TAXATION PMNCIPLES

AND

FISCAL POLICY IN NIGERIA

(Revised Edition)

K. A. Ishola
B.Sc., MBA, CTII, CNA, FCA
Department o/Accounting
Al-Hikmah University, Ilorin

<5^

CRESTHILL PUBLISHERS LTD.

 CONTENTS

CHARTER ONE
1.1 Introduction 1
1.2 Reasons Why Governmnet Levy Taxes 1
1.3 The Objectives Of Taxation 2
1.4 Types Of Taxes 2
1.5 Direct Taxes 3
1.6 Different Forms Of Direct Taxes 3
1.7 Progressive Tax 3
1.8 Advantages of Progressive Taxation 4
1.9 Disadvantages of Progressive Taxation 4
1.10 Regressive Tax 4
1.11 Advantages of Regressive Tax 5
1.12 Disadvantages of Regressive Taxation 5
1.13 Advantages of Proportional Tax 5
1.14 Disadvantages of Proportional Tax 5
1.15 Advantages of Direct Taxes 6
1.16 Disadvantages of Direct Taxes 6
1.17 Reasons why Direct Taxes do not yield much Revenue to the
Government of West Africa 6
1.18 Indirect Taxes 7
1.19 Advantages of Indirect Taxes 7
1.20 Disadvantagess of Indirect Taxes 8
1.21 Principles of a Good Taxation System 8
1.22 Difficulties encountered by Tax Collectors in Nigeria 9
1.23 Factors likely to Improve Efficiency of Tax Administration in a Country 9
1.24 Tax Structures in Nigeria 10
1.25 Tax Avoidance 11
1.26 Tax Evasion 11
1.27 Incidence of Tax 11
1.28 Effects of Elasticity of Demand on Taxation of Commodities 11
1.29 Traditional Approaches to Distribution of Tax Bürden 13
1.30 Distinction between Taxes and Levies 14
1.31 Multiple Taxes 14
1.32 Kinds of Multiple Taxes 14
1.33 Methods of Collecting Multiple Taxes 15
1.34 Solution to Problem of Multiplicity of Taxes 15
1.35 Multiple Choice Questions 16
1.36 Answers to Multiple Choice Questions 19
1.37 Short Answer Questions . 19
1.38 Answers to Short Answer Questions 20
1.39 Practice Questions 25

Taxation Principles and Fiscal Policy in Nigeria V

 CHARTER TWO
2.1 Tax Administration 26
2.2 Summary of Direct Taxes 26
2.3 Companies Income Tax Act Cap C21, LFN 2004 27
2.4 Personal Income Tax Cap P8 LFN 2004 with 2011 Amendment 27
2.5 Organs of Tax Administration 27
2.6 The Joint Tax Board (JTB) 27
2.7 Composition of the Joint Tax Board (JTB) 27
2.8 Duties or Functions of the Joint Tax Board 28
2.9 Duties Of The Secretary Of The Joint Tax Board (JTB) 28
2.10 State Board of Internal Revenue 28
2.11 Composition of the State Internal Revenue Board 29
2.12 Functions of the State Board of Internal Revenue 29
2.13 Delegation of Functions of the State Board 30
2.14 Technical Committee of the State Board 30
2.15 Composition of the Technical Committee of the State Board 30
2.16 Functions of the Technical Committee 31
2.17 Inspectors of Taxes 31
2.18 Collectors of Taxes 31
2.19 Composition of Local Government Revenue Committee 32
2.20 Functions of the Local Government Revenue Committee 32
2.21 Joint State Revenue Committee (JSRC) 32
2.22 Composition of the State Revenue Committee 32
2.23 Functions of the State Revenue Committee 32
2.24 Body of Appeal Commissioners 33
2.25 Federal Inland Revenue Service Board 33
2.27 Tenure of the Föderal Inland Revenue Service Board and Cessation
of Membership 34
2.28 Powers and Functions of the Föderal Inland Revenue Service Board 34
2.29 Proccedings of the Federal Inland Revenue Service Board
2.30 Techhnical Committee of the Federal Inland Revenue Service Board 36
2.3 I Establishment of the Federal Inland Revenue Service 37
2.32 Powers and Functions of the Federal Inland Revenue Service 37
2.33 Funds and Expcnditurc of the Federal Inland Revenue Service 39
2.34 Hstimate, Aecounts, Annual Reports and Audi! of the Federal Inland Revenue Service 40
2.35 Imposition of Surcharge 40
2.36 Power to Accept Gifts and Power to Borrow 41
2.37 Refund to Taxpayers 41
2.38 Power of Accountant-General to deduet from source 41
2.39 Legislations Administered by the FI RS 41
2.40 Call for Returns, Books, Documents and Information 42
2.41 Information to be Delivered by Bankers 42
2.42 Power to access lands, buildings, books etc 43
2.43 Power to remove books and documents 44
2.44 Power of Substitution 44

Taxation Principles and Fiscal Policy in Nigeria vi

2.45 Payment of tax due 44
2.46 Addition for Non-payment of Tax 45
2.47 Power to Distrain for Non-payment of Tax 45
2.48 Recovery of Tax 46
2.49 Tax Investigation 46
2.50 Enforcement of powers 46
2.51 Power to pay reward 47
2.52 Official Secrecy and Confidentiality 47
2.53 Limitation of Suit against the FIRS, Indemnity and Immunity 48
2.54 Restriction on execution against Property of the Federal Inland
Revenue Service 48
2.55 Federal Inland Revenue Service (Establishment) Act, 2007 versus other
Tax Laws 48
2.56 Offences and Penalties 49
2.58 False Declaration 49
2.59 Counterfeiting Documents 49
2.60 Penalties for offences by authorized and unauthorized persons 50
2.61 Penalty where offenders are armed 50
2.62 Unlawful assumption of character of an authorized officer 50
2.63 Prosecution 51
2.64 Power to Compound offences _ 51
2.65 General penalty 51
2.66 Definitions 51
2.67 Collectible Taxes by the Three Tiers of Government 53
2.68 Federal Government 53
2.69 State Government 53
2.700 Local Government . 54
2.71 Practice Questions 54
2.72 Multiple Choice Questions 55
2.73 Answers to Multiple Choice Questions 59
2.74 Short Answer Questions 59
2.75 Answers to Short Answer Questions 60

