ICAN 2026 Advanced Taxation | Mixed

ROMO Agro-allied Industries Limited, Port Harcourt, was incorporated and granted a pioneer status to manufacture basic organic chemicals and fertilizers from predominantly Nigerian raw materials, with a production day of July 1, 2018. Agricultural fertilizer, chlorine, and pesticide are the approved products for the company. The following information was extracted from the company’s financial records during the pioneer period: Year ended Turnover Adjusted profit/ (loss) N ’000 N’000 June 30, 2019 128,250 (41,200) June 30, 2020 133,630 (37,500) June 30, 2021 235,400 8,300 For about two years into its pioneer period, the fertilizer brand was not generating sufficient profits for the company, due to customers’ preference for cheaper foreign products. In April 2021, the management of the company at one of its management meetings, decided that the company should take to importation of fertilizers from European countries in order to improve their profitability. These imported products are then repackaged by the company for final sales to its customers. The officials of the Federal Ministry of Industry, Trade and Investment (FMITI), during one of their routine post-pioneer visits to the company in May 2025, got to know about the importation and sales of fertilizers during pioneer period. This act was considered to be inconsistent with the pioneer certificate granted to the company by the Federal Government. The FMITI subsequently informed the tax authorities of their findings. The preliminary investigation carried out by the tax authorities in July 2025 on the activities of the company revealed that, between April and June 2021, the company’s sales and assessable profit from imported fertilizer were N102,280,000 and N12,700,000, respectively. While filing its annual returns and reports to the tax authority and FMITI in December 2021, the company reported this transaction as part of its normal operating activities, for the year ended June 30, 2021. The schedule of qualifying capital expenditure (QCE) during pioneer period revealed the following: QCE Date of acquisition Number of items Total amount N ’000 Industrial building July 2018 1 30,000 Non-industrial building July 2018 1 25,000 Industrial plant and equipment July 2018 2 44,000 Motor vehicle July 2018 1 7,000 Furniture and fittings July 2018 4 3,000 Motor vehicles February 2020 2 16,000 Furniture and fittings December 2020 6 4,800 The company did not apply for extension of its pioneer certificate at the end of its initial three-year period. The company had the following statements for the first three years post-pioneer period: Year ended Turnover Adjusted profit/ (loss) N’000 N’000 June 30, 2022 150,900 25,100 June 30, 2023 168,800 29,300 June 30, 2024 175,350 36,200 The financial records of the company for the year ended June 30, 2025 showed the following: N’000 N’000 Gross turnover 262,150 Deduct: Direct cost of production 117,900 144,250 Add: Other income 12,600 156,850 Deduct: Salaries and other personnel costs 32,700 Repairs and maintenance 1,500 Vehicle running expenses 1,700 Auditors’ fees 2,400 Power cost 4,420 Depreciation 18,200 Legal and professional fees 7,900 Preliminary expenses written off 2,000 Finance charges 2,080 Allowance for doubtful debts 13,300 Administrative expenses 14,250 Donations and subscriptions 2,500 Transfer to general reserves 3,400 Income tax provision 3,600 (109,950) Net profit 46,900 The following additional information was provided: (i) Other incomes: N ’000 Dividends received (net) 9,000 Excess on valuation of building 3,600 12,600 (ii) Repairs and maintenance: N ’000 Improvement to industrial building 1,100 Repairs of plant and equipment 400 1,500 (iii) Legal and professional fees: N’000 Acquisition of short lease 1,200 Renewal of long lease 1,300 Retainership of professionals 4,000 Legal cost incurred in respect of tax appeal 1,400 7,900 (iv) Allowance for doubtful debts: N’000 Specific provisions 5,100 General provisions 6,700 Bad debt recovered (2,900) Bad debt written off 4,400 13,300 (v) Administrative and other expenses: N’000 Feasibility study 2,500 Stamp duties on increase in capital 800 Medical expenses 1,700 Insurance 3,200 Rates: Local government 2,750 Transport and travelling 3,300 14,250 (vi) Donations and subscriptions: N’000 Donation- Oreyo Country Club 1,000 Donation of books- National Library 1,100 Subscription-Manufacturers Association of Nigeria 400 2,500 (vii) Schedule of qualifying expenditure post-pioneer period: QCE Date of acquisition Number of items Total amount N ’000 Motor vehicles January 6, 2022 2 16,000 Furniture and fittings April 15, 2023 2 6,000 Industrial plant and equipment October 1, 2024 1 28,000 (viii) Transfer to general reserves The decision to transfer a specific amount out of the company’s profit was approved by the shareholders at the 2024 annual general meeting. The company received a letter from the FIRS Integrated Tax Office on the proposed tax audit of the company’s activities since inception. The audit visit has been slated for the first week of next month. For a hitch-free exercise, the FIRS, has requested for maximum cooperation from staff and management of the company. Your firm of chartered accountants has just been appointed by the company to help in the preparation towards the impending visit. The Managing Partner of your firm has directed you, the Senior Tax Consultant, to take charge of the assignment.

