- 15 Marks
Question
a. 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:
| Income: | N’000 | N’000 |
|---|---|---|
| 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.
Required: Compute:
i. The VAT payable by the company for the year ended December 31, 2024, assuming all figures are VAT exclusive. (5 Marks)
ii. The withholding tax remittable by the company to FIRS. (6 Marks)
b. Where a dividend is paid out of profit on which no tax is payable due to:
i. No assessable profit; or ii. Assessable profits being less than the dividend paid or proposed, the company paying the dividend shall be charged to income tax at the appropriate tax rate on the dividend paid/proposed as if it were its total profit for the assessment year to which the accounts from which the dividend declared relate.
Salami Limited paid dividend of N35 million for the year 2024. Its total profit for 2024 year of assessment was N20 million.
Required:
i. Identify the section of the Companies Income Tax Act, the FIRS will rely on to revise the company’s tax liability. (1 Mark)
ii. What would be the implication of the company’s dividend decision on its tax liability? (3 Marks)
Answer
a.i. Global Lgends Logistics Limited
Computation of VAT Payable For the year ended December 31, 2024
| N | |
|---|---|
| Output VAT: | |
| Contract supplies (N668,250,000 x 7.5%) | 50,118,750 |
| Less input VAT: | |
| Payments to suppliers (N506,250,000 x 7.5%) | (37,968,750) |
| 12,150,000 | |
| Recruitment fees (N318,750,000 x 7.5%) | 23,906,250 |
| VAT payable | 36,056,250 |
a.ii. Computation of withholding tax remittable
| N | |
|---|---|
| Payments to suppliers (N506,250,000 x 2%) | 10,125,000 |
| Management fees paid to Kosemani Konsults (N45,000,000 x 5%) | 2,250,000 |
| Audit fees (N10,000,000 x 5%) | 500,000 |
| Legal and professional fees (N7,500,000 x 5%) | 375,000 |
| VAT remittable | 13,250,000 |
Notes:
Withholding tax credit notes are not available to offset withholding tax liabilities as it would only be utilised by the company. Withholding tax is remitted in the name and taxpayer identification number (TIN) of the beneficiary.
Administrative expenses may not be subject to withholding tax depending on the specific services involved. Given the fact that the nature of the services involved are not specified, therefore, administrative expenses were not treated as subject to withholding tax.
b.i. The relevant section of CITA (as amended) that FIRS will rely on is section 19 (1).
b.ii. The company will be assessed to tax on the dividend declared as this is higher than the total profit declared. Therefore, the tax liability shall be based on the dividend declared, that is, N35,000,000 x 30% = N10,500,000.
- Topic: Companies Income Tax (CIT), Value-Added Tax (VAT), Withholding Tax (WHT)
- Series: MAY 2025
- Uploader: Samuel Duah