Q&A: Types of Taxes

Question and Answer

Q: What types of taxes do I need to pay as a business owner in Nigeria?

A: As a business owner in Nigeria, there are several types of taxes you need to be aware of and may be required to pay, depending on the nature and size of your business.

These taxes are essential for funding government activities and maintaining infrastructure. Here’s an overview of the key taxes you should know about:

Company Income Tax (CIT): CIT is a tax imposed on the profits of incorporated entities in Nigeria. The current rate for CIT is 30% for large companies and 20% for small and medium-sized enterprises (SMEs) with turnover not exceeding N25 million annually. CIT is assessed on the annual profits of the company after allowable deductions.

Value Added Tax (VAT): VAT is a consumption tax levied on goods and services at each stage of the supply chain. In Nigeria, VAT is currently set at a rate of 7.5%.

As a business owner, you are required to register for VAT with the Federal Inland Revenue Service (FIRS) if your annual turnover exceeds N25 million. This means all categories or classes of business entities are expected to pay VAT.  You then charge VAT on your taxable supplies and remit the collected VAT to the tax authorities.

Withholding Tax (WHT): WHT is a tax deducted at source from payments made to suppliers, contractors, and service providers. The applicable rate varies depending on the nature of the transaction but typically ranges from 5% to 10%.

Common transactions subject to WHT include dividends, interest, royalties, and contract payments.

Education Tax (EDT): EDT is a tax imposed on the assessable profits of companies registered in Nigeria. The current rate for EDT is 2.5% of assessable profits. The proceeds from EDT are used to fund education projects in Nigeria, particularly tertiary institutions.

Personal Income Tax (PIT): If you operate as a sole proprietorship or partnership, you may be subject to PIT on your income derived from the business. PIT rates vary depending on income levels, with a maximum rate of 24%.

Capital Gains Tax (CGT): CGT applies to the disposal of chargeable assets such as land, buildings, and shares. The current rate for CGT is 10%.

Stamp Duties: Stamp duties are levied on various instruments, including legal documents, agreements, and transactions. The rates vary depending on the nature of the instrument.

It’s important to note that compliance with tax obligations is crucial to avoid penalties and legal consequences. As tax laws and regulations are subject to change, it’s advisable to consult with a qualified tax professional or advisor to ensure proper compliance and optimize your tax planning strategies.