Taxation · 2025

a XYZ Nigeria Limited Computation of total tax liabilities for assessment year 2024 N'000 N'000 Net profit as per accounts 31,025 Add: disallowable expenses: Depreciation 17,875 Legal cost - Issue of ordinary shares 2,500 Installation of new machine 3,750 Extension and partitioning of office apartment 1,500 25,625 56,650 Less: Non-taxable income: Profit on sale of equipment 4,950 Dividend from Nigerian company 2,100 7,050 Adjusted profit 49,600 Balancing charge 2,740 52,340 Capital allowances (10,325) Total profit 42,015 Companies income tax (CIT) (30% of N42,015,000) 12,604,500 Tertiary education tax (TET) (3% of N49,600,000) 1,488,000 Total tax liabilities 14,092,500 Assessment based on dividend 5% of 5,000,000 shares at N1.00 each = N250,000 CIT on dividend paid at 30% = N 75,000 Given the fact that the tax liability based on total profit is higher than that based on dividend, the CIT payable is N12,604,500.

(b) Other bases of assessing companies to income tax in Nigeria apart from the normal basis are as follows:

i. Dividend assessment: Section 19 (1) of CITA 2004 (as amended) provides that where a dividend is paid out as profit on which no tax is payable due to:

• no total profits; or

• total profits which are less than the amount of dividend which is paid, whether or not the recipient of the dividend is a Nigerian company. 167 The provisions of Section 19 (1) shall not apply to dividends paid out of the retained earnings of a company, provided that the dividends are paid out of profits that have been subjected to tax under this Act, the Petroleum Profits Tax Act or the Capital Gains Tax Act.

ii. Minimum tax: is pegged at a flat rate of 0.5% of turnover less franked investment income, which would be applicable to the following companies;

• companies with no total profit, or

• whose computed tax is less than the minimum tax.

iii. Turnover assessment For a trade or business, where the Revenue feels that the trade or business produces either no assessable profit or assessable profit that is less than expected of the trade or business or the true assessable profit cannot be ascertained, the Board may raise assessment on the following basis:

• if it is a Nigerian company, a reasonable percentage of the turnover; and

• if it is a non-Nigerian company, that part of the turnover attributable to the fixed base of the business or that part of the profit attributable to the business or trade carried on through a Nigerian representative.

(c) The five fundamental principles of ethics as specified by the International Ethics Standards Board for Accountants (IESBA) are as follows:

i. Integrity: A professional accountant shall comply with the principles of integrity, which requires an accountant to be straightforward and honest in all professional and business relationships.

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

iii. Professional competence and due care: A professional accountant shall comply with the principles of professional competence and due care, which requires an accountant to:

• attain and maintain professional knowledge and skill at the level required to ensure that a client or employing organisation receives 168 competent professional service, based on current technical and professional standards and relevant legislation; and

• act diligently and in accordance with applicable technical and professional standards.

iv. Confidentiality: A professional accountant shall comply with the principle of confidentiality, which requires an accountant to respect the confidentiality of information acquired as a result of professional and business relationships.

v. Professional behaviour: A professional accountant shall comply with the principle of professional behaviours, which requires an accountant to comply with relevant laws and regulations, and avoid any conduct that the accountant knows or should know might discredit the profession. A professional accountant shall not knowingly engage in any business, occupation or activity that impairs or might impair the integrity, objectivity or good reputation of the profession, and as a result would be incompatible with the fundamental principles.

Examiner’s report Part (a) of the question tests the candidates’ knowledge of the computation of taxes payable by a company whilst part (b) relates to the other bases of assessing companies to income tax apart from the normal basis. In part (c), candidates are expected to explain the fundamental principles of ethics as specified by the International Ethics Standards Board for Accountants (IESBA). This being a compulsory question, about 100% of the candidates attempted the question and their performance was above average. The commonest pitfalls of the candidates were their inability to:

a) identify allowable and disallowable expenses; and

b) explain other bases of assessing companies to income tax apart from the normal basis. Candidates are advised to read widely and be conversant with the provisions of the Companies Income Tax Act Cap. C 21 LFN 2004 (as amended) before sitting for subsequent examinations to enhance better performance. 169

Marking guide

a. Computation of total tax liabilities Marks Marks Heading - Name of enterprise ½

- Computation of total tax liabilities for assessment year 2024 ½ Net profit as per accounts 1 Depreciation 1 Legal cost - Issue of ordinary shares 1 Installation of new machine 1 Extension and partition of office apartment 1 Profit on sale of equipment 2 Dividend from Nigerian company 2 Balancing charge 2 Capital allowance 2 CIT computation 1 TET computation 1 Assessment based on dividend 5% of 5,000,000 ordinary shares of N1 each = N25,000 1 CIT or dividend paid at 30% = N75,000 1 Conclusion 2 20

b. Other bases of assessing companies to income tax Dividend assessment 1 Section 19 (1) of CITA 2004 (as amended) ¼ No total profits ¼ Total profits which are less than the amount of dividend ¼ Dividends paid out of retained earnings ¼ Minimum tax 1 Companies with no total profit ¼ Companies with computed tax less than the minimum tax ¼ Turnover assessment 1 If it is a Nigerian company, a reasonable percentage of the turnover ¼ If it is a non-Nigerian company, that part of the turnover attributable to the fixed base ¼ 5

c. Integrity ½ Explanation ½ Objectivity ½ Explanation ½ Professional competence and due care ½ Explanation ½ 170 Confidentiality ½ Explanation ½ Professional behaviour ½ Explanation ½ 5 Total 30 171

Abudukar, Ariwaya & Associates Computation of adjusted profit For 2025 year of assessment N’000 N’000 Net profit as per accounts 72,450 Add: disallowable expenses: Depreciation 41,250 Donation to Ebonyi Social Club 500 Rent paid for residential houses - Engr. Abudukar 5,450 Medical expenses 1,250 Interest on loan to partners

- Engr. Abudukar (10/18 x N1,980,000) = 1,100,000 - Chief Ariwaya (8/18 x N1,980,000) = 880,000 1,980 50,430 122,880 Less: Non-taxable income: Profit on sale of motor vehicle 5,330 Adjusted profit 117,550 Balancing charge 1,795 Capital allowances: Initial 7,715 Annual 14,080 (21,795) Divisible profit 97,550 Share of profit:

- Engr. Abudukar (1/2 x N97,550,000) = N48,775,000 - Chief Ariwaya (1/2 x N97,550,000) = N48,775,000 Computation of tax liabilities for the partners for 2025 assessment year Engr. Abudukar Chief Ariwaya N N Share of profit 48,775,000 48,775,000 Less tax exempt: Life assurance 0 0 Gross income 48,775,000 48,775,000 Less CRA (20% of gross income + higher of (N200,000 or 1% of gross income) (10,242,750) (10,242,750) Chargeable income 38,532,250 38,535,250 172 Computation of tax payable Tax Table N'000 N'000 1st N300,000 @ 7% 21,000 21,000 Next N300,000 @ 11% 33,000 33,000 Next N500,000 @ 15% 75,000 75,000 Next N500,000 @ 19% 95,000 95,000 Next N1,600,000 @ 21% 336,000 336,000 Above N3,200,000@ 24% 8,479,740 8,479,740 9,039,740 9,039,740 WHT deducted on gross fees (5,912,500) (5,912,500) Net tax payable 3,127,240 3,127,240

Examiner’s report The question tests the candidates’ knowledge of the computation of partners’ income tax liabilities. About 85% of the candidates attempted the question but the performance was fair. Some of the candidates treated the insurance premium paid by Chief Ariwaya on behalf of his family as tax exempt whereas the Finance Act 2023 only allows premium paid on behalf of the taxpayer and his spouse. Additionally, the withholding tax deducted on gross fees was not captured in the ascertainment of net tax payable by the partners. Candidates are advised to read relevant texts on taxation of income of partners in partnerships, ICAN Pathfinders, and Study Text.

Marking guide Marks Computation of partners’ income tax liabilities Heading - Name of the partnership ½ - Computation of adjusted profit ½ - 2025 year of assessment ½ Net profit as per accounts ½ Depreciation ½ Donation to Ebonyi Social Club ½ Rent paid for residential house – Engr. Abudukar ½ Medical expenses ½ Interest on loan to partners - Engr. Abudukar ½ - Chief Ariwaya ½ Profit on sale of motor vehicle ½ Balancing charge ½ Capital allowances - Initial ½ 173

- Annual ½ Share of profit - Engr. Abudukar 1 - Chief Ariwaya 1 Computation of tax liabilities for the partners Share of profit (1/2 mark each) 1 Gross income (1/2 mark each) 1 CRA (1/2 mark each) 1 Computation of tax payable N21,000 ((1/2 mark each) 1 N33,000 ((1/2 mark each) 1 N75,000 ((1/2 mark each) 1 N95,000 ((1/2 mark each) 1 N336,000 ((1/2 mark each) 1 N8,479,740 ((1/2 mark each) 1 WHT deducted on gross fees (1 mark each) 2 Total 20

(a) Post cessation transactions are deemed to have taken place on the last day of business, hence all sums received or paid after the date of cessation are captured as part of cessation activities. (b) ABC Nigeria Limited Computation of assessable profit for 2023 - 2024 YOAs Year of assessment Basis period Assessable profit N'000 2023 01/01/22 - 31/12/22 16,800 2024 01/01/23 - 31/12/23 30,000 2024 01/01/24 - 30/04/24 wk 1 16,730 Workings: N'000 Profit on cessation 9,800 Receivables recovered 2,750 Sale of stolen vehicle recovered 9,650 Trade creditor settled (2,970) Lawyer's commission (2,500) Assessable profit 16,730 174

(c) In line with provisions of Finance Act 2019, on cessation of business, companies will file returns on or before 6 months after the date of cessation of business while individuals will file returns 3months after cessation. Therefore, ABC Nigeria Limited, will file two returns for 2024 YOA because the company ceased operations on April 30 and the tax liability will be paid before the end of the year.

Examiner’s report Part (a) of the question tests the candidates’ knowledge of the treatment of post cessation transactions for tax purposes whilst part (b) requires them to compute the income tax liabilities of a company on cessation of business. In part (c), they are expected to explain how the provisions of Finance Act 2019, will affect the company. About 45% of the candidates attempted the question and the performance was poor. Some of the candidates could not explain the treatment of post cessation transactions for tax purposes. Candidates are advised to read the Finance Acts, Institute’s Pathfinder, and Study Text in their preparations for subsequent examinations.

