Tax Law in Nigeria

Introduction

Tax law in Nigeria governs the imposition, assessment, and collection of taxes by federal, state, and local governments. The legal framework is characterized by a federal structure of taxation, with different levels of government exercising taxing powers over different categories of taxes. The Federal Inland Revenue Service (FIRS) administers federal taxes, state Internal Revenue Services administer state taxes, and local government authorities administer specified local taxes. The Tax Appeal Tribunal (TAT) adjudicates tax disputes.

Constitutional Framework

The Constitution of the Federal Republic of Nigeria 1999 allocates taxing powers among the three tiers of government. The National Assembly has exclusive power to impose taxes under the Exclusive Legislative List (Item 59). State Houses of Assembly may impose taxes within the Residual List, including personal income tax in states. Local governments may levy specified taxes and rates. The Supreme Court in A-G Lagos State v A-G Federation (2008) addressed the scope of federal and state taxing powers in the context of Value Added Tax (VAT).

Federal Taxes

Companies Income Tax (CIT)

The Companies Income Tax Act (CITA) Cap C21, LFN 2004 (as amended) imposes tax on the profits of companies. Section 9 provides that tax is charged on the worldwide profits of companies resident in Nigeria and on profits derived from Nigeria of non-resident companies. The current corporate tax rate is 30 percent for large companies, with reduced rates for small and medium-sized enterprises. The Act provides for capital allowances, deductions, and exemptions.

Value Added Tax (VAT)

The Value Added Tax Act Cap V1, LFN 2004 (as amended) imposes VAT on the supply of goods and services. The standard rate is 7.5 percent. VAT is administered by the FIRS and is remitted by registered suppliers. The Act exempts specified goods and services, including basic food items, medical products, and educational services. The jurisdiction to impose VAT has been contested between the federal government and states, with the Court of Appeal in A-G Lagos State v A-G Federation (2021) holding that states may impose their own consumption taxes.

Petroleum Profits Tax

The Petroleum Profits Tax Act (PPTA) Cap P13, LFN 2004 imposes tax on the profits of companies engaged in petroleum operations. The rate varies depending on the type of operation: 85 percent for production sharing contracts and 65.75 percent for other operations. The PIA 2021 introduced a new fiscal framework for petroleum operations, including the Hydrocarbon Tax.

State Taxes

State Internal Revenue Services administer personal income tax, withholding tax, capital gains tax, and other state taxes. The Personal Income Tax Act Cap P8, LFN 2004 (as amended) governs the taxation of individuals. Tax is imposed on a graduated scale, with rates ranging from 7 percent to 24 percent depending on income level. State governments also collect stamp duties, vehicle taxes, and other specified taxes.

Tax Administration

Federal Inland Revenue Service (FIRS)

The FIRS, established by the FIRS (Establishment) Act 2007, is the primary tax administration authority for federal taxes. The Service is responsible for tax assessment, collection, accounting, and enforcement. The FIRS operates the Integrated Tax Administration System (ITAS) for electronic filing and payment.

Joint Tax Board

The Joint Tax Board (JTB) coordinates tax administration between federal and state tax authorities. The JTB recommends tax policy harmonization, facilitates information sharing, and addresses disputes over tax jurisdiction. The Board comprises representatives of the FIRS and state tax authorities.

Tax Dispute Resolution

The Tax Appeal Tribunal (TAT), established under the TAT Act, adjudicates tax disputes between taxpayers and tax authorities. The TAT has jurisdiction over appeals against tax assessments, objections, and decisions of tax authorities. The Tribunal is composed of a Chairman, a Vice-Chairman, and other members with legal, accounting, and tax expertise. Appeals from the TAT lie to the Federal High Court on questions of law.

Double Taxation and Transfer Pricing

Nigeria has entered into Double Taxation Agreements (DTAs) with several countries to prevent double taxation of cross-border income. The FIRS administers DTA relief and has issued guidelines for claiming treaty benefits. The Income Tax (Transfer Pricing) Regulations 2012 require transactions between related parties to be conducted at arm’s length. The Regulations require taxpayers to maintain transfer pricing documentation and to file disclosure forms.

Conclusion

Nigerian tax law operates within a federal framework that allocates taxing powers among three tiers of government. The FIRS and state tax authorities administer a complex system of federal, state, and local taxes. Efforts at tax reform continue, including simplification of tax administration, expansion of the tax base, and harmonization of state tax systems. The TAT provides a specialized forum for tax dispute resolution, contributing to taxpayer confidence and the rule of law in tax matters.