Taxation · May 2022

XZB & Co. The Managing Director ChiDan Limited Lagos Dear Sir, RE: TAX MATTERS Further to our verbal discussions in respect of the above subject matter, we wish to respond to your requests as follows:

a) Due date for submission of audited financial statements to the tax office Section 55 (3), CITA (as amended) specifies the statutory timeline for filing of audited accounts and income tax returns by all companies (new or existing). Section 55 (3) provides as follows:

(i) In the case of a company that has been in business for more than eighteen months, the due date for filing tax returns is not more than six months after the end of the company’s accounting year; and (ii) In the case of a newly incorporated company, the due date for filing tax returns is within eighteen months from the date of its incorporation or not later than six months after the end of its first accounting period, whichever is earlier.

b) Requirements for filing of VAT returns and remittance of VAT liability – Section 16 of VAT Act (as amended) A taxable person shall render to the FIRS, on or before the 21st day of the month following that in which the purchase or supply was made, a return of all taxable goods and services purchased or supplied by him during the preceding month in such manner, as the Federal Inland Revenue Service (FIRS) may, from time to time determine. A person who imports taxable goods into Nigeria shall render returns on all the taxable goods imported by him into Nigeria. A taxable person shall, on rendering a return:

(i) If the output tax exceeds the input tax, remit the excess to the FIRS; or (ii) If the input tax exceeds the output tax, be entitled to a refund of the excess tax from the FIRS, on production of such documents, as may be required of him from time to time. An importer of taxable goods shall, before clearing those goods, pay to the FIRS the tax due on those goods. 149 The Nigerian Customs Service shall, before releasing taxable goods to its importer, demand the Value Added Tax Compliance Certificate issued by the FIRS on those goods. Limitation of the scope of input tax The input tax allowed as deduction from output tax is limited to the tax on goods purchased or imported directly for resale and goods which form the stock-in-trade used for the direct production of any new product, on which the output tax is charged. Consequently, input tax:

(i) On any overhead relating to service, and general administration of any business which otherwise can be expended through the statement of profit or loss; and

(ii) On any capital item and asset, which is to be capitalized along with cost of the capital item and asset, is not allowed as a deduction from output tax. Every Ministry, statutory body or any other agency of government and oil and gas companies shall, at the time of making payment to a contractor, remit the tax charged on the contract to the FIRS. The remission shall be accompanied with a schedule, showing the name and address of the contractor, invoice number, gross amount of invoice, amount of tax and the month of return.

c) Basis of assessment on commencement of business - section 29 (3) of CITA (as amended) Section 29 (3) of CITA (as amended) provides that “the assessable profits of any company from any trade or business (or in the case of a company other than a Nigerian company) for its first year of assessment and the two following years of assessment (which years are in this subsection respectively referred to as “the first year”, “the second year” and “the third year”) shall be ascertained in accordance with the following:

i) For the first year, the assessable profits shall be the profits from the date in which it commenced to carry on such trade or business in Nigeria to the end of its first accounting period; ii) For the second year, the assessable profits shall be the profits from the first day after its first accounting period to the end of its second accounting period; and iii) For the third year and for each subsequent year, the assessable profits shall be the profits from the day after the accounting period just ended. 150

d) The income tax liabilities payable for the relevant assessment year The tax liabilities have been computed thus: ChiDan Limited Computation of income tax liabilities For 2021 assessment year N’000 N’000 Net profit per accounts 42,264 Add: Donations and subscriptions:

- Motor Boat Club 300 - Polo Club 250 - Political parties 7,500 Allowance for doubtful debts 3,000 Miscellaneous expenses – court fine 600 Loss of fund – director 9,800 Legal expenses – land acquisition 3,750 Depreciation 42,825 68,025 110,289 Deduct: Profit on sale of property, plant and equipment (7,860) Adjusted profit 102,429 Capital allowances (30,380) Total profit 72,049 Companies income tax (30% of total profit) N21,614,700 Tertiary education tax (2% of assessable profit) N2,048,580 Minimum tax liability (0.25% of gross turnover) N2,150,625 Whist thanking you for the confidence reposed in us, it is hoped that our comments adequately captured your requests. Yours faithfully, For: XZB & Co. J. A. Yusuf Managing Consultant 151 Tutorial notes

i. Loss of fund by a director amounting to N9,800,000 is not allowed for tax purposes on the assumption that defalcation by a director is not covered by insurance or contract of indemnity as provided for under section 22 of Companies Income Tax Act Cap C21 LFN 2004 (as amended), therefore, fraud committed by the director of N9,800,000 will be disallowed.