CHARTER THREE
3.1 Definition of Terminologies 67
3.2 Taxation of Individuais 67
3.3 Determination of Residence 68
3.5 Relevant Tax Authority 71
3.6 Practice Questions 72
3.7 Multiple Choice Questions 72
3.8 Answers to Multiple Choice Questions 74
3.9 Short Answer Questions 74
3.10 Answers to Short Answer Questions 74

Taxation Principies and Fiscal Policy in Nigeria vii

CHARTER FOUR
4.1 Personal Income Tax Computation 76
4.2 Eamed Income 76
4.3 Unearned Income 79
4.4 Other Incomes Exempted From Tax 80
4.5 Illustration 4.1 81
4.6 Charges and Reliefs 82
4.7 Personal Reliefs 83
4.8 Types of Reliefs 83
4.9 Loss Relief 85
4.10 Capital Allowance 85
4.11 Personal Income Tax Rates 86
4.12 Effect of Franked Investment Income on Tax Liability 86
4.13 Format of Personal Income Tax Computation 86
Illustrations 87
4.14 The Personal Income Tax (Amendment) Act 2011 93
Illustrations 94
4.15 Multiple Choice Questions 100
4.16 Answers to Multiple Choice Questions 103
4.17 Short Answer Questions 103
4.18 Answers To Short Answer Questions 104
4.19 Practice Questions 106

CHARTER FIVE
Companies Income Tax Computation /Adjustment of Profits 113
5.1 Introduction 113
5.2 Procedure for Adjustment Of Profit 113
5.3 Expenses 114
5.4 Expenses Allowable for Tax Purposes 114
5.5 Funds, Bodies or Institutions to which Allowable Donations could be made 115
5.6 Expenses Not Allowable for Tax Purposes 118
5.7 Capital And Revenue Expenditure 119
5.8 Non-Taxable Incomes 119
5.9 Total Profit 119
5.10 Companies Income Tax Rates 120
5.11 Illustrations
5.12 Practice Questions 159
5.13 Multiple Choice Questions 164
5.14 Answers to Multiple Choice Questions 170
5.15 Short Answer Questions 170
5.16 Answers to Short Answer Questions 171

CHARTER SIX
6.1 Loss Reliefs 173
6.2 Loss Relief for Individual/Partnerships 173

Taxation Principles and Fiscal Policy in Nigeria Qvjjfi

6.3 Carry Forward Loss Relief
6.4 Special Features of Carry Forward Loss Reliefs
6.5 Time Limit for Carrying Forward Trading Losses
6.6 Illustrations
6.7 Practice Questions
6.8 Multiple Choice Questions
6.9 Answers to Multiple Choice Questions
6.10 'Short Answer Questions
6.11 Answers to Short Answer Questions

CHARTER SEYEN
7.1 Basis of Assessment
7.2 On-Going Business
7.3 Normal Accounting Period
7.4 Commencement Of Business
Illustrations
7.5 Taxpayer's Right ofElection on Commoncement of Business
7.6 Ceasation of Business
Illustrations
7.7 Change of Accounting Date
7.8 Practice Questions
7.9 Multiple Choice Questions
7.10 Answers to Multiple Choice Questions
7.11 Short Answer Questions
7.12 Answers to Short Answer Questions

CHARTER E1GHT
Capital Allowances
8.1 Definition
8.2 Types of Qualifying Capital Expenditure Prior to 1985 Year of Assessment
8.3 Relevant Interest
8.4 Conditions for Granting Capital Allowances
8.5 Types of Capital Allowances
8.6 Conditions under which Initial Allowance will not be Granted
8.7 Additional Initial Allowance
8.8 Annual Allowance
8.9 Amount of Annual Allowance
8.10 Expected Useful Life
8.11 Illustration
8.12 Meaning of "Disposed of'
8.13 Saleof Plant
8.14 Disposal Value
8.15 Investment Allowance
8.16 Features of Investment Allowance
8.17 Conditions under which Investment Allowance cannot be Claimed
8.18 Rural Investment Allowance

Taxation Principles and Fiscal Policy in Nigeria

8.19 Export Processing Zone 258
8.20 Balancing Allowance 258
8.21 Balancing Charge 258
8.22 Restriction of Balancing Charge 259
8.23 Treatment of Balancing Charge and Balancing Allowance 259
8.24 On-Going Business 260
8.25 Illustrations 261
8.26 Transitional Provisions 263
8.27 Format for Computation of Capital Allowances 265
8.32 Illustrations 265
8.33 Restriction of Capital Allowance 283
8.34 Hire Purchase Transactions and Capital Allowances 284
8.35 Capital Allowance 284
Illustrations 284
8.36 Carry back of Unabsorbed Capital Allowances on Cessation of Business 287
8.37 Leasing Assets 287
8.38 Buildings Acquired Second Hand 288
8.39 Practice Questions 288
8.40 Multiple Choice Questions 292
8.41 Answers to Multiple Choice Questions 295
8.42 Short Answer Questions 295
8.43 Answers to Short Answer Questions 296

