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Types Of Business Taxes In Nigeria And How To Calculate Them

business taxes in nigeria

Citizen’s tax is the largest source of income to the Nigerian economy. That explains why the government takes it very serious. As a business owner in Nigeria, you should be as concerned about taxes as the government is. This is because you have to contribute to the economy you’re earning from. Remember that these taxes are necessary for the growth and development of Nigeria as a whole. That aside, the government enforces strict sanctions on businesses that fail to pay or try to evade taxes.

But this is Nigeria, and as patriotic as it is to pay all taxes when necessary, it is made difficult due to the activities of some dubious tax collectors. These unscrupulous collectors can make your business pay more than it should ever as taxes. To ensure you don’t fall victim to the antics of these cheats, we give an overview of the various business taxes in Nigeria and how they are calculated.

1. Companies Income Tax (CIT)

The companies income tax is due on all registered companies in Nigeria. This is a yearly tax chargeable on the profits realized in Nigeria during the year. These profits include all gains accumulated in, gotten from, imported into or received in Nigeria. The CIT can only be paid to the federal government of Nigeria.
Note: Companies who are involved in petroleum operations are not included in this category.
How To Calculate:
The CIT is charged at a dynamic government rate on total income. This rate depends on the form of business.

2. Value Added Tax (VAT)

The VAT is also known as sales tax. This is a type of tax that is charged on the supply of goods and services to the consumers. In another way round, consumers pay the value added tax whenever they buy goods or enjoy services on which taxes are imposed. In essence, businesses are required to deduct the VAT from specific products or services sold or discharged. Companies, having deducted the value added tax, are mandated to make remittance to the appropriate tax authorities.

How To Calculate:
The VAT is charged at 5% of the price of every applicable product or service. Companies can choose to inform customers of this tax and charge them separately for it or just add it to the original cost of products or services.

3. Personal Income Tax (PIT)

The PIT is payable by all individuals and businesses and partnerships registered in Nigeria. Incorporated companies (companies registered under Part A of Companies and Allied Matters Act 1990) are however exempted from this tax. The PIT is regulated by the State Inland Revenue Service.
By the way, all businesses, incorporated or not, pay the PIT directly or indirectly. Incorporated companies are required to charge their staff the Pay As You Earn tax (PAYE) and remit to the State Inland Revenue.
How To Calculate:
The PIT is charged by a certain percentage of an individual or partnership’s income. The PAYE is charged by deducting a fixed percentage of worker’s salaries or wages depending on his level.

4. Capital Gains Tax (CGT)

This type of tax is less popular and that is understandable because it is charged only on capital gains. Capital gains are profits realized from sales or exchange of assets. The CGT is payable only, and only, when a business auctions or exchanges any of its assets at a price higher than the actual purchase price.

How To Calculate:
The Capital Gains Tax is charged at 10% of the capital gains on any asset.

5. Education Tax

The education tax is charged on all businesses registered in Nigeria in order to contribute to the educational development of the nation. This tax is remitted to the Education Tax Fund.

How To Calculate:
This tax is charged based on assessable profit at the rate of 2% only.

These are the most important tax types in Nigeria. However, Nigeria is constantly progressing and changes or additions may be made to these taxes in the future. To stay safe and avoid extortion, we advise that you check monthly with a verified tax office close to you. Please note that all inquiries are free and attract no cost at all.

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