ii. Exchange loss on transaction of inter-company balances represents loss on exchange resulting from conversion of foreign liabilities at rates existing as at the statement of financial position date, whilst exchange loss on remittance is the difference between the book value of a foreign liability on the date of settlement and the actual amount at which the foreign liability is eventually settled. The difference between the two is that the first loss is unrealized while the second is realised.

iii. Effective January 1, 2022, the Finance Act 2021, increased the tertiary education tax rate from 2% to 2½%. However, based on FIRS circular, companies which have their accounting years ending between July 1, 2021 and December 2021, must provide for tertiary education tax at the rate of 2½ %.

Examiner’s report The question tests candidates’ knowledge of the due dates of filing of audited financial statements to the tax office, filing of VAT returns and remittance of VAT liabilities, basis of assessment on commencement of business, and the computation of tax liabilities. This being a compulsory question, almost 100% of the candidates attempted the question. The performance of the candidates was fair. The commonest pitfalls of the candidates were their inability to identify allowable and non allowable expenses and state the due dates for filing of audited financial statements to the tax office for new and existing companies. Additionally, some of the candidates could not explain the basis of assessment for commencement of business and were unable to compute income tax liabilities. Candidates should ensure that they are abreast of changes in tax laws when preparing for ICAN examinations. 152

Marking guide Marks Marks (a) Due for submission of audited financial statements to the tax office

- A company that has been in business for more - than eighteen months - Due date for filing tax returns is not more than six months after the end of the company’s accounting year - Newly incorporated company, filing is within eighteen months from the date of incorporation - Not later than six months after the end of it’s first accounting period ½ ½ ½ ½ 2

(b) Requirements for filing of VAT returns’ and remittance of VAT liabilities

- On or before the 21st day of the month following that in which the purchase or supply was made - A return of all taxable goods and services purchased or supplied by him - Shall render returns on all the taxable goods imported into Nigeria 2 1 1 4 (c) Basis of assessment on commencement of business - First year – from the date of commencement of business to the end of the first accounting period - Second year – from the first day after the first accounting period to the end of the second accounting period - Subsequent years- profits from the day after the accounting period just ended 2 2 2 6

(d) Computation of income tax liabilities

- Name of the company - Year of assessment - Net profit per accounts - Add: Donations and subscriptions:

- Motor Boat Club - Polo Club - Political parties - Allowance for doubtful debts - Miscellaneous expenses – court fine - Loss of fund - director - Legal expenses – land acquisition - Depreciation 1 1 1 1 1 1 1 1 1 1 1 153 Deduct:

- Profit on sale of property, plant and equipment - Capital allowances - Total profit - Companies income tax (30% of total profit) - Tertiary education tax (2% of assessable profit) - Minimum tax liability (0.25% of gross turnover) - Closing paragraph of the letter - Signature ½ ½ 1 1 1 1 1 1 18 Total 30

Mariam, Ola, Jude and Mosaku Computation of the computed income of the partnership For 2020 assessment year N N Net profit as per accounts 1,540,000 Add: Legal expenses 100,000 Depreciation 360,000 2,000,000 Deduct: Profit on sale of property, plant and equipment 4,220 Adjusted profit 1,995,780 Add: Balancing charge 10,400 2,006,180 Deduct: Balancing allowance 6,900 Capital allowance 300,000 306,900 Computed income 1,699,280 154 Computation of assessable income of the partners For 2020 assessment year Mariam Ola Jude Total N N N N Share of profit 339,856 509,784 849,640 1,699,280 Salaries 240,000 200,000 220,000 660,000 Interest on loan 7,400 7,400 7,400 22,200 Gross income 587,256 717,184 1,077,040 2,381,480 Consolidated relief allowance: N200,000 + 20% of gross income (317,451.20) (343,436.80) (415,408) Chargeable income 269,804.80 373,747.20 661,632 Computation of personal Income tax payable N N N First N300,000 @ 7% 18,886.34 21,000.00 21,000.00 Next N300,000 @ 7% - - - Next N73,728 @ 11% - 8,112.19 - Next N300,000 @ 11% - - 33,000.00 Next N61,600 @ 15% - - 9,244.80 Personal income tax payable 18,886.34 29,112.19 63,244.80

