- 15 Marks
AT – Nov 2023 – L3 – SC – Q7 – Taxation of Specialized Businesses
Calculation of tax liabilities under the Mining Act and an explanation of tax neutralities with applications to policy issues.
Question
Udi Nigeria Limited is a mining company which was established ten years ago. The company makes up its accounts to December 31 of every year. The Managing Director, who is an engineer, while having a chat with his former colleagues in the university during the week, heard for the first time, the concept of tax neutralities. He wondered how tax could be neutral.
On getting to the office the following week, he requested further information on tax neutralities from the accountant, but based on his personal opinion, the accountant’s response was not convincing enough.
The company is in the process of filing its annual returns for the year ended December 31, 2021, to the tax authorities. The Managing Director has directed the Financial Accountant to forward the following reports to you (being the company’s Tax Consultant) in respect of the company’s operational activities for the year:
Operational Results:
| Description | N’000 |
|---|---|
| Gross Turnover | 125,490 |
| Salaries and Wages | 25,900 |
| Depreciation of Mining Equipment | 15,400 |
| Transport and Traveling | 2,100 |
| Repairs and Maintenance | 3,700 |
| Allowance for Bad Debts | 6,200 |
| Electricity and Other Utilities | 4,660 |
| Legal and Professional Fees | 4,850 |
| Certified Exploration Expenditure | 4,500 |
| Administrative Expenses | 1,450 |
| Development and Processing Expenditure | 2,500 |
| Miscellaneous Expenses | 3,420 |
| Total Deductibles | 74,680 |
| Net Profit | 50,810 |
Additional Information:
- Repairs and maintenance included an amount of N1,500,000, being cost of fittings incurred at the operational site.
- Capital allowances computed:
- Brought forward: N750,000
- Current year (excluding current year capital expenditure): N12,200,000
- Total: N12,950,000
Required:
As the company’s Tax Consultant, you are to prepare a report to the Managing Director of Udi Nigeria Limited, which will:
a. Show the tax liabilities payable by the company for the relevant assessment year in line with the provisions of Nigerian Minerals and Mining Act 2007 (as amended). (9 Marks)
b. Explain the concept of tax neutralities and its applications to specific policy issues. (6 Marks)
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