The tax is imposed by the Personal Income Tax Act 2004 [amended in 2011 and 2012] which also regulates the administration.
Personal Income Tax as Distinct from other Income Taxes Companies Income Tax-Chargeable on the profit of a company The rate is 30% of the chargeable profit of a company. It is imposed by the Companies Income Tax Act. Petroleum Profit Tax-This is chargeable on the profit of companies operating in the petroleum upstream sector . It is imposed by the Petroleum Profit Tax Act Who is Liable to pay personal Income Tax Individuals Itinerant worker: An individual who works during a year of assessment (other than as a member of the armed forces) for wages, salaries or livelihood in more than one state for a minimum of twenty (20) days in at least three (3) months of every assessment year Community Families Trustees Applicabilty to Lawyers Lawyers can practice either as a partnership, sole proprietor or under an employment. Partnership– Partnership is not taxed at the entity level because the partners are not distinct from the partnership. The tax is imposed on the income due to the partners. Sole Proprietor – Imposed on the profit derived from practice of the sole proprietor. It is the individual that is taxed and not the practice since there is no distinction between the business and the individual Employment –Imposed on the gross emoluments of the lawyer Chargeable Income Sole Proprietorship / Partnership Gain or profit, from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried out. Ascertainment of Tax Liability- Sole Proprietor / partnership All outgoing and expenses or other expenses that are wholly, exclusively, necessarily andreasonable incurred during that period in the production of the income are allowable deductions s. 20 PITA The allowable deductions include: Interest on principal employed as capital in producing the income Interest on loan for developing owner-occupied residential house Rents for premises occupied for the purpose of producing the income Allowable Deductions Expenses incurred for repairs of premises deployed for producing the profit Bad debts proven to have become bad during the assessment period Contribution to a pension fund or contributions to other retirement benefits fund or scheme approved by the Board Expenses incurred for research and proved to the satisfaction of the tax authorities Treatment of Losses Losses made during the year of assessment are an allowable deduction Provided they are claimed in writing within 12 months after the end of year of assessment The loss which the tax authority is satisfied was incurred during any year preceding the year of assessment and which has not been allowed against the assessable income of the preceding year If the expenses for land and building let for the purpose of generating income exceed the income the excess shall be treated as a loss. Ascertainment of Tax Liability The following deductions are tax exempt for the purpose of computing tax liability: National Housing Fund Contribution National Health Insurance Scheme Life Assurance Premium National Pension Scheme Gratuities See Sixth Schedule to PITA Rate of Income Tax The amount payable is determined from the Table Set out in the Sixth Schedule The Schedule provides for a graduated tax rate with minimum tax pegged at one percent of the gross income. • Minimum tax is applicable if after all deductions, an individual has no chargeable income or where the tax payable on the chargeable income of an individual is less than one percent of the total income of that individual – Section 37 PITA After relief allowance and Next ₦500,000 at 19%exemptions have been made, Next ₦1,600,000 at 21%the balance is taxed as follows: Above ₦3,200,000 at 24% First ₦300,000 at 7% Next ₦300,000 at 11% Next ₦500,000 at 15% Chargeable Income of Employees Employment Any salary, wage, fee, allowance, or other gain or profit from employment including compensations, bonuses, premiums, benefits or other perquisites allowed. Ascertainment of Tax Liability– Employment Tax Exempt deductions. National Housing Fund Contribution National Health Insurance Scheme Life Assurance Premium National Pension Scheme Gratuities The assessable income is the employee’s gross emolument. There is a consolidated relief allowance of ₦200,000 or 1% of gross income whichever is higher plus twenty percent of gross income. Tax Rate – Employment After relief allowance and ØNext ₦500,000 at 19%exemptions have been made, Next ₦1,600,000 at 21% the balance is taxed as follows: Above ₦3,200,000 at 24% First ₦300,000 at 7% Next ₦300,000 at 11% Next ₦500,000 at 15% Self Assessment File without demand and within 90 days of the commencement of every year of assessment a return of income in the prescribed form containing the following:- Amount of income from every source of the year preceding the year of assessment
- Declaration that the contents are accurate
- Self calculate the tax payable
- All medical and pharmaceutical products
- All exports excluding non oil products exports which are zero exempt
- Basic food items
- Plant machinery and equipment imported for use in EPZ or FTZ
- Books and educational materials
- Commissions earned on stock
- Baby products exchange transactions
- Fertilizer and locally manufactured farm machinery and veterinary
- Plant, machinery and equipment by educational institutions as part of purchased for gas utilization in the learning downstream sector
- All exported services
- Agricultural equipment and Zero rated goods/implements
- Non-oil exports
- Services exempted Goods and services purchased by Medical services and diplomats
- Services rendered by community
- Goods purchased for use in banks, people’s banks and mortgage humanitarian donor funded projects institutions
- Plays and performances conducted
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