Taxation · May 2019

(a) Obi Consults

(i) Computation of adjusted/assessable income for 2019 year of assessment N N Net profit per accounts 21,575,000 Add back: Provision for depreciation 13,250,000 Fine for traffic offence 25,000 Donation to politicians 150,000 13,425,000 35,000,000 Profit on sale of excavator (1,600,000) Adjusted profit 33,400,000 Balancing charge 1,315,000 34,715,000 Deduct: Capital allowances 6,575,000 Balancing allowances 677,000 (7,252,000) Assessable profit 27,463,000

(ii) Determination of share of profit amongst old partners

- Bibi, Kose and Fowora (1/1/2018 - 30/6/2018) (Assessable profit divided by 2) N27,463,000/2 = N13,731,500 N Bibi 1/2 of N13,731,500 6,865,750 Kose ¼ of N13,731,500 3,432,875 Fowora ¼ of N13,731,500 3,432,875 13,731,500 Determination of share of profit among current partners - Bibi, Kose and Jaycee (1/7/2018 - 31/12/2018) (Assessable profit divided by 2) N27,463,000/2 = N13,731,500 71 N Bibi 1/2 of N13,731,500 6,865,750 Kose 7/20 of N13,731,500 4,806,025 Jaycee 3/20 of N13,731,500 2,059,725 13,731,500

(iii) Determination of Fowora’s salaries for the relevant period (1/1/2018 - 30/6/2018) = 6/12 x N8,250,000 = N4,125,000 Determination of amount due to Fowora as interest on loan for the relevant period 1/1/2018 - 30/6/2018 = 5% of N10,500,000 = N525,000 x 6/12 = N262,500

- Determination of salaries earned by Jaycee for the relevant period 1/7/2018 - 31/12/2018 = 6/12 of N8,250,000 = N4,125,000 - Interest on Loan due to Jaycee for the relevant period 1/7/2018 -31/12/2018 = 5% of N7,000,000 = N350,000 x 6/12= N175,000.

(iv) Computation of assessable income of each partner For 2019 year of assessment Bibi Kose Fowora Jaycee Total Share of profit N N N N N 1/1/18 – 30/6/18 (c) 6,865,750 3,432,875 3,432,875 - 13,731,500 1/7/18 – 31/12/18 (d) 6,865,750 4,806,025 - 2,059,725 13,731,500 Total share of profit 13,731,500 8,238,900 3,432,875 2,059,725 27,463,000 Salaries 10,800,000 8,250,000 4,125,000 4,125,000 27,300,000 Interest on loan 525,000 - 262,500 175,000 962,500 Vacation income 0 - 900,000 900,000 25,056,500 16,488,900 8,720,375 6,359,725 56,625,500 72

(b) Abcee Limited Revised income tax liability for 2016 year of assessment N Total profit per tax computation 10,899,000 Dividend declared 14,000,000 Companies income tax on dividend @ 30% N14,000,000 4,200,000 Tax already assessed (3,269,700) Additional income tax due 930,300

EXAMINER’S REPORT The question tests candidates’ knowledge of the principles of a partnership with emphasis on computation of adjusted profit, determination of the share of profits for the partners and computation of assessable income of each partner. The question also tests candidates’ understanding of dividend as a basis of ascertaining companies income tax liability. Candidates’ performance was average. The inability of the candidates to correctly determine the disallowable items led to wrong computations of assessable and adjusted profits. Candidates are advised to read ICAN Study Texts, relevant textbooks and applicable statutes for proper understanding of disallowable expenses for future examinations.

