Business & Non-business Taxes in Nigeria

October 5, 2024

If payment of money to the government cannot be directly linked to the provision of any goods or services by the government, then it is a tax. Business organisations and non-business organisations registered in or deriving income from Nigeria pay income taxes as well as indirect taxes to the Nigerian government. In this piece, “taxes” include levies, rates, contributions etc.[1]

Twenty-one (21) of such taxes, levies, rates, contributions etc. are discussed in succeeding paragraphs, and they are also listed below.

Business organisations in Nigeria include business names (BN, sole proprietorships (SP) and general partnerships (GP)), limited partnership (LP), limited liability partnership (LLP), private company limited by shares (LTD), public limited company (PLC), unlimited company (ULTD), cooperative society (CO-OP) and state-owned enterprises (SOEs, specifically, statutory corporations). Non-business organisations in Nigeria include company limited by guarantee (Ltd/Gte) and incorporated trustees (ITs).

DISCLAIMER: This piece is not legal or professional advice, and it is provided for general information purposes only. If you require legal assistance with any matter, please contact Charles Anthony Lawyers.

Personal Income Tax

The personal income tax (PIT) is levied on income of individuals, trustees, families, communities, SPs, GPs and LPs from a source within or without Nigeria, under the Personal Income Tax Act of 1993 (PITA).[2] The PIT is paid by natural persons, SPs and LPs on a preceding-year basis, although it is deducted on an actual-year basis from salaries and wages under the pay-as-you-earn (PAYE) scheme or deducted from other payments by way of withholding tax (WHT). The PIT rates are gradated, although minimum wage earners are exempted from payment.[3]

The State Board of Internal Revenue (State Internal Revenue Service) collects the PIT from the residents of the state while the FCT Internal Revenue Service collects it from the residents of the FCT Abuja. The Federal Inland Revenue Service (FIRS) collects the PIT on the income of members of the Nigerian Armed Forces, the Nigeria Police Force, the Nigerian Foreign Service and foreigners outside Nigeria deriving income from Nigeria.

Companies Income Tax

The companies income tax (CIT) is charged on the income of any corporation accruing in, derived from, brought into and received in Nigeria under the Companies Income Tax Act of 1977 (CITA).[4] The CIT is paid by LLPs, LTDs, PLCs, ULTDs, LTD/GTEs, ITs, CO-OPs and SOEs. The CIT is paid on a preceding-year basis, although it is deducted on an actual-year basis by way of WHT.

Only the FIRS assesses companies to and collects the CIT. The CIT rates depend on the turnover of the business: it is 0% for a turnover less than NGN25,000,000; 20% for a turnover from NGN25,000,000 but less than NGN100,000,000; and 30% for a turnover from NGN100,000,000 and above.[5] Note that the WHT applies notwithstanding the turnover.

Petroleum Profits Tax

This petroleum profits tax (PPT) is charged on the income from the petroleum operations (sale and disposal of crude oil and incidental income) of an upstream petroleum company under its unexpired oil prospecting licence (OPL) and unexpired oil mining lease (OML) issued under the Petroleum Act 1969.[6] The PPT is levied under the Petroleum Profits Tax Act (PPTA).

The PPT rate is generally 85% but 50% (tax oil) for operations under the Deep Offshore and Inland Basin Production Sharing Contracts (PSC) Act.[7] It is paid on an actual-year basis and collected by the FIRS. The PPT will no longer be paid when the last unconverted OPL or OML expires or is revoked.

Hydrocarbon Tax

The hydrocarbon tax (HCT) is charged on the income from the petroleum operations (sale and disposal of only crude oil and field condensates) of an upstream petroleum company under its special petroleum prospecting licence (PPL) and special petroleum mining lease (PML) issued under the Petroleum Industry Act (PIA) 2021 as the renewed forms of expired OPL and OML respectively.[8] The HCT is paid by some LTDs and PLCs in the upstream segment of the Nigerian petroleum industry.

