ICAN 2023 Taxation | Mixed

Fadeke, Femi, Kola and Gbenga have been in partnership as medical practitioners for eight years. The statement of profit or loss for the year ended December 31, 2021 is as follows: N N Gross income 224,500,000 Direct expenses (48,700,000) Gross profit 175,800,000 Deduct: Salaries and wages 72,000,000 Rent and rates 1,500,000 Transport and travelling 825,000 Telephone and telex 210,000 Motor running expenses 680,000 Allowance for doubtful debts 310,000 Miscellaneous expenses 1,450,000 Other professional charges 360,000 Audit fees 500,000 Bank charges and commission 1,122,500 Depreciation 1,240,600 Interest on loan: Fadeke 300,000 Femi 240,000 Kola 180,000 Gbenga 150,000 Interest on capital: Fadeke 1,250,000 Femi 1,250,000 Kola 1,250,000 Gbenga 1,250,000 Passage and leave allowance: Fadeke 660,000 Femi 660,000 Kola 660,000 Gbenga 660,000 88,708,100 Net profit for the year 87,091,900 Additional information: (i) Included in salaries and wages is N1,200,000 paid for each of the partners. (ii) Rent and rates comprise: N Rent paid to partner – Fadeke 1,440,000 Rates 60,000 1,500,000 (iii) Miscellaneous expenses: These include: Donation to a church in the hometown of Fadeke 50,000 Allowance paid to the domestic staff of Femi 240,000 Cost of repairs and maintenance of the residence of each partner totaling 840,000 Office repairs 320,000 1,450,000 (iv) Captial allowances agreed with the revenue was N980,000 (v) Profits are to be shared equally amongst the partners (vi) Fadeke and Femi are married with three and two children, respectively (vii) Fadeke has a life assurance policy of N960,000 on which she pays N96,000 annually as premium (viii) Fadeke maintains her aged father who is over 68 years

The Personal Income Tax Act Cap.P8 LFN, 2004 (as amended) defines “employment”, whilst the Labour Act Cap.L1 LFN, 2004 (as amended), defines “contract of employment.” An individual‟s liability to income tax is often determined according to whether or not a person receiving the income is resident in a State for a particular year of assessment. A taxpayer is, therefore, liable to the tax authority of the territory in which he is deemed to be resident for a year of assessment.

Taxation has been defined as the imposition of compulsory levies on individuals and entities by governments in most countries in the world. The primary objective of taxation is essentially to generate revenue or raise money for government expenditure on social welfare. You were appointed as the accountant of Specks Nigeria Limited on August 31, 2022. Based on self assessment, the company filed the audited financial statements for year ended December 31, 2021, together with its tax computations on June 7, 2022, and the relevant tax liabilities were fully paid on same date. On August 31, 2022, the Federal Inland Revenue Service raised an assessment that was not in line with the tax returns. At the meeting of the directors held in September 2022, this issue was discussed and you were mandated to quickly address same so that the assessment would not become final and conclusive.

As part of the induction programme for the newly recruited staff of your firm of tax consultants, you have been saddled with the responsibility of making a presentation on companies income tax computation for beginners during the firm‟s training session. You are provided with the following information relating to Wizzy-Baddo Limited, which commenced business on September 1, 2020: Adjusted Profit (N) Period to December 31, 2020 6,937,500 Year ended December 31, 2021 9,300,500 The following assets were acquired as follows: N June 5, 2020 – Land and building 5,467,500 July 1, 2020 – Motor vehicle 10,000,000 October 15, 2020 – Machinery 4,375,000 February 28, 2021 – Furniture 3,458,000 May 1, 2021 – Delivery van 4,750,000

Multiple taxation is a tax regime under which various and similar taxes are imposed on taxpayers by different tiers of government. This has become a national problem discouraging taxpayers from performing their civic responsibilities. The 1999 Constitution of the Federal Republic of Nigeria seeks to eliminate multiple taxation at all levels of government as provided for in Part II, paragraph 7 to 10.

Fountain Hotels Limited is a group of hotels located in many parts of North Central Nigeria providing accommodation and other hospitality services. It renders its returns at the end of each month in accordance with the Value Added Tax Act 2004 (as amended). The following are the details of the transactions for the month of July 2022: N VAT on outdoor catering services 600,000 VAT on food 360,000 VAT on drinks 240,000 VAT on other vatable hotel services 270,000 VAT on drinks purchased 150,000 VAT on foodstuff purchased 210,000 VAT on kitchen equipment 480,000 VAT on professional services 240,000 You are also provided with the following additional information: (i) 30% of outdoor catering services were on credit (ii) 20% of food and drinks were on credit (iii) Other vatable hotel services were paid for in full. (iv) 25% VAT on drinks and foodstuff purchased were on credit. (v) VAT on kitchen equipment and professional services were paid for in full.

The Federal Government in a bid to further boost the growth in foreign exchange earnings, create new jobs, facilitate economic diversification, industrialisation and provide access to foreign technology, came up with its export processing zones (EPZs) policy. EPZ is regarded as a customs area where an enterprise is allowed to import plant, machinery, equipment and raw materials, process them, and then export them to the world market, under security and without paying duty. To facilitate better understanding of the above assertions, the Managing Director of a would-be client approached you for the explanations of the relevant provisions of the Nigerian Export Processing Zones Act Cap. N107 LFN 2004 (as amended) and Companies Income Tax Act Cap. C21 LFN 2004 (as amended).