- 15 Marks
Question
Engineer Kole Ahmed manages a wholly owned Nigerian engineering outfit – Oduifa Construction Company Limited, based at Ikeja and incorporated in February 2010.
Given the challenging economic environment in Nigeria and inconsistent government policies, the company’s management embarked on foreign diversification of income. They sourced and secured some contracts in the United Kingdom where they have operational activities in London.
Extracts from the Statement of Profit or Loss for the year ended December 31, 2015, for Lagos and London operations, are as follows:
| Description | Lagos (N) | London (N) | Global (N) |
|---|---|---|---|
| Revenue | 68,000,000 | 70,200,000 | 138,200,000 |
| Direct expenses | (43,410,000) | (44,050,000) | (87,460,000) |
| Gross profit | 24,590,000 | 26,150,000 | 50,740,000 |
| Administrative expenses: | |||
| – Staff salaries | 1,200,000 | 1,440,000 | 2,640,000 |
| – Rent and rates | 840,000 | 960,000 | 1,800,000 |
| – Motor vehicle expenses | 136,000 | 148,000 | 284,000 |
| – Repairs and maintenance | 92,000 | 106,500 | 198,500 |
| – Utilities | 76,840 | 81,000 | 157,840 |
| – Business insurances | 55,000 | 60,000 | 115,000 |
Capital allowances: N725,000.
Required: Compute the final tax liability of the company for the relevant assessment year. (15 Marks)
Answer
Computation of Final Tax Liability for Oduifa Construction Ltd.
- Adjusted Assessable Profit:
- Net Profit per Accounts:
- Lagos: N20,615,160
- London: N17,288,500
- Adjustments:
- Disallowable foreign tax suffered: N4,260,000 (London)
- Depreciation: N860,000 (Lagos) + N920,000 (London) = N1,780,000
- Net Profit per Accounts:
- Capital Allowances (allocated based on depreciation):
- Lagos: N350,281
- London: N374,719
- Total Capital Allowance: N725,000
- Companies Income Tax Payable (30%):
- Lagos: 30% of N21,124,879 = N6,337,464
- London: 30% of N22,093,781 = N6,628,134
- Total Tax: N12,965,598
- Double Taxation Relief:
- Based on the lower of half the Nigerian rate (15%) or Commonwealth rate (19.28%).
- Relief = 15% x N22,093,781 = N3,314,067
- Final Tax Liability:
- Total Tax: N12,965,598
- Less Double Taxation Relief: N3,314,067
- Final Tax Due: N9,651,531
- Topic: Double Taxation Reliefs and Credits
- Series: MAY 2018
- Uploader: Dotse