A large manufacturer works out its adjusted profit, takes off its loss and capital allowances, and applies 30%. Then it finds that its effective tax rate is below 15% and that a top-up is due. It also owes a 4% development levy, and if it declared a big dividend from untaxed profit, a separate dividend tax.
The company tax computation pulls every earlier topic together, and in the exam it is the main marks-earner, so the layout and order matter as much as the numbers.
This topic covers assessable profit, chargeable gains, total profit, the 2026 rates, the full computation format, the minimum effective tax rate, the development levy, dividend tax, assessment on turnover and the main offences and penalties in the Nigeria Tax Administration Act (NTAA) 2025. The previous topic covered tax incentives. The next covers leases.
The November 2020 Pathfinder (Question 1(f)) asked for a company tax computation with tertiary education tax at 2%; that levy no longer exists, so its solution is different from ours.
In 30 seconds
Computation order: profit before tax → add back disallowed items → deduct non-taxable income → assessable profit → add chargeable gains → deduct loss relief → deduct capital allowances → total profit. Company income tax = 30% of total profit (0% for a small company; a presidential order may cut 30% to 25%). Development levy = 4% of assessable profit (not for small or non-resident companies).
Minimum effective tax rate (s. 57): for companies in a multinational group with turnover of €750 million or more, or any company with turnover of ₦50 billion or more, the effective rate must be at least 15%: top-up = 15% × net income − covered taxes. Dividend tax (s. 9): 30% on dividends from untaxed profit above total profit. The tax authority may assess on a percentage of turnover where profit is nil or unclear.
Key terms in plain English
| Term | What it means |
|---|---|
| Assessable profit | Adjusted profit for the basis period, before gains, loss relief and capital allowances |
| Total profit | Assessable profit plus gains, less loss and capital allowances |
| Development levy | 4% of assessable profit; it replaced the tertiary education tax and three other levies |
| Effective tax rate | Covered taxes divided by net income |
| Covered taxes | Company income tax, development levy and priority sector tax credit |
| Top-up tax | Extra tax that lifts the effective rate to 15% |
| Net income | Profit before tax, excluding franked investment income and unrealised gains or losses |
Syllabus check
This topic is in syllabus area B (taxation of companies and investment income, 35% of marks). It covers:
- computing the income tax liability of companies, including assessable and total profit, minimum tax, dividend distribution and turnover;
- the offences and penalties of general application to companies.
CAMA 2020 and the tax computation
The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.
| Section | What it says | Link to this topic |
|---|---|---|
| s. 377(1) and s. 378 | Directors prepare financial statements that give a true and fair view | Profit before tax in the audited accounts is the starting figure and the base for net income |
| s. 426, s. 427 and s. 433 | Dividends are paid only out of distributable profits; directors who knowingly pay a dividend out of capital are personally liable | Dividend tax adds a tax cost to a dividend that company law already limits |
| s. 305 and s. 308 | Directors must act in good faith, with the care, diligence and skill of a reasonably prudent director | Directors are responsible for filing, paying and keeping records |
The rules in more depth
Assessable profit and total profit
Assessable profit = net profit or loss of the basis period + disallowable expenses + taxable income not recorded − allowable expenses not recorded − non-taxable income recorded. Total profit = total assessable profits from all sources, including chargeable gains, less loss from the same trade and less capital allowances. Chargeable gains join total profit because the Capital Gains Tax Act is repealed.
Rates
From 1 January 2026: 0% for a small company (turnover ≤ ₦100 million and fixed assets ≤ ₦250 million) and 30% for any other company. The 30% may be cut to 25% from a date set by presidential order on the advice of the National Economic Council.
Format of the computation
| Line | Content |
|---|---|
| 1 | Net profit or loss before tax |
| 2 | Add: depreciation; private or domestic expenses; fines and penalties; tax borne for another person; excess interest on a related party loan; donations outside s. 163; lease liability provisions; expenses on which VAT or import duty is due but unpaid |
| 3 | Deduct: dividends and other exempt income; unrealised exchange gains; income from government bonds; lease payments treated as liability payment |
| 4 | = Assessable profit |
| 5 | Add chargeable gains |
| 6 | Less loss relief (b/f, relieved, c/f) |
| 7 | Less capital allowances (b/f, for the year, claimed, c/f) |
| 8 | = Total profit; income tax at 30% |
| 9 | Development levy at 4% of assessable profit; total tax payable |
Minimum effective tax rate (s. 57)
If in a year the effective tax rate is below 15%, the company recomputes and pays additional tax to reach 15%. Effective tax rate = covered taxes ÷ net income. Covered taxes (for a company that is not an upstream oil and gas entity) are company income tax, development levy and priority sector tax credit. Net income is profit before tax per the audited accounts less franked investment income and unrealised gains or losses.
The rule applies to (a) a constituent entity of a multinational group with aggregate group turnover of at least €750 million, and (b) any other company with aggregate turnover of ₦50 billion or more. It does not apply to an approved free zone enterprise for its approved activities, but does apply to its sales in the customs territory. The economic development credit cannot reduce the top-up.
Top-up tax = 15% × net income − covered taxes. Always use this direct method rather than rounding the effective rate.
Development levy (s. 59)
4% of assessable profit of every company except small companies and non-resident companies, and not on profit computed for hydrocarbon tax. The NRS administers it. From 1 January 2026 it replaced the tertiary education tax (3% of assessable profit), the NITDA levy (1% of profit before tax), the Nigeria Police Trust Fund levy (0.005% of net profit) and the NASENI levy (0.25% of profit before tax).
The revenue is shared:
- Tertiary Education Trust Fund 50%
- Nigerian Education Loan 15%
- National Information Technology Development Fund 8%
- National Agency for Science and Engineering Infrastructure 8%
- National Board for Technological Incubation 4%
- Defence and Security Infrastructure Fund 10%
- National Cybersecurity Fund 5%
Dividend tax (s. 9)
Where a Nigerian company declares a dividend out of profits on which no tax is payable (no total profit, or total profit below the dividend), it pays 30% as if the dividend were its total profit for the year to which the accounts relate. It does not apply to dividends out of taxed retained earnings, exempt profits, franked investment income or real estate investment company distributions of rent and dividend income.
Only the part of a dividend that is not covered by taxed retained earnings is tested. A dividend that is below total profit leads to the normal computation.
Assessment on turnover (s. 38 NTAA)
If a company has no assessable profit, or less than expected, or the profit cannot be ascertained, the NRS may assess a resident on a fair percentage of gross income, and a non-resident by applying its profit margin (earnings before interest and tax over revenue, from audited accounts or comparable companies) to its Nigerian turnover.
Main offences and penalties (NTAA 2025)
| Default | Penalty |
|---|---|
| Failure to register | ₦50,000 first month, ₦25,000 each later month; ₦5,000,000 on a body that gives a contract to an unregistered person |
| Failure to file returns, or filing incomplete returns | ₦100,000 first month, ₦50,000 each later month |
| Failure to keep books | ₦50,000 for a company (₦10,000 otherwise) |
| Failure to deduct tax | 40% of the amount not deducted |
| Failure to remit tax deducted by the 21st day of the next month | The tax plus 10% a year and interest at the Central Bank monetary policy rate; on conviction up to three years’ imprisonment or a fine |
| Failure to use the fiscalisation system | ₦200,000 plus 100% of the tax due and interest |
| Failure to answer notices or provide information | ₦100,000 first day and ₦10,000 each later day (₦200,000 first day for information requests) |
| Failure to notify change of address | ₦100,000 first month, ₦50,000 each later month |
| False refund claim | Repayment plus 50% penalty and interest (100% for a false VAT refund) |
| False declaration | ₦1,000,000 plus the tax undercharged; or a fine or up to three years’ imprisonment on conviction |
| General penalty | ₦1,000,000, or imprisonment of up to three years or a fine |
Where a body corporate commits an offence, its directors, managers and secretary are liable unless they prove it happened without their knowledge, consent or connivance.
Worked examples
Example 1: full computation. Net profit ₦500m. Depreciation ₦60m, fines ₦2m and an unrealised exchange loss ₦8m were charged. Income includes ₦20m of government bond interest and ₦5m of unrealised exchange gains. There is a chargeable gain of ₦55m, loss brought forward of ₦100m and capital allowances of ₦120m.
- Add back.
60 + 2 + 8 = 70.
Deduct: 20 + 5 = 25. - Assessable profit.
500 + 70 − 25 = ₦545m. - Add gain 55 = 600; less loss 100 = 500; less allowances 120 = total profit ₦380m.
- Income tax.
30% × 380 = ₦114m.
Development levy = 4% × 545 = ₦21.8m.
Total = ₦135.8m.
Example 2: minimum tax. Turnover ₦60bn. Profit before tax ₦8,000m, including franked dividends ₦200m and unrealised gains ₦300m. Income tax and levy together are ₦900m.
- Net income.
8,000 − 200 − 300 = ₦7,500m. - Effective rate.
900 ÷ 7,500 = 12%, below 15%. - Top-up = 15% × 7,500 − 900 = 1,125 − 900 = ₦225m.
Example 3: dividend tax. A company has total profit of ₦600,000 and declares a dividend of ₦4,200,000. Retained earnings that were taxed are ₦600,000 and the rest of the dividend comes from untaxed profit.
- Only ₦3,600,000 of the dividend is tested.
- That exceeds total profit, so tax is 30% × 3,600,000 = ₦1,080,000.
Example 4: withholding tax not remitted. ₦5,000,000 of tax was deducted in March and not paid by 21 April.
- The company must pay the ₦5,000,000.
- Penalty = 10% a year on that amount, plus interest at the monetary policy rate.
How to score full marks
- Use the full format: assessable profit, gains, loss, allowances, total profit.
- Base the levy on assessable profit, not total profit.
- Test the minimum tax if turnover is ₦50 billion or more.
- Use top-up = 15% × net income − covered taxes.
- Test dividend tax only on untaxed profit.
- Quote penalties with the amount and the trigger.
Common mistakes in the exam
- Charging tertiary education tax in 2026 and later years.
- Applying the levy to total profit.
- Rounding the effective tax rate before computing the top-up.
- Including franked income or unrealised gains in net income.
- Charging dividend tax on dividends from taxed earnings.
- Putting capital allowances before loss relief.
Quick revision
- Assessable profit → + gains → − loss → − capital allowances → total profit.
- 30% of total profit; 4% levy on assessable profit.
- Minimum rate 15% for ₦50bn turnover or €750m groups.
- Top-up = 15% × net income − covered taxes.
- Dividend tax: 30% on dividends from untaxed profit above total profit.
- CAMA 2020: ss. 305, 308, 377(1), 378, 426, 427, 433.
Practice questions
These are original questions written in the style of the Institute of Chartered Accountants of Nigeria (ICAN) exam. Try each one before you open the answer. Full model answers follow the written questions.
Recall check: multiple choice
Recent ICAN papers are written, although older papers such as May 2014 included multiple-choice questions. These questions are for quick recall. The written questions that follow are closer to the exam.
Question 1. The development levy is charged on:
- Total profit
- Assessable profit
- Turnover
- Chargeable gains only
Show the answer
B. 4% of assessable profit.
Question 2. The development levy applies to:
- All companies
- All companies except small and non-resident companies
- Small companies only
- Banks only
Show the answer
B. Small and non-resident companies are excluded.
Question 3. The minimum effective tax rate is:
- 5%
- 10%
- 15%
- 30%
Show the answer
C. Companies in scope must reach 15%.
Question 4. The minimum rate applies to a company with turnover of at least:
- ₦100m
- ₦5bn
- ₦50bn
- ₦500bn
Show the answer
C. ₦50 billion, or a multinational group of €750 million.
Question 5. Net income for the minimum tax excludes:
- Trading profit
- Franked investment income and unrealised gains
- Interest income
- Rent
Show the answer
B. These are removed from audited profit before tax.
Question 6. The largest share of development levy revenue goes to the:
- Defence and Security Infrastructure Fund
- Tertiary Education Trust Fund
- National Cybersecurity Fund
- NASENI
Show the answer
B. 50% goes to the Tertiary Education Trust Fund.
Question 7. Tax deducted at source must be remitted by the:
- 7th of the next month
- 21st of the next month
- End of the quarter
- End of the year
Show the answer
B. By the 21st day of the month after deduction.
Question 8. The penalty for failing to deduct tax is:
- 10% of the tax
- 40% of the amount not deducted
- ₦50,000
- Nil
Show the answer
B. 40% of the amount not deducted.
Question 9. Loss relief is given:
- After capital allowances
- Before capital allowances
- After the development levy
- Only on dividends
Show the answer
B. Loss first, then capital allowances.
Question 10. Which section of CAMA 2020 sets the director’s duty of care and skill?
- Section 308
- Section 400
- Section 405
- Section 409
Show the answer
A. Directors should test the assumptions behind a decision.
Written questions
Question 11 (10 marks). (a) State the rates of company income tax for 2026. (3 marks) (b) State the base of the development levy and the taxes it replaced. (4 marks) (c) State two companies excluded from the levy. (3 marks)
Question 12 (20 marks). Omega Limited had a profit before tax of ₦900m, including ₦40m of government bond interest, ₦30m of franked dividends and ₦20m of unrealised exchange gains.
It charged depreciation of ₦90m, fines of ₦5m and a related party interest excess of ₦15m. There is a chargeable gain of ₦100m, a loss brought forward of ₦150m and capital allowances of ₦200m. Turnover is ₦55bn. (a) Compute assessable profit and total profit. (8 marks) (b) Compute the income tax and development levy.
(4 marks) (c) Compute the effective tax rate and any top-up, using profit before tax less franked income and unrealised gains as net income. (8 marks)
Question 13 (10 marks). (a) Explain dividend tax and when it applies. (4 marks) (b) State the penalties for failure to file returns and for failure to remit tax deducted at source. (4 marks) (c) State when the tax authority may assess a company on turnover. (2 marks)
Model answers
Show the model answer to Question 11
(a) Rates (3 marks). 0% for a small company (turnover ≤ ₦100m and fixed assets ≤ ₦250m); (1.5) 30% for any other company, which may be reduced to 25% by presidential order. (1.5)
(b) Levy (4 marks). 4% of assessable profit. (1) It replaced the tertiary education tax, the NITDA levy, the Police Trust Fund levy and the NASENI levy. (3)
(c) Excluded (3 marks). Small companies and non-resident companies; (2) it also does not apply to profit computed for hydrocarbon tax. (1)
Show the model answer to Question 12
(a) Profits (8 marks).
- Profit before tax 900.
- Add.
depreciation 90, fines 5, excess interest 15 = 110. (3) - Deduct.
bond interest 40, franked dividends 30, unrealised gains 20 = 90. (2) - Assessable profit.
900 + 110 − 90 = ₦920m. (1) - Add gain 100 = 1,020
- less loss 150 = 870
- less capital allowances 200 = total profit ₦670m. (2)
(b) Taxes (4 marks).
- Income tax.
30% × 670 = ₦201m. (2) - Development levy.
4% × 920 = ₦36.8m. (2) - Total = ₦237.8m.
(c) Minimum tax (8 marks).
- Net income.
900 − 30 − 20 = ₦850m. (2) - Covered taxes = ₦237.8m. (1)
- Effective rate.
237.8 ÷ 850 = 28%, which is above 15%. (3) - No top-up is due. (2)
Show the model answer to Question 13
(a) Dividend tax (4 marks). Where a Nigerian company declares a dividend out of profits on which no tax is payable, because there is no total profit or total profit is below the dividend, it pays 30% as if the dividend were total profit. (3) It does not apply to taxed retained earnings, exempt profits, franked income or REICO distributions. (1)
(b) Penalties (4 marks). Failure to file: ₦100,000 in the first month and ₦50,000 for each later month. (2) Failure to remit tax deducted by the 21st of the next month: the tax, a penalty of 10% a year and interest at the monetary policy rate. (2)
(c) Turnover assessment (2 marks). Where the company has no assessable profit, less profit than expected, or profit that cannot be readily ascertained. (2)
Pathfinder on The full computation, 15% minimum tax, development levy, dividend tax and penalties
These are the ICAN Pathfinder questions that test this topic. ICAN owns the questions and the suggested solutions, so we point you to them and do not copy them. Open your Pathfinder, attempt each question under exam conditions, then check your answer against the notes above.
Part (a) asked for adjusted profit and the tax for five assessment years of a pioneer company, with pioneer losses, capital allowances carried forward and tertiary education tax at 2.5% then 3%. That levy has gone, so follow the layout in our table and the current allowances rather than the rates printed in the paper.
Revise first: Format of the computation
The compulsory question asked for revised total profit and tax for three assessment years after a tax investigation, disallowing items such as private travel, long-lease rent and unrealised exchange losses, with capital allowances rolled forward. The paper charged tertiary education tax at 3%; use our layout and the development levy.
Revise first: Format of the computation
The compulsory question asked for adjusted profit for one year and tax for five assessment years of a company that began in 2020, with a short first period, a loss brought forward and a balancing charge on a vehicle. Use our layout; the levy and rates now differ from the paper.
Revise first: Format of the computation
The compulsory question asked for adjusted profit and tax for four assessment years of a company that left pioneer status, with pioneer losses carried forward and capital allowances rolled on. Tertiary education tax was 2% then 2.5%; follow our layout instead.
Revise first: Format of the computation
Parts (b) and (c) of the compulsory question asked for adjusted profit and tax for six assessment years of a company that began in 2018, with the basis periods of the first years as the main pitfall. Tertiary education tax was 2% then 2.5%; follow our layout and the current basis period rules.
Revise first: Format of the computation
Parts (a) and (b) asked for adjusted profit in the pioneer years and the tax for the first year after the pioneer period, with pioneer losses carried forward and capital allowances restarted. Use our layout; the paper charged tertiary education tax at 2.5%.
Revise first: Format of the computation
Parts (a) and (b) asked for adjusted profit and the tax for a company that took over a business, with losses and capital allowances inherited, no total profit, minimum tax and tertiary education tax at 2.5%. Use our layout and the current levy and minimum tax rules.
Revise first: Format of the computation
The compulsory question asked for adjusted profit and the tax for two assessment years of a company after its pioneer period, with pioneer losses and capital allowances restarted and minimum tax waived for the first years. Use our layout and the current levy.
Revise first: Format of the computation
Part (a) asked for the tax of a company with a loss in the accounts but a taxable profit after adjustments, with four years of losses relieved, capital allowances only partly used and minimum tax applying. Use our layout, which now includes the development levy and the minimum effective tax rate.
Revise first: Format of the computation
Part (c) asked for adjusted profit and tax for a medium-sized company at 20% with tertiary education tax at 2%, a balancing charge and capital allowances rolled forward. Use our layout and current rates.
Revise first: Format of the computation
The question asked for the company income tax of the Nigerian subsidiary after adjusting profit and deducting capital allowances, with tertiary education tax at 2% of assessable profit. That levy was replaced by the development levy, so apply the layout in our table.
Revise first: Format of the computation
Source: ICAN Pathfinder, Advanced Taxation. Diets covered: May Diet, 2026; November Diet, 2025; May Diet, 2025; November Diet, 2024; May Diet, 2024; November Diet, 2023; May Diet, 2023; November Diet, 2022; May Diet, 2022; November Diet, 2021 and November Diet, 2020.
Spotted a mistake? Tell us and we will check it.