Marking guide Marks Marks a. Explanation of how post cessation transactions will be treated for tax purposes 4

b. Computation of assessable profit for the relevant assessment years Heading - Name of company ¼

- Computation of assessable profit for the relevant years ¼ Year of assessment: 2023 1 2024 1 2025 1 Basis period: 2023 1 2024 1 2025 1 Assessment profit: 1 2023 1 2024 - Workings Profit on cessation ½ Receivables recovered ½ 175 Sale of stolen vehicle recovered ½ Trade creditor settled ½ Lawyer’s commission ½ 11

c. Explanation of how the provisions of Finance Act, 2019, on cessation of business affect ABC Nigeria Limited Correct explanation of the provisions 5 Total 20

Success Nigeria Limited Computation of tax liabilities For 2025 assessment year N N Net profit as per accounts 55,440,000 Add: Bad debt recovered 3,200,000 Commission received 2,400,000 5,600,000 61,040,000 Add disallowed expenses: Building fund 1,600,000 Senior staff club house 3,200,000 Depreciation 7,200,000 12,000,000 Adjusted profit 73,040,000 Capital allowance (2,750,000) Total profit 70,290,000 Companies income tax = 30% of N70,290,000 = N21,087,000 Tertiary education tax = 3% of N73,040,000 = N2,191,200

(b) Allowable donations In ascertaining the profits or losses of a company chargeable to tax for any period, there shall be deducted, donations made during that period by the company. 176 The conditions for allowing such donations are as follows: (i) donations must be made to any of the funds, bodies, institutions in Nigeria contained in the Fifth schedule to CITA; (ii) donations must be made out of profit, that is, donations shall not be allowed in circumstances where it will increase the loss of a company or convert its profit into a loss; (iii) donations must not be of a capital nature except donation to a university or other tertiary or research institutions; (iv) donations must not exceed 10% of the company’s total profits for an assessment year before any deduction for donation. In the case of donation to tertiary or research institution, up to 15% of total profit or 25% of tax payable in the year whichever is higher; (v) donations made by companies in cash or kind to any fund set up by the Federal Government or any state government, or to any agency designated by the Federal Government or to any similar Fund or purpose in consultation with any Ministry, department or agency of the Federal Government, in respect of any pandemic, natural disaster or other exigency shall be allowed as deductions as follows:

• the cost of in-kind donations made to the Government and any designated agency shall be allowed as deductions; or

• where companies have either procured or manufactured items for contribution, the cost of purchase, manufacture or supply of such in kind contributions shall be allowed as deductions. Provided that requisite documentation evidencing the donation and the cost thereof are provided to the relevant tax authority and demonstrated to be wholly, reasonably, exclusively and necessarily incurred in relation to the procurement, manufacture or supply of the in-kind contributions; and

(vi) the amounts allowable for deduction in respect of (v) above, in any year of assessment shall be limited to 10% of assessable profits after deduction of other allowable donations made by the company.

(c) Every incorporated company carrying on business in Nigeria is required to file with the Federal Inland Revenue Service (FIRS) the following returns annually:

(i) self -assessment return in the prescribed form; (ii) audited accounts; (iii) tax and capital allowances computations; and 177

(iv) evidence of payment of the whole or part of the tax due into a bank designated for the collection of the tax. The prescribed form of return shall contain a declaration duly signed by a director or the company secretary, stating that:

• the return contains a true and correct statement of the company’s profits computed in accordance with the provisions of CITA and rule made hereunder; and

• particulars given in the return are true and complete

Examiner’s report Part (a) of the question tests the candidates’ knowledge of the computation of taxes payable by a company whilst part (b) requires them to explain the allowability of donations for tax purposes. The candidates are expected to explain the returns to be filed by every incorporated company to the Federal Inland Revenue Service. About 80% of the candidates attempted the question but performance was fair. Some of the candidates displayed poor knowledge of the conditions under which a donation charged against income is allowable for ascertaining the profit of a business. Candidates should be conversant with the provisions of the relevant tax laws and circulars, and should ensure they cover the syllabus adequately when preparing for subsequent examinations.

Marking guide Marks Marks a. Computation of taxes payable by the company Heading - Name of company ½ - Computation of tax liabilities ¼ - For 2025 assessment year ¼ Net profit per accounts 1 Bad debts recovered 1 Commission received 1 Building fund 1 Senior staff club house 1 Depreciation 1 Capital allowance 1 Companies income tax 1 Tertiary education tax 1 10 178

b. Allowable donations (1 mark each for any point subject to a maximum of 5 points) 5 c. Explanation of the returns to be filed by every incorporated company (1 mark each for any point subject to a maximum of 5 points, including the bullets) 5 Total 20

(a) i. Tax incidence: It is an economic term for the division of a tax burden between buyers and sellers. It does reveal the person that will pay the tax liability. For instance, if the government decided to impose an increased tax rate on cigarettes, the producers may increase the sale price by the full amount of the tax. If the consumers still purchased cigarettes on the same amount after the price increase, it will be said that the tax incidence fell entirely on the buyers.

ii. Tax burden: This is the amount of income, property or consumption tax levied on an individual or business. Tax burdens vary depending on several factors including income level, jurisdiction, and current tax rates. Income tax burdens are typically satisfied by deductions from an individual’s pay slip each time he or she is paid.

iii. Tax impact: This is the effect of a tax on the production or consumption of the product being taxed. For example, the tax impact of raising the levy on tobacco might be a reduction in tobacco sales.

iv. Tax shift: This is also referred to as tax swap. It is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others, while keeping the overall revenue the same.

v. Tax base: This is a measure upon which the assessment or determination of tax liability is based. It is that position of a taxpayer’s income or property, which is expected to suffer tax.

(b) i. A persons in employment is deemed to be resident for a year of assessment in the territory in which he has a place available for his domestic use in Nigeria on the first day of January of the assessment 179 year, and does not include any hotel, rest house or other place at which he is temporarily lodging.

ii. An executor is deemed to be resident in the territory in which the deceased individual was last deemed to be resident or would have been deemed to be resident if the law had been in force prior to the death of his date.

iii. Partners in partnership are deemed to be resident where the principal office or the place of the partnership is situated on the first day of that year or is first established during the year.

iv. An itinerant worker is deemed to be resident where he is found in a year of assessment. In the case of an itinerant worker, tax may be imposed for any year by any State in which the itinerant works for a minimum of twenty (20) days in at least three (3) months of every assessment year.

Examiner’s report Part (a) of the question tests the candidates’ knowledge of basic concepts in taxation whilst part (b) requires them to explain the rules of residence as they relate to individuals. About 85% of the candidates attempted the question and performance was good. The commonest pitfall of some of the candidates was their inability to explain the rules of residence as they relate to individuals. Candidates are advised to be conversant with the rules of residence relating to the taxation of income of an individual. 180

Marking guide Marks Marks a. Explanation of basic concepts in taxation Stating the basic concepts (½ mark for each of the five concepts) 2½ Explanation of the basic concepts (1½ marks for each of the five explanations) 7½ 10

b. Rules of residence A person in employment ½ Explanation of the rules of residence ½ An executor ½ Explanation of the rules of residence ½ Partners in partnership ½ Explanation of the rules of residence ½ An itinerant worker 1 Explanation of the rules of residence 1 5 Total 15 181

a. i. Global Lgends Logistics Limited Computation of VAT Payable For the year ended December 31, 2024

ii. Computation of withholding tax remittable N Payments to suppliers (N506,250,000 x 2%) 10,125,000 Management fees paid to Kosemani Konsults (N45,000,000 x 5%) 2,250,000 Audit fees (N10,000,000 x 5%) 500,000 Legal and professional fees (N7,500,000 x 5%) 375,000 VAT remittable 13,250,000

Notes: Withholding tax credit notes are not available to offset withholding tax liabilities as it would only be utilised by the company. Withholding tax is remitted in the name and taxpayer identification number (TIN) of the beneficiary. Administrative expenses may not be subject to withholding tax depending on the specific services involved. Given the fact that the nature of the services involved are not specified, therefore, administrative expenses were not treated as subject to withholding tax.

bi. The relevant section of CITA (as amended) that FIRS will rely on is section 19 (1).

ii. The company will be assessed to tax on the dividend declared as this is higher than the total profit declar N Output VAT: Contract supplies (N668,250,000 x 7.5%) 50,118,750 Less input VAT: Payments to suppliers (N506,250,000 x 7.5%) (37,968,750) 12,150,000 Recruitment fees (N318,750,000 x 7.5%) 23,906,250 VAT payable 36,056,250 182

Examiner’s report Part (a) of the question tests the candidates’ knowledge of the computations of VAT and deduction of withholding tax at source whilst part (b) requires them to explain the tax implications of the dividend paid by the company on its tax liabilities. About 55% of the candidates attempted the question but performance was poor. The commonest pitfall of some of the candidates was their inability to apply the correct withholding tax rates based on the Deduction of Tax at Source (Withholding) Regulations, 2024, to the transactions, such as payments to suppliers. Candidates are advised to be conversant with the provisions of the Deduction of Tax at Source (Withholding) Regulations, 2024, read ICAN Study Texts, and Pathfinders.

Marking guide Marks Marks VAT payable Heading - Name of company ½ - Computation of VAT payable ½ - For the year ended December 31, 2024 ½ Contract supplier ½ N50,118,750 ½ Payments to suppliers ½ N37,968,4750 ½ Recruitment fees ½ N23,956,750 ½ VAT payable ½ 5 Computation of withholding tax remittable ½ Payments to suppliers 1 Management fees paid 1 Audit fees 1 Legal and professional fees 1 VAT remittable 1 Explanation on withholding tax credit notes ¼ Explanation on administrative expenses ¼ 6 Relevant section of CITA (as amended) Section 19 (1) of the CITA (as amended) 1 183 Implication of the company’s dividend decision Dividend declared as this is higher than the total project declared 1 The tax liability shall be based on the dividend 1 Tax liability is N10,500,000 1 3 Total 15

The following taxes relate to real property transactions in Nigeria as follows:

(a) i. Withholding Tax Where the recipients of incomes are companies and individuals, the payer of any income is expected to withhold 10% and 5% respectively. The amount deducted by the payer should be remitted to the relevant tax authority within the period specified by law. Withholding tax deducted on a dividend is regarded as final tax in the hand of the recipient.

ii. Tertiary education tax Like other taxpayers, companies which are into real estate business sare expected to pay tertiary education tax in addition to companies’ income tax. The tertiary education tax is 3% of the assessable profit of a company, and a small company with a gross turnover of N25million and below is exempted from paying this tax.

iii. Value added tax Real estate companies are required to register for VAT on commencement of business with the relevant tax authority. Like companies in other sectors, all goods and services utilised in the real estate industry are to be invoiced and 7.5% of the value of the goods and services representing the value added tax should be remitted to the relevant tax authority.

iv. Stamp duties It is expected that all written documents relating to any property or interest in property, which are transferred or leased to any person, must be stamped. The rate of stamp duties is 75 kobo for every ₦200 of the 184 consideration of certain real estate transactions like mortgages while for conveyances or the transfer or sale of real property is 75k for every ₦50.

b. The Federal Inland Revenue Service (FIRS) is given the discretionary power, by virtue of the provision of Section 30 of CITA, to assess and charge a company to tax on a fair and reasonable percentage of the turnover of the trade or business. The FIRS is entitled to exercise this power in any of the following circumstances where it appears to it that for any year of assessment, the company’s trade or business has either:

(i) no assessable profits; or (ii) assessable profits which in the opinion of the FIRS, are less than might be expected to arise from that trade or business; or (iii) the true amount of the assessable profit cannot be readily ascertained. The implication of the above provision is that whatever is obtained by applying a fair and reasonable percentage, as may be determined by the FIRS, to the company’s revenue, is deemed to be its assessable profit for the assessment year concerned.

Examiner’s report Part (a) of the question tests the candidates’ knowledge of taxes relating to Real Estate Investment Company (REIC) whilst part (b) requires them to explain the circumstances when FIRS can assess a company based on turnover. About 65% of the candidates attempted the question but the performance was average. Many of the candidates could not explain the taxes relating to Real Estate Investment Company (REIC). Candidates are advised to cover the syllabus adequately and should endeavour to be conversant with the taxation of specialised businesses.

