Here Are Taxes You Are Obliged to Pay as SMEs
To Avoid Payment of Penalty and Interest
- Tertiary Educational Tax (EDT): This tax is paid along with company income tax. It is payable by all limited liability companies with the exception of unincorporated entities and non-resident companies.
This tax is administered by Federal Inland Revenue Service under Tertiary Education Trust Fund (Establishment etc)
There is no specific requirement for filing it. The tax is self-assessed by filing form 4D-EDT together with the company income tax. In practice, the tax is paid six months after the accounting year-end.
The rate of tax is 2% of assessable profit which is tax adjusted profit before capital allowances.
Failure to pay after two months of notice of assessments will attract a penalty of 5% of the tax in addition to the principal tax.
If after two months, the failure continues, then the following additional penalties may apply on conviction:
- First offenders: One million Naira or imprisonment for a term of 6 months or ` both;
- Second or subsequent offenders: Two million Naira or imprisonment for a term of 12 months or both
- Stamp Duties (STD): Stamp Duty is a tax that is imposed on documents that serve as evidence of transactions between persons. Such documents majorly include legal documents like cheques, receipts, marriage licenses, and land transactions. Stamp Duties may also include instruments such as financial transactions, articles of association between companies, statements, deals, bonds, etc.
Stamp Duty is administered by both the Federal Inland Revenue Service and State Internal Revenue Service
The due date to stamp the instrument is always when stamp duty is paid.
Failure to stamp duty a document attracts a penalty of N20. Where the duty exceeds N20; a further penalty in the form of interest on the stamp duty payable at the rate of 10% per annum subject to a maximum of the unpaid duty.
- Capital Gains Tax (CGT): This is a tax on gains accruing to individuals and companies on the disposal or exchange of certain kinds of assets. The following are assets that chargeable to capital gains tax:
- Options, debts, and incorporeal property generally
- Any currency other than Nigeria currency
- Any form of property created by the person disposing of it, or otherwise coming to be owned without being acquired
- Chattels etc
However, the following assets are exempted from Capital Gains Tax
- Gains on Stock, shares, and other government securities such as treasury bonds, premium bonds, and savings certificates.
- Ecclesiastical, charitable or educational institutions of a public character.
- Any statutory or registered friendly society.
- Any co-operative society registered under the Co-operative Societies Law of any State in the Federation of Nigeria.
- Any trade union registered under the Trade Union Act.
- Gains on a decoration awarded for gallantry conduct.
- Gains accruing to statutory bodies.
- Gains arising from acquisitions, mergers, or takeovers provided that no cash payment is made in respect of the shares acquired.
- Gains on policies of assurance or deferred annuity unless the beneficiary is not the original Owner as in an estate.
- Compensation for a wrong or injury of libel, slander, enticement, loss of office in a personal or professional capacity.
- Gains from the main or only private residence of the individual provided that the area does not exceed one acre.
- Gains on private vehicles.
- Gains on any asset used for the purpose of a trade or business provided that the gain is used for replacing the old asset sold.
- Gains from a provident or retirement benefits scheme.
- Unitholders of a Unit Trust provided the proceeds are not reinvested.
- Any diplomatic body
This is governed by the Capital Gains Tax Act, and it is being administered by both the Federal Inland Revenue Service (FIRS) and State Internal Revenue Service (SIRS).
The rate of tax is 10% profit after deductions of the following from the proceeds of sale
- The initial cost of the asset
- Stamp duties
- Cost of enhancing the value of the asset
- Expenditure incurred in establishing, preserving or defending the title to, or right over the asset
- Incidental expenses for the purpose of acquiring or disposing of the assets;
- Cost of advertisement to find a seller during acquisition and advertisement cost to find a buyer during disposal.
The Act provides for Roll Over Relief which can be claimed where proceeds of disposal are used to purchase a new asset of the same class within 12 months before or after the disposal of the old asset. The classes of the assets eligible for relief are:
– 1A: (i) Building (ii) Land
– 1B: Plant or machinery which does not form part of the building
Class 2 – Ships
Class 3 – Aircraft
Class 4 – Goodwill
You just learned the seven types of taxes that small and medium enterprises are obliged to pay. You are also made to be aware of the consequences of failure to file returns and payment of the taxes. The essence of this is to avoid running afoul of the law.
And now there’s just one thing left for you to do: take action by observing the timing involved with each tax and complying with it
The problem of most MSMEs is that they are not aware of what to do and this is creating tax problems for them. If you are in that category, our firm is there to help you. Maybe you’ve even started this particular process, but it just didn’t work out. But this time it’s going to be different. And that’s because this time, once we are with you. You will no longer experience payment of penalty and interest.
Plus, this time, will always help you to look at your accounting and tax issues in totality.
You can run your business without being afraid of the taxman.
So go ahead and give us a call or sign up below and we take it up from there. And you begin to run your business into profitability and growth.