Marking Guide Marks Marks a. i Computation of adjusted/assessable income of the partnership: Heading 1/2 Net profit per accounts 1/2 Provision for depreciation 1/2 Fine for traffic offence 1/2 Donation to politicians 1/2 Profit on sale of excavator 1/2 Balancing charge 1/2 Capital allowance 1/2 Balancing allowance 1/2 Assessable profit ½ 5 ii Determination of share of profit amongst old and current partners – (1/2 mark for each of the six correct calculations 3 73 iii Correct workings for prorated salaries and interest – (1/2 mark for each of the four correct workings 2 iv Computation of the assessable income of each partner: Heading 1/2 Share of profit - 1/1/18 – 30/6/18 2 1/7/18 – 31/11/18 2 Salaries 21/2 Interest on loan 2 Vacation of income 1 10 b Computation of revised tax liability of ABCEE Limited: Total profit per tax computation 2 Dividend declared 2 CIT on dividend 3 Tax already assessed 2 Additional income tax due 1 10 30

SECTION B

(a) Objectives to be considered by the government in designing a tax policy are:

(i) Revenue generation The primary objective of taxation is to raise money to meet government expenditure. Taxation has always been employed to raise sufficient revenue to satisfy the needs of the government, such as, in the provision of services like defence, law and order, health services and education. Revenue from taxation can also be spent on capital projects, otherwise called capital expenditure, creating a social and economic infrastructure which will improve the social life of the people and also enable the economy of the country to grow. The most important objective of any tax reform is to raise more revenue for the government.

(ii) Redistribution of income and wealth This can be looked at from two perspectives. The first is the doctrine that taxation should be based on the ability to pay, so that the burden of taxation ought to be heavier for rich men than for the poor, with the taxes collected being used to pay for social services for the less fortunate. This is achieved by the graduation or “progressiveness” of the rates at which the taxes are levied. 74

(iii) Management of the economy Taxation is important in the planning of savings and investments and harmonising it with development strategy and changing economic structure. The government can use taxation as a powerful fiscal weapon to plan and develop a country, for example, control of inflation through fiscal measures, preservation of foreign exchange reserve, protection of infant industries in the country, encouragement of industrialists to develop the country, control of the importation of harmful or dangerous goods, etc.

(iv) Harmonisation of economic objectives Harmonisation of diverse trade or economic objectives of different countries can be achieved through a good tax system, for example, tax system can be employed by member states of Economic Committee of West African States (ECOWAS) so as to achieve the philosophy of the single market (free movement of people and goods) within the region.

(v) Improvement in gross national income Taxation is a device to improve gross national income, induce economic development and influence favourable balance of payments.

(b) Direct tax is a form of tax assessable directly on a taxpayer who is required to pay tax on his property, income or profit, etc. Types of taxes that fall under this heading are: (i) Personal income tax; (ii) Companies income tax; (iii) Capital gains tax; (iv) Tertiary education tax; and (v) Petroleum profits tax. Indirect taxes are those which are imposed on commodities before they reach the consumer and are paid by those upon whom they ultimately fall, not as taxes, but as part of the selling price of the commodity. Types of taxes that fall under this heading include:

(i) Value added tax; (ii) Stamp duties; (iii) Excise duties; and (iv) Customs duties.

(c) (i) Companies are required to file various tax returns applicable to them. These tax returns must comply with laid down regulations and be accompanied by the following statements:

• Originals of financial statements for the relevant financial year containing: 75

- Auditors’ report with the seal of an audit partner of the audit firm and the official stamp of the audit firms regulatory professional body; - Statement of financial position signed by two directors of the company; - Statement of profit or loss and comprehensive income; - Directors’ report; - Statement of cash flows; and - Notes to the financial statements.

• Computations of capital allowances;

• Income tax computations, including minimum tax computations where applicable;

• Relevant schedules to the financial statements;

• Duly completed FIRS self assessment forms for companies income tax and tertiary education tax; and

• Evidence of payment of tax in full or a part of an agreed assessment by installment plan.

(ii) Time limit for filing tax returns are:

• In the case of an old company Tax returns must be filed latest six months after the end of a company’s accounting year.

• In the case of a newly incorporated company Tax returns must be filed latest eighteen months from the date of incorporation, or six (6) months after the end of its first accounting period, whichever is earlier.