Marking guide Marks Marks a. Explanations of the taxes in relation to Real Estate Investment Company (REIC) (2 marks for each of the four explanations) 8

b. Circumstances when FIRS can assess a company based on turnover The prerogative of the FIRS to exercise its power where: ½ i. no assessable profits 1½ 185

ii. assessable profits which in the opinion of the FIRS are less than might be expected 1½ iii. the true amount of the assessable profit cannot be readily ascertained 1½ Implication of the decision of the FIRS to exercise its power 2 7 Total 15 186 INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

(a) Oke and Sons Enterprises Computation of adjusted profits For 2024 year of assessment N N Net profit per accounts 10,410,000 Understated turnover 2,700,000 Bad debts recovered 260,000 13,370,000 Add: Disallowable expenses: Rent and rates 400,000 Entertainment 296,667 Miscellaneous expenses 232,500 Donations 750,000 Equipment purchased 600,000 Reconstruction of entrance gate 1,600,000 Interest on loan (personal) 160,000 Medial expenses 200,000 Depreciation 2,640,000 6,879,167 20,249,167 Less: Allowable expenses (770,000) Adjusted profit 19,479,167

Workings:

i. Rent and rates for private use (1/3 x N1,200,000) = N400,000 ii. Entertainment (N890,000 x 1/3) = N296,667 iii. Miscellaneous expenses (N1,550,000 x 0.15) = N232,500 iv. Balancing charge to be subjected to tax is restricted to the amount of capital allowance already claimed on the asset, which is N900,000. 77 (b) Oke and Sons Enterprises Computation of tax liabilities For 2024 assessment year N N Adjusted profit 19,479,167 Add: Balancing charge 900,000 20,379,167 Capital allowances: B/f from A. Y. 2023 1,000,875 For the year 2,200,000 (3,200,875) Add: Other income Interest (gross) – N74,000/0.9 82,222 Rent (gross) – N600,000/0.9 666,667 Dividend (gross) 270,000 1,018,889 18,197,181 Less: Franked investment income (270,000) 17,927,181 Less: Tax exempts: Pension 500,000 Life assurance premium 2,300,000 (2,800,000) Gross income 15,127,181 Less: Consolidated relief allowance (N200,000 + (20% of N15,127,181) (3,225,436) Chargeable income 11,901,745 Computation of personal income tax N N First N300,000 @ 7% 21,000 Next N300,000 @ 11% 33,000 Next N500,000 @ 15% 75,000 Next N500,000 @ 19% 95,000 Next N1,600,000 @ 21% 336,000 Next N8,701,745 @ 24% 2,088,419 N11,901,745 _________ 2,648,419 Less: Withholding tax paid: Interest 8,222 Rent 66,667 (74,889) Net tax payable 2,573,530 78

(c) Requirements for the registration of sole proprietors for income tax purposes To register for tax as a sole proprietor in Nigeria, the taxpayer must:

i. first register the business name with Corporate Affairs Commission (CAC); ii. apply for a tax identification number (TIN); iii. register with the relevant tax authority of the State as soon as business operation commences by completing the prescribed form and forwarding it to the relevant tax authority.

(d) Conditions when minimum tax applies in the computation of personal income tax The specific conditions for the application of minimum tax are:

i. No taxable income: Minimum tax is applied if the taxpayer has no taxable income for the relevant year, often due to significant personal reliefs allowances and deductions (such as pension contributions national health insurance scheme contributions, life assurance premiums, consolidated relief allowance, etc).

ii. Tax liabilities is less than minimum tax: It also applies if the actual income tax calculated using the standard graduated tax rates is less than the amount derived from the minimum tax calculation. Exemption: Individuals earning the national minimum wage or less are exempt from all income tax provisions. Since May 1, 2024, the national minimum wage is N70,000 per month, which translates to N840,000 per annum.

Examiner’s Report Part (a) of the question tests the candidates’ knowledge of the computation of adjusted profit of an enterprise, whilst part (b) relates to the ascertainment of personal income tax of the proprietor. Candidates are also expected to explain the requirements for the registration of sole proprietors for income tax purposes and the conditions when minimum tax applies in the computation of personal income tax in parts (c) and (d), respectively. This being a compulsory question, all the candidates attempted the question and their performance was above average. The common pitfalls of the candidates were their inability to:

a) identify allowable and disallowable expenses; and b) explain the requirements for the registration of sole proprietors for income tax purposes. 79 Candidates are advised to read widely and be conversant with the provisions of the Personal Income Tax Act Cap. P8 LFN 2004 (as amended) before sitting for subsequent examinations to enhance better performance.

Marking Guide 1(a) Marks Marks Computation of adjusted profit - Heading 1½ - Net profit per accounts 1 - Understated turnover 2 - Bad debts recovered 2 - Disallowable items – (½ mark each for nine disallowable items) 4½ - Allowable expenses 1 12

(b) Computation of Mr. Ajah Oke’s income tax liabilities

- Heading ½ - Adjusted profit ½ - Balancing charge ½ - Capital allowance - b/f ½ - - for the year ½ - Other income - Interest (gross) ½ - - Rent (gross) ½ - - Dividend (gross) ½ - Franked investment income ½ - Tax exempts – Pension ½ - - Life assurance premium ½ - Consolidated relief allowance ½ - Computation of personal income tax (½ mark each for the six entries) 3 - Withholding tax paid – Interest ½ - - Rent ½ 10

(c) Requirements for the registration of sole proprietors for income tax purposes - Registration of the business name with CAC 1 - Application for a tax identification number (TIN) 1 - Registration with the relevant tax authority of a State on commencement of business 1 - Filling the prescribed form and forwarding it to the relevant tax authority 1 4

(d) Conditions when minimum tax applies in the computation of personal income tax - No taxable income 1 - Explanation 1 - Tax liability is less than minimum tax 1 - Explanation 1 4 Total 30 80 Bluechips Nigeria Limited Computation of income tax liabilities For 2025 assessment year N N N Profit before tax 45,783,750 Add: disallowable expenses: Depreciation 1,850,000 Legal expenses: Cost of tax appeal 1,750,000 Share issue expenses 1,070,050 2,820,050 VAT on computer hardware 120,000 Rent for staff (N3.6m – N2.4m) 1,200,000 Misappropriated funds by the Director of Finance 2,500,000 Defalcations by Sales Clerk (Amount recovered under fidelity insurance) 200,000 Loss on property, plant and equipment 150,000 Donations: Kewa Limited 300,000 Christian Church of Nigeria 100,000 AFP foundation Limited 500,000 Facilitation of port operations 800,000 10,540,050 56,323,800 Add: taxable income omitted: Rent (WHT) (10/90 x 3,460,000) 384,444 Less: Non taxable income: Dividend (net) 5,650,540 Interest on government securities 7,550,000 Interest on foreign placement (80% of N11,256,500) 9,005,200 Unrealised foreign exchange gain 1,480,500 (23,686,240) Adjusted profit 33,022,004 Less: Loss brought forward (10,345,000) 22,677,004 Deduct: Capital allowances (2,850,000) Total profit 19,827,004 Companies income tax (CIT) (30% of total profit) = 5,948,101.20 Less: WHT on rent (384,444) Net companies income tax payable 5,563,657.20 Minimum tax computation 0.5% of N180,375,000 = N901,875 42 Tertiary education tax payable 3% of adjusted profit = N990,660.12

Notes: (i) When a company pays rent on behalf of its employees, the deduction to be allowed for tax purposes is limited to a maximum cap of 100% of the employee’s basic salary.

(ii) Embezzlement of cash or inventory (defalcation) committed by a junior staff or officer is an allowable deduction under CITA. If a part of the defalcation by junior staff is recovered under an insurance policy, only the unrecovered (net) loss is as allowable deduction. Put differently, amount recovered from an insurance company in respect of defalcation by junior staff is not allowable as a deduction for tax purposes.

(ii) Given the fact that the minimum tax liability is less than the CIT as computed above, the net CIT payable is N5,563,657.20.

Examiner’s Report The question tests the candidates’ knowledge of allowable and disallowable expenses, rules relating to donations, and the computation of companies income tax liabilities. This being a compulsory question, all the candidates attempted the question but their performance was average. The common pitfalls of the candidates were their inability to differentiate between allowable and disallowable expenses. Additionally, some of the candidates commenced their computations from gross profit, whilst others omitted the relevant assessment year. The question provided an opportunity for well-prepared candidates to earn substantial marks, however, inadequate practical understanding and poor application of statutory provisions of CITA, limited performance. Candidates are advised to read widely and be conversant with the provisions of the Nigeria Tax Act, 2025 and other relevant tax Acts, before sitting for subsequent examinations to enhance performance.

Marking Guide Marks Heading ½ Computation of income tax liabilities ¼ For assessment year 2025 ¼ Profit before tax 1 Add: Disallowable expenses: Depreciation 1 Legal expenses: Cost of tax appeal 1 43 Share issue expenses 1 VAT on computer hardware 1 Rent for staff (N3.6m – N2.4m) 1 Misappropriated funds by director 1 Defalcation by junior staff 1 Loss on property, plant & equipment 1 Donations: Kewa Limited 1 Christian Church of Nigeria 1 AFP foundation 1 Facilitation of port operations 1 Add: Taxable income omitted – WHT on rent 1 Less: Non-taxable income: Dividend (Net) 1 Interest on government securities 1 Interest on foreign placement 1 Unrealised foreign exchange gain 1 Adjusted profit 1 Less: Loss brought forward 1 Deduct: Capital allowances 1 Total profit 2 Companies income tax (CIT) 30% of total profit 1 Less: WHT on rent 1 Net companies income tax payable 2 Minimum tax computation 1 Tertiary education tax payable – 3% of adjusted profit 1 Total 30

(a) i. Zarin Nigeria Limited Computation of adjusted profit For 2024 year of assessment N N Net profit per accounts Add back disallowable expenses: Depreciation Donations Allowance for doubtful debts Legal fees: court fines Repairs and maintenance: vehicle purchased Bad debts – general provision Salaries Less profit on sale of car Adjusted profit 14,548,000 8,600,000 200,000 670,000 500,000 7,000,000 280,000 350,000 17,600,000 32,148,000 (6,800,000) 25,348,000 (ii) Zarin Nigeria Limited Computation of income tax liabilities For 2024 year of assessment N Adjusted profit Add balancing charge Less: Capital allowances Total profits Companies income tax @ 30% of total profit Tertiary Education tax @ 3% of adjusted profit 25,348,000 1,450,000 26,798,000 (12,556,250) 14,241,750 4,272,525 760,440 81 Zarin Nigeria Limited Computation of capital allowances For 2024 year of assessment Initial all’ce % Annual all’ce % Investment allce % Capital allowance N 2024 tax year (1/1/23- 31/12/23) Cost Cost IA AA IA TWDV Building 15 10 -- Plant & machinery 50 25 10 Motor vehicle 50 25 - Furniture & fittings 25 20 - N N N N 2,250,000 2,400,000 8,500,000 1,500,000 0 0 7,000,000 0 2,250,000 2,400,000 15,500,000 1,500,000 (337,500) (1,200,000) (7,750,000) (375,000) (191,250) (300,000) (1,937,500) (225,000) - - - - 1,721,250 900,000 5,812,500 900,000 9,662,500 2,653,750 240,000 12,556,250

Note: Given the fact that the plant and machinery was purchased in January 2023, investment allowance was granted on the asset as it was bought before September 1, 2023.

(iii) Every company shall make payment of tax due on or before the due date of filing as stated in section 55 of CITA (as amended), in one lump sum or instalments provided that, where the taxpayer pays in instalments:

• the taxpayer shall first write with evidence of payment of the first instalment, and obtain the approval of the Service to pay in such number of instalments as may be approved by the Service; and

• The final instalment must be paid on or before the due date of filing. 82 b (i) Gogo Nigeria Limited Computation of interest deductable For 2025 year of assessment N N Net profit per accounts Interest deducted: Yetiz Limited (UK) Other creditors Depreciation EBITDA Total interest deductible before restriction: Interest on loan- Yetiz Limited (UK) Others creditors Total interest Less: Interest for tax exempt profit Interest qualifying for deduction Restriction: 30% of EBITDA (30% of N19,720,000) Amount of interest deductible in 2025 assessment year is lower of:

i. 30% of EBITDA (N19,720,000) ii. Interest qualifying for deduction This is N3,050,000. 15,000,000 2,500,000 1,350,000 870,000 4,720,000 19,720,000 2,500,000 1,350,000 3,850,000 (800,000) 3,050,000 = N5,916,000 = N5,916,000 = N3,050,500

(ii) Tax implication of excess interest not fully deducted in a year of assessment. Where any amount of interest or deduction of similar nature has been disallowed, such amount may be carried forward for a period of not more than 5 years from the year for which the excess interest expenditure was first computed. The amount so carried forward shall constitute interest for the purpose of computing the restriction for succeeding years.