Examiner’s report The question tests candidates’ knowledge of the taxation of partners. Over 75% of the candidates attempted the question and the performance was average. The commonest pitfalls of the candidates were their inability to compute consolidated relief allowance and properly reflect balancing charge and balancing allowance in the income tax computations. Candidates are advised to pay attention to relevant amendments to tax laws and their effects on tax computations in their preparations for future examinations. 155

Marking guide Marks Marks Heading:

- Name of the partnership - Computation of assessable income ½ ½ Net profit as per accounts:

- Add: Legal expenses - Depreciation ½ ½ ½ Deduct: Profit on sale of property, etc ½ Add: Balancing charge ½ Deduct : Balancing allowance ½ Capital allowances ½ 4½ Computation of assessable income of the partners:

- Share of profit (½ mark for each partner and total) - Salaries (½ mark for each partner and total) - Interest on loan (½ mark for each partner and total) - Gross income (½ mark for each partner and total) - Consolidated relief allowance (½ mark for each partner) - Chargeable income (½ mark for each partner) 2 2 2 2 1½ 1½ 11 Computation of personal income tax payable:

- First N300,000 @ 7% - Next N73,728 @ 11% - Next N300,000 @ 11% ( ½ mark for Ola) - Next N61,000 @ 15% for Jude - Personal income tax payable (½ mark for each partner) 1½ ½ ½ ½ 1½ 4½ Total 20

(a) Taxes to be collected by the Federal Government are:

(i) Companies income tax; (ii) Withholding tax on companies and non-resident individuals; (iii) Petroleum profits tax; (iv) Value added tax; (v) Tertiary education tax; (vi) Capital gains tax on companies and non-resident individuals; (vii) Stamp duties on corporate bodies; and (viii) Personal income tax on:

• Members of the armed forces of the Federation of Nigeria;

• Members of the Nigeria Police Force; and

• Staff of the Ministry of External Affairs and non-resident individuals. 156

(b) Taxes and levies to be collected by a state government are:

(i) Personal income tax in respect of:-

• Pay-As-You-Earn (PAYE); and

• Direct taxation (Self-assessment) (ii) Withholding tax on individuals; (iii) Capital gains tax on individuals; (iv) Stamp duties on instruments executed by individuals; (v) Pools betting and lotteries, gaming and casino taxes (vi) Road taxes; (vii) Business premises registration fees, for:-

• Urban areas as defined by each state: - N10,000 (maximum) for registration; and - N5,000 per annum for renewal of registration;

• Rural areas as defined by each state: - N2,000 for registration; and - N1,000 for annual renewal of registration; (viii) Development levy (individuals only) not more than N100 per annum on all taxable individuals; (ix) Naming of street registration fees in the state capital (x) Right of occupancy fees on lands owned by the state in urban cities of the state; and (xi) Market taxes and levies where state finance is involved. With the enactment of Federal Capital Territory Internal Revenue Service (FCT-IRS) Act 2015, the FCT-IRS is now responsible for the collection of the following taxes: (i) Personal income tax:

- Pay-As-You-Earn (PAYE) in respect of all individuals resident in FCT under employment in both public and private sectors; and - Direct assessment in respect of self-employed individuals and enterprises. (ii) FCT property tax; (iii) Stamp duties in respect of individuals and enterprises resident in FCT; (iv) Withholding tax in respect of individuals and enterprises in FCT; and (v) Capital gains tax in respect of individuals and enterprises resident in FCT. (c.) Taxes and levies to be collected by a local government are:

i. Shops and kiosks rates; ii. Tenement rates; iii. Marriage, birth and death registration fees; iv. Slaughter slab fees; v. On and off liquor license fees; vi. Street naming registration fee except in the state capital; vii. Right of occupancy fees on lands in rural areas (exclusive of those collectable by the Federal and state governments); 157

viii. Market taxes and levies excluding any market where State finance is involved; ix. Motor park fees;

x. Domestic animal license fees; xi. Bicycle, truck, canoe, wheel barrow and cart fees, other than a mechanically propelled truck; xii. Cattle tax payable by cattle farmers only; xiii. Road closure levy; xiv. Radio and television licence fees (other than radio and television transmitter); xv. Radio license fees (to be imposed by the local government of the state in which the car is registered); xvi. Illegal parking fees; xvii. Public convenience, sewage and refuse disposal fees; xviii. Customary burial ground permit fees; xix. Religious places establishment permit fees; and xx. Signboard and advertisement permit fees. Tutorial note It is pertinent to note that the Federal government expanded the taxes and Levies which the tiers of government can impose through the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order, 2015. In this order made by Minister of Finance, several new tax/levy heads, such as infrastructure maintenance/development levy, wharf landing charge/fee, consumption tax, the National information Technology Development levy, etc were introduced. However, on May 8, 2020, the Federal High Court sitting in Lagos, delivered judgement in suit number: FHC/L/CS/1082/2019, in a case between the Registered Trustees of Hotel Owners and Managers Association of Lagos (Suing for itself and or behalf of all its members) vs The Attorney-General of the Federation and others, held that the Ministerial Order 2015 is unconstitutional, null and void. The Court submitted that the Constitution vests the legislature with the power to make laws. The Court further stated that the schedules to a law are part and parcel of the law and as such, only the legislature can amend schedules to a law. The implication of the ruling is that all the taxes and levies that were added to those ones in the Taxes and Levies (Approved List for Collection) Act Cap. T2 LFN 2004, via the Ministerial Order 2015, are illegal and cannot be enforced. 158

Examiner’s report The question tests candidates’ knowledge of the taxes and levies collectible by the Federal Government, state governments and local governments. About 90% of the candidates attempted the question and the performance was good. The commonest pitfall of the candidates was that some of the candidates could not distinguish between taxes and levies collectible by the three tiers of government. Candidates are advised to familiarize themselves with the provisions of the Taxes and Levies (Approved List for Collection) Act Cap. T2 LFN 2004.

Marking guide Marks (a) Taxes to be collected by the Federal Government (1mark each for any 5 correct points) 5 (b) Taxes and levies to be collected by a state government (1 mark each for any 5 correct points) 5 (c) Taxes and levies to be collected by a local government (1 mark each for any 10 correct points) 10 Total 20

Bakosa Insurance Company Plc

a) Recent changes introduced by Finance Acts 2019 and 2020 are:

i. Definitions

• Investment income - section 16(6) of CITA (as amended) “Investment income” for the purpose of taxation of a life insurance company means “income derived from investment of shareholders’ funds”.

• Gross premium and gross income – section 16(13) of CITA (as amended) For the purpose of section 16(12) – minimum tax computation: 159

• “Gross premium” means the total premiums written, received and receivable excluding unearned premium and premiums returned to the insured; and

• “Gross income” means total income earned by a life insurance business including all investment income (excluding franked investment income), fees, commission and income from other assets but excluding premium received and claims paid by reinsurers.

• Gross income may also include other incomes, such as annuities, commission received, rent, as well as surplus arising from actuarial revaluation of the reserve for the unexpired risk account or life fund account transferred to profit or loss account for distribution.

ii. Minimum tax payable Section 16(12) of CITA (as amended), provides that the tax payable by any insurance company for any year of assessment shall not be less than: - 0.5% of the gross premium for non-life insurance business; and - 0.5% of gross income for life insurance businesses. Provided, that all applicable minimum tax under this section shall be reduced to 0.25% for tax returns prepared and filed for any year of assessment falling due on any date between January 1, 2020 and December 31, 2021, both days inclusive.

iii. Losses can be carried forward indefinitely Insurance companies can now carry forward their losses indefinitely.

