- 20 Marks
Question
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
Required:
a. Compute the taxes payable by the company for the relevant assessment year. (10 Marks)
b. Explain FIVE conditions under which a donation charged against income is allowable for ascertaining the profit of a business. (5 Marks)
c. Explain the returns to be filed by every incorporated company carrying on business in Nigeria to the Federal Inland Revenue Service. (5 Marks)
Answer
a. Success Nigeria Limited Computation of tax liabilities
For 2025 assessment year
| N | N | |
|---|---|---|
| Net profit as per accounts | 55,440,000 | |
| Add: | ||
| Bad debt recovered | 3,200,000 | |
| Commission received | 2,400,000 | 5,600,000 |
| 61,040,000 | ||
| Add disallowed expenses: | ||
| Building fund | 1,600,000 | |
| Senior staff club house | 3,200,000 | |
| Depreciation | 7,200,000 | 12,000,000 |
| Adjusted profit | 73,040,000 | |
| Capital allowance | (2,750,000) | |
| Total profit | 70,290,000 | |
| Companies income tax | ||
| = 30% of N70,290,000 = | 21,087,000 | |
| Tertiary education tax | ||
| = 3% of N73,040,000 = | 2,191,200 |
b. Allowable donations In ascertaining the profits or losses of a company chargeable to tax for any period, there shall be deducted, donations made during that period by the company.
The conditions for allowing such donations are as follows:
(i) donations must be made to any of the funds, bodies, institutions in Nigeria contained in the Fifth schedule to CITA;
(ii) donations must be made out of profit, that is, donations shall not be allowed in circumstances where it will increase the loss of a company or convert its profit into a loss;
(iii) donations must not be of a capital nature except donation to a university or other tertiary or research institutions;
(iv) donations must not exceed 10% of the company’s total profits for an assessment year before any deduction for donation. In the case of donation to tertiary or research institution, up to 15% of total profit or 25% of tax payable in the year whichever is higher;
(v) donations made by companies in cash or kind to any fund set up by the Federal Government or any state government, or to any agency designated by the Federal Government or to any similar Fund or purpose in consultation with any Ministry, department or agency of the Federal Government, in respect of any pandemic, natural disaster or other exigency shall be allowed as deductions as follows:
- the cost of in-kind donations made to the Government and any designated agency shall be allowed as deductions; or
- where companies have either procured or manufactured items for contribution, the cost of purchase, manufacture or supply of such in kind contributions shall be allowed as deductions. Provided that requisite documentation evidencing the donation and the cost thereof are provided to the relevant tax authority and demonstrated to be wholly, reasonably, exclusively and necessarily incurred in relation to the procurement, manufacture or supply of the in-kind contributions; and
(vi) the amounts allowable for deduction in respect of (v) above, in any year of assessment shall be limited to 10% of assessable profits after deduction of other allowable donations made by the company.
c. Every incorporated company carrying on business in Nigeria is required to file with the Federal Inland Revenue Service (FIRS) the following returns annually:
(i) self-assessment return in the prescribed form;
(ii) audited accounts;
(iii) tax and capital allowances computations; and
(iv) evidence of payment of the whole or part of the tax due into a bank designated for the collection of the tax.
The prescribed form of return shall contain a declaration duly signed by a director or the company secretary, stating that:
- the return contains a true and correct statement of the company’s profits computed in accordance with the provisions of CITA and rule made hereunder; and
- particulars given in the return are true and complete.
- Topic: Companies Income Tax (CIT), Tax Administration and Enforcement
- Series: MAY 2025
- Uploader: Samuel Duah