Examiner’s Report Part (a) of the question tests the candidates’ knowledge of the computation of companies income tax liabilities, whilst part (b) requires the candidates to explain the restriction on interest deductible by a Nigerian company or a fixed base of a foreign company in Nigeria, in any year of assessment, in respect of debt issued by a foreign connected person. About 85% of the candidates attempted the question but the performance was fair. 83 Some of the candidates having disallowed the cost of vehicle purchased (N7,000,000) in the computation of adjusted profit, failed to capture it as an addition to motor vehicle in the computation of capital allowances. Additionally, in part (b) of the question, some candidates could not compute the interest deductible by Gogo Nigeria Limited on the loan granted by its parent company in UK - Yetiz Limited. Candidates are advised to read relevant texts on taxation of companies, ICAN Pathfinders and Study Text when preparing for future examinations.

Marking guide

(a) i. Computation of adjusted profit of Zarin Limited Marks Marks

- Heading 1½ - Net profit per accounts ½ - Disallowed expenses - (½ mark each for seven disallowable expenses) 3½ - Profit on sale on car ½ 6

ii. Computation of income tax liabilities of Zarin Limited

- Heading ¾ - Adjusted profit ¼ - Balancing charge ¼ - Capital allowances (total) ¼ - Capital allowance – Cost ¼ - Initial allowance (¼ mark each) 1 - Annual allowance (¼ mark each) 1 - Investment allowance ¼ 4

iii. Conditions to be met when a company opts to settle its tax liability by way of instalments - Evidence of payment of the first instalment ½ - Approval by the Service to pay in such number of instalments ½ - Payment of final instalment on or before the due date of filing 1 2

(b) i. Computation of the interest deductible in respect of Gogo Nigeria Limited - Net profit per accounts ½ - Interest deducted - Yetiz Limited (UK) ½ - Other creditors ½ - Depreciation ½ - Computation of interest deductible before restriction

- Yetiz Limited (UK) ½ - Other creditors ½ - Interest for tax exempt profit ½ - Restriction to 30% of EBITDA ½ - Lower of 30% of EBITDA and interest qualifying for deduction 1 5 84

ii. Tax implications of excess interest not fully deducted in a year of assessment - Where any amount of interest or deduction of similar nature has been disallowed 1

- Amount to be carried forward for a period of not more than 5 years from the year for which the excess interest expenditure was first computed 1 - The amount carried forward shall constitute interest for the purpose of computing the restriction for succeeding years 1 3 Total 20 (a) Chief Bamidele Lawrence Computation of taxable income of the trustee For 2024 assessment year Income N N Trading income 100,000,000 Less capital allowance ( 19,300,000) 80,700,000 Rental income (gross) (N480,420,000/0.9) 533,800,000 Miscellaneous income 10,000,000 Gross income 624,500,000 Less authorised payments: Operating expenses 48,850,000 Fixed annuity: Josephine 10,000,000 Abel 5,000,000 44 Abigail 3,500,000 Trustee remuneration: Fixed 1,000,000 Variable- (0.5% x N624,500,000) 3,122,500 (71,472,500) Computed income 553,027,500 Less discretionary payment – Josephine (2,500,000) Net computed income 550,527,500 Distribution to beneficiaries: Josephine (1/20) 27,526,375 Abel (1/20) 27,526,375 Abigail (1/20) 27,526,375 Total distribution (82,579,125) Taxable income of the trustee 467,948,375 (b) Chief Bamidele Lawrence Computation of assessable income in the hands of the beneficiaries Josephine Abel Abigail N N N Share of distributable income 27,526,375.00 27,526,375.00 27,526,375.00 Fixed annuity 10,000,000.00 5,000,000.00 3,500,000.00 Discretionary payment 2,500,000.00 Gross income 40,026,375.00 32,526,375.00 31,026,375.00 (c) Chief Bamidele Lawrence Computation of tax liabilities of the beneficiaries Josephine Abel Abigail N N N Gross income 40,026,375.00 32,526,375.00 31,026,375.00 Less CRA (8,405,539.00) ( 6,830,539.00) (6,515,539.00) Chargeable income 31,620,836.00 25,695,836.00 24,510,836.00 Tax liability: Ist N300,000 @ 7% (21,000.00) 21,000.00 21,000.00 Next N300,000 @ 11% 33,000.00 33,000.00 33,000.00 Next N500,000 @ 15% 75,000.00 75,000.00 75,000.00 Next N500,000 @ 19% 95,000.00 95,000.00 95,000.00 Next N1,600,000 @ 21% 336,000.00 336,000.00 336,000.00 Next N28,420,836 @ 24% 6,821,000.64 Next N22,495,836 @ 24% 5,399,000.64 45 Next N21,310,836 @ 24% ____________ ____________ 5,114,600.64 Tax payable 7,381,000.64 5,959,000.64 5,674,600.64

Workings: 1 CRA Josephine Abel Abigail N N N 1% of gross income 400,263.75 325,263.75 310,263.75 20% of gross income 8,005,275.00 6,505,275.00 6,205,275.00 8,405,538.75 6,830,538.75 6,515,538.75

Examiner’s Report The question tests the candidates’ knowledge of the ascertainment of the computed income of a trustee and the computation of the income tax liabilities of the beneficiaries. About 50% of the candidates attempted the question and the performance was fair. Some of the candidates could not differentiate between a trustee and the trust entity, thereby resulting in inappropriate presentation and headings. Candidates are advised to read relevant texts on taxation, ICAN Pathfinders, and Study Text when preparing for future examinations.

Marking Guide Marks Marks a. i. Heading ½ Computation of taxable income of the trustees For 2022 assessment year ¼ ¼ Trading income ½ Less: Capital allowance ½ Rental income ½ Miscellaneous ½ Gross income ½ Less: Authorised payments: Operating expenses ½ Fixed annuity: Josephine ½ Abel ½ Abigail ½ Trustee remuneration Fixed ½ Variable ½ Computed income Less: discretional payment – Josephine ½ Net computed income ½ Distribution to beneficiaries ½ 46 Josephine ½ Abel ½ Abigail ½ Taxable income of the trustee ½ 10

b. Share of distributable income Josephine ½ Abel ½ Abigail ½ Fixed annuity Josephine 1 Abel 1 Abigail 1 Discretionary payment - Josephine ½ 5

c. Computation of tax liabilities

i. Consolidated relief allowance Josephine ¼ Abel ¼ Abigail ¼ ii. Application of tax rates (1/4 mark for each entry): Josephine ¼ x 6 = 1½ Abel ¼ x 6 = 1½ Abigail ¼ x 5 = 1¼ 4¼ 5 Total 20

(a) Ganzi Nigeria Limited Computation of VAT payable For the year ended December 31, 2024 N’000 N’000 Gross revenue Less sales returns Less value of exempted/ zero rated supplies included in gross revenue Net revenue Output tax (N203,800 x 7.5/107.5) Less: Input tax Purchases of raw materials Less: Returns Net purchases Input VAT (7.5/107.5 x N107,600) VAT payable 220,000 (1,200) (15,000) 203,800 108,200 (600) 107,600 14,218.60 (7,506.98) 6,711.62

(b) The VAT Act 2004 (as amended) limits input tax as a deduction from output tax to the tax on goods purchased or imported directly for resale and goods which form the inventory in trade used for direct production of any product on which the output tax is charged. VAT paid on any overhead, service and general administration of business outfit which otherwise can be expensed through the statement of profit or loss shall not be allowed as input tax. VAT paid on any capital item and asset shall be capitalised along with the cost of acquisition and shall not be allowed as input tax. 85

(c) Requirements for registration and deregistration for VAT as contained in Section 8 of VAT Act (as amended)

i. A taxable person must register with the Federal Inland Revenue Service within six months of the Act or within six months of commencing business, whichever is earlier.

ii. Government ministries, etc., as agents of the Board: Every government ministry, statutory body and other agency of government shall register as agent of the FIRS for the purpose of collection of tax under this Act. Every contractor transacting business with a government ministry, statutory body and other agencies of the federal, state or local government shall produce evidence of registration with the FIRS as a condition for obtaining a contract.

iii. Where a taxable person permanently ceases to carry on a trade or business in Nigeria, the taxable person shall notify the Service of its intention to deregister for tax purposes within 90 days of such cessation of trade or business. Where taxable supplies are made after the date of cessation, such supplies will be deemed to have been made on the day immediately preceding cessation. Where the taxpayer fails to notify the Service on cessation of business, penalties for failure to file returns will continue to apply.

Examiner’s Report Part (a) of the question tests the candidates’ knowledge of the computation of VAT payable, whilst parts (b) and (c) relate to VAT paid on some expenses which is not allowed as input VAT and registration and deregistration requirements for VAT, respectively. About 80% of the candidates attempted the question, but the performance was average. The common pitfall of the candidates was their inability to explain the requirements for registration and deregistration of taxable persons for VAT purposes. Candidates are advised to read the provisions of Value Added Tax Act Cap. V1 LFN 2004 (as amended), Finance Acts, the Institute’s Pathfinder and Study Text in their preparations for subsequent examinations. 86

Marking guide

(a) Computation of VAT payable by Ganzi Limited Marks Marks

- Heading 1 - Gross revenue 1 - Less sales returns 1 - Less value of exempted/zero rated supplies 1 - Output tax 1 - Less input tax: - Purchases of raw materials 1 - Less returns 1 - Input VAT (total) 1 8

(b) Why some items were treated differently

- Vat Act 2004 allows input tax on goods purchased or imported directly for sale 2 - Vat paid on any overhead, service and general administration of business outfit shall not be allowed as input tax 2 - VAT paid on any capital item and asset shall be capitalised along with the cost of acquisition and shall not be allowed as input tax 2 6

(c) Registration and deregistration for VAT

- Registration of taxable persons 2 - Government ministries, etc as agents of the Board 2 - When a taxable person permanently ceases to carry on a trade or business in Nigeria 2 6 Total 20

a. The adjudication process by the Commissioner of Stamp Duties is as follows:

i. Submission of application An application submitted is requesting the Commissioner’s opinion on the amount of duty chargeable. The original or hard copy of the instrument, along with a full disclosure of all facts and circumstances affecting the transaction must be provided. The application and the supporting documents should be submitted to the relevant tax authority that is, the Nigeria Revenue Service (formerly Federal Inland Revenue Service) in case of companies or State Boards of Internal Revenue in respect to individuals.

ii. Request for evidence The Commissioner has the legal authority to call for or refuse to proceed with the assessment until satisfactory evidence, affidavits, or declarations are provided to prove the facts stated in the instrument. 47

iii. Assessment and stamping Once the Commissioner reviews the instrument, assessment of the duty will be issued and any late penalties are raised. If the instrument was not stamped within statutory execution periods, such as 30 to 40 days. Upon payment of the assessed amount and any applicable adjudication fees, the Commissioner will impress or attach an official adjudication stamp to the document. If the instrument is deemed exempt or not liable to duty, a "zero duty" or adjudication stamp is impressed, making it legally admissible in Court.

b. Benefits of adjudication

i. It is the first step in disputing the views of stamp duties office of the correct amount of duty. ii. It shows the document is genuine. iii. It satisfies the statutory requirement. iv. It makes instrument once adjudicated, admissible for all purposes, notwithstanding any objection as to the duty to be paid.

c. Limitations of the adjudication process

i. Where a court has ruled that an instrument has not been duly stamped, subsequent adjudications cannot retrospectively make it duly stamped. ii. The process cannot prejudice rights that have been asserted before adjudication. iii. Strict statutory time limits: Documents must be presented for adjudication and stamping within strictly defined periods to avoid penalties or outright rejection in court, for example, documents executed outside Nigeria generally must be presented within 10 to 30 days of being received in the country. iv. Demand for discretionary evidence: The Commissioner has the legal right to call for and refuse to proceed with the adjudication until sufficient evidence or affidavits proving the facts and circumstances of the transaction are provided. v. High admission penalties: While adjudication determines the correct duty, parties attempting to rely on an unstamped document in court or arbitration face harsh evidentiary penalties. To admit an unstamped or improperly stamped instrument, parties usually must pay a significant statutory penalty in addition to the unpaid duty. 48

d. Appeals procedure where a taxpayer is dissatisfied with the Commissioner's adjudication This is a judicial review of the adjudication process. Where any person is aggrieved by an assessment of the Commissioners of Stamp Duties, an appeal lies to the High Court by way of case stated but only after the adjudication and payment of duty. Any aggrieved person may within twenty days after the date of the assessment and on the payment of the duty, appeal against the assessment to the High Court of the State in which the assessment was made. He may require the Commissioner to state and sign a case setting forth the question upon which his opinion was required and the assessment made by him. The Commissioner shall then state and sign a case and deliver such to the aggrieved person. Such a person then files this within seven days in the High Court to enable the Court to hear the case. Upon hearing the case, the Court shall determine the question submitted and if the instrument in question is in the opinion of the Court chargeable with any duty, the Court shall assess such a duty. If it is decided by the Court that the assessment of the Commissioner is wrong, the Court shall assess the correct amount of duty, and:

i. if the amount assessed is less than the duty already paid, the Court shall order a refund of the excess amount together with any penalty or fine which might have been paid, with or without cost; and

ii. if the amount assessed is more than the duty already paid, the shortfall, together with any fine or penalty shall be paid with or without costs immediately or within such a time that the court may permit.

