the company engages in an activity which is contrary to the pioneer status granted it. Should you need any further clarifications on this report, we will be glad to address them. Thank you, Helen Irobusi Appendix 1: Adjusted profit for the year ended June 30, 2025 N’000 N’000 Net profit as per accounts 46,900 Add back: Repairs and maintenance:

- improvement to industrial building 1,100 Depreciation 18,200 Legal and professional fee:

- Acquisition of short lease 1,200

- Renewal of long lease 1,300

- Legal cost of tax appeal 1,400 Preliminary expenses written off 2,000 Allowance for doubtful debts:

- General provision 6,700 Administrative expenses:

- Feasibility study 2,500

- Stamp duties 800 Donations and subscriptions:

- Donation to OreyoCountry Club 1,000 Transfer to general reserves 3,400 Income tax provisions 3,600 43,200 90,100 Less: Incomes not taxable

- Dividend received (net) 9,000

- Excess valuation of building 3,600 12,600 Adjusted profit 77,500 Appendix 2: Computation of tax liabilities for 2022-2026 assessment years N’000 N’000 2022 assessment year Basis period: 1/7/20 - 30/6/21 Assessable profit (given) 12,700 ----- | | | :-: | | [**Page 24**]() | 55 Companies income tax @ 30% 3,810 Tertiary education tax @ 2.5% of N12,700,000 317.5 2023 assessment year Basis period: 1/7/21 - 30/6/22 Adjusted profit (given) 25,100 Loss b/f from pioneer period (W1) 83,100 Loss relieved (25,100) (25,100) Unrelieved loss that lapsed (permanently lost) 58,000 Capital allowance for the year (W2) 72,320 Capital allowance utilized (Nil) Nil Unutilised capital allowance c/f 72,320 Total profit Nil Companies income tax @ 30% Nil Tertiary education tax @ 2.5% of N25,100,000 627.5 2024 assessment year Basis period: 1/7/22 - 30/6/23 Adjusted profit (given) 29,300 Capital allowance for the year (W2) 18,620 Unutilised capital allowance b/f 72,320 Total capital allowance available for utilisation 90,940 Capital allowance utilized (29,300) (29,300) Unutilised capital allowances c/f 61,640 Total profit Nil Companies income tax @ 30% Nil Tertiary education tax @ 3% of N29,300,000 879 2025 assessment year Basis period: 1/7/23 - 30/6/24 Adjusted profit (given) 36,200 Capital allowance for the year (W2) 17,120 Unutilised capital allowance b/f 61,640 Total capital allowance available for utilisation 78,760 Capital allowance utilized (36,200) (36,200) Unutilised capital allowances c/f 42,560 Total profit Nil ----- | | | :-: | | [**Page 25**]() | 56 Companies income tax @ 30% Nil Tertiary education tax @ 3% of N36,200,000 1,086 2026 assessment year Basis period: 1/7/24 - 30/6/25 Adjusted profit (given) 77,500 Capital allowance for the year (W2) 34,878.46 Unutilised capital allowance b/f 42,560 Total capital allowance available for utilisation 77,438.46 Capital allowance utilized (77,438.46) (77,438.46) Unutilised capital allowances c/f Nil Total profit 61.54 Companies income tax @ 30% 18.462 Tertiary education tax @ 3% of N77,500,000 2,325

Workings

1. Determination of total adjusted profit/(loss) made during the pioneer period Basis period Assessment year Profit/(loss) N’000 1/7/18 - 30/6/19 2020 (41,200) 1/7/19 - 30/6/20 2021 (37,500) 1/7/20 - 30/6/21 2022 (4,400) see note below Total (83,100)

Note: The assessable profit of N12,700,000 made from importation and sale of fertilizer (unapproved activity) during the pioneer period is to be deducted from assessable profit reported by the company for the year ended June 30, 2021. Therefore, the real or actual adjusted loss for the pioneer period = N8,300,000 - N12,700,000 = (N4,400,000).

2. Capital allowances schedule Indust. Building Non- industrial Building Industrial Plant & equipment Motor vehicle Furniture & fittings Cap. Allow IA 15% AA 10% IA 15% AA 10% IA 50% AA 25% IA 50% AA 25% IA 25% AA 20% N’000 N’000 N’000 N’000 N’000 N’000 ----- | | | :-: | | [**Page 26**]() | 57 2023 A/Y Cost b/f 30,000 25,000 44,000 23,000 7,800 Additions - - - 16,000 - IA (4,500) (3,750) (22,000) (19,500) (1,950) 51,700 AA (2,550) (2,125) (5,500) (4,875) N1 (1,170) 16,220 Investm. allowance - - (4,400) - - 4,400 72,320 2024 A/Y TWDV 22,950 19,125 16,500 14,625 4,680 Additions 6,000 IA - - - - (1,500) 1,500 AA (2,550) (2,125) (5,500) (4,875) N2 (2,070)N3 17,120 18,620 2025 A/Y TWDV 20,400 17,000 11,000 9,750 7,110 AA (2,550) (2,125) (5,500) (4,875) (2,070)N4 17,120 2026 A/Y TWDV 17,850 14,875 5,500 4,875 5,040 AA Additions 1,100 - 28,000 - - IA (165) - (14,000) - - 14,165 AA (2,643.5) N5 (2,125) (8,999.99)N6 (4,874.97) N7 (2,070) 20,713.46 34,878.46 TWDV c/f 16,141.5 12,750 10,500.01 0.03 2,970 Capital allowances (working notes) N1: 2023 assessment year Motor vehicle (annual allowance) N’000 Brought forward from pioneer period = 23,000 - 11,500 = 2,875 4 Addition = (N16,000 - 8,000) = 2,000 4 4,875 N2: 2024 assessment year Motor vehicle (annual allowance) Old 2,875 Addition of 2023 = N16,000 - 8,000 2,000 4 4,875 ----- | | | :-: | | [**Page 27**]() | 58 N3: 2024 assessment year Furniture and fittings (annual allowance) New: N6,000 - 1,500 900 5 Old: 1,170 2,070 N4: 2025 assessment year Furniture and fittings (annual allowance) Old: 1,170 The one from 2024 assessment year = N6,000 - 1,500 900 5 2,070 N5: 2026 assessment year Industrial building (annual allowance) Old: 2,550 New: N1,100 - 165 10 93.5 2,643.5 N6: 2026 assessment year Industrial plant and equipment (annual allowance) Old: It has completed its tax useful life and N10 is to be retained in the books. Therefore AA = N5,500,000 - N10 = N5,499,990 New: N28,000 - 14,000 = 3,500,000 4 8,999,990 That is, N8,999.99 thousand N7: 2026 assessment year Motor vehicle (annual allowance) 3 motor vehicles brought from the pioneer period are deemed to have completed their tax useful lives, hence N30 will be retained in the books. It implies that: AA of vehicles brought from pioneer = N4,875,000 - N30 = N4,874,970 That is N4,874.97 thousand ----- | | | :-: | | [**Page 28**]() | 59

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 Cap C21 LFN (CITA) 2004 (as amended) in respect of computations of adjusted profit and income tax liabilities. The second part tests the candidates’ knowledge of the provisions of the Industrial Development (Income Tax Relief) Act, 2004 (as amended) on factors that can lead to revocation of a pioneer certificate. This 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 the computations of adjusted profit and tax liabilities of a company. 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 CITA 2004 (as amended) when preparing for future examinations.

Marking guide Marks Marks

ai. Computation of adjusted profit Heading ½ Introduction ½ Appendix 1: Net profit as per accounts ½ Improvement to industrial building ½ Depreciation ½ Acquisition of short lease ½ Renewal of long lease ½ Legal cost of tax appeal ½ Preliminary expenses ½ General provision for doubtful debts ½ Feasibility study ½ Stamp duties ½ Donations- Oreyo Country Club ½ Transfer to general reserves ½ Income tax provisions ½ Dividend received (net) ½ Excess on valuation of building ½ Adjusted profit ½ 9 ----- | | | :-: | | [**Page 29**]() | 60 aii. Computation of income tax liabilities Appendix 2 2022 assessment year: Assessable profit ¼ Companies income tax ¼ Tertiary education tax ¼ 2023 assessment year: Adjusted profit ¼ Loss b/f ¼ Loss relieved ¼ Unrelieved loss that lapse ¼ Capital allowance utilised ¼ Total profit ¼ Companies income tax ¼ Tertiary education tax ¼ 2024 assessment year: Adjusted profit ¼ Total capital allowance available ¼ Capital allowance utilised ¼ Unutilised capital allowance c/f ¼ Total profit ¼ Companies income tax ¼ Tertiary education tax ¼ 2025 assessment year: Adjusted profit ¼ Total capital allowance available ¼ Capital allowance utilised ¼ Unutilised capital allowance c/f ¼ Total profit ¼ Companies income tax ¼ Tertiary education tax ¼ 2026 assessment year: Total capital allowance available ¼ Capital allowance utilised ¼ Unutilised capital allowance c/f ¼ Total profit ¼ Companies income tax ¼ Tertiary education tax ¼

Workings: W1: Determination of total adjusted profit/ loss made during the pioneer period: Loss of N41,200,000 ¼ Loss of N37,500,000 ¼ ----- | | | :-: | | [**Page 30**]() | 61 Loss of N4,400,000 ¼ Total ¼ W2: Capital allowances schedule: 2023 assessment year: IA (Industrial building) ¼ IA (Non-industrial building) ¼ IA (Industrial plant and equipment) ¼ IA (Motor vehicle) ¼ IA (Furniture and fittings) ¼ AA (Industrial building) ¼ AA (Non-industrial building) ¼ AA (Industrial plant and equipment) ¼ AA (Motor vehicle) ¼ AA (Furniture and fittings) ¼ Inv. Allow. (Industrial plant and equipment) ¼ Total capital allowance ¼ 2024 assessment year: IA (Furniture and fittings) ¼ AA (Industrial building) ¼ AA (Non-industrial building) ¼ AA (Industrial plant and equipment) ¼ AA (Motor vehicle) ¼ AA (Furniture and fittings) ¼ Total capital allowance ¼ 2025 assessment year: AA (Industrial building) ¼ AA (Non-industrial building) ¼ AA (Industrial plant and equipment) ¼ AA (Motor vehicle) ¼ AA (Furniture and fittings) ¼ Total capital allowance ¼ 2026 assessment year: IA (Industrial building) ¼ IA (Industrial plant and equipment) ¼ AA (Industrial building) ¼ AA (Non-industrial building) ¼ AA (Industrial plant and equipment) ¼ AA (Motor vehicle) ¼ AA (Furniture and fittings) ¼ Total capital allowance ¼ 17 ----- | | | :-: | | [**Page 31**]() | 62 b. Factors that can lead to revocation of pioneer certificate 1 mark for each discussion of factors that can lead to revocation of pioneer certificate, subject to a maximum of 4 factors 4 Total 30