The HCT is not paid by all upstream holders of PPL and PML, and it is not paid in respect of all fields. The HCT rates depend on the petroleum title and the filed. It is 15% for those special PPLs and 30% for those special PMLs in respect of only onshore and shallow water fields.[9] The HCT is paid on an actual-year basis and collected by the FIRS.

Hydrocarbon Companies Income Tax

The hydrocarbon companies income tax (HCIT), although not so called by the statute, is a special form of CIT levied on the income from the petroleum operations (sale and disposal of both crude oil and natural gas) of any upstream petroleum company holding a petroleum prospecting licence (PPL) or a petroleum mining lease (PML) issued under the Petroleum Industry Act (PIA) 2021.[10]

While the HCIT has the same rate as the ordinary CIT discussed earlier, it is paid on an actual-year basis like the PPT or HCT.[11] It should be noted that payers of the PPT pay the ordinary CIT on a preceding-year basis for the sale and disposal of natural gas produced under those unexpired OPLs and OMLs discussed under PPT earlier.[12]

Tertiary Education Tax

The tertiary education tax (EDT) is imposed by the Tertiary Education Trust Fund (Establishment) Act of 2011 on the assessable profit of all companies (LLPs, LTDs, PLCs, LTD/GTEs and ULTDs) registered in Nigeria.[13] The EDT rate is 3%, and it is collected along with the CIT by the FIRS and paid to the Tertiary Education Trust Fund (TETFund).[14] The EDT is deductible for purposes of the PPT only.

Capital Gains Tax

This capital gains tax (CGT) is governed by the Capital Gains Tax Act (CGTA) of 1967. The CGT is charged on the gains realised from the disposal of chargeable assets. The CGT is paid by all persons, natural or artificial. Chargeable assets include all corporeal and incorporeal property, including digital assets and currencies other than the Nigerian Naira. Income which is chargeable to PIT, CIT, PPT or HCT are excluded from the CGT, and the taxable person is to compute, file returns on and pay the CGT on the realised gains not later than 30 June and 31 December of each year.[15] The CGT rate is 10% of the chargeable gains after making allowable deductions.[16]

Value Added Tax

The Value Added Tax (VAT) is governed by the Value Added Tax Act of 1993 (VATA). VAT is a tax imposed on the supply of goods and services consumed in Nigeria at the rate of 7.5% of the cost of the goods or services.[17] The VAT is paid by all persons, natural or artificial. The VAT on goods and services supplied by foreigners are withheld and remitted by the receiver. VAT is collected by the supplier and remitted not later than the 21^st day of the month following the month of collection.[18] Paid VAT is input VAT and collected VAT is output VAT, and a supplier only remits the difference where the output exceeds the input, otherwise, the supplier gets a refund.

While some goods and services are exempted from VAT i.e., irrespective of the receiver, some are zero-rated i.e., only exempted when supplied to a specific receiver or for a specific purpose. Exempted items include medical and pharmaceutical products, books and educational materials, electric vehicles, CNG equipment and conversion kits, medical services, tuition fees etc. Zero-rated items include goods and services supplied to diplomats of other countries in Nigeria or supplied for humanitarian donor-funded projects.[19] See Sales Tax below for discussion of VAT Laws of some states.

Withholding Tax

Th withholding tax (WHT) is governed by the Companies Income Tax (Rates etc., of Tax Deducted at Source (Withholding Tax» Regulations 1997 (WHTR97) but will start to be governed by the Deduction of Tax at Source (Withholding) Regulations, 2024 (WHTR) from 1 January 2025. WHT is not a standalone tax, but an advance deduction of income tax at the time of paying money to a taxable person under the PITA, the CITA, the PPTA and the CGTA per the WHTR.[20] The WHT is paid by all persons, natural or artificial.