iv. Others

• Based on section 16(8) of CITA (as amended), any insurance company other than a life insurance company shall be allowed for deductions from its premium, the following reserves for tax purposes: - Reserve for unexpired risks calculated on a time apportionment basis of the risks accepted in the year instead of the old basis determined on a percentage consistently adopted by the company; and - Outstanding claims and outgoings, an amount equal to the total estimated amount of all outstanding claims and outgoings, provided that any amount not utilised towards settlement of claims and outgoings shall be added to the total profits of the following year instead of the old provision which was based on a percentage (25%) of total premium. 160

• Based on section 16(9)(c) of CITA (as amended), a life Insurance business shall now deduct all normal allowable business outgoings from its investment income and other incomes, and no restriction on a certain percentage (20%) of gross income shall be available as total profit of the company for tax purposes.

b) Additional documents/information to be filed by insurance business An insurance company that engages the services of an insurance agent, a loss adjuster and an insurance broker, shall include in its annual tax returns, a schedule showing the names and addresses of the insurance agent, loss adjuster and an insurance broker, the date their services were employed and terminated, and payments made to them. An insurance company is expected to maintain the details and schedule of policies and risks accepted in a given year, and the computation of unexpired risks associated with them. The schedule should comprise the name of the policy holder, type of policy, period of the policy, amount of the premium and expired risk computed therefrom. A schedule detailing the specific items making up the estimated amount of outstanding claims and outgoings shall be prepared, by insurance companies. Insurance companies shall maintain a schedule of estimated claims and outgoings that constitute the amount deducted every year.

Examiner’s report The question tests candidates’ knowledge of the recent changes introduced by the Finance Acts 2019 and 2020 in relation to income tax computations of insurance companies and additional documents / information to be filed by them. Less than 5% of the candidates attempted the question. Candidates demonstrated a poor understanding of the question, hence performance was poor. The commonest pitfall was the inability of some of the candidates to explain the effects of the recent changes introduced by Finance Acts 2019 and 2020 on the income tax computations of insurance companies and the additional documents/ information to be filed by them. Candidates are advised to read ICAN Study Text, Pathfinder and the relevant Finance Acts when preparing for subsequent examinations to ensure better performance in future. 161

Marking guide Marks Marks (a) Recent changes introduced by finances Act, 2019 and 2020: (i) Definitions:

- Investment income - Income derived from investment of shareholders fund - Gross premium - The total premiums written, received and receivable excluding unearned premium and premiums returned to the insured - Gross income - Total income earned by a life insurance business including all investment income 1 1 1 1 1 1 (ii)Minimum tax payable

- 0.5% of the gross premium for non-life insurance business - 0.5% of gross income for life insurance business - Minimum tax shall be reduced to 0.25% for tax returns prepared and filed between Jan. 1, 2020 and Dec. 31, 2021 1 1 1 (iii)Losses carried forward Insurance companies can now carry forward losses indefinitely 2 (iv) Others

- Reserve for unexpired risks calculated on a time apportionment basis - Outstanding claims and outgoing amount equal to the total estimated amount of all outstanding claims and outgoings

- Life insurance business shall now deduct all normal allowable business outgoings from investment income and other income without restriction 2 2 1 16

(b) Additional documents/information to be filed by insurance business that engages services of agents, loss adjusters and brokers

- A schedule showing names and addresses of the agents, loss adjusters and brokers - Date their services where employed and terminated ½ ½ 162

- Details and schedule of policies and risks accepted in a given year - Computation of unexpired risk associated with them - A schedule detailing the specific items making up the estimated amount of outstanding claims and outgoings - A schedule of estimated claims and outgoings that constitute the amount deducted every year ½ ½ 1 1 4 Total 20

a. Contents of WHT returns/payment schedule Each withholding tax cheque being paid to the Revenue must be accompanied with a payment schedule, which is a list of those who suffered the deductions that make up the cheque. The payment schedule must contain the following particulars:

i. Names of the taxpayers who suffered the deductions; ii. Their addresses; iii. The nature of their activities/services and period covered; iv. Their tax file numbers [now tax identification number (TIN)];

v. The total amount payable; vi. The rate of tax applied; vii. The amount of tax withheld; viii. The balance paid to the taxpayer;

ix. The tax contract for which returns were being made;

x. The date of payment; and xi. The cheque number and date.