Note that the Revenue may not sue to recover the shortfall of any higher duty assessed by the court because the instrument, in such circumstance, is simply treated as not duly stamped until the shortfall is paid.

Examiner’s Report Candidates are required to explain the process of adjudication in relation to stamp duties, its benefits and limitations. Additionally, they are expected to explain the appeal procedure available where a taxpayer is dissatisfied with the Commissioner’s adjudication. About 40% of the candidates attempted the question and the performance was poor. 49 The common pitfalls of the candidates were their inability to explain limitations of the adjudication process and the appeals procedure where a taxpayer is dissatisfied with the Commissioner’s adjudication. Candidates are advised to read the provisions of Nigeria Tax Act, 2025, Institute’s Pathfinder, and Study Text in their preparations for subsequent examinations.

Marking Guide Marks Marks a i Explanation of how to submit application

- Heading ½ - Explanation 1½

ii. Request for evidence

- Heading ½ - Explanation ½

iii. Explanation of assessment and stamping

- Heading ½ - Explanation 1½ 5

b. Explanation of benefits of adjudication (2 marks for each benefit, subject to a maximum of two points) 4

c. Explanation of the limitation of the adjudication (1 mark for each limitation, subject to a maximum of 3 points) 3

d. Explanation of the appeal procedure where a taxpayer is dissatisfied with the commissioner’s adjudication (2 marks for each aspect of the appeal procedure, subject to a maximum of 4 points) 8 Total 20

(a) Tax implications of the transactions

i. Murabaha (machinery financing)

• The purchase of the asset by the financial institution is subject to both VAT and withholding tax.

• The initial purchase price is treated as a loan provided by the financial institution to the customer.

• The markup (profit) of N20,000,000 (20% x N100,000,000) is treated as interest and it is subject to withholding tax (WHT). 87

• The loan repayments (the price paid by the customer, excluding the markup) are exempt from VAT, stamp duties, and capital gain tax (CGT).

• The markup earned by the non-interest financial institution is subject to the companies income tax (CIT).

• The WHT deducted on the markup is remitted to the relevant tax authorities in line with WHT regulations.

• Agreements executed in the course of the transaction are generally subject to stamp duties.

ii. Ijarah (Lease of vehicles)

• For the lessor, the interest element of the lease rentals is subject to CIT, WHT, and VAT.

• For the lessee, lease payments are allowable income tax expenses if the asset is used for income generation.

• Only the lessor can claim capital allowances on the leased asset.

iii. Sukuk issuance (₦200m bonds)

• Returns to investors of 15% of ₦200,000,000 = ₦30,000,000 is treated as interest-equivalent and subject to withholding tax like conventional bonds interest.

• Returns on investment (profit share) distributed to Sukuk holders are subject to a 10% WHT which is typically a final tax to the recipient.

• Transfer of Sukuk certificates are subject to stamp duty unless exempt under capital market rules.

• Income from corporate Sukuk issuances are subject to CIT.

iv. Takaful (insurance scheme)

• Contributions treated as premiums not taxable to Al-Juda.

• Surplus distribution (₦15,000,000) returned to participants by Al- Juda is subject to withholding tax (WHT).

• Commissions and management fees earned by the Al-Juda are taxable under VAT as the prevailing rate of 7.5%.

• Agreements between participants and Al-Juda attract stamp duty. 88

(b) Challenges under Nigerian tax legislations These include:

i. lack of adequate legal framework for islamic finance and reliance on circulars; ii. risk of double/multiple taxation on Murabaha and Sukuk (VAT, stamp duty, CGT); iv. capacity gaps amongst tax officials in understanding Shari’ah- compliant structures; iv. lack of secondary markets; v. competition from conventional banks; vi. low public awareness; vii. shortage of trained personnel with the necessary knowledge, etc.

Examiner’s Report Part (a) of the question tests the candidates’ knowledge of the provisions of Non- Interest Finance (Taxation) Regulations 2022. Additionally, in part (b), candidates are required to explain the challenges a taxpayer may face in applying the provisions of the regulations to its products. About 40% of the candidates attempted the question and performance was poor. Many candidates avoided this question like a plague. Those who attempted the question displayed poor knowledge of the provisions of the Non-interest Finance (Taxation) Regulations, 2022, as evidenced in their explanations of the tax implications of the transactions. Candidates should be conversant with the provisions of the relevant tax laws and circulars, and also ensure that they cover all areas of the syllabus adequately when preparing for subsequent examinations.

Marking guide

(a) Tax implications of the specified transactions of a licensed non- interest financial institution Marks Marks

- Murabaha (Machinery financing) (1 mark each for any correct tax implication identified subject to a maximum of 5 points) 5 - Ijarah (Lease of vehicles) (1 mark each for any correct tax implication identified subject to a maximum of 3 points) 3 - Sukuk issuance (N200m bonds) (2 marks each for any correct tax implication subject to 89 maximum of 2 points) 4 - Takaful (Insurance scheme) (1 mark each for any correct tax implication subject to maximum of 4 points) 4 16

(b) Challenges Al-Juda Finance Limited may face in applying relevant tax legislations to these products (1 mark each for any correct challenge mentioned subject to maximum of 4 points) 4 Total 20

a. i. A startup is eligible for labeling in line with Startup Act, 2022, where:

• it is registered as a limited liability company under the Companies and Allied Matters Act, and has been in existence for a period not more than 10 years from the date of incorporation;

• its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process; 50

• it is a holder or repository of a product or process of digital technology, or the owner or author of a registered software;

• it has at least one-third local shareholding held by one or more Nigerians as founder or co-founder of the startup; and

• In the case of a sole proprietorship or partnership, it satisfies the conditions set out in the penultimate bullets above.

ii. This Act shall not apply to an organisation which is a holding company or subsidiary of an existing company which is not registered as a startup.

iii. A sole proprietorship or partnership referred to in (i), bullet five, above shall be granted a pre-label status for a period of six months to enable the sole proprietorship or partnership comply with the requirements set out in the first four bullets in (i) above.

iv. A sole proprietorship or partnership which fails to comply with (iii) above, shall lose the pre-label status granted to it.

v. A labelled startup shall be granted access to the incentives provided under this Act.

b. Tax and fiscal incentives available to labelled startups

i. A labelled startup which falls within industries captured under the extant Pioneer Status Incentives (PSI) Scheme, or economic development tax incentives, may upon application through the Secretariat, receive expeditious approval from the Nigerian Investment Promotion Commission (NIPC) for the grant of the tax reliefs and incentives under the PSI Scheme.

ii. Notwithstanding the provisions of any other law, the Federal Government may, through the Federal Ministry responsible for Finance or any other relevant MDA, simplify the requirements for a startup to benefit from existing fiscal incentives.

iii. A labelled startup may be entitled to exemption from the payment of income tax or any other tax chargeable on its income or revenue for a period of three years and an additional two years if still within the period of a labelled startup, provided that the commencement date of the tax relief shall be the date of the issuance of the startup label.

iv. A labelled startup shall enjoy full deduction of any expenses on research and development which are wholly incurred in Nigeria and the restrictions placed by the relevant tax laws shall not apply to a labelled startup. 51

v. Non-resident companies that provide technical, consulting, professional or management services to a labelled startup shall be subjected to a five percent withholding tax on income derived from the provision of such services, provided that the payment of the withholding tax, shall be the final tax to be paid by such non -resident companies. vi. A labelled startup shall be exempted from contributions to the Industrial Training Fund where it provides in-house training to its employees for the period where it is designated as a labelled startup.

vii. The Secretariat shall ensure that a labelled startup involved in the exportation of products and services, which are deemed eligible under the Export (Incentives and Miscellaneous Provisions) Act, is entitled to export incentives and financial assistance from the Export Development Fund, Export Expansion Grant and the Export Adjustment Scheme Fund.

viii. The Secretariat shall ensure that a labelled startup has access to grants and loan facilities administered by the CBN, the Bank of Industry or other bodies statutorily empowered to assist small and medium scale enterprises and entrepreneurs.

ix. Credit guarantee scheme: The Secretariat shall establish a Credit Guarantee Scheme (in the Act referred to as “the Scheme”) for the development and growth of a labelled startup under this Act.

c. Incentives and reliefs for investors investing in a labelled startup

i. The Federal Government, through the Federal Ministry responsible for Finance and other MDAs, shall develop and implement a national policy for incentives for individuals, impact investors, angel investors, companies, venture capitalists, private equity funds, accelerators or incubators which invest in a labelled startup or in the startup ecosystem to enjoy tax credits on their investment.

ii. Notwithstanding the provisions of the relevant tax laws or Nigeria Tax Act, 2025, an angel investor, venture capitalist, private equity fund, accelerators or incubators which invests in a labelled startup shall be entitled to an investment tax credit equivalent to 30% of the investment in the labelled startup provided that such credit shall be applied on any gains on investment which are subject to tax.

iii. Capital gains that accrue from the disposal of assets by an angel investor, venture capitalist, private equity fund, accelerators or incubators with respect to a labelled startup shall not be subject to tax, provided the assets have been held in Nigeria for a minimum of 24 months. 52

Examiner’s Report Part (a) of the question tests the candidates’ knowledge of the provisions of the Nigeria Startup Act 2022, relating to eligibility criteria to qualify as a labelled startup. Part (b) requires the candidates to explain tax and fiscal incentives to labelled startups, whilst part (c) relates to incentives or reliefs available to investors who invest in labelled startups. About 40% of the candidates attempted the question and performance was poor. Many candidates avoided this question like a plague. Those who attempted the question displayed poor knowledge of the provisions of the Nigeria Startup Act, 2022, as evidenced in their explanations of the requirements of the questions. Candidates should be conversant with the provisions of the Act, and also ensure that they cover the syllabus adequately when preparing for subsequent examinations.

Marking Guide Marks Marks a Identification and explanation of eligibility criteria for a company to qualify as a labelled startup (1 mark for each criterion, subject to a maximum of 5 points) 5

b. Explanation of the tax and fiscal incentives available to labelled start-ups (2 marks for each point, subject to a maximum of 6 points) 12

c. Explanation of incentives or reliefs available to investors who invest in a labelled start-ups (1 mark for each point) 3 Total 20

(a) i. Importance of tax legislation to the economy include:

• Revenue generation: Tax legislation provides the framework for revenue generation.

• Economic growth: Tax legislation can influence economic growth by encouraging investment and job creation.