(iii) Section 55, CITA makes provision for payment of penalty by any company that fails to comply with the requirements for filing of annual tax returns as follows:

• N25,000 in the first month in which it fails to file its annual returns; and

• N5,000 for each subsequent month in which the failure continues. In addition, any director, manager, secretary, servant or agent of a defaulting company who has been proven to be guilty of connivance, neglect or acquiescence to the commission of the offence of non- compliance with the above provision, shall be liable to a fine of N100,000 or imprisonment for 2 years or both.

EXAMINER’S REPORT The question tests candidates’ knowledge of the objectives and purposes of taxation, direct and indirect taxes and the documents to be filed for tax returns, time limit and penalties for not filing tax returns on due dates. 76 The candidates’ performance was fair. The common pitfalls of the candidates were lack of understanding of the documents to be filed as annual returns and wrong definition of indirect taxes. Candidates are advised to read and digest the introduction to Nigeria tax system for proper understanding of the fundamental principles of taxation when preparing for future examinations.

Marking Guide Marks Marks a. i Major objectives and purposes of taxation:

- Revenue generation 1 - Redistribution of income and wealth 1 - Management of the economy 1 - Harmonisation of economic objectives 1 - Improvement in gross national income 1 5 b Comparison of direct and indirect taxes (1 mark for each of the comparisons) 2 Examples of direct and indirect taxes Direct taxes (1/2 mark for each of the 4 points) 2 Indirect taxes (1/2 mark for each of the 4 points) 2 6 c Documents to be filed at FIRS (1/2 mark for each of the 6 points) 3 Time limits for filing tax returns (1 mark for each of the 3 points) 3 d Penalties for failure to file tax returns (1 mark for each of the 3 points) 3 20

(a)(i) Three tiers of government and their revenue collection authorities in Nigeria are:

• Federal Government/Federal Inland Revenue Service

• State governments/State Internal Revenue Service

• Local governments /Local Government Revenue Committees

(ii) Taxes collectible by Federal Government These include:

• Companies income tax;

• Withholding tax on companies, residents of the FCT and non-resident individuals;

• Petroleum profits tax; 77

• Value added tax;

• Tertiary education tax;

• Capital gains tax on companies, residents of FCT and non-resident individuals;

• Stamp duties on corporate bodies and residents of FCT;

• Personal income tax on members of the Armed Forces of the Federation of Nigeria, members of the Nigeria Police, residents of the FCT;

• Staff of the Ministry of External Affairs and non-resident individuals; and

• National information technology development levy. Taxes and levies collectible by state governments These include:

• Pay As You Earn (PAYE);

• Withholding tax on individuals;

• Capital gains tax on individuals;

• Stamp duties on investments executed by individuals;

• Pools betting, lotteries, gaming and casino taxes,

• Roads taxes;

• Business premises registration fees;

• Development levy (individuals only), not more than N100.00 per annum on all taxable individuals;

• Naming of street registration fees in state capital;

• Right of occupancy fees on lands owned by the state in urban cities;

• Market taxes and levies where state finance is involved;

• Direct taxation (self assessment);

• Hotel restaurant or event centre consumption tax, where applicable;

• Entertainment tax, where applicable;

• Environmental (ecological) fee or levy;

• Mining, milling or quarry fees, where applicable;

• Animal trade tax, where applicable;

• Produce sales tax, where applicable;

• Slaughter or abattoir fees, where state finance is involved;

• Infrastructure maintenance charge or levy, where applicable;

• Five service charge;

• Economic development levy, where applicable;

• Social services contribution levy, where applicable;

• Signages and mobile advertisement, jointly collected by states and local governments;

• Property tax; and

• Land use charge, where applicable. Taxes and levies collectible by local governments These include:

• Shops and kiosks rates;

• Tenement rates:

• Marriage, birth and death registration fees;

• Slaughter slab fees;

• On and off liquor licence fees; 78

• Street naming registration fee except in state capital;