b. Time frame for compliance with WHT returns For WHT deducted from companies, this should be remitted to Federal Inland Revenue Service, whilst those deducted from individuals should be remitted to the State Internal Revenue Service where the recipient is resident. The time frame for compliance with WHT returns in respect to companies and individuals is 21 days and 30 days, respectively, from the date the duty to deduct WHT arose or when it was deducted, whichever is earlier. 163

c. Merits and demerits of WHT scheme Merits The following are some of the merits of withholding tax scheme:

(i) Source of government revenue; (ii) It helps in expanding the tax net by bringing into the tax net persons who were previously unknown to the tax authorities; (iii) It helps in determining a person’s turnover and thus ascertaining the correct income for tax purposes; (iv) It makes tax payment less cumbersome to the taxpayer who may not have to bother himself going to the tax office to pay his tax; (v) It reduces incidence of tax evasion; (vi) It involves little or no cost of collection as it is self accounting in nature; and (vii) It saves time for the revenue officers to attend to other duties. Demerits The demerits of the withholding tax scheme are:

(i) A high rate of withholding tax is likely to affect the operational performance of most businesses; (ii) The application of withholding tax affects the cash flow of most businesses as they receive amounts less than what they have estimated or budgeted for per the invoices they have issued; and (iii) It is likely to discourage hard work by Revenue Officers since it is self accounting in nature.

Examiner’s report The question tests candidates’ understanding of the contents of withholding tax returns, due dates of filings, and merits and demerits of withholding tax scheme. About 80% of the candidates attempted the question and performance was above average. The commonest pitfalls of some of the candidates were their inability to state the time frame for compliance with withholding tax returns. Candidates are advised to read widely before sitting for the Institute’s examinations. 164

Marking guide Marks Marks (a) Contents of WHT returns/payment schedule (1 mark each for maximum of 5 correct points) 5 (b) Time frame for compliance with WHT returns:

- 21 days for companies - 30 days for individuals - From the date the duty arose or when it was deducted, whichever is earlier 2 2 1 5 (c) Merits of WHT scheme (1 mark each for any 3 correct points) 3 Demerits of WHT Scheme (1 mark each for any two correct points) 2 5 Total 15

a. Badges of trade The Royal Commission on the taxation of profit and income gave a summary of considerations that influence the identification of the badges of trade and they include:

(i) The subject- matter of the realisation; (ii) The length of period of ownership; (iii) The frequency or number of similar transactions; (iv) Supplementary work on or in connection with the property realised; (v) The circumstances that were responsible for the realisation; (vi) The profit-seeking motive; (vii) The source of finance; (viii) Method of acquisition; and (ix) Existence of similar trading transactions or interest. Example of cases used to provide justification for the definition of badges of trade is: Trustees of Methodist Church Mission v FBIR – An assessment was raised on the income from Wesley House, a property developed by the trustees and leased out to tenants. Objection to the assessment was based on the status of the owners (Methodist Church) which enjoys exemption under the Act as being engaged in ecclesiastical activities. The Federal Revenue court held that the company is doing precisely what it was formed to do, namely, carrying on the business of a company dealing in real estate. Therefore, it cannot claim to be exempted from the incidence of taxation because it is established that the relevant income is derived from a trade or business. 165

b. Ndakogi Nigeria Limited Computation of minimum tax payable For 2020 assessment year N’000 Gross turnover from core business activities 26,000 Revenue from closed operations 4,000 Dividend received (gross) 1,800 Rent received (gross) 850 Revenue from other operating activities 8,000 Total revenue/turnover 40,650 Dividend received (gross) (1,800) Gross turnover for computation of minimum tax 38,850 The minimum tax payable is 0.5% of N38,850,000 = N194,250 Given the fact that a taxpayer has the prerogative to apply the reduced rate of 0.25% in any relevant two assessment years, coupled with the fact that the company commenced business in 2007, it was assumed that the rate of 0.25% must have been applied in the past, hence the application of 0.5%.

