22 Mar 2024

Compulsory taxes as an average Nigerian

Nigerian Tax Academy

As an average Nigerian, you are required to pay various compulsory taxes imposed by the government to fund public services and infrastructure projects. These include Personal Income Tax, Value Added Tax (VAT), Corporate Income Tax, Capital Gains Tax, Education Tax, Stamp Duties, Customs and Excise Duties, Property Tax, and Road Taxes. Tax rates may vary based on income levels and are regulated by federal and state revenue services. It's crucial to stay informed about tax laws, consult with professionals, and ensure compliance to avoid penalties.

Understanding Your Tax Obligations in Nigeria

The Nigerian tax system can seem complex, but knowing the different types of taxes and how they apply to you can help you stay compliant and avoid unnecessary burdens. This article provides a comprehensive overview of compulsory taxes in Nigeria, categorized by who pays them:

For Individuals:

1. Personal Income Tax (PIT): This is a tax on your income from various sources, including employment (wages, salaries), pensions, investments (interest, dividends), and business activities (if you're self-employed). The rate is progressive, meaning the more you earn, the more you pay. Important here is that all income below N300,000 per annum is not taxed, while the rate can go as high as 24% for high income levels. Irrespective of the amount you earn, your income tax will be below 20% after all reliefs are applied. Remember: You're still obligated to file annual tax returns even if your income falls below the taxable threshold.
2. Value Added Tax (VAT): This is an indirect tax (consumption tax) added to the price of most goods and services. You encounter VAT whenever you make a purchase subject to VAT, currently at a rate of 7.5%. As a consumer, you simply pay the VAT included in the price.

For Businesses:

1. Companies Income Tax (CIT): This tax applies to the annual profits of businesses registered in Nigeria as a company. The current CIT rate is 30% for large companies with a turnover exceeding N100 million, 25% for medium companies with a turnover exceeding N25 million but not up to N100 million, and 0% for companies with revenue under N25m.
2. Personal income Tax: If your business is registered as a Business Name, meaning it was registered as an individual business, you will still be required to pay Personal Income Tax on the profit of your business. The rate is progressive, meaning the more you earn, the more you pay. Important here is that all income below N300,000 per annum is not taxed, while the rate can go as high as 24% for high income levels. Irrespective of the amount you earn, your income tax will be below 20% after all reliefs are applied.
3. Value Added Tax (VAT): Businesses registered for VAT (mandatory if annual turnover exceeds N25 million) are responsible for collecting VAT on their sales and remitting it to the government. In this case, the business acts as a collector for the government.

Depending on your Business Activities:

1. Withholding Tax (WHT): This tax is deducted at source from specific payments your business makes, such as interest on investments, dividends paid to shareholders, and fees paid to contractors. Your business is responsible for withholding this tax and remitting it to the government. Withholding tax is an advance form of Tax, it can be deducted when filing the annual returns.

Other Potential Taxes:

1. Capital Gains Tax (CGT): This tax is levied on profits made from the sale of assets like property or investments.
2. Stamp Duties: These are small taxes applied to certain legal documents used in business transactions, such as contracts and agreements.

Exemptions and Considerations:

1. Some individuals and businesses may be exempt from certain taxes. It's crucial to research any exemptions that might apply to your specific circumstances.
2. This is a general overview, and the specific taxes you're liable for can vary depending on your income sources, business activities, and other factors.

For expert guidance and the latest information:

1. Consult a qualified tax advisor, especially for complex situations.
2. Visit the Federal Inland Revenue Service (FIRS) website: https://www.firs.gov.ng/
3. Explore the Nigeria Tax Academy Blog for informative articles tailored to various taxpayer situations.
   

By understanding your tax obligations and utilizing the available resources, you can ensure you're compliant with Nigerian tax regulations and avoid potential penalties. Remember, the Nigeria Tax Academy is here to help you navigate the intricacies of the tax system and make informed decisions.