ICAN 2022 Taxation | Mixed

Mr. Danko Chinyere who has worked in a neighbouring African country for many years, returned to Nigeria in August 2018. He incorporated a private limited liability company known as ChiDan Limited located in Lagos on October 30, 2018. The company deals in processing and packaging of plantain chips for local consumption. The directors of the company opened a business bank account with one of the leading commercial banks in November 2018. The company commenced full operations on January 2, 2019. Your firm, Adama & Co. was appointed as the tax consultant to ChiDan Limited in January 2021. At the first engagement meeting with the company, you discovered that the company was yet to register with the Federal Inland Revenue Service (FIRS). Relevant taxes, including value added tax were not remitted to FIRS. An extract of the company’s first set of financial statements made up to December 31, 2020 are as follows: N’000 N’000 Gross turnover 860,250 Gross profit 307,734 Profit on disposal of plant, property and equipment 7,860 315,594 Administrative and other expenses: Salaries and wages 62,810 Directors’ remuneration 9,000 Electricity and generator running expenses 4,815 Rents and rates 36,270 Repairs and renewal 10,230 Motor vehicle expenses 32,535 Donations and subscriptions 9,300 Interest and bank charges 6,780 Bad and doubtful debts 8,870 Miscellaneous expenses 20,770 Loss of fund 12,800 Audit fees 8,600 Legal and professional charges 7,725 Depreciation 42,825 (273,330) Net profit 42,264 The following additional information is provided: (i) Donations and subscriptions include: N’000 Lagos Chamber of Commerce 750 Motor Boat Club 300 Polo Club 250 Political parties 7,500 Approved National Relief Fund 500 9,300 (ii) Bad and doubtful debts consist of : N’000 Allowance for doubtful debts 3,000 Specific provision 4,245 Bad debts written off 1,625 8,870 (iii) Miscellaneous expenses include: N’000 Court fine 600 Exchange loss on remittances and balances 7,910 Allowable office expenses 12,260 20,770 (iv) Loss of fund A director defrauded the company to the tune of N9,800,000. (v) Legal and professional charges include: N’000 Debt collection and retainership fees 3,975 Land acquisition 3,750 7,725 (vi) Capital allowances as agreed with the Revenue amounted to N30,380,000.

You attended an interview for employment as Assistant Manager (Tax) in a professional firm. The following were presented to you to proffer solutions: Mariam, Ola, Jude and Co., a firm of quantity surveyors makes up its accounts to December 31, of each year. The following details were extracted from the firm’s accounting books in respect of the year ended December 31, 2019: N (i) Net profit for the year 1,540,000 (ii) Legal expenses for successfully defending one of the partners for alleged professional misconduct formed part of legal fees in the accounts 100,000 (iii) Depreciation 360,000 (iv) Profit on sale of property, plant and equipment 4,220 (v) Balancing charge 10,400 (vi) Balancing allowance 6,900 (vii) Capital allowances for the year 300,000 Additional information available is: (i) Profit sharing ratio agreed by the partners: Mariam 2, Ola 3, Jude 5 (ii) Mariam, Ola and Jude received N7,400 each per annum as interest on loan to the firm. (iii) Salaries paid to each of the partners are: Mariam - N240,000, Ola - N200,000 and Jude - N220,000.

The Federal Government of Nigeria expanded the taxes and levies which the tiers of government can impose through the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order, 2015. In this Order made by the Minister of Finance, several new tax/levy heads, such as infrastructure maintenance/development levy, wharf landing charge/fee, consumption tax, the National information technology development levy, etc., were introduced. However, on May 8, 2020, the Federal High Court sitting in Lagos, delivered judgment in suit number: FHC/L/CS/1082/2019 between The Registered Trustees of Hotel Owners and Managers Association of Lagos (suing for itself and on behalf of all its members) Vs The Attorney – General of the Federation and Others, and held that the Ministerial Order of 2015 is unconstitutional, null and void. The Court submitted that the Constitution vests the legislature with the power to make laws. The Court further stated that schedules to a law are part and parcel of that law and as such, only the legislature can amend schedules to a law. The implication of this ruling is that all the taxes that were added to those ones in the Taxes and Levies (Approved List for Collection) Act Cap. T2 LFN 2004, via the Ministerial Order 2015, are illegal and cannot be enforced. Since the judgment, your firm has been faced with series of enquires from taxpayers on the taxes/levies they are now expected to pay.

Bakosa Insurance Co. Plc. is a company engaged in both life and other insurance businesses. You were appointed as the tax consultant of the company on June 30, 2021. The Managing Director of the company invited you to a meeting of the directors with a view to intimating them of the recent changes introduced by the Finance Acts 2019 and 2020, relating to insurance business.

Withholding tax is a tax deducted at source from proceeds made to a taxable person for the supply of goods and services. It is not another form of tax, but simply an advance payment of tax, as the withholding tax deducted at source is off-set against any subsequent tax liability that may be due in respect of the income.

The difficulty in determining what constitutes a trade has led to many litigations and the huge number of tax cases that exist on the issue. The problem from the decided cases is that of finding an absolute test for identifying a trade. The conclusion had always been that there are no fixed rules but that each case could be examined on its own facts.

The tax system in Nigeria has been reviewed in recent times with a view to ensuring ease of doing business in Nigeria, among other things. With the enactments of Finance Acts 2019 and 2020, many enabling Acts were amended. The tax system usually involves a tripartite aspect, namely, the tax policy, tax law and tax administration.