ICAN 2025 Taxation | Mixed

XYZ Nigeria Limited was incorporated in Nigeria on November 1, 2016. The company has an authorised and fully paid ordinary share capital of five million shares at N1 each. The company is an entity that started trading on January 1, 2023, retailing engineering equipment. Its first statement of profit or loss was for the year ended December 31, 2023, and revealed the following results: Gross profit N’000 140,800 Investment income N’000 3,850 Profit on sales of equipment N’000 4,950 Less expenses: Depreciation N’000 17,875 Directors’ emoluments N’000 2,200 Debenture interest N’000 4,000 Audit and accounting fees N’000 4,125 Legal costs N’000 5,775 Salaries N’000 72,000 Miscellaneous expenses N’000 12,600 (118,575) Net profit for the year N’000 31,025. The following additional information was provided by the company’s Financial Director: (i) Legal costs comprise the following: N’000 - Retainership 1,725 - Cost of issuing directors service agreement 1,550 - Cost of issuing ordinary shares 2,500 5,775 (ii) The breakdown of miscellaneous expenses comprises: N’000 - Cost of installation of a new machine 3,750 - Extension and partitioning of office apartment 1,500 - Staff party 2,500 - Cost of entertaining suppliers 4,850 12,600 (iii) Investment income comprises the following: N’000 - Dividend from Nigerian companies (net) 2,100 - Loan interest from Nigerian company (gross; non-trading investment) 1,750 3,850 (iv) On December 31, 2023, the directors of the company agreed to pay a dividend of 5% on its ordinary shares (v) Balancing charge agreed with the Revenue was N2,740,000 (vi) The agreed capital allowance with the Revenue was N10,325,000.

Engineer Sanni Abudukar and Chief Caleb Ariwaya are partners in a consultancy firm based in Abakaliki. The firm renders engineering and geological services to all companies at various oil fields in the country. An extract from the statement of profit or loss of the firm - Abubakar Ariwaya & Associates, for the year ended December 31, 2024, revealed the following: Gross fees N’000 236,500 Sundry income N’000 7,975 244,475 Subscriptions and donations N’000 2,475 Administrative expenses N’000 48,000 Rent N’000 8,250 Depreciation N’000 41,250 Sundry expenses N’000 33,000 Interest on loan and overdraft N’000 8,250 Repairs and maintenance N’000 30,800 (172,025) Net profit N’000 72,450. Other information provided by the firm includes: (i) Engineer Abubakar is married with six children. All the children are studying in various higher institutions across the country. He has an aged father of about 85 years old who received an annual pension of N1.2 million from the Nigerian Railway Corporation. He spends about N800,000 per annum to maintain him. (ii) Chief Ariwaya has no dependent relative but he is married with two children both of whom are schooling abroad. He has an insurance policy for his family on which he pays a premium of N250,000 per annum on a sum of N30 million at the end of 25 years. (iii) Engineer Abubakar and Chief Ariwaya did not have any partnership agreement in writing but they opted for sharing the firm’s profit or losses equally. (iv) Sundry income included the profit on sales of motor vehicle amounting to N5,330,000. (v) Administrative expenses is made up of: N’000 - Office stationery 4,650 - Telephone and internet 1,850 Upkeep of partners: - Rent paid for residential house – Engr. Abubakar 5,450 - Medical expenses of Chief Ariwaya’s social acquaintance 1,250 - Maintenance of the firm’s office 4,800 - Other allowable expenses 30,000 48,000 (vi) Subscriptions and donations comprise: N’000 - Journal, newspapers and magazines 575 - Subscription of partners and senior staff professional institutions 638 - Trade associations 762 - Donation to Ebonyi Social Club 500 2,475 (vii) The sum of N1,980,000 included in the interest charged by banks on loans and overdraft related to loan obtained by the partners from the banks to finance their domestic residences which were still under construction. Chief Ariwaya took a loan of N10 million while Engr. Abubakar’s loan was N8 million. The accruing interests are shared according to loan obtained. (viii) Withholding tax deducted on fees income was at the rate of 5%. (ix) Computed capital allowances claimable for the relevant year of assessment are as follows: N - Initial allowance 7,715,000 - Annual allowance 14,080,000 - Balancing charge 1,795,000.

ABC Nigeria Limited is a company engaged in the importation of ladies’ wigs and hair attachments. As a result of difficulties in procuring foreign currency needed for importations, the Board of Directors of the company decided to cease operations on April 30, 2024. The following adjusted profits were extracted from the company’s records: N’000 Year ended December 31, 2022 16,800 Year ended December 31, 2023 30,000 Year ended April 30, 2024 9,800. After the date of cessation, the following transactions took place: (i) A trade creditor with outstanding balance of N4,125,000 was paid N2,970,000 in full and final settlement of debts. (ii) A trade receivable amounting to N2,750,000 that was written off as bad debt was duly recovered. (iii) The delivery van used to distribute the company’s products to customers across the country which was snatched at gunpoint along Iperu-Sagamu Expressway was recovered by the Nigeria Police Force and the van was sold for N9,650,000. (iv) The company’s lawyer who helped in the recovery of the delivery van and bad debt was paid a commission of N2.5 million.

Segun, Alao and Kishi have been in partnership for a long time before incorporating a limited liability company, Success Nigeria Limited, to take over the business of the partnership. The limited liability company has been carrying on the same business of the partnership which is manufacturing of tyres. The Directors of the company met and observed that the tax compliance requirements about limited liability companies are more intricate and very different from those of partnerships. In order not to run foul of the relevant laws, it was decided that a Tax Consultant should be appointed to handle its tax matters. You have been appointed as the Tax Consultant and you were provided with an extract of the financial statements of the company for the year ended June 30, 2024, as follows: N N Gross profit 87,500,000 Less Building fund 1,600,000 Senior staff club house 3,200,000 Depreciation 7,200,000 Salaries and wages 12,200,000 Directors’ remuneration (Non-Executive) 2,200,000 Directors’ remuneration (Executive) 5,300,000 Donation to Red Cross Society 360,000 32,060,000 Net profit 55,440,000. Other information includes: (i) Commission received of ₦2,400,000 has not been taken into account (ii) Capital allowance agreed with the Revenue was ₦2,750,000 (iii) Bad debt of ₦3,200,000 was recovered.

The knowledge of basic concepts in taxation assists in having a good understanding of taxation and its principles. Your boss has mandated you to explain the following concepts to other members of staff who do not have a good knowledge of taxation:

Global Legends Logistics Limited is a company that renders logistics services to financial institutions in Nigeria and worldwide. An extract of the statement of profit or loss for the year ended December 31, 2024 is as follows: N’000 N’000 Income: Contract supplies 668,250 Recruitment fees 318,750 Interest received 11,250 998,250 Expenses: Payments to suppliers 506,250 Management fees paid to Kosemani Konsults 45,000 Audit fees 10,000 Administrative expenses 337,500 Legal and professional fees 7,500 (906,250) 92,000. Note: The total withholding tax credit notes available to the company was N6,750,500.

Real Estate Investment Company (REIC) is a company duly approved by Securities and Exchange Commission to operate a real estate investment scheme (REIS). This is a specialised area of business which raises peculiar tax implications. You have been invited to a programme to speak for the benefit of the operators in this industry. The Federal Inland Revenue Service (FIRS) is given the discretionary power, by virtue of the provision of section 30 of CITA (as amended), to assess and charge a company tax on a fair and reasonable percentage of the turnover of the trade or business.