• Fairness and equity: Tax legislation can promote fairness and equity by redistributing wealth and income.

• Taxpayer compliance: Tax legislation provides the framework for taxpayer compliance and enforcement.

ii. Challenges facing tax legislations include:

• Complexity: Tax legislation can be complex and difficult to understand.

• Evasion and avoidance: Tax legislation must address tax evasion and avoidance.

• Inequality: Tax legislation must address issues of inequality and fairness.

• Globalisation: Tax legislation must address the challenges of globalisation and international taxation.

iii. Impact of tax legislation on the Nigerian economy include:

• Enhancing economic diversification: Tax laws have played a role in reducing reliance on oil revenue by increasing non-oil tax collection, particularly through VAT and companies income tax (CIT). 90

• Encouraging foreign direct investment (FDI): While tax incentives attract investors, inconsistent tax policies and multiple taxation challenges sometimes deter FDI. The pioneer status incentive which grants tax holidays, has been a key tool in attracting new investments.

• Controlling inflation and cost of living: Higher taxes on essential goods and services, such as VAT increases, contribute to inflation. Businesses often pass tax burdens to consumers, raising the cost of living.

• Boosting small and medium enterprises (SMEs): Recent legislation, like tax exemptions for small businesses earning below ₦25 million annually, supports SMEs. However, states, and local governments still creates financial burdens for businesses.

• Boosting public sector development: Revenue from taxation funds infrastructure, healthcare, and education. However, inefficiencies in tax collection and corruption often limit the full potential of these funds.

(b) Impact of tax system on the Nigerian economy The tax system can have a significant impact on the economy, as follows:

i. Positive impact

• Revenue generation: Taxes provide revenue for the government to fund public goods and services.

• Economic stabilisation: Taxes can help stabilise the economy by reducing inflation or stimulating economic growth.

• Redistribution of income: Taxes can redistribute income from high-income individuals to low-income individuals through progressive taxation.

ii. Negative impact

• Economic inefficiency: Taxes can create economic inefficiencies by distorting market incentives and reducing economic growth.

• Tax evasion and avoidance: Taxes can lead to tax evasion and avoidance, reducing tax revenue and increasing inequality.

• Inflation: taxes can contribute to inflation if they increase the cost of production and consumption. 91

iii. Other impact

• Investment and entrepreneurship: Taxes can influence investment and entrepreneurship by affecting the after-tax return on investment.

• Labour market: Taxes can affect the labour market by influencing the supply of labour and the demand for labour.

• Business competitiveness: Taxes can affect business competitiveness by increasing the cost of doing business.

Examiner’s Report Part (a) of the question tests the candidates’ knowledge of the importance, challenges, and impact of tax legislation on the Nigerian economy. Additionally, candidates are required to discuss the impact of the tax system on the economy. About 80% of the candidates attempted the question but performance was poor. The common pitfall of some of the candidates was their inability to explain the impact of tax legislation on the Nigerian economy. Candidates are advised to be conversant with relevant tax laws, read the Institute’s Pathfinder and Study Texts for effective preparation for future examinations.

Marking guide

(a) Transpiracy challenges and impact of tax legislations on the Nigerian economy Marks (2 marks each for any correct point subject to a maximum of five points) 10

(b) Impact of tax system on the Nigerian economy (1 mark each for any correct point subject to a maximum of 5 points) 5 Total 15 92

a. Basic concepts in taxation include:

i. Tax yield This is a total revenue a government collects from a specific tax or all taxes combined from the administration of tax on taxpayers. Tax yield is a product of tax rate and tax base.

ii. Tax rate It describes the burden ratio (usually expressed as a percentage) at which a business or person is taxed, for example, the value added tax rate is 7.5% on vatable goods and services. 53

iii. Tax effect This is a general term that describes the consequences of a specific tax scenario with respect to a particular tax-paying entity.

iv. Tax impact This is the effect of a tax on the production or consumption of a product being taxed, for example, the tax impact of raising the levy on tobacco might be a reduction in tobacco sales.

v. Tax shift This is also referred to as tax swap. It is a change in taxation that eliminates or reduces one or several taxes and establishes or increases others keeping the overall revenue the same.

b. Sources of Nigerian tax laws

i. Statutes laws These are tax legislations passed by:

• Acts of the National and State Assemblies, and

• Bye-laws by Local government Authorities under a democratic government; or

• Decrees/Edicts under a military government These legislations confer powers on the tax authorities to impose and collect taxes from individuals, companies, trusts, settlements, etc.

ii. Case laws This is based on the doctrine of stare decisis (judicial precedents). Judgments pronounced by superior courts of record namely the High Courts, Court of Appeal, and the Supreme Court on principles of tax law and interpretations of tax statutes are binding on lower courts. Since Nigerian tax laws have their origin in English tax laws, principles of English common law as pronounced by English judges also form another source of Nigerian tax law, particularly where statutory expressions and terms are substantially the same. Illustrative Case: Aderawos Timbers Trading Co. Limited v. Federal Board of Inland Revenue Service (1966) LL.R 195; (1969) ALL NLR 247. The court held that decisions of English courts may be invoked to interpret Nigerian tax statutes where expressions and terms are similar.

iii. Customary laws These are the native laws and customs, governing the taxation of income, goods and properties of persons or communities within an ethnic group. Included under this heading, is the Islamic law, which is 54 the basis of moslem laws that are usually applicable in the Northern part of Nigeria. Examples of taxes collected under customary laws include:

• Isakole - Payable in Yoruba land to titular heads of communities or Obas.

• Tax on the produce from farmland.

• Osusu-nkwu - Applicable in the Eastern part of Nigeria.

• Zakkat - Payable by adherents of the Islamic faith on their wealth held for a full year (including money, properties, etc.). The Islamic law provides the basis for determining the amount of tax payable and to whom it is payable

iv. Circulars issued by and practices of the Inland Revenue. v. Opinions of tax experts and authors in so far as the courts take judicial notice of them. vi. Budgets and pronouncements of relevant ministries. vii. The Constitution of the Federal Republic of Nigeria.

Examiner’s Report The question tests the candidates’ knowledge of some basic concepts of taxation and sources of Nigerian tax laws. About 80% of the candidates attempted the question and performance was good. The common pitfalls of some of the candidates were their inability to explain the basic concepts taxation and sources of Nigerian tax laws. Candidates are advised to be conversant with the basic concepts of taxation and should be able to identify and explain the sources of Nigerian tax laws at all times.

Marking Guide Marks Marks a. Explanation of the basic concepts in taxation

- Heading (1/2 x 5) 2½ - Explanation of each concept (1 mark for each concept) 5 7½

b. Identification and explanation of the sources of Nigeria tax laws - Heading (1/2 x 5) 2½ - Identification and explanation of each source (1 mark for each source, subject to a maximum of 5 sources) 5 7½ Total 15 55

(a) The powers and functions of the Federal Inland Revenue Service (FIRS) are as conferred on it by Federal Inland Revenue Service (Establishment) Act 2007 or by any other enactment or law on such matters on which the National Assembly has power to make law. Section 8(1) of FIRS (E) Act 2007 states that the FIRS shall:

i. assess persons including companies, enterprises chargeable with tax;

ii. assess, collect, account and enforce payment of taxes as may be due to the government or any of its agencies;

iii. collect, recover, and pay to the designated account any tax under any provision of this Act or any other enactment or law;

iv. in collaboration with the relevant ministries and agencies, review the tax regimes and promote the application of tax revenues to stimulate economic activities and development;

v. in collaboration with the relevant law enforcement agencies, carry out with a view to enforcing compliance with a view to enforcing compliance with the provisions of this Act;

vi. make, from time time, a determination of the extent of financial loss and such other losses by government arising from tax fraud or evasion and such other losses arising from tax waivers and other related matters;

vii. adopt measures to identify, trace, freeze, confiscate or seize proceeds derived from tax fraud or evasion;

viii. adopt measures which include compliance and regulatory actions, introduction and maintenance of investigative and control techniques on the detection and prevention of non-compliance; ix. collaborate and facilitate rapid exchange of information with relevant national or international agencies or bodies on tax matters;

x. undertake exchange of personnel or other experts with contemporary agencies for purposes of comparative experience and capacity building;

xi. establish and maintain a system for monitoring international dynamics of taxation in order to identify suspicious transactions and the perpetrators and other persons involved;

xii. provide and maintain access up to date and adequate data and information on all taxable persons, individuals, corporate bodies or all agencies of government involved in the collaboration of revenue for the purposes of efficient, effective and correct tax administration and to prevent tax evasion or fraud; 93

xiii. maintain database, statistics, records, and reports on persons, organisations, proceeds, properties, documents or other items or assets relating to tax administration including matters relating to waivers, fraud or evasion;

xiv. undertake and support research on similar measures with a view to stimulating economic development and determine the manifestation, extent, magnitude and effects of tax fraud, evasion and other matters that affect effective tax administration and make recommendations to the government on appropriate intervention and preventive measures;

xv. collate and continually review all policies of the Federal Government relating to taxation and revenue generation and undertake a systematic and progressive implementation of such policies;

xvi. liase with the office of the Attorney-General of the Federation all government security and law enforcement agencies and such other financial supervisory institutions in the enforcement and eradication of tax related offences;

xvii. issues taxpayer identification number to every taxable person in Nigeria in collaboration with States Boards of Internal Revenue and Local Government Councils; xviii. carry out and sustain rigorous public awareness and enlightenment campaign on the benefits of tax compliance within and outside Nigeria;

xix. carry out oversight functions over all taxes and levies accruable to the Government of the Federation and as it may be required, query, subpoena, sanction and reward any activities pertaining to the assessment, collection of and accounting for revenue accruable to the federation;

xx. provide assistance in the collection of revenue claims or any other administrative assistance in tax matters with respect to any agreement or arrangement made between the government of the Federal Republic of Nigeria and the government of any country or other persons or bodies as may be deemed necessary in that regards; and

xxi. carry out such other activities as are necessary or expedient for the full discharge of all or any of the functions under this Act.

(b) Enforcement powers of FIRS Section 36 of FIRS (Establishment) Act 2007, provides for the enforcement powers of the Service as follows:

i. the Service may co-opt the assistance and cooperation of any of the law enforcement agencies in the discharge of its duties; 94

ii. the law enforcement officers shall aid and assist an authorised officer in the execution of any warrant of distraint and the levying of distraint;

iii. any tax officer armed with the warrant issued by a Judicial Officer and accompanied by a number of law enforcement officers as may be determined by the Executive Chairman shall:

• enter any premise covered by such warrant and search for, seize and take possession of any book, document or other article used or suspected to have been used in the commission of an offence;

• inspect, make copies of , or take extracts including digital copies from any book, record, document or computer, regardless of the medium used for their storage or maintenance;

• search any person who is in or on such premises;

• open, examine and search any article, container or receptacle;

• open any outer or inner door or window of any premises and enter or otherwise forcibly enter the premises and every part thereof; or

• remove by reasonable force any obstruction to such entry, search, seizure or removal as he is empowered to effect; and

iv. no person shall be bodily searched under this section except by a person who is of the same gender as the person to be bodily searched.

(c) FIRS power to compound offences The FIRS may compound any offence under this Act by accepting a sum of money not exceeding the maximum fine specified for the offence. The FIRS shall issue an official receipt for any money received. It should be noted, however, that not all offences can be compounded.

