Types of Business Taxes

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In today’s Store Management class, we will be learning about Types of Business Taxes

Types of Business Taxes

types of business taxes

Since it is not only individuals who pay taxes, companies are also required to pay tax. Now, let’s look at some of the taxes businesses pay. 

Company Income Tax (CIT)

Company Income Tax (CIT) is the levy imposed on the profits of all registered companies in Nigeria. The tax also applies to foreign entities who carry out business activities in Nigeria. It is paid by all limited liability companies in Nigeria (where public or private). CIT is regulated by the Company Income Tax Act (CITA). The Acts regulates all taxations for companies in Nigeria. Company Income Tax is administered and collected by the Federal Inland Revenue Service (FIRS).

Companies that are resident in Nigeria are expected to pay the corporate income tax on income received whether in Nigeria or another country. While foreign companies which carry out any business in Nigeria, are expected to pay CIT only on the income received in Nigeria.

In Nigeria, Company income tax is charged at 30% on all companies that have more than N100 Million Naira turnover. For companies with a turnover of N25 million to N100 million, company income tax is charged at a 20% rate. According to the Finance Act (2019), companies will less than N25 million turnover are exempted from paying company income tax. CIT is usually assessed on a preceding year basis.

A non-resident or foreign company that has a permanent establishment in Nigeria is liable to pay CIT on all incomes attributed to the permanent base. Such companies are required to register and file their tax returns for their proceeds in Nigeria.

Charge of Company Income Tax in Nigeria

According to Section 9 of the Company Income Tax Act, the CIT for each year of assessment is to be paid on all profits of any company received in Nigeria in respect of :

  • Any trade or business for whatever period of time such trade or business may have been carried on;
  • Rent or any premium arising from a right granted to any other person for the use or occupation of any property; and where any payment on account of such rent as is mentioned in this paragraph is made before the expiration of the period to which it relates and is included for the purposes of this paragraph in the profits of a company, then, so much of the payment as relates to any period beginning with the date on which the payment is made shall be treated for these purposes as accruing to the company proportionately from day to day over the last‐mentioned period or over the five years beginning with that date, whichever is the shorter;
  • Dividends, interests, royalties, discounts, charges or annuities;
  • Any source of annual profits or gains not falling within the preceding categories;
  • Any amount deemed to be income or profit under a provision of this Act or, with respect to any benefit arising from a pension or provident fund, of the Personal Income Tax Act;
  • Fees, dues and allowances (wherever paid) for services rendered;
  • Any amount of profits or gains arising from acquisition and disposal of short‐term money instruments like Federal Government securities, treasury bills, treasury or savings certificates, debenture certificates or treasury bills, treasury or savings certificates, debenture certificates or treasury bonds”.

Import Duties

Import Duties are charges payable on the importation of goods from one country into another. The amount of the charges depends on the value of the imported goods and other factors (for example, restriction). Import duties are regarded as customs duties, import turnover tax and other excise duties levied on imported goods.

Import duty (or customs duty) is a tax collected by customs authorities on all goods sold across borders. The aim of import duties is to raise income for local governments – but also to increase the end price of the goods for consumers, thus encouraging them to buy from the domestic market, which is not subject to this tax. Common examples of import duties are trade tariffs and excise duties.

Excise Duties

Excise Duties are indirect taxes on the sale or use of specific products, such as energy. The revenue from these excise duties goes entirely to the country to which they are paid.

  • They are primarily taxes that must be paid by businesses, usually increasing prices for consumers indirectly.
  • Excise taxes can be ad valorem (paid by percentage) or specific (cost charged by unit).
  • Some excise taxes can be required directly from the consumer like property taxes and excise tax penalties on certain retirement account activities.

In summary, Excise taxes are primarily for businesses. Many of them are paid by merchants who then pass the tax on to consumers through higher prices. Merchants pay excise taxes to wholesalers and consider them in product pricing which increases the retail price overall.

Evaluation

Define Taxation 

 

Reading Assignment

What are the types of Business Taxes we have in Nigeria? List two

 

Weekend Assignment

Explain the following 

  • Excise Duty
  • Import Duty

 

We hope you enjoyed today’s class. In our next class, we will be talking about Export Duties.

Let us know your thoughts and questions in the comment section, and we will attend to them as fast as we can.

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