• Right of occupancy fees on lands in rural areas (exclusive of those collectable by Federal and state governments);

• Market taxes and levies excluding any market where state finance is involved;

• Motor park fees;

• Domestic animal licence fees;

• Bicycle, truck, canoe, wheel barrow and cart fees, other than a mechanical propelled truck;

• Cattle tax payable by cattle farmers only;

• Road closure levy;

• Radio and television licence fees other than radio and television transmitter;

• Radio licence fees to be imposed by the local government of the state in which the car is registered);

• Illegal parking fees;

• Public convenience sewage and refuse disposal fee;

• Customary burial ground permit fees;

• Religious places establishment permit fees;

• Signboard and advertisement permit fees; and

• Wharf landing charge; where applicable. Harmonised rates Collection of the taxes and levies are to be harmonised among the state and local governments where applicable as follows:

• A single inter-state road taxes sticker for any vehicle within Nigeria designed by the Joint Tax Board for all the states and the sticker is to be administered by all the states;

• A single haulage fee payable at the points of loading in the state of departure and a single haulage fee payable at the points of discharge of the goods which the states are required to set up institutional structure to collect;

• Wharf landing fee collected by the state where there are facilities to administer, such fees which may be jointly administered by the state and local governments and proceeds from collection shared in line with and agreed proportion;

• A single parking permit sticker designed by the JTB and issued by the operators of the parks where vehicles are parked in the courses of their journey;

• Fire service levy should be a charge on business premises and corporate organisations only and Federal Fire Service can only collect fire service levies in the FCT and not in the states; and 79

• Road worthiness certificate fee should be collected by the state in which the vehicle operates and should be administered by Board of Internal Revenue in conjunction with appropriate agencies.

(iii) Resident individual An individual is regarded as resident in Nigeria in any assessment year if he:

• Is domiciled in Nigeria; or

• Sojourns in Nigeria for a period or periods in all amounting to 183 days or more in a 12 month period; or

• Serves as a diplomat or diplomatic agent of Nigeria in a country other than Nigeria. b.(i) Mr. James Muhammed will be subjected to tax by the Ogun State Internal Revenue Service based on residency rules. b.(ii) Mr. James Muhammed Computation of income tax for 2016 assessment year N N Annual salaries 1,600,000 Consolidated relief allowance: - N200,000 or 1% of gross income whichever is higher + 20% of gross income - N200,000 + 20% of N1600,000 - N 200,000+N320,000) 520,000 Exempt items: Contribution to pension (N1,600,000 @ 8%) 128,000 Life assurance premium 80,000 (728,000) Taxable income 872,000 Applying tax table rates First N300,000 @ 7% 21,000 Next N300,000 @ 11% 33,000 Balance N272,000 @ 15% 40,800 N872,000 Personal income tax payable 94,800

EXAMINER’S REPORT The question tests candidates’ knowledge of the various levies and taxes collectible by each tier of government and the identification of the relevant tax authority for an individual. Candidates’ performance was poor. Most candidates did not know the specific taxes and levies collectible by the different tiers of government. State Internal 80 Revenue Service and Local Government Revenue Committee were erroneously written by the majority of the candidates as State Inland Revenue and Local Government Inland Revenue, respectively. Candidates are advised to show more understanding of the topic by reading widely on the subject matter when preparing for future examinations.

Marking Guide Marks Marks a. i. Various tiers of government and their revenue authorities (1 mark for each of the 3 points) 3

ii. Taxes and levies collectible by each tier of government (1/2 mark for each of the 12 points) 6

iii. Definition of resident individual (1 mark for each of the 3 points) 3 12 b i. Identification of the relevant authority tax authority 2

ii. Computation of personal income tax liability: Heading 1/2 Annual salaries 1/2 Consolidated relief allowance 1 Contribution of pension scheme 1/2 Life assurance premium 1/2 Subtotal 1/2 Taxable income 1/2 First N300,000 1/2 Next N300,000 1/2 Balance N272,000 1/2 Personal income tax liability 1/2 8 20

(a)

(i) Trust relates to equitable obligation which binds a person called the trustee, to deal with a property, over which he/she has custody (which is called the trust property), for the benefit of persons (beneficiaries) of which he/she may be one. 81

(ii) Beneficiary is a person who receives income from a settlement, trust or estate.