CHARTER NINE
9.1 Partnership Assessment 299
9.2 Assessment 299
9.3 Income of a Partner 300
9.4 Relevant Tax Authority 300
9.5 Document to be Submitted to Tax Authority 301
9.6 Computation of the Partnership Income in Taxation 301
9.7 Capital Allowances 302
9.8 Personal Allowances 302
9.9 Partnership Charges 302
9.10 Divisible or Computed Income 303
9.11 Illustrations 303
9.12 Change in the Composition of a Partnership 319
9.13 Illustrations 320
9.15 Change of Composition and Capital Allowances 328
9.16 Losses from Partnership 328
9.17 Conversion of a Partnership Business to a Limited Liability Company 328
Illustrations 328
9.18 Practice Questions 332
9.20 Multiple Choice Questions 333
9.21 Answers to Multiple Choice Questions 334
9.22 Short Answer Questions 334
9.23 Answers to Short Answer Questions 335

Taxation Principles and Fiscal Policy in Nigeria Cx

CHARTER TEN
10.1 Taxation of Air/Sea Transport Companies 337
10.2 Income of the Foreign Company Assessable to Tax 337
10.3 Conditions for Assessment 337
10.4 Computation of Tax Liability 337
10.5 Fair Percentage of sum received in Nigeria 338
10.6 Tax on Turnover 338
10.7 Illustrations 339
10.8 Part X Companies 352
10.9 Illustration 353
10.10 Taxation of Foreign Company Engaged In Cable Undertakings 354
10.11 Illustrations 354
10.12 Multiple Choice Questions 357
10.13 Answers to Multiple Choice Questions 359
10.14 Short Answer Questions 359
10.15 Answers to Short Answer Questions 359

CHARTER ELEVEN
11.1 Taxation of Insurance Companies 360
11.2 Non-Nigerian Companies 360
11.3 Nigerian Companies 361
11.4 Illustrations 362
11.7 Practice Questions 373

CHARTER TWELVE
Taxation of Trust 375
12.1 Whatisa Trust 375
12.2 Income of a Trust 375
12.3 Income of Trust Liable to Tax 376
12.4 Illustrations 376
12.5 Multiple Choice Questions 386
12.6 Answers to Multiple Choice Questions 386
12.7 Short Answer Questions 387
12.8 Answers to Short Answer Questions 387

CHARTER THIRTEEN
13.1 Tertiary Education Tax Fund 388
13.2 lntroduction 388
13.3 Rates of Tax Coverage 388
13.4 Competent Authority 388
13.5 Assessment and Collection Procedure 388
13.6 Due Date of Payment 389
13.7 Establishment of the Education Fund 389

Taxation Principles and Fiscal Policy in Nigeria xi

13.8 The Fund 339
13.9 Payment of Tax Collected under the Act 389
13.10 Education Tax Fund Board of Trustees 389
13.11 Composition of the Education Tax Fund Board of Trustees 389
13.12 Proceedings of the Board of Trustees 390
13.13 Committees 390
13.14 Miscellaneous 391
13.15 Cessation of Membership 391
13.16 The Functions of the Board of Trustees 391
13.17 Administration and Disbursement of the Fund 392
13.18 Appointment of the Executive Secretary and other Staff of the Fund 392
13.19 Duties and Resposibilities of the Executive Secretary
393
13.20 Pensions, Gratuities and other Retirement Benefits for Employees of the Fund 393
13.21 Offences and Penalties, Under the Education Tax Act 393
13.22 Indemnity ofOfficers 395
13.23 Definition of Terms 395
13.24 Determination of Assessable Profit Under CITA, Section 25 (1) 395
13.25 Illustrations 396
13.26 Practice Questions 404
13.27 Multiple Choice Questions 404
13.28 Answers to Multiple Choice Questions 406
13.29 Short Answer Questions 406
13.30 Answers to Short Answer Questions 407

CHARTER FOURTEEN
Tax Flanning and Management 408
14.1 Introduction 408
14.2 Direct Tax es 408
14.3 Indirect Taxes 408
14.4 Meaning of Tax Flanning 409
14.5 Meaning of Tax Evasion 409
14.6 Meaning of Tax Avoidance ' 410
14.7 Specific Anti-Avoidance Legislation 410
14.8 Advantages of Specific Anti-Avoidance 411
14.9 Disadvantages Of Specific Anti-Avoidance 411
14.10 General Anti-Avoidance Legislation 411
14.11 Advantages of General Anti-Avoidance Legislation 411
14.12 Disadvantages of General Anti-Avoidance Legislation 411
14.13 Distinction between tax evasion and tax avoidance 411
14.14 The Defence available to the taxpayer when his tax avoidance scheme
is challenged 412
14.15 Summary of tax Flanning Scheines 413
14.16 Flow to do Tax Flanning 415
14.17 Tax Flanning Goals 416

Taxation Principles and Fiscal Poiicy in Nigeria xii

14.18 Tax Management 416
14.19 Distinction between Tax Planning and Tax Management 417
14.20 Government Tax Flanning and Administration in Nigeria 418
14.21 Introduction 418
14.22 Tax Policy, Planning and Administration 418
14.23 Tax Planning 418
14.24 Tax Administration 418
14.25 Tax Authorities and Agencies 419
14.25.1 Federal Inland Revenue Board 419
14.25.2 Powers of the Board 420
14.25.3 Technical Committee 420
14.25.4 Functions of the Technical Committee 420
14.26 Federal Ministry ofFinance 421
14.27 National Revenue Mobilization, Allocation and Fiscal Commission 421
14.28 State Internal Revenue Service Board 421
14.29 Local Government Revenue Committee 421
14.30. The Federal Inland Revenue Service (FIRS) 421
14.31 Problems of Tax Planning and Administration in Nigeria 422
14.32 Suggested Measures to Solve the Problems of Tax Planning and
Administration in Nigeria 424
14.33 Multiple Choice Questions 426
14.34 Answers To Multiple Choice Questions 426
14.35 Short Answer Questions 427
14.36 Answers to Short Answer Questions 428