The WHT is remitted monthly using the tax identification number (TIN) of the recipient of the income, and the sum paid serves as a credit which the recipient will use to defray their eventual tax liability at the time of assessment. Different rates (2%-15%) apply to corporate and non-corporate recipients and to different transactions. Excluded transactions include those across the counter with a value of NGN2 million instantly paid in cash or by electronic transfer.[21]

Stamp Duties

The stamp duty (SD) is governed by the Stamp Duties Act of 1939 (SDA). The SD is charged on the execution of specified physical or electronic instruments relating to specific transactions, and the rate can be flat or ad valorem i.e. based on the value of the transaction.[22] The FIRS collects the SD where a corporation or group of persons is a party to the instrument while a state tax authority, usually the State IRS, collects the SD involving only natural persons. The electronic money transfer levy (EMTL) is imposed at the flat rate of NGN50 by the SDA on any bank transfer or payment of money from NGN10,000 and above.[23] Instruments exempted from the SD include those on transfer of stocks and shares. The SD and the EMTL are paid by all persons, natural or artificial.

Customs Duties and Excise Tariffs

Customs duties and excise tariffs (CDET) are governed by the Customs, Excise Tariff, etc. (Consolidation) Act of 1995 (CETA). Customs duty is a tax imposed on specified imported goods and services in the First Schedule of CETA while excise duty or excise tariff is imposed specified imported goods and specified goods manufactured in Nigeria in the Fifth Schedule of CETA. Goods and services are classified using the Harmonised System Code (HS Code) for ease of identification. The duty and tariff rates are ad valorem and administration is by the Nigeria Customs Service. The CDET is paid by all persons, natural or artificial.

Employees’ Compensation Fund Contribution

The Employees’ Compensation Fund (ECF) contribution is levied on all private and public employers of labour in Nigeria by the Employees’ Compensation Act of 2010 (ECA).[24] Payments from the ECF are used to compensate employees who have suffered work-related injuries or contracted disabling occupational diseases as well as the dependants of employees who passed away in the course of their employment. The Nigerian Social Insurance Trust Fund (NSITF) Management Board administers the ECF, and while the rate may vary based on the risks associated with an industry, the minimum is a monthly 1% of an employer’s monthly payroll.[25] The ECF contribution is made by all persons, natural or artificial.

Social Insurance Fund Contribution

The Nigeria Social Insurance Trust Fund (NSITF) contribution is levied under by Nigeria Social Insurance Trust Fund Act of 1992 (NSITFA) on the monthly payroll of a business organisation with at least five employees and of every company and every partnership.[26] The NSITF provides a social security or safety net against death, invalidity and emigration of employees. It no longer covers retirement, pension and employment injury for these are now taken care of by other funds.[27] The NSITF contribution is made by the employer at the rate of 1% of the monthly payroll and is administered by the NSITF Management Board. The NSITF contribution is made by all persons, natural or artificial.

Information Technology Development Levy

The information technology development levy (ITDL) is imposed by the National Information Technology Development Agency Act of 2007 (NITDAA) on a turnover of at least NGN100,000,000 earned by telecoms companies, information technology companies, insurance companies, pension fund managers and banks and other financial institutions.[28] The rate is 1%, and it is collected by the FIRS and paid into the National Information Technology Development Fund.[29] The ITDL is paid by LLPs, LTDs, PLCs and ULTDs.

Cybersecurity Levy

The cybersecurity levy (CSL) is imposed by the Cybercrimes (Prohibition, Prevention etc.) Act of 2015 (CPPA) at the rate of 0.5% of all electronic transactions value by telecommunications companies, internet service providers, banks and other financial institutions, insurance companies and the Nigerian Exchange.[30] The CSL is to be paid into the National Cyber Security Fund administered by the Office of the National Security Adviser. However, the implementation of this levy has been suspended till further notice, following an outcry on the lack of clarity as to who has the burden to pay it between the businesses and the customers and the hardship it will cause on all persons.