Examiner’s Report The question ests the candidates’ knowledge of the powers and functions of the Federal Inland Revenue Service (FIRS). About85% of the candidates attempted the question but performance was average. The common pit fall of some of the candidates was their inability to explain the enforcement powers of FIRS, including the powers to compound offences. Candidates are advised to familarise themselves with the examination structure, question types and all areas of the syllabus, by studying past examination papers and the Institute’s Study Text. 95

Marking guide

(a) Powers and functions of the FIRS Marks Marks (2 marks each for any correct point subject to a maximum of 5 points) 10

(b) Enforcement powers of FIRS (1½ marks each for any correct point subject to a maximum of 2 points) 3

(c) FIRS power to compound offencer

- Accepting a sum of money not exceeding the maximum amount of fine specified for the offence 1 - FIRS shall issue an official receipt 1 2 Total 15 in SOLUTION 7

(a) Rights and obligations of taxpayers under the withholding tax regime The recipient of a payment that has suffered tax by deduction at source is entitled to demand from the payer, evidence that the payer has not only deducted the tax, but has also accounted for the tax to the relevant tax authority. The evidence should be the original receipt issued by the relevant tax authority; otherwise, he is unlikely to be given credit for the tax already paid against his total tax liability for a given year of assessment. In completing his annual tax return, the recipient is obliged to disclose his income from all sources and claim the tax reliefs that are due to him. Even where an income is tax exempt, he is obliged to disclose or declare the income and claim the exemption. Failure to declare a source of income, even though the income may be exempt from tax, borders on tax evasion which is a punishable offence.

(b) Procedures for filing WHT returns It is expected that a schedule of withholding tax payable should be prepared by applying the correct WHT rate on each transaction/payment made during the month. Thereafter, a cheque for the amount due to the FIRS is raised and forwarded plus the WHT schedule (in both soft and hard copies) to one of the approved collecting banks for processing. 96 The WHT schedule is then uploaded onto the FIRS portal and once accepted, an electronic receipt (e-receipt) is generated as acknowledgement that the process is successful. Thereafter, the bank submits copies of the WHT schedule and evidence of payment at the local FIRS office for processing of both the bulk receipt and individual receipts (WHT credit notes).

(c) A body corporate, being a small company as defined under section 105 of the Companies Income Tax Act (as amended) and a body unincorporate of equivalent attributes are exempt from the requirement to deduct tax at source from any transaction, provided that the:

i. supplier has a valid tax identification number (TIN); and ii. value of the transaction is N2,000,000.00 or less during the relevant calendar month.

(d) Submit Nigeria Limited Computation of net withholding tax payable For 2024 – 2025 years of assessment 2023 2024 N N Gross dividends received 955,556 888,889 Withholding tax @ 10% 95,556 88,889 Withholding tax on dividends paid 400,000 350,000 Net withholding tax payable by Submit Ltd. 304,444 261,111 Withholding tax on bank interest @ 10% 300,000 280,000 Withholding tax on debenture interest @ 10% 92,000 87,000 Withholding tax payable on interest received 392,000 367,000

Examiner’s Report The question tests the candidates’ knowledge of the provisions of the Deduction of Tax at Source (Withholding) Regulations, 2024, with emphasis on rights and obligations of taxpayers, procedures for filing returns, and the conditions under which a small company are exempt from the requirement to deduct WHT at source from any transaction. About 80% of the candidates attempted the question and the performance was good. 97 Many of the candidates could not explain the rights and obligations of taxpayers under the withholding tax regime. Candidates are advised to be conversant with the provisions of the Deduction of Tax at Source (Withholding) Regulations, 2024, read ICAN Study Texts, and Pathfinders when preparing for subsequent examinations.

Marking guide

(a) Rights and obligations of taxpayers under withholding tax regime Marks Marks

- Evidence should be the original receipt issued by the relevant tax authority 1 - Disclosure of all income from all sources by the recipient 1 - Completing the annual tax returns and the disclosure of income from all sources 1 3

(b) Procedures for filing WHT returns

- Schedule of WHT tax payable should be prepared by applying correct WHT rate ½ - Cheque for the amount due to the FIRS is raised and forwarded plus WHT schedule (hard & soft copies) to one of the approved collecting banks for processing ½ - WHT schedule should be uploaded to FIRS portal and once accepted, an electronic receipt is generated 1 - The bank submits copies of the WHT schedule and evidence of payment at the local FIRS office 1 3

(c) Conditions under which a small company under CITA and a body unincorporated are exempt from requirement to deduct WHT at source: - Supplier has a valid tax identification number (TIN) 1 - Value of the transaction is N2,000,000 or less, during the relevant calendar month 1 2

(d) Determination of withholding tax payable or receivable on dividend

- Heading 1 - Gross dividend received ( 2023 & 2024) 1 - Withholding tax @ 10% (2023/2024) 1 - Withholding tax on dividend paid (2023/2024) 1 - Withholding tax on bank interest payable (2023/2024) 1 - Withholding tax on debenture interest (2023/2024) 1 - Withholding tax payable on interest received (2023/2024) 1 7 Total 15 98 Examination ICAN/252/Q/B4 No....... INSTITUTE INSTITUTE OF OF CHARTERED CHARTE ACCOUNTANTS OF NIGERIA SKILLS SKILLS LEVEL LEVEL EXAMINATION EXAM – NOVEMBER 2025 PERFORMANCE PERFORMAN MANAGEMENT EXAMINATION INSTRUCTIONS PLEASE READ D THESE THESE INSTRUCTIONS INSTRUCTIO BEFORE THE COMMENCEMENT OF T

1. Check your your pockets, pockets, purse, purse, mathematical m set, etc. to ensure that you prohibited ited items items such such as as telephone handset, electronic stora programmable mmable devices, devices, wrist wristwatches or any form of written materia the examination mination hall. hall. You You will wi be stopped from continuing with the e and liable ble to to further further disciplinary discipli actions including cancellation of e result if caught.

2. Write your EXAMINATION EXAMINATION NUMBER NU in the space provided above.

3. Do NOT write write anything any on your question paper EXCEPT number.

4. Do NOT write write anything anything on on your yo docket.

5. Read all all instructions instructions in in each eac section of the question paper caref answering ring the the questions. questions.

6. Do NOT answer answer more more than than the t number of questions required in ea otherwise, ise, you you will will be be penalised. penali

7. All solutions tions should should be be written writte in BLUE or BLACK INK. Any solution PENCIL or or any any other other COLOUR OF INK will not be marked.

8. Cross out ALL ALL UNUSED UNUSED SPACES SPACE ON ALL PAGES of the Answer Booklet

9. A formula ula sheet sheet and and discount discount tables are provided with this examinati

10. You are e required required to to attempt attempt Question ONE (compulsory), any in Section tion B B and and any any TWO questions in Section C.

11. Check that that you you have have collected collecte the correct question paper for the e you are writing. WEDNESDAY, NOVEMBER 19, 2025 DO DO NOT NOT TURN TURN OVER OVER UNTIL YOU ARE TOLD TO DO SO 99 Examination No.................... NTANTS OF NIGERIA NOVEMBER 2025 AGEMENT OMMENCEMENT OF THE PAPER

tc. to ensure that you do not have set, electronic storage device, orm of written material on you in continuing with the examination ding cancellation of examination e provided above. EXCEPT your examination question paper carefully before estions required in each section, . Any solution written in of the Answer Booklet. ed with this examination paper. mpulsory), any TWO Questions estion paper for the examination ER 19, 2025 TOLD TO DO SO QUESTIONS IN THIS PAPER SECTION A: COMPULSORY QUESTION (30 MARKS) QUESTION 1 Bluechips Nigeria Limited is a limited liability company incorporated in Nigeria in 2020 and has been in business for so many years. The following information has been extracted from the company's records for the year ended December 31, 2024: N Sales 150,000,000 Direct cost (22,500,000) Gross profit 127,500,000 Other income 30,375,000 157,875,000 Administrative and other expenses (112,091,250) Profit before tax 45,783,750 Additional information: N (i) Other income included: Dividend (net) 5,650,540 Rent (net) 3,460,000 Interest on government securities 7,550,000 Interest on foreign placement 11,256,500 Gains on foreign exchange - Translation of domiciliary account balance 1,480,500 80% of the interest on foreign placement was repatriated through a government - approved channel.

(ii) Administrative expenses included: N Depreciation 1,850,000 Audit fees 2,150,000 Directors' remuneration 7,500,000 Legal expenses 5,570,050 Other operating expenses 15,800,850

(iii) Legal expenses comprised: N Commission paid for debt collection 250,000 Legal cost of a tax appeal made by the company to the FIRS 1,750,000 35 Share issue expenses 1,070,050 Retainership fee 2,500,000

(iv) Other operating expenses included: N Value added tax on computer hardware 120,000 Rent paid in respect of accommodation rented for a management staff of the company whose basic salary was N2,400,000 per annum 3,600,000 Misappropriated funds by the Director of Finance 2,500,000 Defalcations by the Sales Clerk out of which, the company recovered a sum of N200,000 under fidelity insurance 525,000 Loss on property, plant and equipment 150,000 Loss on foreign exchange on payment for importation of inventory 500,000

(v) The company made donations to the following entities: N Van Leer Nigerian Educational Trust 250,000 Kewa Limited 300,000 Paterson Zochonis Nigerian Technical Education Trust Fund 200,000 The Christian Church of Nigeria 100,000 AFP Foundation Limited 500,000

(vi) Total marketing expenses of N3,000,000 included: N Corporate/promotional gift items 1,000,000 Corporate adverts 1,200,000 Facilitation of port operations when importing the inventories for the company 800,000 3,000,000

(vii) Unrelieved loss brought forward 10,345,000

(viii) Agreed claimable capital allowance 2,850,000

Required: Compute the income tax liabilities payable by the company for the relevant year of assessment. (30 Marks)

SECTION B: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THE THREE QUESTIONS IN THIS SECTION (40 MARKS) QUESTION 2 Chief Bamidele Lawrence, a renowned industrialist/business mogul, established a trust, Bamidele Lawrence Trust Foundation. The beneficiaries of the trust are his only child, Josephine and his two grandchildren - Abel and Abigail. The trustee, DAOL Legal Practitioners, is to apply the income accruing to the trust as specifically stated in the trust deed. 36 The records of the trustee show the following information for the year ended December 31, 2023: Income: N Trading income 100,000,000 Rental income (Net) 480,420,000 Miscellaneous income 10,000,000 The operating expenses for the year amounted to N48,850,000. Capital allowance claimable for the year was N19,300,000. Additional information: (i) The trust annual distributable income is to be shared as follows: Josephine 1/20 Abel 1/20 Abigail 1/20

(ii) The trustee could make discretionary payment to Josephine and her children anytime during the year. The trust made discretionary payment of N2,500,000 during the year to Josephine.

(iii) Fixed annuity is given annually to the three beneficiaries. N Josephine 10,000,000 Abel 5,000,000 Abigail 3,500,000

(iv) Trustee’s remuneration: Fixed remuneration N1,000,000 Variable remuneration 0.5% of the gross income

Required: For the relevant year of assessment, compute:

(a) The taxable income of the trustee (10 Marks)

(b) The assessable income in the hands of the beneficiaries (5 Marks)

(c) The income tax liabilities of the beneficiaries (assuming that this is their only source of income) (5 Marks) (Total 20 Marks) QUESTION 3 Mr. Ade, a property investor, executed a deed of assignment for the transfer of his land located in Lagos. The deed was submitted to the Commissioner of Stamp Duties for adjudication to determine the appropriate duty payable. 37

Required: With reference to the Stamp Duties Act:

(a) Explain the process of adjudication by the Commissioner of Stamp Duties. (5 Marks) (b) Explain the benefits of adjudication. (4 Marks)

(c) Explain the limitations of the adjudication process. (3 Marks)

(d) Explain the appeal procedure available where a taxpayer is dissatisfied with the Commissioner’s adjudication. (8 Marks) (Total 20 Marks) QUESTION 4 The Nigeria Startup Act 2022, was signed into law on October 19, 2022, to foster innovation, attract investment, and create a favourable business climate for tech- enabled startups in Nigeria. The Act provides a legal and institutional framework for the development of startups, with the goal of positioning Nigeria as a leading digital technology hub in Africa. Mr. Akin, a young entrepreneur in Lagos, was considering registering his fintech company under the Nigeria Startup Act to obtain the startup label. He sought your professional advice as a Tax Consultant.