CHAPTER FIFTEEN
Tax Incentives 431
15.1 Introducti on 431
15.2 Aims of Tax Incentives 431
15.3 Nigerian Tax Incentives 431
15.3.1 Industrial Sector (Manufacturing) . 432
15.3.2 Oil and Gas Sector 435
15.3.3 Gas Utilization (Downstream Operations) 435
15.3.4 Oil and Gas Free Zone 436
15.3.5 Petroleum Industry 436
15.3.6 Agriculture 436
15.3.7 Solid Minerals 437
15.3.8 Tourism 437
15.3.9 Energy Sector 437
15.3.10 Telecommunications 438
15.3.11 Research and Development 438
15.3.12 Companies engaged in the Fabrication of tools, spare parts and
simple machinery, for local consumption and export. 438
15.3.13 Export Incentives 438
15.4 Benefits And Criticisms of Tax Incentives 440
15.4.1 Benefits 440

Taxation Principles and Fiscal Policy in Nigeria xiii

15.4.2 Demerits/ Criticisms of Tax Incentives 441
15.5 Multiple Choice Questions 442
15.5.1 Answers to Multiple Choice Questions 444
15.6 Short Answer Questions 444
15.7 Answers to Short Answer Questions 444

CHARTER SIXTEEN
16.1 Withholding Tax 448
16.2 Special Features of Withholding Tax 448
16.3 Merits or Advantages of the Withholding Tax System 448
16.4 Disadvantages and Problems of Withholding Tax 449
16.5 Enabling Laws of Withholding Tax 449
16.6 Companies 449
16.7 Withholding Tax Rates 449
16.8 Deduction and Remittance of Tax 450
16.9 Penalty for Late Remittance and Non-Deduction of Withholding Tax 450
16.10 Relevant Tax Authority 450
16.11 Currency in Which Tax Is to be Deducted 450
16.12 Payment Schedule 451
16.13 Withholding Tax Credit Note 451
16.14 Important Points to Note 451
16.15 Payment Certificate and Treasury Receipt 451
16.16 Refimds and Set-Offs 452
16.17 Dual Role of Ministries, Parastatals and Other Agencies of Government 452
16.18 Taxpayers Rights and Obligations 452
lllustrations 452
16.19 Multiple Choice Questions 457
16.20 Answers to Multiple Choice Questions 459
16.21 Short Answer Questions 459
16.22 Answers to Short Answer Questions 460

CHARTER SEVENTEEN
17.1 Tax Audit and Investigation 461
17.2 Power of the Revenue to Audit 461
17.3 Objectives of Tax Audit 461
17.4 Types of Tax Audit 462
17.5 Tax Audit Process 462
17.6 Era of Seif-Assessment Scheme 463
17.7 Preliminary Activities 464
17.8 Audit Checklist 464
17.9 Basic Information from Taxpayer's File 464
17.10 Analytical Review on Tax Returns 465
17.11 Ratios 465
17.12 Notifying the Taxpayer 466
17.13 Pre-Audit Meeting 466

Taxation Principles and Fiscal Policy in Nigeria

17.14 Post Audit Meeting 467
17.15 Interim Audit Reports 467
17.16 Post Audit Review By Regional/Headquarters Audit 467
17.17 Reconciliation Meetings 467
17.18 Final Audit Report 468
17.19 Types of Audit Exercises 468
17.19.1 Technical Procedure s 468
17.20 Audit Programme 470
17.21 Advantages of the Audit Programme 470
17.22 Tax Investigation 470
17.23 Stages of Tax Investigation 471
17.24 Investigation/Intelligence Division 472
17.25 Civil Investigation Unit 472
17.26 Criminal Investigation Unit 473
17.27 Intelligence Unit 474
17.28 Assessment of Investigation/Intelligence Division 474
27.29 Practice Questions 475
17.30 Multiple Choice Questions 475
17.31 Answers to Multiple Choice Questions 477
17.32 Short Answer Questions 477
17.33 Answers to Short Answer Questions 479

CHARTER EIGHTEEN
8.1 Retirement Benefits Scheme, Settlements, Trust and Estates 482
18.2 Retirement Benefits Scheme 482
18.3 Pension Fund 482
18.4 Provident Fund 482
18.5 Settlements, Trusts and Estates 484
18.6 Computed Income 484
18.7 Allowable Deductions 484
18.8 Apportionment of Computed Income 485
18.9 Special Provisions as To Settlement on Unmarried Children 485
18.12 Capital Allowance - Deceased Individuais 487
18.13 Annuities Income 487
18.14 Definitions 487

CHAPTER NINETEEN
19.1 Stamp Duties 488
19.2.1 Forms of Stamp Duties 488
19.2.2 Fixed Duties 488
19.2.3 Ad-Valorem Duties 488
19.3 Some Definitions in the Act 489
19.4 The Administration of Stamp Duty 489
19.5 Appointment of Commissioners 490
19.5.1 Functions of the Commissioner 490
19.6 Territorial Limits 490

Taxation Principles and Fiscal Policy in Nigeria XV

19.7 Stamping of Documents 490
19.7.1 Time to Stamp Documents 490
19.7.2 Method of Stamping 491
19.7.3 Denotmg Stamp 491
19.7.4 Adjudication by a Commissioner 492
19.7.5 Importance of Adjudication - 492
19.7.6 Limits of Adjudication 492
19.7.7 Appeal Against Assessment 492
19.7.8 Lost Instrument 493
19.7.9 Instruments not Properly Stamped 493
19.7.10 Implications of An Improperly Stamped Document 493
19.7.11 Exceptions to the Admissibility Rule 494
19.7.12 Penalties for Late Stamping 494
19.7.13 Schedule of Instruments Subject to Stamp Duties 495
19.8 Accountability 495
19.9 Relevant Tax Authority 495
19.10 Mode Of Calculating Ad Valorem Duty 496
19.11 Stamping Of Instruments after Execution 496
19.12 Multiple Choice Questions 496
19.13 Answers to Multiple Choice Questions 498
19.14 Short Answer Questions 498
19.15 Answers to Short Answer Questions 499

