Tax may be defined as a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services, and transactions. Like virtually all tax obligations, companies’ tax obligations are statutory, i.e., they are clearly made pursuant to extant statutes or legislations. Importantly, significant implications arise from the fact of tax obligations being statutory, one of which is that compliance with such obligations is compulsory, failure of which attracts severe penalties which may include distrain of taxpayer’s property. This makes the knowing and compliance with tax obligations by companies very critical.

Whilst every company has tax obligations and liabilities, the extent of such obligations varies depending on several factors such as, the size of the company, the sector in which the company operates, the status of the company- whether Nigerian or foreign company, etc. This article is focused on providing a general knowledge of tax obligations and liabilities of companies in Nigeria, thereby underscoring amongst other things the importance of complying with tax obligations, so as to circumvent penalties, liabilities or disruption of business.

Regulatory Framework For Taxation Of Companies In Nigeria.

As earlier stated companies’ tax obligations in Nigeria are statutory, this implies that there are regulatory bodies, agencies, laws and/ or regulations, responsible for ensuring companies’ compliance with their tax obligations. For the purpose of this work, the essential components of regulatory framework for taxation of companies will be discussed under the following two heads, “Regulatory Bodies” and “Legislations.”

• Regulatory Bodies
  There are a number of regulatory bodies which have one or two connections with the subject of taxation of companies. For the purpose of this article however, three salient ones will be highlighted.
  • Federal Inland Revenue Service: This is a body corporate established under section 1 (1) of the Federal Inland Revenue Service (Establishment) Act, 2007 , which is solely responsible for overseeing the taxation of companies in Nigeria. It is the Federal tax authority and is amongst other responsibilities, largely responsible for the administration and implementation of all tax laws pertaining to companies in Nigeria.
  • State Boards of Internal Revenue: Nigeria practices a Federal System of Government and this reflects in the framework for taxation. Each State in Nigeria has its own tax authority usually referred to as State Internal Revenue Service responsible for the administration of state tax laws and some federal tax laws, as the case may be. Precisely, at relevant points in time, both the Federal and State tax authorities regulate certain taxes which may touch on companies or impose certain legal obligations on them. For instance, although the obligation to pay Personal Income Tax (which is to an extent, administered by the State Boards of Internal Revenue) lies on individuals who earn the taxable income, the Personal Income Tax Act and the Pay as You Earn Regulations impose certain obligations on employers (companies inclusive).
  • Tax Appeal Tribunal: Another regulatory body which every company should know is the Tax Appeal Tribunal (TAT). This is a tax dispute resolution body established with jurisdiction to determine disputes between taxpayers (company inclusive) and tax authorities arising from the administration of several tax laws . Any company aggrieved by an assessment, decision or demand notice made on it by the tax authority is to appeal against such assessment or demand to the TAT within thirty (30) days from the day of receipt of such notice. This is the first body to approach by every company in the process of resolving tax disputes between it and tax authorities.
• Legislations:
  There are several legislations imposing tax obligations on companies in Nigeria, which are too numerous to be exhausted in this work. The extent to which each company is affected by these legislations is dependent on many factors such as, the sector where the company operates, the size of the company, the status of the company etc. Some of the major tax legislations affecting companies are;
  • Companies Income Tax Act : This is regarded as the principal legislation imposing corporate tax obligations on companies with the exception of companies operating in the upstream sector of Nigerian oil and Gas industry.
  • Personal Income Tax Act: This legislation imposes tax on the income of individuals, corporation sole or body of individuals, communities, families and trustees or executors. It is imperative to state that companies are not liable to pay Personal Income Tax. However, as observed earlier, certain legal responsibilities are placed on companies (as employers) for the purpose of collecting the tax from individuals.
  • Petroleum Profits Tax Act : This legislation imposes tax obligations and liabilities on companies into petroleum operations in the upstream sector of Nigerian oil and gas industry. That is, companies engaged in the exploration and production of crude oil activities.
  • Value Added Tax Act : This is the law governing the imposition of Value Added Tax (VAT) in Nigeria. By virtue of this Act, 7.5% tax is imposed on the value of all goods and services other than those listed in the first schedule to the Act. This means that the supply of goods and services not listed in the First schedule to the Act are subject to VAT. These goods and services are generally referred to as vatable goods and services. Companies are obligated to pay VAT on all vatable goods and services consumed. In addition, except for companies that make supplies of vatable goods and/ or services below NGN25, 000, 000 (Twenty Five Million Naira) either singularly or cumulatively in a calendar year, other companies outside this threshold are obligated to collect and remit VAT to the FIRS on or before the 21st day of the month following the month of the vatable transaction.
  • Capital Gains Tax Act : This Act imposes 10% tax known as capital gains tax on every gain accruing to companies from a disposal of assets. For the purpose of the Act, disposal of assets refers to disposal of all forms of properties whether tangible or intangible and whether situated in Nigeria or not.
  • Education Tax Act: This legislation imposes on all companies registered in Nigeria what is called education tax, at the rate of 2% of assessable profit of the company.
  • National Information Technology Development Agency Act: This is a sector specific tax legislation which imposed tax at the rate of 1% on the profit (before tax) of the affected companies. Some of the affected companies include GSM Service Providers and all Telecommunication Companies, Cyber Companies and Internet Providers, Pension Managers and Pension Related Companies, Banks and other Financial Institutions and Insurance Companies.

Classification Of Companies For Tax Purposes In Nigeria

For the purpose of this article companies in Nigeria may be classified as follows;

1. Classification on the Basis of Nigerian/ Foreign Status of Companies
   Nigerian Company means companies incorporated under the Companies and Allied Matters Act or any enactment replaced by it . The major tax implication of operating as a Nigerian Company is that aside other tax obligations, such a company generally, is subject to tax on the basis of its worldwide income irrespective of the source of the income. In other words, all income of a Nigerian company is subject to tax in Nigeria whether or not they are derived from Nigeria.Foreign Company on the other hand is a company or corporation established by or under the law in force in any territory or country outside Nigeria. The tax implication of operating as a Foreign Company in Nigeria is that only the income of such company derived from Nigeria is subject to tax in Nigerian.The point to note here is that, while the world-wide profit of a Nigerian company is taxable in Nigeria, only the profit of a Foreign Company derived from Nigeria is taxable in Nigeria.
2. Classification on the Basis of Income Threshold:
   Following the amendment of the Companies Income Tax Act, by the Finance Act, 2019, the era of taxation of profits of companies at a flat rate of 30% has ended and replaced with a new system whereby companies are classified according to their income threshold and taxed at different rates. The three categories are;
   1. Small Company: This is a company that earns gross turnover of NGN 25, 000, 000 (Twenty-Five Million Naira) or less in a year of assessment. The profit of small companies is not taxable in Nigeria, however such company still has the obligation to register with tax authorities and file tax returns like other companies, breach of which will attracts penalties.
   2. Medium-sized Company: This is a company that earns gross turnover greater than NGN 25, 000, 000 (Twenty-Five Million Naira) but less than NGN 100,000,000 (One Hundred Million Naira) in a year of assessment. The profit of a Medium-sized company is taxed at the rate of 20%.
   3. Large Company: This is a company which is not a small company or a medium-sized company. The profit of a large company is taxable at the rate of 30%.
3. Classification on the Basis of Sector
   
   1. Companies operating in the Oil and Gas Industry Sector
      Companies into petroleum operations in the upstream sector of Nigerian oil and gas industry are not subject to the tax rates under the Companies Income Tax Act as discussed above. Taxation of the profits of such companies are governed by the Petroleum Profits Tax Act, and the tax rate is between 50% and 85% of the profits as the case may be.
   2. Information Technology and Related Companies Sector:
      These are companies that in addition to their being subject to tax obligations under the Companies Income Tax Act are required to pay further tax by reason of the sector in which they operate. Such companies include; GSM Service Providers and all Telecommunication Companies, Cyber Companies and Internet Providers, Pension Managers and Pension Related Companies, Banks and other Financial Institutions and Insurance Companies which have an annual turnover of N100,000,000 (One Hundred Million Naira) and above. Eligible companies are to pay levy amounting to 1% of their profits before tax

Tax Obligations And Liabilities Of Companies In Nigeria.

Emphasis has been made in this work on the statutory nature of tax obligations as well as the fact that breaches of these obligations attract legal sanctions. Depending on the nature of the infraction, some of the sanctions common in Nigerian tax legislations are, fines, distrain, payment of interest, prosecution, imprisonment etc. Thus, it is critical for every company to know and comply with its tax obligations as required by law. For companies, the major tax obligations/ legal obligations arising from tax laws in Nigeria with cognisable consequences include;

• Registration: The first tax obligation of every company in Nigeria is to register with the tax authority and obtain a Tax Identification Number (TIN). Having a TIN by companies is a compulsory requirement irrespective of the business of the company or whether or not the profit of such company is exempted from tax. The TIN is also compulsory for any company to open or operate a bank account, it is also compulsory for companies to display their TIN on all business transactions with other companies or individuals, and on every document, statement or correspondence with others. There are also other tax registrations expected of companies, such as Value Added Tax registration for companies providing vatable goods and services , etc.
• Payment of taxes due: Another key tax obligations of companies in Nigeria is payment of tax due on their profits. This has to do with actual parting with profits of companies and the evidence of such payment must be kept as same will be needed for filing of tax returns. The rate of tax which every company is to pay has been carefully discussed above under the heading “classification of companies for tax purposes in Nigeria”. The practice in Nigeria is that of self-assessment, which is a procedure whereby subject to the review of tax authorities, company assess itself to tax and pay the amount due to the tax authority.
• Filing of Tax Returns: This is another critical tax obligation of companies in Nigeria. A tax return is a report prepared by a taxpayer containing information on his tax affairs for a given period for the purpose of complying with the tax laws. While filing is the submission of the said report to the relevant Tax Authority in a manner prescribed by law and in accordance with the laid down administrative procedure. There are several tax returns which a company is expected to file, among which are, Companies Income Tax Return, Petroleum Profits Tax (PPT) Returns, Transfer Pricing Returns, Value Added Tax (VAT) Returns, Withholding Tax (WHT) Returns , Capital Gains Tax (CGT) Returns. Etc.Generally, the major documents required to file tax returns include, duly completed self-assessment form, audited financial statement, and evidence of payment of tax due. There are different periods for filing the above tax returns which may either be yearly, quarterly or monthly as the case may be.
• Tax Collection Agent: This is another tax obligation of companies under several tax laws. A company serves as a tax collection agent where the burden of the tax is not borne by the company but to ensure proper collection of such tax, companies are required to collect the tax from the taxpayers and remit same to the tax authority. In other words, the tax paid by other taxpayers are collected by tax authorities directly from companies and not from the taxpayers. For example, companies are collecting agents for Personal Income Tax , Value Added Tax , Withholding taxes etc., Companies are to account and remit such taxes to the tax authority within timeline, failure which will attract penalties.
• Withholding Tax Obligation: Withholding Tax (WHT) is a method used to collect income tax in advance. It is deducted at varying rates ranging from 5% to 10% depending on the transaction. The duty to deduct and pay withholding tax arises when making payment for chargeable transactions. This duty is on the company making payment for a chargeable transaction. Contrary to general perception, WHT is not a type of tax or a separate category of tax, rather it is a form of tax payment whereby certain amount of income accruing to a taxpayer is withheld in advance to be counterbalanced after actual income tax is paid by the taxpayer.
• Duty to disclose: Companies also have the obligation to disclose certain transactions or information to tax authorities. For instance, under the Income Tax Transfer Pricing Regulation, companies are expected to, without notice or demand; make a disclosure of transactions that are subject to the Regulations. Under the same Regulations a company is required to make declaration of any relationship with a connected person not later than eighteen months after the date of incorporation or within six months after the end of the accounting year, whichever is earlier.
• Duty of Documentation: Another obligation on companies is the duty to keep proper documentations, book of account, records etc., of certain transactions. Failure to maintain such documentations attract penalties. By implication such documentation are to be maintained for at least six years since the FIRS cannot make additional assessment of tax on companies after six years except where such company is guilty of fraud, willful default or neglect in paying the appropriate tax due. Aside the fact that documentation is a tax obligation, it makes filing of tax returns easier for companies.
• Duty to Pay Minimum Tax: Generally taxes are to be paid only from profits made by companies. However, there is an obligation on companies to pay what is called minimum tax at the rate of 0.5% of gross turnover less franked investment income, where the company made loss, or where no tax is payable from the ascertained profit of the company or the tax payable from the profit is below the minimum tax in a year of assessment. Companies engaged in agricultural trade or businesses, or gross turnover less than NGN 25, 000,000 (Twenty Five Million Naira, or every other Company within its four years of commencement of business is exempted from the obligation to pay of minimum tax.
• Duty to Pay Minimum Tax: Generally taxes are to be paid only from profits made by companies. However, there is an obligation on companies to pay what is called minimum tax at the rate of 0.5% of gross turnover less franked investment income, where the company made loss, or where no tax is payable from the ascertained profit of the company or the tax payable from the profit is below the minimum tax in a year of assessment. Companies engaged in agricultural trade or businesses, or gross turnover less than NGN 25, 000,000 (Twenty Five Million Naira, or every other Company within its four years of commencement of business is exempted from the obligation to pay of minimum tax.

Conclusion And Recommendations

Having X-rayed the major tax obligations of companies in Nigeria and other surrounding issues, it is important to reiterate that these obligations are not optional and must not only be complied with by companies but also that, such compliance must be done within stipulated timeline. This is because, there is an increasing reliance on tax revenue by the Nigerian Government, with the implication that tax authorities are more vigilance now than ever in ensuring total compliance with tax obligation. This has resulted to an unprecedented increase in prosecution, distrain of taxpayers’ properties, charging of interests on unpaid taxes, imprisonment and the likes.

To achieve the desired and expected total compliance with tax obligations, companies are further advised to engage tax practitioners, experts or advisors for proper guidance in this regard. It therefore becomes pertinent to state that the overview provided in this work is for general consumption, while each company will need to seek specific tax answers to peculiar tax issues surrounding its operation.

On a final note, it is important to add that the possession of a Tax Clearance Certificate (TCC) by a taxpayer is a prima facie evidence that a taxpayer including company has complied with its tax obligations.