Q&A: Tax in Nigeria; Types & Levies

Question and Answer

Q: What type of tax is used in Nigeria?

A: In Nigeria, the tax system comprises various types of taxes levied by different tiers of government – federal, state, and local.

The primary types of taxes used in Nigeria can be categorized into direct taxes, indirect taxes, and levies. Here’s an overview:

Direct Taxes

Personal Income Tax: This tax is imposed on the income of individuals, including salaries, wages, bonuses, fees, and other benefits accruing to individuals. The Federal Inland Revenue Service (FIRS) administers this tax at the federal level, while state revenue agencies handle it at the state level.

Company Income Tax: Corporations and incorporated businesses operating in Nigeria are subject to this tax. It is levied on the profits of registered companies. The FIRS administers and collects this tax nationwide.

Indirect Taxes

Value Added Tax (VAT): VAT is imposed on the supply of goods and services in Nigeria. It is charged 7.5% on the value of goods and services consumed, with certain exemptions. The FIRS is responsible for the administration and collection of VAT at the federal level.

Customs and Excise Duties: These duties are imposed on imported goods and locally manufactured products. The Nigeria Customs Service administers customs duties, while the FIRS handles excise duties.

Levies

Education Tax: This tax is levied on the assessable profit of companies registered in Nigeria, and the proceeds are used to fund education projects in the country. The Tertiary Education Trust Fund (TETFund) administers and collects this levy.

Stamp Duties: Stamp duties are charged on various transactions, including agreements, contracts, and legal documents. The FIRS administers and collects stamp duties in Nigeria.

The Police Development Fund (PDF) in Nigeria is a special fund established by the Police Act to provide additional financial resources for developing and improving the Nigerian Police Force. The fund is financed through levies imposed on certain goods and services, such as fees on corporate entities and individuals operating in Nigeria. These levies are typically collected by relevant government agencies or bodies and then channeled into the PDF.

NASSNI: The National Social Security and Insurance Trust, stands as a cornerstone in Nigeria’s efforts to provide social security and insurance coverage to its citizens. Established under the National Social Security and Insurance Trust Act, NASSNI operates as a tax levy aimed at ensuring financial protection and welfare for Nigerian workers.

NITDEF: The Nigerian Information Technology Development Fund is a notable tax levy in Nigeria that fosters the growth and development of the country’s information technology sector. Established under the National Information Technology Development Agency (NITDA) Act of 2007, NITDEF mandates certain categories of companies to contribute a percentage of their annual turnover to support initiatives in the IT sector.

Understanding the types of taxes in Nigeria is crucial for individuals and businesses to fulfill their tax obligations and contribute to the development of the country. It’s advisable to consult with tax professionals or authorities for specific guidance on tax matters tailored to individual circumstances.