(ii) Life tenant is the person(s) who has a right to the income or property held in trust for life. (b) Estate of late Mr. Bulamoyoh Computation of capital allowances for 2019 year of assessment Motor vehicles Plant and machinery Furniture Total allowance Initial allowance 50% 25% 25% Annual allowance 25% 20% 20% N N N N T.W.D.V. b/f A.Y. 2019 345,000 - - - Additions 3,650,000 1,250,000 220,000 3,995,000 1,250,000 220,000 Initial allowance (1,825,000) (625,000) (55,000) 2,505,000 Annual allowance: Old asset (315,000) - - 315,000 New asset (456,250) (156,250) (33,000) 645,500 Investment allowance - (125,000) - 125,000 3,590,500 T.W.D.V. c/f to A.Y.2020 1,398,750 468,750 132,000

Note: Investment allowance should not be deducted from the cost of an asset in arriving at the tax written down value of same which is carried forward to the next assessment year. 82 (c) Estate of late Mr. Bulamoyoh Computation of income tax payable For 2017 year of assessment N N Adjusted profit 10,270,000 Less: Capital allowances 3,590,500 6,679,500 Less: Allowable expenses: Fixed annuity 250,000 Interest on debt repayment 120,000 Trustee’s fixed remuneration 260,000 Administration and other expenses 45,000 675,000 Computed income 6,004,500 Less: Discretionary payments:

- Moses 310,000 - Peter 225,000 - Nana 460,000 (995,000) Income available for distribution 5,009,500 Less: Distribution to beneficiaries

• Moses (1/4 of N5,009,500) 1,252,375

• Peter (1/4 of N5,009,500) 1, 252,375

• Nana (1/4 of N5, 009,500) 1, 252,375 (3,757,125) Net distributable income assessable to tax in the hands of the trustees 1,252,375 Consolidated relief allowance: Higher of 1% of gross income or N200,000 plus 20% of gross income (450,475) Taxable income 801,900 Tax payable (applying the tax rates) N K 1st N300,000 @ 7% 21,000.00 Next N300,000 @ 11% 33,000.00 Next N201,900 @ 15% 30,285.00 N801,900 Tax payable 84,285.00 83

EXAMINER’S REPORT The question tests candidates’ knowledge of the terminologies relating to trusts and the computation of income tax payable by trustees. Candidates’ performance was poor. Most of the candidates were not able to compute capital allowances and investment allowance, hence the wrong computed amount to be shared among the beneficiaries. Additionally, some candidates could not define “Life tenant”. Candidates should strive to read and understand the computation of capital allowances. Adequate knowledge of taxation of estate, trust and settlement should be sought for by making use of relevant study texts when preparing for future examinations. Making Guide Marks Marks (a) Definitions ( 1 mark for each of the 3 correct definitions) 3

(b) Computation of capital allowances:

- TWDV b/f (m/v) 1/2 - Additions (1/2 mark for each of the three points) 11/2 - Initial allowance (1/2 mark for each of the four points) 2 Annual allowance (old assets) 1 Annual allowance (new assets) 2 Investment allowance 1 8 (c) Computation of income tax payable by the trustee: Adjusted profit 1/2 Capital allowances 1/2 Fixed annuity 1/2 Interest on debt payment 1/2 Trustee’s fixed remuneration 1/2 Administration and other expenses 1/2 Discretionary payments 11/2 Distribution to beneficiaries 11/2 Consolidated relief allowance 1/2 Taxable income 1/2 Tax payable based on tax rates 2 9 20 84

