Taxation : What Is It And How is The Systems in Nigeria
Taxes have a very important role in most governments worldwide. Taxes are a source of revenue to finance all expenditures and to continuously improve people’s welfare. Every government must seek sources of funds from within the country in the form of taxes. So, what about taxation Nigeria? See the following explanation regarding its taxation system.
General Ways of Taxation Nigeria
Basically, taxation Nigeria begins either because the taxpayer is a resident or because someone has a source of income in Nigeria. Also, such a person is taxed on their entire income, whether all sources of income are in Nigeria or not.
The 4 main principles of taxation Nigeria:
- Taxpayers must contribute to support the government to the best of their ability.
- The tax that must be paid, must be certain and not arbitrary.
- Payment time, payment method, and the amount, everything must be clear.
- Taxation Nigeria arises from conducting business or trade activities from certain payments originating from the country.
Nigeria’s Main Taxation Systems
Taxes are mandatory contributions based on tax laws that must be deposited by taxpayers to the government. So, what types of taxation systems apply in Nigeria?
1. Income Tax— Personal and Company (PIT/CIT)
PIT is charged to employments or self-employed individuals on their income received or accrued through the PAYE (Pay As You Earn) system. Whereas, CIT is charged to any corporates payable for each assessment year includes the amount payable on any company profits earned (30%), originating from, brought to, or received in Nigeria.
2. Value Added Tax (VAT)
VAT is a tax charged on the purchase of taxable goods and services by individuals, companies, and other entities based on the applicable tax laws and regulations. The VAT rate in Nigeria is determined by the percentage of 7.5% payable to FIRS (Federal Inland Revenue Service).
3. Withholding Tax (WHT)
WHT is a tax system in which the government directly gives trust to taxpayers in collecting or deducting tax on the income they receive while depositing it into the government treasury. And the tax percentage varies in between 5-10%.
4. Capital Gain Tax (CGT)
CGT is a tax on profits from the selling price and the acquisition price, such as property taxes, inheritance taxes, and also taxes on the transfer of assets. In Nigeria itself, a rate of around 10% applies to the amount of the sales transaction value.
5. Education Tax (EDT)
A 2% rate is embedded in the education taxation Nigeria. This tax is addressed to all corporate entities registered under TETFUND (Tertiary Education Trust Fund). In addition, this taxation system can be used to fund important projects in the world of education, especially higher education.
6. Petroleum Profit Tax (PPT)
PPT is a tax on income received by the Government from upstream oil and gas business activities. In Nigeria, this tax is charged at 50%-85%. Thus, entities that pay this tax are usually exempt from the CIT governed by the Petroleum Profits Tax Act.
Final Thoughts
For a country that is able to encourage its citizens to pay taxes, the country will progress well. One of them is Nigeria, where the government can encourage individuals and entities to pay taxes. Hopefully, with the taxation Nigeria system, it is able to provide convenience for taxpayers in carrying out their obligations to the government without feeling burdened.
