In the daily running of your company, two sets of people wish above all that you make profit. The first set of persons are the business owners or the shareholders of the company, because for them profit is not just money, but an indication that the business is doing well.
Surprisingly the second group of persons hoping that you make profit and the main reason for this write up is the government. For the government, profit for the company means that there is tax to be paid (If you did not know, now you know). And let’s face it, we would all avoid paying tax if we could.
There are however certain situations under Nigerian law where the government still imposes tax on a business whether it declares a profit or not. We will discuss these situations in a future article. This particular piece focuses on the Company Income Tax in Nigeria.
First, you must know that the Company Income Tax Act (CITA) places the Company Income Tax at a fixed rate of thirty percent (30%) of the company’s taxable income? Taxable income is simply that portion of your company’s income that the tax law allows to be taxed. For the purpose of taxation their are certain earnings which when deducted by the company for certain purposes suddenly become unavailable for the taxman (we use taxman in professional lingo, LOL) in computing your tax.
Here is a list of some allowable deductions under the Act that every business owner and company can take advantage of;
- Interest on Money borrowed and employed as capital.
- Rent and premium paid in respect of building or properties occupied for the purpose of the running of the company, or used as accommodation for employees of the company. In the case of employee accommodation, it is limited to not more than 100% of the employee’s salary.
- Expenses incurred for repairs of premises, plants and machineries and renovation of office space.
- Salary, wages, bonuses, benefits and allowance of staff
- Bad debts already written off and specific provision for bad debt.
- Contributions to pension scheme of employees, retirement benefits, payment to recognised societies or professional bodies that are approved by the Taxman.
- Donations made from the profits of the company limited to 10% of the profit, to recognised bodies under the Act; such bodies include charities, education, and research purpose. A list of recognised bodies are listed in the Act, and with the advice of a Tax expert, it can be determined if the donation falls under allowable expenses.
- Legal expenses; this is limited to General legal advisory service, retainer fees, cost of protecting and defending the company and properties, and cost of renewing a short lease.
- Deduction for Research and Development; the amount must be stated as reserve for research and development to be allowed. It is limited to 10% of the profit for the year.
- Any other expense reasonably incurred and necessary for the running of the company. This part always makes for disagreement between tax assessors and companies, as to what qualifies as necessary. It is always best to have a Tax expert advice on this.
From experience it is quite apparent that the Federal Inland Revenue Service officials are always stringent in granting these reliefs, and seldom would overlook them. It is the responsibility of the business owner to ensure that these deductions are made, to reduce tax liabilities.
To ensure that you are not over paying tax to the government and losing revenue for your company in the process, you should watch out for every way to take advantage of these allowances and reliefs that are available to your line of business under the law.
If you do not already have a Tax consultant or Legal Tax expert, it is high time you got one.
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