a. Roles of taxation in the achievement of sustainable development Taxation plays the under listed roles in the achievement of sustainable development of a nation: i. Generating revenue: Taxation provides the government with the necessary funds to invest in sustainable development projects, such as infrastructure, education, and healthcare;

ii. Redistributing wealth: Taxation can help reduce income inequality by redistributing wealth from the rich to the poor through progressive taxation and social welfare programs;

iii. Influencing behaviour: Taxation can influence behaviour by discouraging harmful activities, such as pollution, and encouraging sustainable practices, such as renewable energy production;

iv. Promoting economic growth: Taxation can promote economic growth by providing incentives for investment, innovation, and entrepreneurship; and v. Funding public goods and services: Taxation helps fund public goods and services, such as healthcare, education, and infrastructure, which are essential for sustainable development.

b. Key taxation strategies for sustainable development include: i. Green taxes: Implementing taxes on activities that harm the environment, such as carbon emissions, to discourage their use;

ii. Tax incentives: Offering tax incentives for investments in sustainable development projects, such as renewable energy or sustainable infrastructure;

iii. Progressive taxation: Implementing progressive taxation to reduce income inequality and redistribute wealth; and iv, Tax transparency: Promoting tax transparency and accountability to prevent tax evasion and ensure that taxes are used for sustainable development. ----- | | | :-: | | [**Page 32**]() | 63 c. Potential challenges and how these can be mitigated Some of the potential tax challenges that impact sustainable development in Nigeria include: i. Limited tax capacity: Many African countries struggle to formulate tax capacities and mobilise domestic resources, hindering their ability to achieve sustainable development goals;

ii. Tax evasion and avoidance: Weak tax administration and lack of transparency can lead to tax evasion and avoidance, depriving governments of much-needed revenue;

iii. Digital economy taxation: The rise of the digital economy poses new tax challenges, including ensuring that digital businesses contribute fairly to the tax base;

iv. Informal economy: A significant portion of Africa's economy operates in the informal sector, making it difficult to track and tax economic activity; and

v. Revenue mobilisation: African countries need to improve revenue mobilisation to fund public goods and services essential for sustainable development. Some of the ways of mitigating the challenges that may affect taxation in achieving sustainable development in Nigeria include: i. Strengthening tax administration: Improving tax administration and increasing transparency can help reduce tax evasion and avoidance;

ii. Investing in tax capacity: Building tax capacity and mobilising domestic resources can help African countries fund public goods and services; and

iii. Promoting tax cooperation: International cooperation and knowledge sharing can help African countries learn from best practices and address common tax challenges.

d. Notable supranational organisations and their roles in shaping tax policy Supranationational organisations include: i. Organisation for Economic Co-operation and Development (OECD);

ii. United Nations (UN);

iii. International Monetary Fund (IMF);

iv. World Bank Group (WBG): and

v. European Union (EU). ----- | | | :-: | | [**Page 33**]() | 64 Their roles in shaping tax policy include: i. OECD: Develops guidelines and standards for tax policies, and implements initiatives like the Base Erosion and Profit Shifting (BEPS) project to prevent tax avoidance;

ii. United Nations (UN): Provides a platform for countries to discuss and develop international tax policies, particularly for developing countries;

iii. International Monetary Fund (IMF): Offers guidance on tax policy and administration, helping countries to strengthen their tax systems;

iv. World Bank Group (WBG): Supports countries in building effective tax systems, providing technical assistance, and financing for tax-related projects; and v. European Union (EU): Develops and implements tax policies for its member States, including regulations on value-added tax (VAT) and corporate taxation.

Examiner’s Report The question is divided into four parts. The first part tests candidates’ knowledge of the roles which taxation can play in the achievement of a country’s sustainable development. The second part tests candidates’ understanding of the the key taxation strategies that can be used to achieve sustainable development. The third part tests candidates’ knowledge of the potential challenges that may affect taxation in achieving sustainable development in Nigeria and how these challenges can be mitigated. The last part tests candidates’ understanding of supra-national organisations and their roles in shaping tax policy. About 30% of the candidates attempted the question, and majority of them showed a poor understanding of its requirements, hence their performance was below average. The commonest pitfall of the candidates was their inability to identify correctly the supra-national organisations and their roles in shaping tax policy. Candidates are advised to study extensively the Institute’s Study Text and other relevant textbooks, for future examinations. ----- | | | :-: | | [**Page 34**]() | 65