Required: With reference to the provisions of the Nigeria Startup Act 2022:

(a) Explain the eligibility criteria for a company to qualify as a labelled startup. (5 Marks) (b) Explain SIX tax and fiscal incentives available to labelled startups. (12 Marks) (c) Explain THREE incentives or reliefs available to investors who invest in labelled startups. (3 Marks) (Total 20 Marks)

SECTION C: YOU ARE REQUIRED TO ATTEMPT TWO OUT OF THE THREE QUESTIONS IN THIS SECTION (30 MARKS) QUESTION 5

(a) You applied for the position of a Tax Officer in a company. During the interview, a panel member asked you to explain some basic concepts of taxation to demonstrate your understanding of the subject.

Required: Explain the following: 38

i. Tax yield (1½ Marks) ii. Tax rate (1½ Marks) iii. Tax effect (1½ Marks) iv. Tax impact (1½ Marks) v. Tax shift (1½ Marks)

(b) Taxation in Nigeria is primarily statute-based. The practice and administration of taxation have evolved over time and have gone through transformation from the days of our forefathers to what we have today. You have been invited to a conference on tax matters where you are required to explain the sources of Nigerian tax laws.

Required: Identify and explain FIVE sources of Nigerian tax laws (7½ Marks) (Total 15 Marks) QUESTION 6

(a) The Local Government Revenue Committee (LGRC) for each local government area of a State was established by Section 90 of the Personal Income Tax Act, 2004 (as amended).

Required:

i. Identify THREE members of the Local Government Revenue Committee (LGRC). (4 Marks)

ii. Explain the TWO functions of the Local Government Revenue Committee (LGRC). (3 Marks)

(b) You have just been engaged as a Tax Consultant to a company that operates in Nigeria with headquarters in Abuja. During a strategy session, the Managing Director asked you to brief the Board on the tax jurisdictions and the authorities empowered to administer taxes at different levels of government in Nigeria. He also requested that you highlight specific examples of the types of taxes or levies collectible by each level of government.

Required: Identify and explain EIGHT taxes and levies collectible by state governments. (8 Marks) (Total 15 Marks) 39 QUESTION 7

(a) The Nigeria Customs Service (NCS) is one of the major revenue-generating agencies of the Federal Government. The Nigeria Customs Service Act, 2023 repealed the Customs and Excise Management Act, Cap. C45, Laws of the Federation of Nigeria, 2004, and other related legislations.

Required:

i. Explain THREE functions of the Nigeria Customs Service. (4½ Marks)

ii. Identify THREE members of the Nigeria Customs Service Board. (4½ Marks)

(b) Technology has significantly transformed tax administration in Nigeria. The Federal Inland Revenue Service (FIRS) has introduced a tax management solution known as TaxProMax to improve efficiency, transparency, and compliance.

Required: Identify and explain SIX aspects of tax administration that can be handled by the TaxProMax. (6 Marks) (Total 15 Marks) 40 NIGERIAN TAX RATES 1. CAPITAL ALLOWANCES Initial % Annual % Building Expenditure 15 10 Industrial Building Expenditure 15 10 Mining Expenditure 95 Nil Plant Expenditure (excluding Furniture & Fittings) 50 25 Manufacturing Industrial Plant Expenditure 50 25 Construction Plant expenditure (excluding Furniture and Fittings) 50 Nil Public Transportation Motor Vehicle 95 Nil Ranching and Plantation Expenditure 30 50 Plantation Equipment Expenditure 95 Nil Research and Development Expenditure 95 Nil Housing Estate Expenditure 50 25 Motor Vehicle Expenditure 50 25 Agricultural Plant Expenditure 95 Nil Furniture and Fittings Expenditure 25 20 2. INVESTMENT ALLOWANCE Up to August 31, 2023 (10%); and Finance Act 2023 (NIL) 3. RATES OF PERSONAL INCOME TAX Graduated tax rates and consolidated relief allowance of N200,000 or 1% of Gross Income, whichever is higher + 20% of Gross Income. Taxable Income (N) Rate of Tax (%) First 300,000 7 Next 300,000 11 Next 500,000 15 Next 500,000 19 Next 1,600,000 21 Over 3,200,000 24 After the relief allowance and exemption had been granted, the balance of income shall be taxed as specified in the tax table above. 4. COMPANIES INCOME TAX RATE: Finance Act 2019 specifies: 30% (Large Company) 20% (Medium-Sized Company) 0% (Small Company) 5. TERTIARY EDUCATION TAX: 2% of assessable profit (up to December 31, 2021) 2.5% of assessable profit (with effect from January 1, 2022) and 3% of assessable profit, with effect from September 1, 2023 (Finance Act 2023) 6. CAPITAL GAINS TAX 10% 7. VALUE ADDED TAX 7.5% 8. HYDROCARBON TAX 15% (Petroleum prospecting Licence and Marginal Fields Companies) 30% (Petroleum Mining Lease Companies) 41

a. i. Members of the Local Government Revenue Committee (LGRC) The Revenue Committee (LGRC) shall comprise of:

• the Supervisor for Finance as Chairman;

• three local government councillors as members; and

• two other persons experienced in revenue matters to be nominated by the Chairman of the local governments on their personal merits ii. Functions

• The committee shall be responsible for the assessment and collection of all taxes, fines and rates, under its jurisdiction and shall account for all amounts so collected, in a manner to be prescribed by the chairman of the local government.

• The committee shall be autonomous of the local government treasury department and shall be responsible for the day-to-day administration of the department, which forms its operational arm.

b. Taxes to be collected by State Governments include:

i. personal income tax in respect of

• Pay as you earn (PAYE); and

• Direct taxation (self-assessment) ii. withholding tax on individuals; iii. stamp duties on investments executed by individuals; iv. pools betting, lotteries, gaming and casino taxes; v. road taxes; and vi. business premises registration fees, for:

• Urban areas - as defined by each state:

• N10,000.00 (maximum) for registration

• N5,000.00 for annual renewal of registration.

• Rural areas as defined by each state:

• N2,000.00 for registration; and

• N1,000 for annual renewal of registration.

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

viii. naming of street registration fees in state capital;

ix. right of occupancy fees on lands owned by the state in urban cities of the state;

x. market taxes and levies where state finance is involved;

xi. Capital gains of individuals. 56

Examiner’s Report Part (a) of the question tests the candidates’ knowledge of the composition and functions of the Local Government Revenue Committee, whilst part (b) requires them to explain the taxes and levies collectible by state governments. About 75% of the candidates attempted the question but performance was average. The common pitfalls of some of the candidates were their display of poor knowledge of the composition of the Local Government Revenue Committee and inability to differentiate between taxes collectible by State Governments and Federal Government. Candidates are advised to familarise themselves with the composition and functions of the organs of tax administration and tax jurisdiction in Nigeria.

Marking Guide Marks Marks a i. Identification of members of the Local Government Revenue Committee (LGRC) - Supervisor for Finance 2 - Government Councillors 1 - Persons experienced in revenue matters 1 4

ii. Explanation of the functions of LGRC (11/2 marks for each function) 3

iii. Identification of taxes and levies collectible by state governments (1 mark for each point, subject to a maximum of 8 points) 8 Total 15

a. Functions of the Nigeria Custom Service are to:

i. administer, direct, manage and enforce the provisions of this Act and the customs and excise laws; ii. collect and account for revenue from customs duties, excise duties, charges, fees and special assignments as may be assigned to it by the government; iii. administer trade and fiscal policies of the government as it relates to the Act; iv. promote trade facilitation in line with international conventions agreements as it relates to customs administration; v. prevent smuggling, customs fraud and all other violations under 57 this Act; vi. carry out all border enforcement and regulatory activities required by law in collaboration with relevant agencies; vii. collate and publish accurate trade statistics and other relevant data as they relate to customs and excise; viii. engage in regular consultations with individual traders, trade associations and other relevant stakeholders to promote industrial harmony; ix. approve and licence customs agents, who shall be citizens of Nigeria; and x. do such other things as are necessary for or incidental to the performance of its functions and discharge of its duties under this Act and the laws of Nigeria.

ii. Nigeria Custom Service The Board shall comprise of:

• a Chairman, who shall be the Minister of Finance,

• the Comptroller-General, who shall be the Deputy Chairman;

• all the Deputy Comptrollers-General of the Service;

• the Legal Adviser to the Service, who shall also head the Legal

• Department to be appointed from the Office of the Attorney General of the Federation; and

• a representative not below the rank of a director, from the following Federal Ministries: ➢ Industry; ➢ Trade and Investment; ➢ Transport; ➢ Aviation; ➢ Foreign Affairs: ➢ the Executive Chairman of the Federal Inland Revenue Service; and ➢ two members representing the organised private sector for a term of four years renewable for another term of four years and no more.

b. The Nigeria Revenue Service (formerly Federal Inland Revenue Service) adopted and deployed a locally developed tax management solution known as TAXPROMAX. This system has the capacity to handle different aspects of tax administration, including: i. E-registration Deployment and use of a robust and integrated tax management software makes it possible for accurate taxpayers’ data to be captured by the tax authority. Each taxpayer enrolled is assigned a unique tax identification number (TIN) and it is now possible for taxpayers to do self-enrolment through a web application service. 58

ii. E-assessment When taxpayers file returns electronically, it is possible for their tax liabilities to be computed and assessment notice generated automatically and sent to their email accounts.

iii. E-payments Technology has made it possible for taxpayers to make payments through several electronic channels, such as point of sale (POS); internet banking; bank transfers; unstructured supplementary service date (USSD) or even using their credit/debit cards from the comfort of their homes.

iv. E- filing Most integrated tax management solutions come along with a module that facilitates electronic filing. This enables taxpayers to file their returns from their offices without the stress of going to the tax office which might be several kilometers away. For instance, the FIRS has been encouraging taxpayers to make use of the recently deployed TaxPro solution to file their periodic tax returns, including VAT and CIT returns.

v. E-tax calculator Modern tax authorities develop and deploy this tool on their websites to enable taxpayers and their consultants to compute the accurate amount of taxes to be paid. This function has been part of the FIRS website (www.firs.gov.ng) in the last few years.

vi. E-TCC Many individual and corporate taxpayers require their tax authorities to issue tax clearance certificates (TCCs) to them on yearly basis. Through the use of appropriate technology, taxpayers can apply for their TCCs electronically and get them sent to their email accounts, if the conditions are met.

vii. E-reporting Each tax authority requires various performance reports to be generated on a periodic basis. These reports can be generated within seconds at the click of a button.

viii. E-tax audit Technology has made it possible for the entire process of tax audit to be carried out without the tax auditors visiting the premises of the taxpayer and vice versa. For instance, all the pre and post-audit meetings can be held using video conferencing tools and documents exchanged electronically through emails. 59

Examiner’s Report Part (a) of the question tests the candidates’ knowledge of the provisions of the Nigeria Customs Service Act, 2023, with emphasis on functions of the Nigeria Customs Service and the composition of the Nigeria Customs Service Board. Part (b) requires the candidates to identify and explain aspects of tax administration that can be handled by TaxProMax. About 70% of the candidates attempted the question but the performance was poor. Many of the candidates displayed poor knowledge of the functions of the Nigeria Customs Service and composition of the Nigeria Customs Service Board. Additionally, some of the candidates could not explain functionalities of the TaxProMax and its contributions to efficient tax administration. Candidates are advised to be conversant with the provisions of the Nigeria Customs Service Act, 2023, and the application of technology in taxation.

Marking Guide Marks a i. Explanation of the functions of the Nigeria customs services (NCS) (11/2 marks for each function, subject to a maximum of 3 points) 4½

ii. Identification of members of NCS Board (11/2 marks for any member, subject to a maximum of 3 members) 4½

b. Identification and explanation of aspects of tax administration that can be handled by the TaxProMax (1 mark for each aspect, subject to a maximum of 6 aspects) 6 Total 15 60