CHARTER TWENTY
Pioneer Legislation 503
20.1 Introduction 503
20.2 Conditions for the Granting of a Pioneer Status 504
20.3 Pioneer List 504
20.4 Application for Pioneer Status 505
20.5 Condition for Application 505
20.6 Who Can Apply For A Pioneer Status? 505
20.7 Contents of an Application 505
20.8 Pioneer Certificates 506
20.9 Production Day Certificate 506
20.10 Certificate of Qualifying Capital Expenditure 506
20.11 Cancellation of a Pioneer Certificate 506
20.12 Effective Date of Cancellation 506
20.13 Tax Relief Period 507
20.14 Pioneer Relief 507
20.15 Conditions for Granting Pioneer Relief 507
20.16 Conditions for Extension of Tax Relief Period 507
20.17 Advantages in Acquiring Pioneer Status 508
20.18 Accounts of a Pioneer Company 508
20.19 Restriction on Trading Prior to the End of Tax Relief Period 508
20.20 Capital Allowances And Losses 509
20.21 Reliefs Available to a Pioneer Company 510

Taxation Principles and Fiscal Policy in Nigeria xvi

20.22 Steps to be Followed When Computing the Tax Liability of a Pioneer
Company afiter the Tax Relief Period 510
20.23 Filling of retums and Examination/ Audit of Pioneer Company 510
20.24 Prohibition (Section 18) 511
20.25 Offences 511
20.26 Penalties 511
20.27 Nigeria LNG Limited 512
20.28 Nigerian Investment Promotion Commission (NIPC) 512
Illustrations 515
20.29 Practice Questions 545
20.30 . Multiple Choice Questions 548
20.31 Answers To Multiple Choice Questions 550
20.32 Short Answer Questions 550
20.33 Answer to Short Answer Questions 551

CHARTER TWENTY ONE

21.1 Capital Gains Tax 553
21.2 Paper Gains 553
21.3 Realized Gains 553
21.4 Anti-Avoidance Provision 554
21.5 Retums and Assessoren! 554
21.6 Capital Gains Tax Rates \ 554
21.7 Persons Liable To Pay Capital Gains Tax 554
21.8 Relevant Tax Authorities 554
21.9 Chargeable Assets 554
21.10 Assets Situated Outside Nigeria 555
21.11 Assets Exempted from Capital Gains Tax 556
21.12 Meaning of Disposal 557
21.13 Consideration/Sales Proceeds 558
21.14 Situations When Open Market Value Is Used instead of actual
sales proceeds 558
21.15 Expenses Allowable As a Deduction From Consideration 558
21.16 Expenses not Allowable as a Deduction From Consideration 558
21.17 Cost of Acquisition 558
21.18 Connected Persons for Capital Gains Tax Purposes 559
21.19 Computation of Capital Gains Tax 559
Illustrations 560
21.22 Capital Losses 562
Illustrations 562
21.23 Partial Disposal 563
Illustrations 563
21.24 Principal Private Residence 567
Illustrations 568
21.25 Compulsory Acquisition of Land 569
Illustrations 569
21.24 Disposal at Death 570

Taxation Principles and Fiscal Policy in Nigeria xvii

21.26 Consideration Payable by Instalment 571
Illustrations 571
21.28 Hire Purchase Transactions 574
Illustrations 574
21.29 Gains Arising from Takeovers 576
Illustrations 576
21.30 Assets Lost or Destroyed 577
Illustrations 577
21.31 Bargains Comprising two or more transactions 582
21.32 Roll-Over Relief . 582
21.32.1 Conditions for Relief 582
21.32.2 Füll Roll-Over Relief 583
21.32.3 Partial Roll-Over Relief 583
21.32.4 Carrying Cost/Deemed Consideration 583
Illustration 584
21.33 Application of Roll-Over 593
Illustrations 593
21.34 Classes of Assets Eligible for Roll-Over Relief 594
Illustrations 594
21.35 Multiple Choice Questions 609
21.36 Answers to Multiple Choice Questions 612
21.37 Short Answer Questions 612
21.38 Answers to ShortAnswers Questions 613

CHAPTER TWENTY TWO

22.1 Value Added Tax 616
22.2 Introduction 616
22.3 The Objectives of VAT 616
22.4 VAT And Retail Sales Tax 617
22.5 Similarities between VAT and Retail Sales Tax 617
22.6 Justification for the replacement of retail sales tax with VAT 617
22.7 Advantages of VAT Over Sales Tax 617
22.8 Weaknesses of VAT 618
22.9 Definition of Value Added Tax 618
22.10 What is value added? 619
22.11 Types of VAT 619
22.12 The Consumption VAT 619
22.13 Disadvantages of consumption VAT 619
22.14 The Mechanism of VAT 620
Illustrations 620
22.16 Administration of VAT 622
22.17 Power ofFIRS ' 623
22.18 Valued Added Tax Technical Committee 623
22.19 Composition of the Technical Committee 623
22.20 Functions of the Technical Committee 623

