Taxation in Nigeria – Taxation Law in Nigeria

Nigerian Tax Laws – Nigerian Tax Laws – Tax Laws in Nigeria

Taxation in Nigeria: Tax legislation is the act or process of enacting tax laws and the body of laws that provide for the levying of taxes and tax administration.

The following are the existing tax legislation in Nigeria, as at 2016:

  • Associated Gas Re-Injection Act
  • Capital Gains Tax Act
  • Companies Income Tax Act
  • Deep Offshore and Inland Basin Production Sharing Contracts Act
  • Tertiary Education Trust Fund Act
  • Federal Inland Revenue Service (Establishment) Act
  • Income Tax (Authorised Communications) Act
  • Industrial Development (Income Tax Relief) Act
  • Industrial Inspectorate Act
  • National Information Technology Development Act
  • Nigerian Export Processing Zones Act
  • Nigeria LNG (Fiscal Incentive Guarantees and Assurances) Act
  • Oil and Gas Export Free Zones Act
  • Personal Income Tax Act
  • Petroleum Profits Tax Act
  • Value Added Tax Act
  • Stamp Duties Act
  • Taxes and Levies (Approved List for Collection) Act
  • Casino Act

Reviews, amendments and modifications to tax legislations are continuous, evolving with global best practices and in keeping with the local socio-economic realities. The review and amendment of tax legislation is in keeping with the formal tax amendment process as provided for in the Nigerian constitution.

As a result of the need to continuously review and amend tax legislation, the following tax laws were amended in the respective years indicated hereunder:

  • Companies Income Tax Act – 2007
  • Value Added Tax Act- 2007
  • Personal Income Tax Act – 2011

The Petroleum Industry Bill (PIB) is presently before the National Assembly and when passed into law will replace the Petroleum Profits Tax Act. In addition, there is an on-going process to overhaul all existing tax laws and the Service has consequently initiated the Tax Law Redrafting Project to achieve this.

The Public will be notified as soon as any further change to any or all of the tax laws is concluded.

Nigerian Tax System and Structure

Nigerian Tax System and Structure
Nigerian Tax System and Structure

Taxation in Nigeria: Tax Treaties

A treaty is a formal, written agreement between sovereign states or between states and international organizations.The type of tax treaty within the purview of the Federal Inland Revenue Service (FIRS) and domicile in the Tax Policy and Legislation Department is the Avoidance of Double Taxation Agreement (ADTA).

What is Avoidance of Double Taxation Agreement (ADTA)

Category: Taxation in Nigeria – Tax Laws in Nigeria

A tax treaty is a written tax agreement between two contracting states for the avoidance of double taxation and fiscal evasion. It identifies all items of income and defines what standards would apply to their taxation as well as where each income would become taxable (at residence, at source or both) and when this should be done. A tax treaty clearly spells out the conditions for the limitation or denial of benefits under the agreement.

The agreement also does the following:
Guide against the occurrence of a double taxation scenario in which a particular income is taxed twice in the hand of a taxpayer by either his home Country (Country of residence) or the Country of source of the income.
Modifies domestic tax laws by reducing the domestic tax rate.
Grants concessions to beneficiaries.
Guide against the occurrence of a double non-taxation scenario in which a particular income escapes taxation from both the source State (where the revenue is generated) and resident State (State of residence of the enterprise) in the hand of a taxpayer.
Exchange of all relevant tax information beneficial to either or both Contracting States for the furtherance of the operation of the Agreement.
Assistance in the collection of taxes by either Contracting States
Establishment of the Mutual Agreement Procedure (MAP) for the resolution of disputes emanating from the implementation of the agreement or the taxation of income of residents of both Contracting States

Taxation in Nigeria - Taxation Laws in Nigeria
Taxation in Nigeria – Taxation Laws in Nigeria

The purpose of double tax treaties;

Category: Taxation in Nigeria – Tax Laws in Nigeria

Double tax treaties are viewed as beneficial by most states because they allow business to transact with a degree of certainty both on the part of the individuals, partnerships or corporate entities and the government of that state in which that business entity operates. The perceived benefits of double tax treaties have been identified as follows:

Clarification of taxing rights of each State

Category: Taxation in Nigeria – Tax Laws in Nigeria

Tax treaties create the elucidation of taxation rights between the two Contracting states involved in the Agreement for purpose of clarity, avoidance of litigation and international conflicts. In the case of Tax Treaty, it states specifically which Contracting States has the taxing right and when both of them have the right.

Avoidance of international juridical double taxation

Category: Taxation in Nigeria – Tax Laws in Nigeria

International juridical double taxation arises where the same profits are taxed in the two Contracting States in the hand of the same person (corporate or individual). The ADTA clearly addresses and resolves such harsh conditions.
Prevention of fiscal evasion with anti-avoidance provision
The Acronym ADTA in Nigeria is fully called the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income and on Capital Gains. The Agreement therefore plays a dual purpose of preventing double taxation and also preventing fiscal evasion. Exchange of information provision (see Article 26 below) is intended to assist countries to obtain information in order to ensure its taxing rights are preserved, although the effectiveness of such provisions for tax avoidance as opposed to tax fraud may be limited at present.

Encourages Economic Cooperation Between States.

Category: Taxation in Nigeria – Tax Laws in Nigeria

Contracting States to the ADTA establish economic cooperation by opening the gate for companies from their Country to come to the other Contracting State because of its confidence in the tax system of that Country.
Double tax treaties generally are of tremendous importance to businesses with an international dimension. Without them trade would be stifled and economies would likewise be affected. It is because of this that treaties often assume huge importance when developing tax strategies. However, the introduction of anti-treaty shopping Articles (pioneered by the US) in double tax treaties and the exchange of information between member states is forcing substance into structure where perhaps years ago this would not have been an issue. Because of the importance of treaties it is not only necessary to understand how they operate but also how they are interpreted.

Taxation in Nigeria – Video