SECTION C

(a) Oloriogun Logistics Limited Calculation of withholding tax credits based on the invoices Date Invoice Month of Amount WHT @ 10% Number transaction N N 19/2/2015 002/01 Jan. 2015 350,000 35,000 19/3/2015 003/02 Feb. 2015 670,000 67,000 20/4/2015 004/03 Mar. 2015 810,000 81,000 20/5/2015 005/04 Apr. 2015 305,000 30,500 19/6/2015 006/05 May 2015 295,000 29,500 20/8/2015 008/07 Jun. 2015 922,000 92,200 21/9/2015 009/08 Aug. 2015 270,000 27,000 21/10/2015 010/09 Sept. 2015 195,000 19,500 20/11/2015 011/10 Oct. 2015 408,000 40,800 21/12/2015 012/11 Nov. 2015 495,000 49,500 21/01/2016 012/12 Dec. 2015 396,000 39,600 Total for 2015 5,116,000 511,600 21/03/2016 01/02 Jan. & Feb. 2016 Total for 2016 1,649,000 164,900

(b) Total amount of WHT credits to be claimed

- N511,600 for 2016 Year of Assessment - N164,900 for 2017 Year of Assessment - (Assuming no other transactions after February 2016)

(b) In practice, due date for remitting withholding tax returns is the 21st day of the month following the month in which the deductions were made. The law provides that remittance of withholding tax to Federal Inland Service should be made within 21 days after the date of transaction or put differently; from the date the duty to deduct arises.

(c) Transactions that are exempted from WHT are:

(i) Direct purchase across the counter (cash sales); (ii) Direct purchases of raw materials from suppliers as distinct from contract of supplies; (iii) Sale in the ordinary course of business; (iv) All imported goods; (v) Inter-bank interest; (vi) Income exempted from income tax; 85

(vii) Claims in insurance business; (viii) Interest on bonds; for and (ix) Dividends redistributed by holding companies.

(d) The agents recognized by government for the collection and remittance of withholding tax include:

(i) Corporate bodies (companies); (ii) Individuals, firms and sole traders; (iii) A statutory body, public authority and other institutions or organizations; and (iv) Government ministries, departments or agencies and local governments.

EXAMINER’S REPORT The question tests candidates’ knowledge of withholding tax. Candidates’ performance was fair. Some of the candidates could not determine correctly the due date of remitting withholding tax to the relevant tax authorities and the transactions that are exempted from withholding tax in Nigeria. Candidates are advised to strive hard to understand this topic by consulting relevant texts and applicable statutes (PITA and CITA) for better performance in future examinations.

Marking Guide Marks Marks (a) Calculation of withholding tax credits based on the invoices (1/2 mark for each of the 12 points) 6

(b) Determination of withholding tax credits to be claimed for each year (11/2 marks for each of the 2 years) 3

(c) Due date of remittance of withholding tax 1

(d) Transactions exempted from withholding tax:

(x) Direct purchase across the counter (cash sales); (xi) Direct purchases of raw materials from suppliers as distinct from contract of supplies; (xii) Sale in the ordinary course of business; (xiii) All imported goods; (xiv) Inter-bank interest; (xv) Income exempted from income tax; (xvi) Claims in insurance business; (xvii) Interest on bonds; for and (xviii) Dividends redistributed by holding companies. (1 mark each for any of the 6 points) 3 86

(e) Agents recognised by the government for the collection and remittance of withholding tax: (v) Corporate bodies (companies); (vi) Individuals, firms and sole traders; (vii) A statutory body, public authority and other institutions or organizations; and (viii) Government ministries, departments or agencies and local governments. (1/2 mark for each of the 4 points) 2 15

(a) Duru Cobbler Limited Computation of total profit and taxes payable For 2019 year of assessment N N Net loss per accounts (879,490) Add back: - WHT on interest (N234,000 x 10/90) 26,000 - Bad debt written off 655,000 - Value added tax 985,000 - Impairment loss 420,000 - Depreciation and amortization 1,690,000 3,776,000 2,896,510 Less: Profit on sale of property, plant and equipment 120,000 Adjusted profit 2,776,510 Less capital allowances 1,294,000 Total profit 1,482,510 Companies income tax (30% of total profit) 444,753 Tax deducted at source: - On rent (N240,000 x 10%) 24,000 - On bank deposits 26,000 (50,000) Net income tax payable 394,753 Tertiary education tax @ 2% of adjusted profit of N2,776,510 55,530.20 Total tax payable 450,283.20

(bi) Certain goods and services are classified as zero-rated. These goods and services are within the ambit of the VAT Act, but the applicable rate is 0%.