Taxation Principles and Fiscal Policy in Nigeria xviii

22.21 Quorum 623
22.22 Staff 623
22.23 Value Added Tax Legislation 623
22.24 Taxable Persons 624
22.25 Taxable Goods and Services 624
22.26 Taxable Goods And The Rate of Tax 624
22.27 Taxable Services and the Rate of Tax 625
22.28 Goods And Services Exempted 626
22.29 Services Exempted 626
22.30 Returns, Remittances, Recovery and Refund of Tax 627
22.31 Tax Returns 627
22.32 Remission of Tax 628
22.33 Effect of Failure to Render Returns 628
22.34 Effects of Non-Remittance of Tax 628
22.35 Recovery of Tax 628
22.36 Tax Invoices 628
22 37 Zero Rated Rems 629
22.38 Enforcement of VAT 629
22.39 Provisions that deal with registration by Govememnt Ministries
and Non-Residents 630
22.40 Remedy Available to a Person Aggrieved by an Assessment under
VAT Administration 630
22.41 Offences and Penalties 630
22.42 Resisting, etc an Authorized Officer 631
22.43 Issuing of Tax Invoice by an Unauthorized Person 631
22.44 Failure to Register 631
22.45 Failure to Keep Proper Record and Accounts 631
22.46 Failure to Collect Tax 631
22.47 Failure to remit Returns 632
22.48 Aiding and Abetting Commission of Offences e.t.c 632
22.49 Offence by Body Corporate, etc 632
22.50 Methods of Calculating VAT 632
22.51 The Credit Method 632
lllustrations 633
22.52 The Subtraction Method 633
22.53 The Addition Method 634
22.54 Accounting Entries for VAT 634
22.55 Illustration 635
22.56 Credit Transactions Accounting in VAT 638
lllustrations 638
22.57 Bad Debt Relief 640
lllustrations 640

22.58 Practice Questions 651

22.59 Multiple Choice Questions 651
22.60 Answers to Multiple Choice Questions 655

Taxation Principles and Fiscal Policy in Nigeria Q xix 3

 22.61 Short Answer Questions 655
22.62 Answers to Short Answer Questions 656

CHARTER TWENTY THREE

Petroleum Profit Tax 659
23.1 Introduction 659
23.2 Petroleum Profits Tax Act 1959 659
23.3 * Definition Of Technical Terms 660
23.4 Chargeabie Oil 661
23.5 Petroleum 661
23.6 Crude Oil 661
, 23.7 Year of Assessment 661
23.8 Disposal of Chargeable Oil 661
23.9 Intangible Drilling Costs 661
23.10 Non-Productive Rent 662
23.11 Liquefied Natural Gas 662
23.12 Royalties 662
23.13 Oil Mining Lease 662
23.14 Oil Prospecting Licence 662
23.15 Concession 662
23.16 Lease 662
23.17 Profits of an Accounting Period 662
23.18 Proceeds of Sale of Chargeable Oil 663
23.19 Value of chargeable oil disposed of 663
23.20 Value of Crude oil for purposes of Royalty 663
23.21 Posted Price 664
23.22 Adjusted Posted Price 664
23.23 Amount of Royalty Payable 664
23.24 Value of Chargeable Natural Gas 665
Illustrations 666
23.25 Incidental Incomes 666
23.26 Adjusted Profits 666
23.27 Format of Adjusted Profit 667
23.28 Expenses Allowable for Tax Purposes 667
23.29 Expenses not Allowed for Tax Purposes 668
23.30 Non-Taxable Incomes 668
23.31 Assessable Profit 668
23.32 Chargeable Profits 669
23.33 Tax Off-Sets 669
23.34 Capital Allowances 670
23.35 Types of Qualifying Expenditure 670
23.36 Types of Capital Allowances 671
23.37 Petroleum Investment Allowance 671
23.38 Capital Allowances Rates 672
Illustration . 673
23.39 Balancing Allowance 674
—^ w*"'"'
Taxation Principles and Fiscal Policy in Nigeria Q XX
23.40 Balancing Charge 674
23.41 Residue of Qualifying Expenditure 674
23.42 Assets Acquired Under Hire Purchase 674
23.43 Assessable Tax 674
23.44 Chargeable Tax 675
23.45 Changeable Tax (Section 20 of 1999 Amendment) 676
Illustration 676
23.46 Additional Chargeable Tax 677
Illustration 677
23.47 Comprehensive Format 678
23.48 Stock Adjustment . 678
23.49 Accounts and Returns 678
23.50 Time Limit for Submission 679
23.51 .Returns ofEstimated Tax 679
23.52 Payment of Tax 679
23.53 Instalment Payment Dates 679
23.54 Assessment and Appeal Procedures 680
23.55 Assessments 680
23.56 Additional Assessments (Section 34) 680
23.57 Form of Assessment 681
23.58 Notice Of Assessment 681
23.59 Objections 682
23.60 Amended Assessment 682
23.61 Notice ofRefusal to Amend 682
23.62 Errors in Assessment Notices 683
23.63 Appeals to Appeal Commissioners 683
23.64 Appeals to the Federal High Court 684
23.65 Persons Liable to Petroleum Profit Tax 686
23.66 Non-resident Company (Section 23) 686
23.67 Resident Company (Section 24) 687
23.68 Company in Receivership 687
23.69 Tax Subject To Objection Or Appeal 687
23.70 Penalty s 687
23.71 Error or Mistake Claim 687
23.72 Repayment of Tax 688
23.73 Deduction of Tax at Source 688
23.74 Offences and Penalties 690
23.75 Administration Of PPTA 691
23.76 Control By The Minister 692
23.77 Comprehensive Illustrations 692
23.78 Illustrations 694
23.79 Memorandum Of Understanding (MOU) 708
23.80 Conditions Under Which The Incentives Can Be Granted And
Penalties For Non-Compliance 709
23.81 Production Operating Expenses 710
23.82 Capital Investment Costs 710

Taxation Principles and Fiscal Policy in Nigeria C xxi

23.83 Guaranteed Notional Margins 710
23.84 Tax Inversion Penalty 712
23.85 Revised Government Take 713
23.86 Ullage Fees 713
23.87 Companies Engaged In Utilization Of Associated Gas 713
Gas Industry Incentives 715
23.88 Joint Venture and Production Sharing Contracts 715
23.89 Joint Venture 715
23.90 Production Sharing Contracts 715
23.91 Treatment Of Losses Under PPTA 717
23.92 lllustrations 717
23.97 Production Sharing Contracts (PSCs) 737
23.98 Effect Of JV And MOU On The Oil Industry 738
lllustrations 738
23.99 Multiple Choice Questions 758
23.100 Answers To Multiple Choice Questions 764
23.101 Short Answer Questions 764
23.102 Answers To Short Answer Questions 766
23.103 Practice Questions 768

CHARTER TWENTY FOUR

24.1 International Taxation And Double Taxation Relief 777
24.2 Introduction 777
24.3 Taxation System 778
24.3.1 Territorial System 778
24.3.2 Residential System 778
24.4 Residency 778
24.4.1 Residential Individual 778
24.4.2 Non-resident Individual 778
24.4.3 Resident Company 779
24.4.4 Non-Resident Company 779
24.5 Territory 779
24.6 Corporations 779
24.7 Source of Income 779
24.8 Tax Treaties 780
24.9 Double Taxation Relief 780
24.11 Types of Double Taxation 781
24.11.1 Juridical Double Taxation 781
24.11.2 Economic Double Taxation 781
24.12 Exemption Method 781
24.13 Credit Method 782
24.14 Puiposes of Entering into a Double Taxation Agreement 782
24.15 Features of a Double Taxation Relief Agreement 782
24.16 Where there is no Double Taxation Agreement 783
24.17 Where the Company is a Nigerian company/or the individual
is resident in Nigeria 783

Taxation Principles and Fiscal Policy in Nigeria xxii

24.18 Where the Company is a non-Nigerian Company 783
24.19 Illustration 784
24.21 Double Taxation Agreement With United Kingdom 786
24.22 Foreign Incomes exempted from Nigerian Tax 787
24.23 Resolution of Conflicts Between DTA's and Nigerian Tax Laws 787
24.24 Active Double Taxation Agreement 789
24.25 Taxation of Business Profits, Immovable and Movable Properties 790
24.26 Taxation of Investments Income 790
Illustrations 792
24.27 Where there is no Agreement With a Country Outside the
Commonwealth 793
24.28 Incomes Exempted From Double Taxation Relief 793
Illustrations 794
24.10 Practice Questions 803
24.11 Short Answer Questions 805
24.12 Answers to Short Answer Questions 806
24.13 Multiple Choice Question 806
24.14 Answers to Multiple Choice Questions 806

CHAPTER TWENTY FIVE

25.1 Pay As You Earn (PAYE) 807
25.2 The Processes Of Tax Assessment And Deduction Under
The PAYE System 807
25.3 Operation of Pay As You Earn (PAYE) Regulations
25.4 Registration ofEmployer with Tax Authority 810
25.5 Deduction of Tax, etc 811
25.6 Records of Deductions 811
25.7 Cumulative Net Emoluments, etc. 811
25.8 Certificate of Deduction of Tax 812
25.9 Death of Employee 812
25.10 Remittance of Tax Deducted 812
25.11 Demand for Remittance Of Taxes 812
25.12 Application of Act 812
25.13 Returns 813
25.14 Inspection of Records 813
25.15 Duty of Successor in Title 813
25.16 Notice to Render Returns 813
25.17 Notice of Assessment 813
25.18 Multiple Choice Questions 813
29.19 Answers to Multiple Choice Questions 814
25.20 Short Answer Questions 814
25.21 Answers to Short Answer Questions 815
25.22 Practice Question 815

CHAPTER TWENTY SIX

26.1 Tax Clearance Certificate 816

Taxation Principles and Fiscal Policy in Nigeria

 26.2 Conditions for Issuing Tax Clearance Certificate 816
26.3 Transactions For Which Tax Clearance Certificate
May Be Demanded 817
26.4 Penalty g 17
26.5 Multiple Choice Questions 818
26.6 Answers To Multiple Choice Question 818
26.7 Short Answer Questions 819
26.8 Answers to Short Answer Questions 819
26.9 Practice Questions 820

CHAPTER TWENTY SEYEN

27.1 Tax Returns, Assessments And Collection Procedures 821
27.2 Tax Returns 821
27.3 Rendition of Returns 822
27.4 Additional Information 822
27.5 Penalty For Late Filing Of Returns By Limited Liability Companies 822
27.6 Conditions To Be Fulfilled For An Extension Of Period Of Making
Returns To Be Granted 822
27.7 Additional Returns By Bank And Stock Broking Companies 823
27.8 Service ofNotices 823
27.9 Date of Service 823
27.10 Other Returns 824
27.11 Limitations of Power To Call For Returns 824
27.12 Power of Search or Seizure 825
27.13 Tax Assessment 825
27.14 An Assessment Notice 826
27.15 Classes Of Assessments 826
27.16 Official Assessments 826
27.17 Self-Assessment 826
27.18 Conditions Necessary for the Successful Operation of
Self-Assessment System 826
27.19 Operation Of Self-Assessment System 826
27. 20 Filling Requirements 827
27.21 Consequences Of Lateness In filling Or Failure To File
Self-Assessment 827
27.22 Benefits Accruing From The Filling Of Self-Assessment Returns 827
27.23 Incentives Enjoyed By Companies under Self-Assessment Scheme 827
27.24 Types of Assessment 828
27.25 Types Of Original Assessment 828
27.26 Illustration 828
7.27 Service Of Assessment Notices 829
27.28 Objection to assessments 829
27.29 Validity of Objections 829
27.30 Stand Over Of Assessment 830
27.31 Cancellation Of A Stand-Over Order 830
. 27.32 Appeals 830