Sustainable development is an approach to growth and human development that balances economic, social, and environmental needs. It ensures meeting the present generation’s needs without compromising the ability of future generations to meet their own needs. Taxation is considered by some tax, fiscal, and economic policy makers as a valuable tool in the achievement of a nation’s sustainable development. In the same vein, other notable supra-national organisations are seen to play crucial roles in shaping tax policy globally, thereby assisting member countries to achieve sustainable development.

Nigeria has established double taxation relief (DTR) mechanisms through laws, treaties, and agreements with other nations. This is to mitigate financial burdens from having to assess the same income twice (in the country where it is earned and again in their country of residence). Section 44 of the Companies Income Tax Act Cap C21 LFN, 2004 (as amended) provides for the treatment of relief in respect of Commonwealth income tax (that is, when there is no double taxation agreement/arrangement between Nigeria and the other country). Ajoseh Nigeria Limited, Kaduna, is a manufacturer of indigenous clothing fabrics. The company which was incorporated in 2010, opened a business operation, Hellen Incorp., in Montreal, Canada, five years ago. The Canadian company was established to respond to the needs of Africans in Canada, the United States, and Caribbean/Latin American countries. The abridged income statements of Ajoseh Nigeria Limited and Hellen Incorporated for the year ended December 31, 2024 are presented below: Ajoseh Nigeria Limited, Nigeria Hellen Incorp., Canada N’000 CAD $ Gross turnover 778,500 470,700 Deduct: Cost of goods sold 381,400 147,400 Salaries and other emoluments 131,700 94,400 Depreciation 25,300 14,200 Bad debts written off 18,100 9,900 Repairs and maintenance 1,200 900 Vehicle running expenses 1,000 700 Administrative expenses 13,600 8,250 Foreign exchange provision - 1,750 Foreign tax paid - 41,400 Share of head office expenses - 33,500 572,300 352,400 Net profit 206,200 118,300 The following additional information was provided: i. The amount incurred on cost of goods sold was directly related to the business operations. ii. The foreign exchange provision arose as a result of fluctuations in the conversion rate of the two currencies. iii. The capital allowances as agreed with the Federal Inland Revenue Service were: Ajoseh Nigeria Limited N18,520,000 Hellen Incorp. N10,490,000 iv. Assume that the average exchange rate during the financial year was N1,100 to CAD $1.

Opobo Petroleum Producing Company Limited had been in oil exploration business for more than thirty years. The company operates in both onshore and shallow water in the Nigerian Western Delta region. Upon expiration of its oil mining licence (OML) on December 31, 2022, the company automatically converted its OML to petroleum mining lease (PML) on January 1, 2023. This was in line with the provisions of the Petroleum Industry Act (PIA), 2021. The company has provided the following results in respect of its operations for the year ended December 31, 2024: (i) Crude oil sold: Type Quantity (million barrels) Actual price US $ Fiscal price US $ Bonny light 10.8 73 75 Forcados medium 7.5 66 66 (ii) Condensate from associated gas sold: Type Quantity (MMBTU) Actual price US $ Fiscal price US $ OSO condensate 3 million 32 33 Escravos condensate 2.3 million 30 29.5 (iii) Natural gas liquid from associated gas sold: Type Quantity (MMBTU) Actual price US $ Fiscal price US $ Penington 2.5 million 33.5 34 (iv) Other income: N’million Ocean going tanker business 775,000 Dividends received (net)(from shares in Nigerian listed company) 67,500 842,500 (v) Expenses: N’million Royalty cost paid 357,500 Production cost 834,800 Drilling costs for first 3 appraisal wells 48,900 Terminalling cost 1,200 Repairs of plant, machinery, and fixtures 1,020 Repairs of alteration of production implement utensils 440 Customs duty on essentials 200 Environmental remediation fund 1,750 NDDC charge 300 Stamp duty 150 Host community costs 42,600 Donations to government recognised orphanage home 125 Finance and other bank charges 290 Cost of gas reinjection wells 1,800 Depreciation of plant, machinery and fixtures 1,950 Concession rentals 2,200 Others expenses 1,580 The following additional information was provided: (vi) The drilling costs for the first 3 appraisal wells consisted of 80% tangible costs and 20% intangible costs. (vii) Other expenses comprised: N’million Acquisition of geophysical and geological data and information expenses 310 Gas flaring penalty 250 State Government ground rent 300 Signature bonus -acquisition of petroleum deposit 500 Head office shared cost 220 1,580 (viii) Schedule of qualifying capital expenditure: Year of acquisition Type Amount (N’million) 2019 Pipeline expenditure 1,800 2020 Drilling expenditure 1,900 2021 Building expenditure 1,700 2022 Plant expenditure 980 2023 Pipeline expenditure 1,200 2024 Drilling expenditure 1,750 (ix) Unrecouped losses and capital allowances from previous assessment years as agreed with the Federal Inland Revenue Service, were N 1,215million and N480million, respectively. (x) In the immediate preceding assessment year, the excess cost not utilised as a result of cost price ratio (CPR) limit amounted to N170million. (xi) Production allowances after commencement of the PIA 2021, consisted of: N’million Onshore operations 1,200 Shallow water operations 1,100 2,300 (xii) Assume that N1,530 is equivalent to US $1 and tax dues are to be paid in the local currency (Naira). The company’s management meeting has been scheduled for the next three weeks.

Specific sections of relevant tax statutes were amended by Finance Acts 2019, 2020, 2021, and 2023, in line with the macroeconomic policy reforms of the Federal Government and for efficient financial management of the Federation. CRD Hotels Limited commenced operations in 2010. It has six branches in each of Nigeria’s geo-political zones. In order to add beauty and glamour to their hotel premises, the management of the company in 2021, decided to acquire at a cost of N20,000,000, an array of Nigerian traditional and contemporary artefacts and artworks. In May 2023, all the artworks were disposed of at an all inclusive sales proceeds of N19,200,000, thereby making a capital loss of N800,000. Another set of artefacts and artworks was acquired at a cost of N12,200,000 in October of the same year. The management observed that these artworks did not attract significant customers as earlier envisaged, hence in August 2025, the company decided to approach a professional auctioneer to help sell all the artefacts and artworks. The company’s accountant presents the following financial details in respect of the disposal of the artefacts and artworks:

Environmental, Social, and Governance (ESG) considerations have become increasingly important in the business world due to growing concerns about the manner by which most companies treat ESG issues. For instance, as highlighted in a leading Africa-focused report, a disproportionate large number of companies operating oilfields in Nigeria have essentially ignored the greenhouse gas management guidelines instructed by the country’s Upstream Petroleum Regulatory Commission (NUPRC). While some companies have greenhouse gas emission reporting in place, most companies have not complied with this reporting practice. Social and human right concerns, like labour exploitation, lack of host community support, and corporate governance issues have stressed the need for businesses to behave responsibly. There are, however, various significant fines, penalties, litigation risks, and loss of operational licences, imposed on any company for failure to comply with the Federal Government’s directives on ESG matters. Companies that are alleged to have breached any of these directives are at liberty to seek redress in line with the provisions of the law. One of such provisions is the use of Alternate Dispute Resolution (ADR) mechanism by concerned parties.

Recent developments in the accounting practice globally have made training and retraining of employees in the profession inevitable. Tax legislation, for instance, is becoming increasingly complex; bringing ever more risk on the professional tax practitioners. The Principal Partner of a small-sized audit firm is organising a seminar on “Tax Practice Management” for his firm’s newly appointed audit staff next month. In the letter of invitation sent to you, as a Lead Presenter, the purpose of the seminar, according to the firm’s Principal Partner, is to avail the audit staff (who have just completed their academic programmes in various higher institutions) with current developments in the accounting profession for accountants in tax practice. You have accepted to present a paper at the seminar titled, “Professional accountants in tax practice, associated risks, benefits and strategies of mitigating the potential risks”. The organisers of the seminar expects your paper to be forwarded to them.