National Housing Levy

The national housing levy (NHL) is imposed by National Housing Fund (Establishment) Act of 2018 (NHFA) for purposes of funding the National Housing Fund (NHF). The NHF serves as a source of housing loan and development and is administered by the Federal Mortgage Bank of Nigeria (FMBN). The FMBN is assisted by the CBN, National Insurance Commission (NAICOM), National Pension Commission (PENCOM) and the FIRS in the collection of the NHL from the respectively regulated sectors.[31] The NHL is paid by all natural persons and the identified LTDs, PLCs and ULTDs in the industries mentioned below.

The NHL includes a sustainable development levy (SDL) of 2.5% of the ex-factory price of each 50kg bag of cement produced in Nigeria; 2.5% of the monthly income of an employee deducted and remitted by the employer; 2.5% of the monthly income of a self-employed person earning at least the minimum wage; 10% of the profits before tax of commercial and merchant banks in Nigeria as investment in the NHF; 10% of the profits before tax of insurance companies in Nigeria as investment in the NHF; 10% of the profits before tax of pension funds administrators in Nigeria as investment in the NHF; and grants by the Federal Government.[32]

Police Trust Fund Levy

The police trust fund levy (PTFL) is imposed by the Nigeria Police Trust Fund (Establishment) Act of 2019 (NPTFA) at the rate of 0.005% of the net profit of companies (LLPs, LTDs, PLCs, ULTDs and LTD/GTEs) carrying on business in Nigeria.[33] The PTFL is a source of income for the Nigeria Police Trust Fund (NPTF) established by the same Act as an additional source of financing the training and operations of the Nigeria Police Force.[34] The PTFL is collected and remitted to the NPTF by the FIRS.

Science and Engineering Infrastructure Levy

The science and engineering infrastructure levy (SEIL) is imposed by the National Agency for Science and Engineering Infrastructure Act of 1992 (NASEIA) at the rate of 0.25% on a company (LLPs, LTDs, PLCs, ULTDs and LTD/GTEs) in the banking, mobile telecommunication, ICT, aviation, maritime and petroleum sectors with a turnover of at least NGN100 million.[35] The SEIL is a source of income for the science and engineering infrastructure fund from which the operations and expenditure of the National Agency for Science and Engineering Infrastructure are defrayed.

Sales Tax and State VATs

The sales tax (SLT) is imposed under the laws of various states, such as the Sales Tax Law of 1982 (STL) in Lagos State. Some states such as Lagos and Rivers also have their Value Added Tax Laws (VATL) which impose a state VAT (SVAT) on goods and services. Like the VAT, the SLT and the SVAT apply to goods and services at an ad valorem rate based on the price, such as 5% of the price in Lagos State.[36] However, unlike the VAT, the SLT has no input-output mechanism to ensure the SLT is passed to the final consumer. The VATA as well as the STLs and VATLs of various states apply to the same goods and services, although the VAT is wider in scope. The SLT is paid by all persons, natural or artificial.

While the Supreme Court in 2017 affirmed the supremacy of the VATA over the STL of Lagos and by implication, other state’ STLs,[37] a 2021 decision of the Federal High Court upheld the supremacy of the VATL of Rivers State over the VATA.[38] However, payment of the VAT still continues owing to a stay of the execution of the said Federal High Court decision pending the determination of the appeal against it. Until the Court of Appeal decides the appeal, the status quo is payment of only the VAT under the VATA. If the appeal succeeds, the VATA will apply only in the FCT Abuja.

Real Property Taxes

Property taxes on real estate in Nigeria are imposed by state laws, such as the Land Use Charge (LUC) imposed by the Land Use Charge Law of 2020 in Lagos State. Some states have tenement rates, land charges etc. The LUC in Lagos is a consolidation of several land charges and rates, and the payable rate is based on the fair market value (FMV) of the land. Other factors determining the LUC include average market value (LR,) land size (LA), developed portion (BA), average construction value (BR), relief rate (RR), charge rate (CR) and depreciation rate (DR). Hence, the formula is:

LUC = [(LA x LR) + (BA x BR x DR)] x RR x CR.[39]

Another form of real property tax is the ground rent (GRR) imposed by the Land Use Act of 1978 (LUA), determined by the Governor of a State and collected by the appropriate body in the state. The GRR is an annual sum payable by the holder of a right of occupancy granted by the Governor in respect of land in a state or the President in respect of land in the FCT Abuja.[40] A GRR is also paid in the free zone to the zone authorities.[41] Because all land in Nigeria belongs to the governments, a right of occupancy for a fixed term is the highest form of title a person can have to land in Nigeria. Property taxes are paid by all persons, natural and artificial.

Local Government Levies

Local government levies (LGLs) refer to various levies, fees etc. collected by the local government councils in a state as imposed by state laws, such as the Local Government Levies (Approved Collection) Law of 2010 (LGLL) of Lagos State.[42] LGLs are charged at flat rates daily or annually, and the rates also depend on the classification of the areas, mostly as urban or rural. LGLs are paid by all persons, natural or artificial.

Examples of LGLs in Lagos State include shop rates (annual), kiosk rates (daily), open market levy (daily), liquor licence, abattoir licence, park licence (annual), domestic animal fee, radio and TV licence fee, burial permit, entertainment and merriment permit fee, regulated food premises fee, motorcycle taxi (Okada) toll (daily), motorised tricycle taxi (Keke NAPEP) toll (daily) etc.[43]

Conclusion

The foregoing is not an exhaustive discussion of the extant taxes, levies, rates, contributions etc. especially at the state and local government levels. There are mechanisms in place to lawfully avoid or mitigate these taxes, such as registering a business in the free zones. Further, due to government policies and changes to tax laws, the details of some of the taxes discussed above might have changed at the time the reader is accessing this piece. It is therefore important to consult a professional for guidance at all times.

Ishaq Obashola Apalando is a Senior Counsel at Charles Anthony Lawyers, Lagos Island, Lagos. He can be contacted via his verified account on LinkedIn or ishaq@charlesanthonylaw.com. You can view other insights from Ishaq here.

[1] All statutes referred to in this piece are as amended.

[2] PITA, §§1-2

[3] PITA, Third Schedule, ¶33

[4] CITA, §9

[5] CITA, §40

[6] PPTA, §9

[7] PPTA, §20(4) & PSC Act, §3

[8] PIA, §§92-93

[9] PIA, §267

[10] PIA, §302(2)

[11] PIA, §302(1) & CITA, §40

[12] PPTA, §11(2)(d)

[13] TETFA, §1

[14] TETFA, §3

[15] CGTA, §2(4)

[16] CGTA, §40

[17] VATA, §4

[18] VATA. §15

[19] Value Added Tax (Modification) Order, 2024, ¶2

[20] WHTR, Reg. 7

[21] WHTR, Reg. 10

[22] SDA, §3

[23] SDA, §89A

[24] ECA, §56. Only the Nigerian Armed Forces are exempted by §3

[25] ECA, §33

[26] NSITFA, §§12-13 & 16

[27] ECA, §33 & Pension Reform Act 2014, §84

[28] NITDAA, §12

[29] NITDAA, §16

[30] CPPA, §44

[31] NHFA, §§10-15

[32] NHFA, §§4-6

[33] NPTFA, §4

[34] NPTFA, §5

[35] NASEIA, §20

[36] STL, §1 & Schedule

[37] Attorney-General of Lagos State vs. Eko Hotels Ltd. & Anor. (2017)LPELR-43713(SC)

[38] Attorney-General of Rivers State vs. FIRS (Suit No. FHC/PH/CS/149/2020)

[39] LUCL, §7

[40] LUA, §16 & §51(2)

[41] Nigerian Export Processing Zones Act, §18(1)(f) & Oil and Gas Free Zones Act, §18(1)(f)

[42] LGLL, §1 & Schedule

[43] LGLL, §1(2) & Published Approved Rates Chargeable

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