Marking Guide Marks Marks a. Roles of taxation in the achievement of a country’s sustainable development 1 mark for each role of taxation in the achievement of a country’s sustainable development subject to a maximum of 4 points 4 b. Key taxation strategies that can be used to achieve sustainable development 1 mark for each strategy of achieving sustainable development, subject to a maximum of 3 points 3 c. Potential challenges that may affect taxation in achieving Sustainability development and how these can be mitigated 1 mark for each challenge of achieving sustainable development, subject to a maximum of 4 points 4 1 mark for each method of mitigating the challenges, subject to a maximum of 3 points 3 7 d. Identification of supra-national organisations and their roles in shaping tax policy ½ mark for identification of each supra-national organisations, subject to a maximum of 4 points 2 1 mark for each discussion of roles of supra-national organisations, subject to a maximum of 4 points 4 6 Total 20 ----- | | | :-: | | [**Page 35**]() | 66

a. Computation of double taxation relief and tax payable Ajoseh Nigeria Limited Computation of double taxation relief and income tax payable for 2025 assessment year N’000 N’000 Net profit as per accounts: Nigeria 206,200 Canada ($118,300 x N1,100) 130,130 336,330 Add back: Depreciation- Nigeria 25,300

- Canada ($14,200 x N1,100) 15,620 Foreign exchange prov. (($1,750 x N1,100) 1,925 Foreign tax paid ($41,400 x N1,100) 45,540 88,385 Assessable/adjusted profit 424,715 Deduct: Capital allowances: Nigeria 18,520 Canada 10,490 29,010 Total profit 395,705 Companies income tax @ 30% of N395,705,000 118,711.50 Less: Double taxation relief (15% of N182,725,000) 27,408.75 Final income tax payable 91,302.75 Tertiary education tax @ 3% of N424,715,000 12,741.45 Total tax liabilities 104,044.20 Computation of total profit for Canadian business N’000 N’000 Net profit as per accounts 130,130 Add back: Depreciation 15,620 Foreign exchange provision 1,925 Foreign tax paid ($41,400 x N1,100) 45,540 63,085 Assessable/adjusted profit 193,215 Less: Capital allowance 10,490 Total profit 182,725 ----- | | | :-: | | [**Page 36**]() | 67 Commonwealth rate of tax = N45,540,000 x 100 = 24.92% N182,725,000 Nigerian income tax rate = 30% ½ of Nigerian income tax rate = 30% /2 = 15% Since Commonwealth rate of tax is greater than ½ of Nigerian income tax rate, double taxation relief shall be ½ of Nigerian income tax rate (15%). Hence, double taxation relief = 15% of N182,725,000 = N27,408,750.

b. Relevant information that should be considered in respect of Commonwealth income tax relief as provided for in Section 44 of CITA 2004 (as amended) Section 44 of CITA provides that, if any Nigerian company which has paid, by deduction or otherwise, or is liable to pay, tax under this Act for any year of assessment on any part of its profits as Commonwealth income tax, it shall be entitled to relief from tax paid as follows:

(i) if the Commonwealth rate does not exceed one half of the rate of tax under this Act, the rate at which relief is to be given shall be the Commonwealth rate; and

(ii) in any other case the rate at which relief is to be given shall be half the rate of tax under this Act. However, in case of any company, other than a Nigerian company, which has paid the Commonwealth tax, it shall be entitled to relief from tax paid as follows:

(i) if the Commonwealth rate does not exceed the rate of tax under this Act, the rate at which relief is to be given shall be one half of the Commonwealth rate; and

(ii) if the Commonwealth rate exceeds the rate of tax under this Act, the rate at which relief is to be given shall be equal to the amount by which the rate of tax under this Act exceeds one half of the Commonwealth rate of tax. c. Roles of Vienna Convention in the application and interpretation of international tax treaties The Vienna Convention plays the following roles in the application and interpretation of tax treaties: i. it codifies the rules of treaty interpretation, including tax treaties with its objective to bind the judiciary through a set of rules, it generated a uniform approach to treaty interpretation; ----- | | | :-: | | [**Page 37**]() | 68

ii. it establishes comprehensive, operational guidelines, rules, and procedures for how treaties are drafted, defined, amended, and interpreted;

iii. it establishes that every treaty in force is binding upon the parties to it and must be performed by them in good faith such that a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty;

iv. it provides a framework for interpreting and applying tax treaties, promoting consistency and predictability in international taxation; and

v. it follows the Vienna Convention on the Law of Treaties (VCLT’s) principles in ensuring that tax treaties are applied fairly and in accordance with their intended purpose.

Examiner’s report The question is divided into three parts. The first part tests candidates’ knowledge of computations of double taxation relief and tax payable by the company. The second part tests candidates’ understanding of the relevant information to be considered in respect of Commonwealth income tax relief in line with the provisions of Companies Income Tax Act Cap C21 LFN (CITA) 2004 (as amended). The third part tests candidates’ knowledge of the roles of Vienna Convention in the application and interpretation of international tax treaties. About 70% of the candidates attempted the question. Candidates showed a poor understanding of the requirements of the question and their performance was below average. The commonest pitfall was the inability of some candidates to explain correctly the roles of Vienna Convention in the application and interpretation of international tax treaties. Candidates are advised to read the Institute’s Study Text and other relevant textbooks, as this would go a long way in assisting them to pass future examinations.

Marking Guide Marks Marks a. Computation of double taxation relief and tax payable Net profit (Nigeria) ½ Net profit (Canada) ½ Depreciation (Nigeria) ½ ----- | | | :-: | | [**Page 38**]() | 69 Depreciation (Canada) ½ Foreign exchange provision ½ Foreign tax paid ½ Assessable/adjusted profit ½ Capital allowances (Nigeria) ½ Capital allowances (Canada) ½ Total profit ½ Companies income tax ½ Less: Double taxation relief 1 Final income tax payable 1 Tertiary education tax ½ Total tax liabilities ½ Adjusted profit for Canadian business: Net profit as per accounts ½ Depreciation ½ Foreign exchange provision ½ Foreign tax paid ½ Assessable/adjusted profit ½ Total profit ½ Commonwealth rate of tax ½ ½ Nigerian rate of tax ½ Relief = ½ Nigerian rate of tax (15%) ½ 13

b. Relevant information to be considered in respect of Commonwealth income tax relief in line with section 44 of CITA 1 mark per point, subject to a maximum of 4 points 4 c. Roles of Vienna Convention in the application and interpretation of international tax treaties 1 mark per point, subject to a maximum of 3 points 3 Total 20 ----- | | | :-: | | [**Page 39**]() | 70

(a) OPOBO PETROLEUM PRODUCING COMPANY LIMITED INTERNAL MEMO Date: ……... From: Tax Manager To: Managing Director RE: HYDROCARBON TAX PAYABLE FOR 2024 ASSESSMENT YEAR I refer to your request on computation of hydrocarbon tax for the 2024 assessment year. As shown in appendix 1, the hydrocarbon tax payable by the company for the 2024 assessment year is N330,335.4 million. Thank you. Ayo Dele Appendix 1: Computation of hydrocarbon tax for 2024 assessment year N’million N’million Revenue Crude oil sold: Bonny light (10.8m barrels x $75 x N1,530) 1,239,300 Focardos medium (7.5m barrels x $66 x N1,530) 757,350 Condensates from associated gas sold: OSO condensate (3m MMBTu x $33 x N1,530) 151,470 Escravos condensate (2.3m MMBTu x $30 x N1,530) 105,570 Natural gas liquid from associated gas: Penington (2.5m MMBTu x $34 x N1,530) 130,050 Gross revenue 2,383,740 Less: allowable deductions (Section 263 of PIA) Royalty costpaid 357,500 Production cost 834,800 ----- | | | :-: | | [**Page 40**]() | 71 Drilling costs (2/3 x N48,900 m) 32,600 Terminalling cost 1,200 Repairs of plant, machinery and fixtures 1,020 Repairs of alteration of production implement utensils 440 Environmental remediation fund 1,750 NDDC charge 300 Stamp duty 150 Host community costs 42,600 Cost of gas reinjection wells 1,800 Concession rentals 2,200 Others expenses: Acquisition of geophysical and geological data and information expenses 310 State government ground rent 300 1,276,970 Excess cost not utilised (unclaimed allowable deduction b/f) 170 Total allowable deductions 1,277,140 Total costs subject to CPR (workings 1) 1,279,107 Total costs restricted to actual allowable deductions (1,277,140) Excess allowable cost c/f Nil Adjusted profit 1,106,600 Less: loss relief 1,215 Assessable profit 1,105,385 Less: Section 266 and 6th Schedule deductions: Capital allowance for the year (workings 2) 1,487 Unutilised capital allowance b/f 480 1,967 1,103,418 Less: Production allowance Onshore operation 1,200 Shallow water operation 1,100 2,300 Chargeable profit 1,101,118 Hydrocarbon tax @ 30% of N1,101,118m 330,335.4 ----- | | | :-: | | [**Page 41**]() | 72

Workings

1. Cost-price-ratio (CPR) limit N’million N’million A. Gross revenue 2,383,740

(i) Maximum allowable @ 65% of Gross revenue of N2,383,740m 1,549,431 Total operating cost 1,277,140 Capital allowances for the year 1,487 Unutilised capital allowances b/f 480 B. Total eligible costs 1,279,107 Less: Exempted cost incurred [Section 263(1)]: Royalties paid 357,500 Environmental remediation fund 1,750 NDDC charge 300 Host community fund 42,600 Concession rentals 2,200 C1: Total exempted cost (404,350)

(ii) Net total costs to be subject to CPR (B- C1) 874,757 C2: Maximum allowable cost is the lower of (i) and (ii), which is N874,757 million. D. Total allowable cost (in line with the practice of FIRS) = C1 + C2 (that is, exempted cost + CPR restricted cost) = N404,350 million + N874,757 million = N1,279,107 million

Note: The total allowable cost will be restricted to actual cost incurred of N1,277,140 million. ----- | | | :-: | | [**Page 42**]() | 73

1. Capital allowances Year Type of QCE Cost N’million Rate % Capital allowance N’million 2019 Pipeline 1,800 - Nil 2020 Drilling 1,900 19 361 2021 Building 1,700 20 340 2022 Plant 980 20 196 2023 Pipeline 1,200 20 240 2024 Drilling 1,750 20 350 Total 1,487

Examiner’s report The question tests candidates’ knowledge of computations of hydrocarbon tax of a company that operates in both onshore and shallow water areas in line with the provisions of Petroleum Industry Act, 2021. About 80% of the candidates attempted the question, and majority of them showed a good understanding of its requirements, hence their performance was above average. The commonest pitfall of some candidates was their inability to identify correctly the allowable expenses required for computations of total operating cost. Candidates are advised to study extensively the relevant sections of the Petroleum Industry Act, 2021 when preparing for future examinations.

Marking guide Marks Computation of hydrocarbon tax Crude oil sold: Bonny light ½ Forcados ½ Condensate sold: OSO ½ Escravos ½ Natural gas sold: Penington ½ Allowable deductions: Royalty paid ½ Production cost ½ Drilling cost ½ Terminating cost ½ Repairs of plant, machinery, and fixtures ½ ----- | | | :-: | | [**Page 43**]() | 74 Repairs of alteration of production implement utensils ½ Environmental remediation fund ½ NDDC charge ½ Stamp duty ½ Host community costs ½ Cost of gas reinjection wells ½ Concession rentals ½ Acquisition of geophysical and geological data and info ½ State government ground rent ½ Unclaimed allowable deduction ½ Total allowable deductions ½ Excess allowable cost c/f ½ Adjusted profit ½ Loss relief ½ Assessable profit ½ Capital allowances for the year ½ Unutilised capital allowances b/f ½ Production allowance- onshore operation ½ Production allowance- shallow water operation ½ Chargable profit ½ Hydrocarbon tax ½

Workings 1: CPR limit Maximum allowable @ 65% of gross income ¼ Capital allowance for the year ¼ Unutilised capital allowance b/f ¼ Total eligible costs ¼ Royalty ¼ Environmental remediation fund ¼ NDDC charge ¼ Host community costs ¼ Concession rentals ¼ Maximum allowable cost ¼ Total allowable cost in line with FIRS ¼

Workings 2- Capital allowances 2019 ¼ 2020 ¼ 2021 ¼ 2022 ¼ 2023 ¼ 2024 ¼ Total (N1,487m) ¼ Total 20 ----- | | | :-: | | [**Page 44**]() | 75

a. CRD Hotels Limited Computation of capital gains tax for 2023 assessment year N Sales proceeds 19,200,000 Deduct: Cost of acquisition 20,000,000 Chargeable or Capital loss (800,000) CRD Hotels Limited Computation of capital gains tax for 2025 assessment year N N Sales proceeds 15,100,000 Deduct: Cost of acquisition 12,200,000 Auctioneer’s commission (1.5% of sales) 226,500 Advertisement 130,000 Incidental expenses- Painting 100,000 12,656,500 Chargeable gains 2,443,500 Less: Capital loss b/f (see note below) Nil Net chargeable gains 2,443,500 Capital gains tax @ 10% of N2,443,500 244,350

Note: The Finance Act, 2023 provides that chargeable loss can be carried forward against chargeable gains arising from disposal of another asset of same class. The effective date of the Act was September 2023. However, the chargeable loss of N800,000 was made in May 2023 (before the commencement of the Act), hence the loss cannot be carried forward. c. The provisions of the relevant Finance Acts as they affect:

i. Assets sold or transferred between connected parties • Section 49 of the Finance Act 2019 substituted section 32 e Capital Gains Tax Act, 2004 by providing that assets sold or transferred during business re-organisation by parties that are considered to be related for a period of at least 365 days prior to the date of re-organisation, shall be tax exempted. ----- | | | :-: | | [**Page 45**]() | 76 • The above concession, however has a proviso. The Act provides that such assets are not sold by the acquiring company within 365 days after the business re-organisation. It implies that if the assets are sold within 365 days of the acquisition, then the company will be liable to pay the appropriate capital gains tax.

ii. Compensation received for loss of office Section 4 of the Finance Act, 2020 amended section 36(2) of the Principal Act. It states that: • Sums obtained by way of compensation for loss of office, up to a maximum of N10 million, shall not be chargeable gains and subject to capital gains tax; and • Provided that any sum in excess of N10 million shall not be so exempt but the excess amount shall be chargeable gains and subject to capital gains tax accordingly. The tax is expected to be paid to the relevant tax authority in accordance with Personal Income Tax Act.

iii. Due date for filing capital gains tax returns and the penalty for not filing the returns • The due date for filing of capital gains tax returns, as provided for in section 2 of the Finance Act 2020, shall not be later than 30 June and 31 December of the year the chargeable assets were disposed. • Where no returns have been filed and the tax authority discovers that a capital gains tax transaction has taken place, the tax authority will assess the defaulting taxpayer on best of judgment assessment. • The tax is expected to be paid within 60 days of the notice of assessment, failing which a penalty of 10% and interest at the ruling minimum rediscount rate shall apply.

Examiner’s report The question is divided into two parts. The first part tests candidates’ knowledge of computations of capital gains tax. The second part tests candidates’ knowledge of the relevant provisions of the Finance Acts in respect of assets sold or transferred between connected parties; compensation received for loss of office; and due date for filing of capital gains tax returns and penalty for not filing the returns. About 80% of the candidates attempted the question and they exhibited a fair understanding of its requirements. The performance was satisfactory. ----- | | | :-: | | [**Page 46**]() | 77 The commonest pitfall was the inability of some candidates to explain correctly the provisions of the Finance Act in respect of assets sold or transferred between connected parties . Candidates are advised to read widely the relevant tax law, the Institute’s Study Text, and other relevant textbooks, when preparing for future examinations.

Marking Guide Marks Marks a. Computation of capital gains tax payable 2023 assessment year Heading ½ Sales proceeds ½ Cost of acquisition ½ Chargeable loss 1 2025 assessment year Heading ½ Sales proceeds ½ Cost of acquisition ½ Auctioneer commission ½ Advertisement ½ Incidental expenses-painting ½ Chargeable gains 1 Capital gains tax 1 Working note ½ 8 b. Provisions of the relevant Finance Acts as they affect the Capital Gains Tax Act on:

i. Assets sold or transferred between connected parties 1 mark per correct answer, subject to a maximum of 2 points 2 ii. Compensation received for loss of office 1 mark per correct answer, subject to a maximum of 2 points 2

iii. Due date for filing capital ains tax returns and the penalty for not filing 1 mark per correct answer, subject to a maximum of 3 points 3 Total 15 ----- | | | :-: | | [**Page 47**]() | 78

a. Benefits and challenges of sustainable practices for companies in the extractive industry in Nigeria The benefits of sustainable practices for companies include: i. Enhanced reputation: Companies that prioritise sustainability often enjoy a positive public image, attracting customers and investors who value environmental and social responsibility;

ii. Cost savings: Sustainable practices can lead to reduced operational costs through energy efficiency, waste reduction, and resource conservation;

iii. Increased innovation: Embracing sustainability can drive innovation, leading to the development of new products, services, and business models;

iv. Risk management: Companies that proactively address environmental and social issues can mitigate risks related to regulatory compliance, supply chain disruptions, and reputational damage; v. Access to capital: Investors are increasingly considering Environmental, Social, and Governance (ESG) factors in their decisions, making it easier for sustainable companies to access funding; and

vi. Talent attraction and retention: Employees are more likely to be attracted to and remain with companies that demonstrate a commitment to sustainability, fostering a motivated and engaged workforce. The challenges of sustainable practices for companies include: i. High initial costs: Implementing sustainable practices often requires significant upfront investment in technology, infrastructure, and training;

ii. Complexity of supply chains: Ensuring sustainability across complex global supply chains can be challenging, particularly in industries with multiple tiers of suppliers;

iii. Regulatory compliance: Navigating varying regulations and standards across different regions can be complex and resource-intensive;

iv. Stakeholder alignment: Achieving alignment among diverse stakeholders, including investors, customers, employees, and regulators, can be difficult;

v. Measuring impact: Accurately measuring and reporting on sustainability initiatives can be complex, requiring robust data collection and analysis systems; and ----- | | | :-: | | [**Page 48**]() | 79

vi. Balancing short-term and long-term goals: Companies may face pressure to balance short-term financial performance with long-term sustainability objectives.

b. Objectives and forms of ADR mechanism in the Nigerian tax system In Nigeria's tax system, Alternative dispute resolution (ADR) mechanisms are available to resolve tax disputes efficiently and effectively. The objectives of ADR mechanisms are to: i. reduce the burden on the courts;

ii. provide a faster and more cost-effective way to resolve tax disputes;

iii. improve taxpayer satisfaction and compliance; and

iv. enhance the overall efficiency of the tax system. The ADR mechanisms include: i. The Tax Appeal Tribunal (TAT): An independent tribunal that hears appeals against tax assessments;

ii. Mediation: A process where a neutral third-party facilitates negotiations between the taxpayer and the tax authority to resolve the dispute.

iii. Arbitration: A process where a neutral third-party makes a binding decision on the dispute.

iv. Negotiation: Direct negotiations between the taxpayer and the tax authority to resolve the dispute; and

v. Fast track settlement: A mechanism that allows taxpayers to settle tax disputes quickly, usually within 30 days.

Examiner’s report The question is divided into two parts. The first part tests candidates’ understanding of the benefits and challenges of sustainable practices for companies in the extractive industry in Nigeria. The second part tests candidates’ knowledge of the objectives and forms of alternate dispute resolution (ADR) mechanism in the Nigerian tax system. ----- | | | :-: | | [**Page 49**]() | 80 About 50% of the candidates attempted the question. Candidates showed a poor understanding of the requirements of the question and their performance was below average. The commonest pitfall was the inability of some candidates to explain correctly the benefits and challenges of sustainable practices for companies in the extractive industry in Nigeria. Candidates are advised to read the Institute’s Study Text and other relevant textbooks, as this would go a long way in assisting them to pass future examinations.

Marking Guide Marks Marks a. Benefits and challenges of sustainable Practices for companies in the extractive industry 1 mark for each benefit of sustainable practices, subject to a maximum of 4 points 4 1 mark for each challenge of sustainable practices, subject to a maximum of 4 points 4 8 b. The objectives and forms of ADR mechanism in the Nigerian tax system 1 mark for each objective of ADR, subject to a maximum of 3 points 3 1 mark for each form of ADR, subject to a maximum of 4 points 4 7 Total 15

a. Legal requirement for professional accountant in practice In line with the professional code of conduct issued by the Institute of Chartered Accountants of Nigeria, a Chartered Accountant in public practice should not engage in any business, occupation or activity that impairs or might impair integrity, objectivity or the good reputation of the profession and as a result would be incompatible with the rendering of professional services. ----- | | | :-: | | [**Page 50**]() | 81

b. The Risks and benefits of running a professional tax practice Risks of running a professional tax practice include: i. Lack of expertise: This may lead to errors due to practitioners advising clients on technical tax matters when they didn’t have adequate experience or knowledge. Examples include giving wrong professional opinion on tax matters, advise of tax implications of business arrangement and re- organisation or restructuring, etc.

ii. Lack of attention to detail: This may lead to errors that could have been avoided if there had been procedures and controls in place. This include late filing of tax returns whose penalties is huge for clients.

iii. Lack of documentation Failing to maintain evidence of client engagement terms or tax filing positions in working paper files. This include failure to detect the client’s non-compliance with certain tax laws when it was unclear whether the compliance to such tax laws was part of the tax practitioner’s mandate (engagement letters are a key tool for reducing this sort of risk).