(ii) The transactions that are zero-rated are:

• Non-oil exports: 87 ✓

• Goods and services purchased by diplomats; and

• Humanitarian and donor-funded projects which include projects undertaken by non-governmental organizations, religious and social clubs or societies recognized by law whose activity is not for profit but in the public interest. The penalties for non-registration of VAT or failure or refusal to register with the Board within the specified time. The taxpayer shall be liable to: (i) A penalty of N10,000 for the first month in which the failure occurs; and (ii) N5,000 for each subsequent month in which the failure continues. (iii) If this persists, the premises where the business is carried on shall be sealed up.

EXAMINER’S REPORT The question tests candidates’ knowledge of the computations of companies income tax and tertiary education tax. It is also designed to test candidates’ understanding of the principles relating to value added tax (VAT). The performance was above average, however, some candidates could not describe ’zero-rated goods and services’ correctly. They were erroneously described as exempted goods and services. Candidates are advised to read and understand VAT by making use of ICAN Study Text, other relevant textbooks, circulars from Federal Inland Revenue Service and appropriate Acts when preparing for future examinations.

Marking Guide Marks Marks (a) Computation of total profit and tax liabilities Heading 1/2 Net loss per accounts 1/2 WHT on interest 1/2 Bad debts written off 1/2 Value added tax 1/2 Impairment loss 1/2 Depreciation and amortisation 1/2 Sub total 1 Profit or sale of PPE 1/2 Adjusted profit 1/2 Capital allowances 1/2 Total profit 1/2 CIT 1/2 Tax on rent deducted at source 1/2 Tax on bank deposits deducted at source 1/2 88 Sub- total 1/2 Net income tax payable 1/2 Tertiary education tax 1/2 Total tax payable 1/2 10

(b) Definition of zero-rated goods 1 Examples of zero-rated goods: (i) Non-oil exports: (ii) Goods and services purchased by diplomats; and (iii) Humanitarian and donor-funded projects which include projects undertaken by non-governmental organizations, religious and social clubs or societies recognized by law whose activity is not for profit but in the public interest. (1 mark each for any of the 2 points) 2 3 (c) Penalties for non-registration for VAT:

(iv) A penalty of N10,000 for the first month in which the failure occurs; an (v) N5,000 for each subsequent month in which the failure continues. If this persists, the premises where the business is carried on shall be sealed up. (1 mark each for (i) & (ii) above 2 15

a) (i) Proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. For example, at a flat rate of 10%, a taxpayer with total assessable income of N100,000 will pay tax of N10,000, while a taxpayer with income of N1,000,000 pays tax of N100,000 and so on. Progressive tax is a form of tax that is calculated on a graduated scale. It applies higher rates of tax as income increases. For example, rate of 5% on assessable income lower than N200,000 and 10% for assessable income higher that N200,000. It is a tax whose objective is the redistribution of income from the well to do to the less privileged. 89

(ii) Direct tax is a form of tax that is assessable directly on property, income or profit, etc. An example is companies income tax (CIT). Indirect tax is the form of tax that is imposed on commodities before they reach the consumer, and is paid by those upon whom it ultimately falls, not as tax, but as part of the selling price of the commodity. An example is value added tax (VAT).

(iii) Statute laws are tax legislations passed by Acts of the National and State Assemblies and bye-laws by local government authorities in a democratic government or decrees or edicts under the military government. These legislations confer necessary powers on the taxing authorities to impose taxes on the citizens. An example is the Personal Income Tax (Amendment) Act 2011. Case laws are judicial precedents. Judgements pronounced by superior courts of records on principles of tax laws and their interpretations of the provisions of tax statutes are binding on the lower courts.

(iv) Franked investment income (FII) This is an investment income on which tax has already been paid (usually deducted at source) and thus exempted from additional tax on the investor. It can also be described as an income which suffers withholding tax as final tax in the hands of the recipient.

(ix) Taxes and levies to be collectible by local governments. These include:

• Shops and kiosk rates;

• Tenement rates;

• Marriage, birth and death registration fees;

• Slaughter slab fees;

• On and off liquor incense fees;

• Street naming registration fee except in state capital

• Right of occupancy fees on Lands in rural areas. (Exclusive of those collectables by Federal and state Governments);

• Market taxes and levies. (excluding market where state finance is involve);

• Motor park fees;

• Domestic animal licence fees;

• Bicycle, truck, canoe, wheel barrow and court fees, other than a mechanically propelled by cattle farmers only;

• Radio closure levy;

• Radio and television licence fees. (other than radio and television transmitter);

• Radio licence fees (to be imposed by the Local Government of the State which the is registered); 90

• Illegal parking fees;

• Public convenience sewage and refuse disposal fees;

• Customary burial ground permit fees;

• Religious places establishment permit fees; and

• Signboard and advertisement permit fees

(b) Information in a tax clearance certificate These include: (i) Name, address and taxpayer’s identification Number (TIN) of the company; (ii) Chargeable income; (iii) Tax payable; (iv) Tax paid; (v) Nature of business; (vi) Types of assessment BOJ, self-assessment and so on); and (vii) Expiry date

EXAMINER’S REPORT The question tests candidates’ knowledge of terminologies in respect of types of taxes, franked investment income, statutes, case laws, and taxes collectible by local governments. Additionally, candidates are expected to identify the types of information that are disclosed in a tax clearance certificate. Candidates’ performance was above average, however, some candidates did not understand “franked investment income” (FII) and were unable to differentiate between statute and case laws. Candidates should endeavour to read relevant texts to understand in particular, ’franked investment income’ and in general, the introduction to Nigeria tax system in preparing for future examinations. 91

Marking Guide Marks (a) (i) Proportional tax and progressive tax (1 mark for each of the 2 points) 2 ii. Direct and indirect taxes (1 mark for each of the two points) 2 iii. Statute laws and case law (1 mark for each of the 2 points) 2 iv. Definition of franked investment income (FII) 3 v. Taxes collectible by local governments:

• Shops and kiosk rates;

• Tenement rates;

• Marriage, birth and death registration fees;

• Slaughter slab fees;

• On and off liquor incense fees;

• Street naming registration fee except in state capital

• Right of occupancy fees on Lands in rural areas. (exclusive of those collectables by Federal and state governments);

• Market taxes and levies. (excluding market where state finance is involve);

• Motor park fees;

• Domestic animal licence fees;

• Bicycle, truck, canoe, wheel barrow and court fees, other than a mechanically propelled by cattle farmers only;

• Radio closure levy;

• Radio and television licence fees. (other than radio and television transmitter);

• Radio licence fees (to be imposed by the Local Government of the State which the is registered);

• Illegal parking fees;

• Public convenience sewage and refuse disposal fees;

• Customary burial ground permit fees;

• Religious places establishment permit fees; and

• Signboard and advertisement permit fees (1 mark each for any of the 4 points) 4 (b) Information in a tax clearance certificate:

(viii) Name, address and taxpayer’s identification number (TIN); (ix) Chargeable income; (x) Tax payable; (xi) Tax paid; (xii) Nature of business; (xiii) Types of assessment (BOJ, self-assessment and so on); and (xiv) Expiry date. (1/2mark each for any of the 4 points) 2 15 92 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA