INSTITUTE OF CHARTERED ACCOUNTANTS OF NIGERIA

TAXATION

APRIL 2019

PILOT QUESTIONS

SECTION A MULTIPLE-CHOICE QUESTIONS

1. The effect of tax on the production or consumption of a product being taxed is

A. Tax burden
B. Tax incidence
C. Tax impact
D. Tax shift
E. Tax effect

2. The following are purposes of taxation in most counties of the world, except
A. Revenue generation
B. Redistribution of income and wealth
C. Management of the economy
D. Improvement in gross national income
E. Improvement in corporate governance in business organisations

3. The following are benefits of taxation of luxury goods in Nigeria, except

A. Increase in government revenue
B. Broadening of the tax base
C. Redistribution of wealth from the rich to the poor
D. Mitigation of the consumption of essential goods and services
E. Inducement of economic development

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4. The composition of the Joint State Revenue Committee comprises the following,
except
A. Chairman of the State Internal Revenue Service
B. The directors and heads of departments within the State Internal Revenue
Service
C. Chairman of each of the Local Government Revenue Committees
D. A representative of the Revenue Mobilisation Allocation and Fiscal
Commission
E. A representative of the Bureau on Local Government Affairs not below the
rank of a director

5. Tommy Limited is registered for VAT purposes. In March 2019, the company sold to
the final consumer a vatable product worth N3,150,000 (VAT inclusive). The total
output VAT was
A. N157,500
B. N315,000
C. N286,364
D. N630,000
E. N150,000

6. Which of the tiers of government is responsible for the collection of stamp duties on
investments executed by individuals?
A. State government
B. Federal government
C. Local government
D. Federal Capital Territory
E. Local communities

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7. The following information relates to Dr. Agbatogun, a university lecturer, for 2018
assessment year:
N
Consolidated salary 3,600,000
Benefits-in-kind 720,000
Profit from sale of domestic assets 150,000
Proceeds from state lottery 95,000

How much should Dr. Agbatogun report in his tax returns?

A. N3,600,000
B. N4,320,000
C. N4,470,000
D. N4565,000
E. N4,415,000

8. The time limit for payment of tax assessment raised by the Federal Inland Revenue
Service on a company is within ……….. after the service of the notice upon the
company.
A. 2 months
B. 3 months
C. 6 months
D. 9 months
E. 18 months

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9. What is the time limit for any company that disputes a tax assessment raised on it by
the tax authority to seek for revision of the assessment?
A. 14 days
B. 30 days
C. 45 days
D. 60 days
E. 90 days

10. In line with the provision of Section 7 of the Nigeria Customs Establishment Act
2017, one of the following is not a member of the Nigeria Customs Service
Commission.
A. A Chairman, who shall be a retired custom officer appointed by the Minister of
Finance
B. The Comptroller-General, who shall be the Deputy Chairman
C. The Chairman of the Federal Inland Revenue Service
D. The Chairman, Revenue Mobilisation, Allocation and Fiscal Commission
E. A retired Justice of the Supreme Court or Court of Appeal

11. Companies Income Tax Act Cap C21 LFN 2004 (as amended) specifies a penalty of
…….. of the tax withheld or not remitted by a person who is obliged to deduct tax on
interest, rent, or at source.
A. 5% per annum
B 10% per annum
C. 20% per annum
D. 100% per annum
E. 200% per annum

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12. By virtue of the provisions of Value Added Tax Act Cap V1 LFN 2004 (as amended)
the following goods are exempt from tax, except
A. Basic food items
B. Oil exports
C. Rent/lease of residency property
D. Fertilizers locally produced
E. Plant, machinery and equipment purchased for utilisation of gas in upstream
petroleum operations

13. The following are examples of instruments that are required to be stamped, except
A. Receipts
B. Bank notes
C. Transactions and sales of properties of a company under liquidation arising
from a compulsory winding up by a court or creditors’ voluntary winding up
D. Settlements
E. Notarial acts

14. The power to prohibit or restrict importation of all goods or any specified goods as
enshrined in section 55 of the Nigeria Customs Service Management Act 2017 lies in
the
A. Minister of Finance
B. President
C. Chairman, Nigeria Customs Service Commission
D. Chairman, Federal Inland Revenue Service
E. Comptroller-General of the Nigeria Custom Service

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15. Pursuance to section 2 of Land Use Charge Law 2018, promulgated by Lagos State
Government, the collecting authority of land use charge of a property located in
Badagry, Lagos State, which is owned by Chief Sunday Posu is
A. Federal Inland Revenue Service, Badagry office
B. Lagos State Internal Revenue Service, Badagry office
C. Badagry Local Government Revenue Committee
D. The king of Badagry, on behalf of Badagry community
E. The Minister of Finance

16. A person who receives a gift of personal property by Will is a

A. Devisee
B. Annuitant
C. Beneficiary
D. Remainder man
E. Legatee

17. What is the formula for determining adjusted profit ratio in the taxation of profits of
shipping companies in Nigeria?
A. Adjusted profit x 100
Global income
B. Net profit x 100
Global income
C. Gross profit x 100
Global income
D. Profit – sales x 100
Nigerian income
E. Adjusted profit x 100
Nigerian income

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18. Which one of the following is not a primary responsibility of a Revenue agency which
is one of the key stakeholders under National tax policy (NTP), 2017?
A. Treat the taxpayer as a customer
B. Undertake timely audits and investigations
C. Articulate, protect and advance taxpayers right
D. Establish a robust process to prevent, detect and punish corrupt tax officials
E. Facilitate inter-agency cooperation and exchange of information

19. The fundamental principle of ethics which requires a professional accountant not to
compromise professional or business judgement because of bias, conflict of interest
or undue influence of others is
A. Objectivity
B. Professional competence and due care
C. Integrity
D. Confidentiality
E. Professional behavior

20. Ekpudu Limited commenced business on September 1, 2016 and its accounting
year- end is March 31, every year. The basis period for the determination of
assessable profit for the third year of assessment shall be
A. September 1, 2016 – December31, 2016
B. April 1, 2017 – March 31, 2018
C. April 1, 2016 – March 31, 2017
D. September 1, 2017 – August 31, 2018
E. September 1, 2016 – August 31, 2017

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PILOT QUESTIONS

QUESTION 1

The national tax policies provide the fundamental guidelines for the orderly development of
a country’s tax system. It is in line with this assertion that the National tax policy (NTP),
2017, was developed in Nigeria.

Required:

(a) State three objectives of the national tax policy (NTP) 2017. (3 Marks)

(b) Explain five guiding principles of Nigeria tax system. (7½ Marks)

(c) Highlight two responsibilities of professional bodies, tax professionals, consultants

and agents in ensuring orderly and sustainable development of the Nigeria tax
system. (2 Marks)

(d) Discuss five important machineries government should put in place to ensure an
efficient tax administration. (7½ Marks)

(Total 20 Marks)

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QUESTION 2

Victor Aminu is an accountant of a leading manufacturing concern, NUASA Nigeria Limited.

He received the following remuneration and benefits from his employment with the
company:

Year ended December 31

2017 2018
N N
Basic salary 3,000,000 3,250,000
Transport allowance 240,000 270,000
Rent allowance 350,000 360,000
Utilities allowance 125,500 128,200
Medical allowance 50,000 55,000
Leave bonus – 10% of basic salary

The following additional information is provided by Mr. Aminu:

(i) Mr. Aminu is entitled to a fixed entertainment allowance of N12,000 per month.
(ii) His employer provided him with an official Honda salon car, which cost N4,500,000
at the time of purchase.
(iii) A generator set costing N750,000 was provided for the private use of Mr. Aminu.
(iv) Dividends received (gross) from investments in some blue-chip companies:
N

Paid on April 12, 2017 48,000

Paid on December 20, 2017 53,000
Paid on March 6, 2018 60,000
Paid on July 1, 2018 66,000
Paid on November 15, 2018 72,000

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(v) He took two life assurance policies for which he pays annual premium of N240,000
on a capital sum of N8,000,000 for self and annual premium of N50,000 on a capital
sum of N2,000,000 on his eldest child..

(vi) He contributes to both pension and housing schemes at the rate of 8% and 2½% of
gross emoluments, respectively. These schemes were approved by the Joint Tax
Board.

(vii) His takes care of his aged parents with N250,000 per annum. His parents have no
income of their own.

(viii) Mr. Aminu is married with five children, all of school-going age.

Required:

(a) Compute the income tax liability of Mr. Aminu for 2018 assessment year. (16 Marks)

(b) State four non-allowable deductions as provided for in section 21 of Personal

Income Tax Act Cap P8 LFN 2004 (as amended) (4 Marks).

(Total 20 Marks)

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QUESTION 3

(a) Withholding tax is a tax deducted at source from payments made to a taxable person
for the supply of goods and provision of services.

Required:

(i) List three objectives of withholding tax in Nigeria. (3 Marks)

(ii) State the relevant tax authorities for the collection of withholding tax in
Nigeria. (2 Marks)
(iii) State five contents of withholding tax returns/ payment schedule. (5 Marks)

(b) The Nigeria Customs Service is one of the major revenue agencies for the Federal
Government of Nigeria.