Taxation Principles and Fiscal Policy in Nigeria t xxiv

27.33 Establishment of a Tax Appeal Tribunal 830
27.33.1 Power of the Minister 831
27.33.2 Composition of the Tribunal 831
27.33.3 Constitution of a Tribunal 832
27.33.4 Appointment of Secretary to the Tribunal 832
27.33.5 Appointment of Other Staff of the Tribunal 832
27.34 Jurisdiction of the Tribunal 832
27.35 Criminal Prosecution 833
27.36 Procedures to Be Followed When An Appeal is made 833
27.37 Appeal to the Tribunal 833
27.37.1 Notice of Appeal 833
27.38 Discontinuance Of The Appeal 834
27.39 Hearing Betöre The Appeal Commissioners 834
27.40 Things To Be Stated In A Notice Of Appeal 835
27.41 Procedure of Allowing Decision of Appeal Commissioners 835
27.42 Appeal to The Federal High Court 835
27.44 Right to Legal Representation 836
27.45 Powers and Procedures of Tribunal 836
27.46 Further Appeal to the Court of Appeal 836
27.47 Back Duty Assessment 837
27.48 Reasons Under Which A Back Duty Assessment Could Be Instituted
By The Federal Inland Revenue Service 837
27.49 Appeal Betöre The Federal High Court 837
27.50 Appointment and Remuneration of Appeal Commissioners 837
27.51 Qualifications of Appeal Commissioner 838
27.52 Removal of Appeal Commissioner 838
27.53 Tax Collection 838
27.54 Provisional Tax 838
27.55 Staggered Or Instalmental Payment 839
27.56 Penalties and Interest for Late Payment 840
27.57 Withholding Tax 840
27.58 Power to Distrain For Non-Payment Of Tax 840
27.59 Time Limit For The Payment Of Tax 841
27.60 Currency in Which Tax 1s Paid 841
27.61 Best of Judgment (BOJ) Assessment 842
27.62 Final and Conclusive Assessment 842
27.63 Multiple Choice Questions 842
27.64 Answers to Multiple Choice Questions 845
27.65 Short Answer Questions 845
27.66 Answers To Short Answer Questions 846
27.67 Practice Questions 847

Taxaf/on Prmc/p/es anr/ Fkwa/ Fo//cy m Mger/a ( xyv '

32.9 Measures Taken To Reduce The External Debt Bürden 907
32.10 Effects of External Debt on the Nigerian Economy 907
32.11 Policies to be Followed before External Loan can be Obtained 908
32.12 Consequences Of Public Debts 908
32.13 Measurement Criteria of Ability to Service External Debt 909
32.14 Indirect Effects of Debt Charges 910
32.15 Debt Management 910
32.16 Means of Managing Debts 911
32.17 Causes of Debt Repayment Problems 911
32.18 Strategies in Managing National Debt 912
32.19 Debt Conversion 912
32.20 Problems of Debt Conversion Programme 912
32.21 How to Minimize the Problems of Debt Conversion Programmes 913
32.22 Debt-Equity Swapping 913
32.23 Advantages Of Debt/Equity Swap 913
32.24 Problems of Debt/Equity Swapping 914
32.27 Debt for Goods 914
32.28 Debt for Cash 914
32.29 Relending 914
32.30 Debt for Privatization 914
32.31 Debt for Financial Investment 914
32.3.1 Debt Re-Scheduling 915
32.32 Benefits of debt re-scheduling 915
32.33 Problems of Debt Rescheduling 915
32.34 Buy-Back 916
32.35 Collaterization 916
32.36 Strategies Adopted in Managing Nigeria's National Debt 916
32.37 Trends In Public Debt in Nigeria 916
32.38 Internal Debt 916
32.39 Trends In External Debt 917
32.40 Evaluation of Debt Management in Nigeria 917
32.41 Documentation for State government debt instrument 918
32.42 Problems Pacing State Government In Financing Projects
Through Capital Market 918
32.43 Paris Club 919
32.44 Principles of Paris Club Rescheduling 919
32.45 Principle of Imminent Default 919
32.46 Principle of Bürden Sharing 919
32.47 Principle of Conditionality 919
32.48 Practice Questions 920
32.49 Multiple Choice Questions 922
28.50 Answers to Multiple Choice Questions 923
32.51 Short Answer Questions 923
32.52 Answers to Short Answer Questions 924

- * X
Taxation Prlnclples and Fiscal Pollcy In Allgerla QXXVHI^
CH ARTER THIRTY TU REE
33.1 Fiscal Policy 926
33.2 Elements of an Effective Fiscal Management 926
33.3 Instruments of Fiscal Policy 927
33.4 Budget Policy 928
33.5 Budget Deficit 928
33.6 Surplus Budget 929
33.7 Balanced Budget 930
33.8 Compensatory Fiscal Policy 930
33.9 Advantages of Built-In Stabilizers 931
29.10 Limitations of Built-In Stabilizers 931
33.11 Discretionary Fiscal Policy 932
33.12 Limitations of Discretionary Fiscal Policy 932
33.13 The Role of Fiscal Policy in Developing Countries 933
33.14 Practice Questions 937
33.15 Multiple Choice Questions 938
33.16 Answers to Multiple Choice Questions 941
33.17 Short Answer Questions 941
33.18 Answers to Short Answerer Questions 941

CHAPTER THIRTY FOUR

34.1 Revenue Allocation in Nigeria 943
34.2 Föderation Account 943
34.3 Guidelines and Procedure by Which Collected Revenues Are
Paid Into the Föderation Account 944
34.4 Sourccs of Revenue Paid into the Föderation Account 944
34.5 Distribution of the Föderation Account Revenue 944
34.6 Revenue Sharing Formula 946
34.7 Revenue Allocation Principles 947
34.8 Practice Questions 947
34.9 Multiple Choice Questions 947
34.10 Answers to Multiple Choice Questions 949

CHARTER THIRTY FIVE

Fiscal Fedcralism 950
35.1 Fiscal Föderalism 950
35.2 Taxcs to be Collected by the Föderal Government 951
35.3 Taxcs To Be Collected by the State Government 95 1
35.4 Taxes And Eevies to be Collected by the Local Government 951
35.5 Major Problems of Fiscal Fedcralism in Nigeria 952
3.5.6 Problems of Revenue Allocation Formula 953
35.7 Practice Questions - 953
35.8 Multiple Choice Questions 953
35 9 Answers to Multiple Choice Questions 954

f o/es and F/sca/ Po/fcy /n Af/ge/va f XX'X^