Who is a Self Employed person?

In its loose description, a self-employed person is normally associated with individuals who carry on trade under a business names or partnership.

Tax is usually applied on gains or profits from the concerned individual or partnership trade, business, profession or vocation for whatever period of time it may have been carried on by them.

Note, however, that the law requires individuals in self-employment to declare all incomes from all sources. These other sources include but are not limited to:

• Dividends, interests or discounts

• Any pension, charge or annuity

• The gains or profits including any premiums arising from a right granted to any other person for the use or occupation of any property.

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How do I declare my Income?

The Personal Income Tax Act (PITA) requires a taxable person to file the returns of income or a declaration of his annual income/remuneration for the current year with the relevant Tax Authority where he is resident

This return is usually filed in a prescribed form containing necessary information, together with a true and correct statement in writing containing:

a) the amount of income from every source during the year preceding the year of assessment,

b) Such particulars as may be required for the purpose of the Act with respect to any such income, allowances, reliefs, deductions etc.

c) a declaration by him or on his behalf that the return contains a true and correct statement of the income disclosed on the form, in accordance with the provisions of the Act.
Personal Income Tax is calculated following what is called the basis period of assessment. The basis period of assessment comprises the profits of a trade, business, profession or vocation of the year preceding the year of assessment i.e. the previous year's income.
When to file your income returns

For all categories of taxpayers which are required under the Personal Income Tax Act (PITA) to file PIT/PAYE returns, the rendition or declaration of income shall be made within 90 days from the commencement of each assessment year. For the 2006 assessment, the returns are expected to be submitted latest by 31st March, 2006.

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How does IRS Assess and Tax my profits?

In plain language an assessment is the calculation or computation of tax payable by a person (including corporate bodies) for a specific period known as the assessment year. The assessment is usually based on documents, accounts, etc. (collectively referred to as “returns”) submitted by a taxpayer who is obliged under the law to submit (file) such returns. Assessments are conveyed to taxpayers through a document called an Assessment notice or Notice of Assessment.

Where such a notice is issued by the tax authorities (Federal Inland Revenue Service or State Internal Revenue Service) it is referred to as government assessment.

The assessable profits of an individual commencing a trade or business are computed on the following basis:

• For the first year of assessment in which trade or business is commenced in Nigeria "assessable profit" is the amount of the profit from the date of commencement to the end of the assessment year.

• For the second year of assessment, the assessable income is the amount of the profits from the date of commencement to the first period of 12 months of the trade or business.

• For the third and subsequent years, the assessable income is the profit of the preceding year.

There is an option under the law available to the taxpayer to elect that assessments for the second and third years of assessment be adjusted to the actual profits of those years in giving notice to the Revenue authorities within two years.

However, this option is only useful where the assessment on an actual basis will entail payment of less tax.

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Any Current Tax Reform Policy?

The current reform began with a Study Group (SG) on the Review of the Nigerian Tax System headed by Professor ‘Dotun Phillips. The SG was inaugurated on August 6, 2002 by the Minister of Finance, and concluded its work in July 2003. Subsequently, a private sector-driven Working Group was set up on January 12, 2004 to review the Study Group recommendations.

The Working Group, headed by Mr. Oluseyi Bickersteth, concluded its review in March 2004.

The recommendations of both the Study and the Working Groups were also subjected to various internal and external stakeholder inputs. Among these reviews were those conducted or sponsored by the Open Society Initiative, the IMF Mission on Tax Administration, the Ministry of Finance/Economic Team, as well as the Directors, Management and Staff of FBIR/FIRS. At the end of the review exercises, a major reform of the Tax System was undertaken.

It is expected that the reforms would lead to:

• Formulation of a National Tax policy

• Amendment/Abolition of obsolete Tax Laws,

• Clarification of Taxing powers of Local Governments, and

• Setting up of Revenue Courts, and

• Setting aside “Tax Refund” Budget, etc

The President subsequently set up a committee to draft a National Tax Policy for the country. The committee is headed by the Minister of Finance, and is working to meet the deadline to produce the document. To give effect to the issue of amendments to obsolete tax laws, the President also set up a White Paper/Bill Drafting Committee, headed by the Attorney General of the Federation after the FIRS presented a harmonized report of the various recommendations to government. This White Paper Committee considered and proposed eight amendments bills as well as a separate bill that seeks to establish funding and administrative autonomy for the FIRS. Government adopted seven of the eight amendments, as well as the FIRS autonomy bill as proposed by the White Paper Committee. The bills were in April 2005 presented to the National Assembly for legislation.

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How do I get my Vehicle Registered?

You stand the chance of choosing your Vehicle Identification Number by yourself while you fill the form online. The availabe number plates will be displayed to you based in the Suffix you selected (L.G.A), then you are expected to make your choice.

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How do I fill for P.A.Y.E?

Filing Returns
The law requires every company (including a company granted exemption from incorporation) to, at least once in every year without notice or demand, make and deliver to the Board a return in the forms of:

(i) The audited accounts, tax and capital allowances computations and a true and correct statement in writing containing the amounts of its profits from each and every source;

(ii) A declaration which shall be signed by a director or secretary of the company that the returns contain a true and correct statement of the amount of its profits computed in respect of all sources and that the particulars in such returns are true and complete.

• For newly incorporated companies, the submission shall be within eighteen months from the date of its incorporation or not later than six months after the end of its first accounting period, whichever is earlier.

• For Existing Companies – companies that have been in business for more than 18 months – the submission shall be not more than six months after the close of the company's accounting year.

Filing early returns is profitable.

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Does IRS have concession for filing early returns?

Yes.

These include;

• Privilege granted to the company to pay taxes instalmentally

• Additional 1% bonus granted to all early filers

Those who file late incur heavy penalties and sanctions, which unnecessarily increase the cost of running their businesses: These penalties and sanctions include:

• A Penalty of N2,500 is charged for the first month that the company failed to file tax returns. Thereafter, an additional N500 penalty is charged for each month the failure persists.

• The company is denied the privilege of paying taxes in installments.

• It also Forfeits the 1% bonus granted all self-assessment filers.

• The company may be forced to pay provisional tax for the year with accrued penalties and interest.

• The company will pay the penalty and interest for the period of the default.

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How does Direct Assessment work?

Direct-assessment became mandatory for all companies with effect from 1st January 1998.
A tax return for a Direct-assessment filer comprises the following:

(a) Duly completed Direct assessment Income Tax Form

(b) Audited financial statements together with the relevant schedules showing assets, trade debtors, trade creditors etc.

(c) A declaration which shall be signed by the Managing Director, a Director, or statutory Secretary of the company indicating that the returns contain a true and correct statement of the amount of its profits computed in respect of all sources and that the particulars in such returns are true and complete.

(d) Capital Allowance computations.

(e) Tax Computations for the year of assessment

(f) Evidence of direct payment of the whole or part of the tax due into a bank designated for the payment of tax.

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Do I get compensated for loss of Office?

Payment for loss of office or employment is totally exempted from income tax with effect from 1st January 1996.

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Do I get pension for being Self Employed?

Exemptions are now granted in respect of pensions or annuities for self-employed individuals provided that such premia do not exceed 10% of the self-employed's total income. This is in addition to any premium in respect of life assurance scheme the self-employed may have.

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What is PIT?

PIT is Personal Income Tax. It is a tax that is imposed on individuals who are either in employment or are running their own small businesses under a business name or partnership.

Though collection of PIT is a federal responsibility this tax is generally collected by state governments from those that are resident in their various states, regardless of whether they are federal, state, local government, or private sector workers. The Federal Inland Revenue Service, however, also collects this tax but only from residents of the Federal Capital Territory as well as what may be described as highly mobile federal workers – staff of the Ministry of Foreign Affairs and other Nigerians and foreigners outside the country but earning income in Nigeria (non-residents), expatriate workers resident in Nigeria, Police Officers, and Military Officers. Civilians working in Police and Military formations, however, pay to their respective States of residence.

The current law guiding the taxation of personal incomes is the Personal Income Tax Act (Cap P8 LFN 2004). Under the law, Federal and States’ tax boards are empowered to identify persons living in or earning income from Nigeria who are required to pay tax, and to assess incomes and tax their incomes using specified guidelines and rules.

This law also guides the tax official in identifying the residence of potential taxpayers, as well as the sources and origins of their incomes for the purpose of taxing the income.

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Who is exempted from PIT?

The law exempts the following incomes from tax:

• Official emoluments of the President, Vice President, State Governors and Deputy Governors;

• Income of any Trade Union registered under the Trade Union Act, provided such income is not derived from a trade or business carried on by such Trade Union;

• Income of any Statutory or registered Friendly Society in so far as such income is not derived from a trade or business carried on by such Society; and

• Income and profits of Cooperative Societies.

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What part of my Income is subjected to Taxation?

Tax is calculated for each year of assessment on the aggregate amounts of the income of every taxable person, for the year.

The following incomes are subject to tax under the law:

a. Gains or profits from any trade, business, profession or vocation for whatever period of time it may have been carried on by the taxable person;

b. Dividends, interests or discounts

c. Any pension, charge or annuity

d. The gains or profits including any premiums arising from a right granted to any other person for the use or occupation of any property

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How is my profits subjected to Taxation?

For each year of assessment, tax is paid on profits of any company “accruing in, derived from, brought into, or received in Nigeria” in respect of the following;

a) Any trade or business for whatever period of time such trade or business may have been carried on;

b) Rent or any premium arising from a right granted to any other person for the use or occupation of any property;

c) Dividends, interest, royalties, discount, charges or annuities;

d) Any source of annual profits or gain not falling within the following categories;

e) Any amount deemed to be income or profit under a provision of the Act:

f) Fees, dues and allowances (wherever paid) for services rendered; and

g) Any amount of profits or gains arising from acquisition and disposal of short-term money instrument like Government Securities, treasury bills, saving certificate, treasury bonds etc

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What is Stamp Duty?

Stamp duty is a form of tax that is levied on documents. Historically, a physical stamp (a tax stamp) had to be attached to or impressed upon the document to denote that stamp duty had been paid before the document became legally effective.

Stamp Duty is the tax you pay when you buy property or shares. You pay 'Stamp Duty Land Tax' when you buy property and either 'Stamp Duty' or 'Stamp Duty Reserve Tax' when you buy shares.

Stamp Taxes are payable on land, property and shares. The following pages provide information to assist you with your transactions.

There are three main areas where Stamp Taxes may be payable and are dependant on the type of transaction.

• buying property/land

• buying shares

• leasing a property/land

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What is C.G.T?

Capital Gains Tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. The most common capital gains are realized from the sale of stocks, bonds, precious metals and properties.

Capital gains tax (CGT) is the tax you pay on any capital gain you include on your annual income tax return. It is not a separate tax, merely a component of your income tax. You are taxed on your net capital gain at your marginal tax rate.

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How do I pay my PIT?

The law requires a taxable person to file the returns of income or a declaration of his annual income/remuneration for the current year with the relevant Tax Authority where he is resident. For each year of assessment, you are required to file a return of income in the prescribed form and containing necessary information, with the relevant Tax authority where the taxable person is deemed to be resident.

This return is to be accompanied by a true and correct statement in writing containing:

a) the amount of income from every source during the year preceding the year of assessment,

b) such particulars as may be required for the purpose of the Act with respect to any such income, allowances, reliefs, deductions etc.

c) a declaration by him or on his behalf that the return contains a true and correct statement of the income disclosed on the form, in accordance with the provisions of the Act.

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