Required:

(i) State three powers of the Nigeria Customs Service as provided for in section
4 of the Nigeria Customs Establishment Act 2017. (3 Marks)
(ii) State five functions of the Nigeria Customs Service. (5 Marks)
(iii) What is the penalty for failure to make a report in such form and manner the
Customs Service may direct of every ship, goods carried and vehicle entering
Nigeria? (2 Marks)
(Total 20 Marks)

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QUESTION 4

Cookey Shipping Company Limited was incorporated in 2007 in South Africa with 2 million
Rand as its share capital, but engages in freight business in Nigeria and some other
countries. The company commenced business on January 1, 2008 and makes up its
financial statements to December 31, every year. Its global financial reports (after
conversion to Nigerian currency) for the year ended December 31, 2017 revealed the
following:

N’000 N’000

Income from passenger freight earned on transit terms 2,500,000

Income from passenger freight into Nigeria 3,400,000
Income from passenger freight out of Nigeria 4,700,000
Income from passenger freight on other routes 7,900,000
18,500,000
Less: Operating expenses: 2,300,000
Depreciation 1,100,000
Salaries and wages 4,250,000
General provision 300,000
Other disallowable expenses 80,000
8,030,000
Net profit 10,470,000
Assume that the Federal Inland Revenue Service is satisfied that the tax authority in South
Africa computes and assesses tax on similar basis with Nigeria and has received
certification of the appropriate ratio.

Required:

(a) Prepare a statement showing the total profit of Cookey Shipping Company Limited
for Nigerian tax purposes. (11 Marks)

(b) Compute the income tax liability of the company for Nigerian tax purposes.
(3 Marks)

(c) State the tax provisions as regards the taxation of non-Nigerian companies engaged
in shipping or air transport in Nigeria in accordance with section 14 of Companies
Income Tax Act Cap C21 LFN 2004 (as amended). (6 marks)
( (Total 20 Marks)

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QUESTION 5

(a) Explain the following terms:

(i) Settlement (1 Mark)

(ii) Estate (1 Mark)
(iii) Intestate (1 Mark)

(b) Mr. Uche Kokumo was a successful businessman and lived in one of the major cities
in the western part of Nigeria. After a brief illness, he died on February 13, 2017. He
had appointed Mr. Garuba as the trustee to administer his estate. Mr. Kokumo was
survived by his four children.

The following information was made available by Mr. Garuba in respect of the estate:

(i) Profits of the business as adjusted for tax purposes are as follows:
N

Year ended December 31, 2014 12,500,000

Year ended December 31, 2015 18,150,000
Year ended December 31, 2016 23,720,000

(ii) Capital allowances for the business as agreed by the tax authority are as
follows:

Tax year N

2014 2,100,000
2015 2,400,000
2016 3,450,000
2017 3,600,000

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Other relevant information given is as follows:

(i) Each of the four children- Sunny, Gbengulo, Kemmy and Funmmy is entitled
to one-fifth of the net distributable income .
(ii) Interest on debt repayment by the trustee amounted to N255,000.
(iii) Fixed annuity to a Sunny is N700,000 per annum.
(iv) The remuneration of the trustee is fixed at N500,000 per annum plus 1% of
computed income.
(v) The allowable expenses of the trustee amounted to N1,120,000.
(vi) The trustee made the following discretionary payments to the children as
follows:
N

Sunny 660,000
Gbengulo 680,000
Kemmy 650,000
Funmmy 560,000

Required:

a. Compute the income tax payable by the trustee on the income for 2017 year
of assessment. (13 Marks)
b. Compute the income of the estate chargeable to tax in the hands of each of
the children. (7 Marks)
(Total 20 Marks)

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QUESTION 6

Messrs. Olabisi, Oworu and Babatolu have been in partnership business for many years
sharing profits and losses in the ratio 2:1:1, respectively. The abridged statement of profit or
loss of the partnership for the year ended December 31, 2017 is as follows:
N N
Income 22,250,000
Less: Direct expenses 8,500,000
Gross profit 13,750,000
Deduct: Other expenses:
Staff salaries and wages 1,450,000
Rent and rates 430,000
Travelling 355,000
Professional fees 210,000
Bank charges 138,000
Audit fees 280,000
Depreciation 192,000
General provision for bad debts 365,000
Interest on capital:
Olabisi 250,000
Oworu 125,000
Babatolu 125,000
Passages and leave allowances:
Olabisi 60,000
Oworu 50,000
Babatolu 40,000
Partners’ salaries:
Olabisi 1,200,000
Oworu 1,000,000
Babatolu 1,000,000

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Interest on loan paid to Olabisi 35,000
Purchase of equipment 750,000
Miscellaneous expenses 225,000
8,280,000
Net profit 5,470,000

The following information is relevant:

(i) A sum of N75,000 included in miscellaneous expenses was expended on Olabisi to
take care of domestic matters.
(ii) Capital allowances agreed for tax purposes for the year is N628,000.
(iii) Olabisi is married with three children, all in private institutions of learning. He also
maintains an aged uncle who is over 70 years old. He spent N180,000 on his uncle
during the year.
(iv) Oworu is married with a three-year old son, who is in a private kindergarten school.
(v) Babatolu is unmarried. He, however, maintains his fiancée with N200,000 per year.
(vii) Olabisi, Oworu and Babatolu contribute N600,000; N450,000 and N350,000 per
annum, respectively to an approved national pension scheme.

Required:
(a) Calculate the distributable profit of the partnership for the year ended December 31,
2017. (5 Marks)
(b) Calculate the income tax liability of each of the partners for the relevant assessment
year. (15 Marks)
(Total 20 Marks)

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