Examiner’s report The question tests the candidates’ knowledge of the considerations that influence the identification of badges of trade and the computation of a company’s minimum tax payable. Over 70% of the candidates attempted the question and they demonstrated a fair understanding of the question, hence performance was average. The commonest pitfall was the candidates’ poor understanding of badges of trade and their inability to compute minimum tax liability. Candidates are advised to read relevant study materials in order to perform well in future examinations. 166

Marking guide Marks Marks (a) Identification of badges of trade (2marks each for any correct 4 points) 8 (b) Computation of minimum tax liability

- Name of the company - For 2020 assessment year - Gross turnover from core business activities - Revenue from closed operations - Dividend received (gross) - Rent received (gross) - Revenue from other operating activities - Dividend received (gross) - Gross turnover for computation of minimum tax - Minimum tax payable @ 0.5% ½ ½ ½ ½ ½ ½ ½ ½ 1 2 7 Total 15

The tax system usually involves a tripartite aspect, namely the tax policy, the tax laws, and the tax administration.

(a) Tax policy - The tax policies are general statements of intention, which guide the thinking and the action of all concerned towards the realization of the set goals. They usually include:

(i) Movement of emphasis from income tax to consumption tax that is less prone to tax evasion; (ii) Pursuance of a tax law regime with the aim of reducing individual tax burden, widening the tax net and encouraging savings and investments; (iii) Introduction of the self-assessment scheme to encourage taxpayer participation in the tax assessment process, which is considered to be realistic in approach. The policy can also include movement from coercive method of taxation to voluntary compliance as in the case of Nigeria in recent time. (iv) Movement from traditional coercive method of taxation to voluntary compliance; (v) Engagement in education of taxpayers through public enlightment and tax drive; and (vi) Using the due process of law and mechanism of an efficient tax administration to curb tax evasion. 167

(b) Tax laws: The tax laws include the following notable tax legislations in Nigeria:

(i) Personal Income Tax Act Cap P8 LFN 2004 (as amended); (ii) Companies Income Tax Act Cap C21 LFN 2004 (as amended); (iii) Petroleum Profits Tax Act Cap P13 LFN 2004 (as amended); (iv) Capital Gains Tax Act Cap C1 LFN 2004 (as amended); (v) Value Added Tax Act Cap V1 LFN 2004 (as amended); (vi) Tertiary Education Trust Fund (Establishment, Etc) Act, 2011; (vii) Stamp Duties Act Cap S8 LFN 2004 (as amended); and (viii) Petroleum Industry Act 2021. In Nigeria, the Constitution vests the legislation of income tax, whether personal or corporate on the Federal Government in order to promote uniformity. However, the three tiers of government share the administration of the various taxes. Tax laws are reviewed periodically in line with the changes in social, political and economic conditions of the country. The power to impose tax in Nigeria is within the exclusive legislative authority of the Federal Government. There are various machineries set up by the government to ensure strict compliance of these laws; non-compliance attracts penalties and fines.

(c) Tax administration: This involves practical interpretations and application of the tax laws. The bodies charged with the administration of tax in Nigeria are the Federal, the State and Local governments. The tax authorities of these tiers of government derive their formation from the relevant laws which include: (i) The Federal Inland Revenue Service (FIRS); (ii) The State Internal Revenue Service (SIRS); (iii) The Local Government Revenue Committee; (iv) Joint Tax Board; and (v) Joint State Revenue Committee.

Examiner’s report The question tests the candidates’ knowledge of tax policy, tax legislations and the bodies charged with the administration of taxes in Nigeria. About 75% of the candidates attempted the question and the performance was above average. The commonest pitfall was the candidates’ poor understanding of Nigeria tax system. Candidates are advised to pay attention to this particular aspect of the syllabus. 168

Marking guide Marks Marks a Tax policy

- As general statement of intention - Considerations (1 mark each for any example subject to a maximum of 3 points) 2 3 5 b Tax laws

- (1 mark each subject to a maximum of 5points) 5 C Tax administration (1 mark each for each correct point) 5 Total 15 169 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA