Mining tax: deductions, capital allowances, royalties, penalties and NEITI

A tin miner sells 40,000 tonnes in a year. The government takes a royalty on the value of the ore, at a rate that depends on the mineral, whether or not the company made a profit.

The royalty is then deducted when the miner works out its profit. The rest of the computation follows the ordinary rules for companies: allowed and disallowed expenses, capital allowances in three classes, losses from the same business, 30% company tax and 4% development levy.

Mining has fewer special rules than oil, but the few that exist, the royalty table, the rehabilitation fund and the penalties in the Mining Act, are examined with exact figures.

This topic covers the allowable and disallowable expenses, capital allowance rates, total profits, losses, the assessment of tax, the special provisions for miners, mining royalties and the rate table, the offences and penalties in the Nigerian Minerals and Mining Act, the Nigeria Mineral Resources Decision Support System and the scope and administration of the Nigeria Extractive Industries Transparency Initiative (NEITI).

The previous topic covered mining regulation, titles and incentives. The next covers ESG in the extractive industries.

Key terms in plain English

Syllabus check

This topic is in syllabus area F (taxation of incomes of extractive industries, 20% of marks). It covers:

• allowable and disallowable expenses, capital allowances, total profits, losses and assessment;
• special tax provisions, mining royalties, offences and penalties;
• the Mineral Resources Decision Support System and NEITI.

CAMA 2020 and mining company tax

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

Allowable expenses (NTA s. 20)

Mining operators deduct all direct costs of mining and transport and the general deductions allowed by s. 20, being expenses wholly and exclusively incurred, including:

• interest on debt used to produce the income, within the Third Schedule limit;
• rent and premiums for land and buildings used;
• salaries, wages and the cost of benefits for employees;
• repairs of premises, plant, machinery and fixtures;
• the cost of establishing, preserving or defending title to an asset;
• contributions to approved staff pension and similar funds;
• damage to or loss of stock, proved to the authority;
• bad debts (debts that became bad in the period, other than with related parties) and doubtful debts estimated under accepted accounting rules and proved to be linked to the business;
• research and development;
• expenses on assistive devices and disability products;
• expenses incurred up to six years before the business started, which would have been deductible after, treated as incurred on the first day;
• contributions to the approved rehabilitation fund (below).

Sums recovered on bad debts already deducted are added back to profit, and liabilities waived or recovered are taxed as profit or gains. An expense in a foreign currency is deductible at the Central Bank official rate.

Disallowable expenses (NTA s. 21)

Capital repaid or withdrawn; capital expenditure; domestic or private expense and spending on assets not used in the business; sums recoverable under insurance; taxes on profits or income; payments to unapproved pension or provident funds; depreciation and impairment of fixed assets and investments and unrealised exchange differences; general reserves of the kind in s. 20(1)(h); payments to connected persons that do not follow the Transfer Pricing Regulations; expenses to earn exempt income; amounts allowed in working out chargeable gains; penalties and fines; tax or penalty borne for another; and any expense on which VAT was due but not charged, or import duty or levy was not paid.

Capital allowances (First Schedule to the NTA)

There is no initial allowance and no balancing adjustment; a notional 1% of cost is kept in the records. Expenditure on which VAT was not charged is not qualifying.

Total profits, losses and assessment

Total profit (NTA s. 27) is the total assessable profit from all sources, including chargeable gains, less losses and capital allowances. A loss is deducted only from the profit of the trade or business in which it was incurred, as far as possible from the first year after the loss and later years until used up. The aggregate deducted cannot exceed the loss.

Tax is charged at 30% of total profit, or 0% for a small company (NTA s. 56), and a development levy of 4% falls on assessable profit (s. 59). The basis period follows ss. 22 to 25.

Special provisions for miners (NTA s. 64)

• Mining is taxed under the Chapter Two rules (s. 64(1)).
• An amount paid into a fund, scheme or arrangement approved by the relevant authority for environmental protection, remediation, mine rehabilitation, land reclamation and mine closure is deductible, provided it is cash-backed and invested in a dedicated account or trust fund managed by independent trustees or funds (s. 64(2)).
• The royalty paid is deductible, and the Nigeria Revenue Service administers the royalty (s. 64(3) and (4)).

Mining royalties (Eighth Schedule)

Royalty is charged on any mineral obtained in exploration or mining at an ad valorem rate on the value of the mineral. The value is fixed by the official selling price set by the Federal Ministry of Solid Minerals, or ruling prices on an international trading platform. Main rates:

A monthly royalty return is due by the 21st of the following month (NTAA s. 20), whether or not there was output, with the mining or quarrying licence numbers, type and weight of mineral, location and labour, quantity won, sold, used and left on hand, buyers, the computation, the self-assessment form, proof of payment and a signed declaration.

The revenue service may reassess; additional royalty is paid within 30 days of the notice.

Offences and penalties (Nigerian Minerals and Mining Act, ss. 131 to 142)

The Nigeria Mineral Resources Decision Support System

A framework for informed decisions on solid minerals. It manages data on resources, exploration and mining; analyses potential and trends; gives decision tools and models; and helps government, miners and communities share information. Its parts are geospatial data, the mining cadastre, economic analysis and environmental impact assessment. Its aims are sustainable mining, attracting investment and better governance, giving timely data, transparency, efficiency and better resource management.

NEITI (Act No. 17 of 2007)

• Governing body: the National Stakeholders Working Group, which sets policy, programmes and strategies, recommends the budget and work-plan and reviews performance.
• Composition: a chairman and not more than 14 other members, one of whom is the Executive Secretary, appointed by the President, including representatives of extractive companies, civil society and labour unions, experts, and one member from each of the six geo-political zones. Members, other than the Executive Secretary, serve part-time for four years and no more.
• Meetings: quarterly, at least four times a year; the quorum is eight; decisions by simple majority, with a casting vote for the chairman; the group may co-opt advisers who cannot vote; vacancies do not invalidate proceedings; it may form special committees.
• Executive Secretary: appointed by the President on the group’s recommendation, a graduate with at least ten years’ cognate experience; runs the agency day to day and is secretary to the group; serves up to five years in all.
• Staff and validators: the group engages staff and consultants, fixes their pay and recommends qualified validators in line with the NEITI guidelines in the Second Schedule.

Worked examples

1. Tin ore.
   25,000 × 42,000 = ₦1,050m × 7.5% = ₦78.75m.
   Concentrate = 15,000 × 42,500 = ₦637.5m × 7.5% = ₦47.8125m.
   Granite = 30,000 × 31,000 = ₦930m × 10% = ₦93m.
2. Royalty = ₦219.5625m on revenue of ₦2,617.5m.
3. Assessable profit.
   2,617.5 − 1,430 − 25.2 − 219.5625 = ₦942.7375m.
   Development levy at 4% = ₦37.71m.

1. Add back the income tax provision 78,000, depreciation 101,930 and the general allowance 83,560: adjusted (assessable) profit = 39,660 + 263,490 = 303,150.
2. Total profit.
   303,150 − 133,500 = 169,650.
   Company tax at 30% = 50,895.
3. Development levy.
   4% × 303,150 = 12,126.
   Turnover is above ₦100m, so it is not a small company.

1. Plant (class 2, 20%) = ₦80m; building (class 1, 10%) = ₦20m; vehicles (class 3, 25%) = ₦12.5m.
2. Total = ₦112.5m, with no initial allowance.

1. Case A: cash-backed and independently managed, so ₦50m is deductible under s. 64(2).
2. Case B: not cash-backed, so no deduction.

1. On first conviction: a fine of at least ₦20,000,000 and imprisonment of at least five years, and the licence is liable to revocation.
2. Continuing offence.
   ₦20,000 × 10 days = ₦200,000 in addition.
3. Directors who took part in the management are also deemed guilty.

How to score full marks

• Compute royalty by mineral first, because it is a deduction for tax.
• Add back provisions, depreciation and the income tax charge before the allowances.
• Use the three classes for capital allowance and show the class.
• Apply 30% to total profit and 4% to assessable profit.
• Give the penalty figures in full with the section.

Common mistakes in the exam

• Applying the old tertiary education tax instead of the 4% development levy.
• Using an initial allowance of 95% for 2026.
• Deducting a general provision for doubtful debts.
• Forgetting that royalty depends on the mineral, and giving one flat rate.
• Allowing a rehabilitation provision that is not cash-backed.
• Giving a quorum of seven for NEITI instead of eight.

Quick revision

• Royalty: gold 15%; tin, coal, iron ore, bauxite and similar 7.5%; most others 10%.
• Capital allowance: 10%, 20%, 25%; mining expenditure 20%; no initial allowance.
• Total profit at 30%; levy 4% of assessable profit.
• Rehabilitation fund: cash-backed, independent trustees.
• Mining Act: ₦20m and five years; ₦20,000 a day.
• NEITI group: chairman and up to 14; four-year term; quorum 8; meets four times a year.

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.

Written questions

Model answers

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