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 one to get paid is the owners. While others can mentally “check out” at the end of the workday, owner’s brain is typically plugged into business. Benefits of running a professional tax practice include:

i. Own schedule and rules: One of the biggest advantages of practice ownership is the ability to make your own schedule working whenever, wherever. Owning your own firm means you are better able to balance work, family and play. To accomplish this, you need to have good procedures in place for your staff, your clients, and, yes, even for yourself.

ii. Financial benefits: While your income can be unpredictable, that’s not necessarily a bad thing if you are profitable. As a practice owner, you get to decide what you never would have been able to decide as an employee: how much of the funds to retain in the firm and how much to bonus out. This means more money in your pocket.

iii. You pick your own team: Your success as a practice owner is immensely dependent on your team. As an employee sometimes you can get stuck working with people that are not productive or simply not very nice. With ownership comes the benefit of choosing people that will fit the firm culture and will help it prosper. This is also very important to make possible all of ----- | | | :-: | | [**Page 51**]() | 82 the above listed benefits. As an owner of your own practice, you get to choose who to hire and what type of environment you want to have at work.

iv. Opportunity to pick own clients: Although many practice owners don’t take advantage of this benefit, they really should because they are not limited to just picking specific industries. It is also very important that your clients fit your culture, i.e., if you are a technology driven firm, you don’t have to accept clients who loathe technology and handle everything through paper copies. When creating a desired culture, it is advantageous to accept only clients who fit that culture. Detouring from that creates inefficiencies and disadvantages for you, your team and the clients. v. You create your own vision: As a practice owner, you are also the vision owner. The key to the success of the practice goes back to setting rules, picking the right team, and the right clients. These things are not necessarily easy to achieve, but for a practice owner, unlike for an employee, they are very much possible. c. Risk mitigation strategies in tax practice Tax practitioners in Nigeria face various risks, including compliance risks, reputational risks, and operational risks. Here are some risk mitigation strategies: i. regularly review and update knowledge of Nigerian tax laws, regulations, and guidelines to ensure compliance;

ii. identify potential tax risks and assess their likelihood and impact on clients or the organisation;

iii. establish and maintain effective compliance procedures, including record- keeping, reporting, and documentation;

iv. ensure accurate and complete records of tax-related documents, including returns, payments, and correspondence; v. provide regular training and education to staff and clients on tax laws, regulations, and best practices;

vi. monitor and address interactions with tax authorities, including audits, inspections, and disputes;

vii. develop and implement tax risk management policies and procedures to guide decision-making and ensure consistency;

viii. engage with tax professionals and experts to seek guidance and advice on complex tax issues; ----- | | | :-: | | [**Page 52**]() | 83

ix. utilise technology and automation to streamline tax processes, improve accuracy, and reduce errors; x. regularly review and update tax strategies to ensure they remain effective and compliant with changing tax laws and regulations;

xi. only take on work within your circle of competence;

xii. 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;

xiii. implement quality control systems in professional tax practice;

xiv. quality control systems can not only help you avoid common pitfalls and manage risk, but they can also help you improve your practice effectiveness;

xv. use checklists to create general tax preparation and renew checklists for all staff;

xvi. implementation of a task and deadline tracking system that can help tax practitioner monitor client and meet their due dates;

xvii. follow client acceptance practices before taken on new clients, as this will enable the practice to determine their (clients) past filing history and any issues encountered with the relevant tax authorities and their past tax advisors; xviii. invest in staff education and training so as to cope with the Nigerian tax system, which is becoming complex and constantly changing;

xix. document all material advice, like client records of filing, positions taken, as well as client correspondence confirming the relevant facts in writing;

xx. obtain professional valuations when related parties transact with each other in significant transactions, so as to avoid any material risks associated with an unreasonable valuation; and

xxi. consider professional indemnity insurance to protect against potential claims and liabilities. ----- | | | :-: | | [**Page 53**]() | 84

Examiner’s Report The question is divided into three parts. The first part tests candidates’ knowledge of the legal requirements for a professional accountant in practice. The second part tests candidates’ understanding of the risks and benefits of running a professional tax practice. The third part tests candidates’ knowledge of the risk mitigation strategies in professional tax practice. About 60% of the candidates attempted the question and they showed a fair understanding of it, resulting in an average performance. The commonest pitfall was some candidates’ inability to explain correctly the legal requirements for a professional accountant in practice. Candidates are advised to read the Institute’s Study Text and other relevant textbooks when preparing for future examinations.

Marking Guide Marks Marks a. Legal requirements for a professional accountant in tax practice 2 marks for discussion of legal requirement for a professional accountant in tax practice 2 b. The risks and benefits of running a professional tax practice 1 mark for each discussion of risks of running a professional practice, subject to a maximum of 3 points 3 1 mark for each discussion of benefits of running a professional practice, subject to a maximum of 3 points 3 6 c. Risk mitigation strategies 1 mark for each discussion of risk mitigation strategies, subject to a maximum of 7 points 7 Total 15 ----- | | | :-: | | [**Page 54**]() | Facebook Instagram Twitter/X