Subject: TAXATION

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  • 15 Marks

TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

Raposa Nigeria Limited, a company located in Sambisa Forest, Kutunwegi State of Nigeria, commenced operations on November 1, 2017. The accounting year-end was September 30. Due to government policy restricting rice importation, the business’s going concern was threatened, leading the Board of Directors to decide to cease operations on December 31, 2022.

The adjusted profits for the relevant periods are as follows:

Period Adjusted Profit (N)
Period to September 30, 2019 2,100,000
Year ended September 30, 2020 2,400,000
Year ended September 30, 2021 3,640,000
Year ended September 30, 2022 6,300,000
Period to December 31, 2022 500,000

Additional Information:

  1. A bad debt of N120,000, written off in the 2020 assessment year, was recovered in October 2021.
  2. N20,000 was spent to recover this debt.
  3. An expenditure of N350,000 incurred in the 2020 assessment year was accounted for in the profit or loss but was not paid until August 2022.

Upon cessation, the revenue authority planned a back-duty investigation and informed the taxpayer accordingly. As a tax consultant, you are invited to determine the assessable profits for the relevant periods from the commencement of trade to business cessation.

Required: a. State THREE reasons why a business may cease trading. (3 Marks)
b. Compute net terminal adjusted profit. (6 Marks)
c. Compute assessable profits for all the relevant years of assessment. (6 Marks)

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  • 15 Marks

TAX – Nov 2023 – L2 – Q6b – Tax Administration and Enforcement

Explain five key contents required in a Withholding Tax returns/payment schedule.

It is expected that a schedule of Withholding Tax (WHT) payable should be prepared by applying the correct WHT rate on each transaction/payment made during the month. Thereafter, a cheque for the amount due to the Federal Inland Revenue Service is raised and forwarded together with the WHT schedule to one of the approved collecting banks for processing.

Required:
Explain FIVE contents of a WHT returns/payment schedule. (10 Marks)

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  • 15 Marks

TAX – Nov 2023 – L2 – Q6a – Tax Administration and Enforcement

Explain the functions and powers of the Nigerian Customs Service Board.

The Nigeria Customs Service (NCS) is one of the major revenue-generating agencies for the Federal Government of Nigeria. The establishment of the Nigerian Customs Service Board, which is under the control of the Federal Ministry of Finance, is contained in section 1 of the Nigerian Customs Service Board Act Cap.C45 LFN 2004 (as amended). The Board is responsible for the administration of the Customs and Excise Management Act.

Required:
Explain the functions and powers of the Board. (5 Marks)

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  • 20 Marks

TAX – Nov 2023 – L2 – Q4 – Taxation of Trusts and Estates

Compute the net income assessable in the hands of trustees and assessable income of each beneficiary.

The records of the two trustees of Olalomi Children Settlement created in favor of the three children—Olami, Olambe, and Olaide—revealed the following as of December 31, 2020:

Income Type Amount (N)
Rental income (gross) 398,900
Trading income 210,000
Dividend (gross) 196,000
Profit on sale of non-current assets 600,000

Additional Information:

  1. The interest received was from Gbogbo-Ero Commercial Bank Limited.
  2. Other allowable expenses amounted to N23,000.
  3. Each beneficiary was entitled to a quarter of the net distributable income.
  4. Fixed annuity to the beneficiaries was N42,000 (gross) to be shared equally.
  5. Trustee’s remuneration per trust deed was fixed at N25,000 each, plus 2.5% of the total computed income.
  6. Discretionary payments were made to Olami (N10,000), Olambe (N34,000), and Olaide (N29,000).
  7. Agreed capital allowance was N87,600.
  8. Administrative and other expenses amounted to N106,000.

Required: a. Compute the net income assessable in the hands of the trustees. (14 Marks)
b. Compute the assessable income in the hands of each beneficiary. (6 Marks)

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  • 9 Marks

TAX – Nov 2023 – L2 – Q3b – Tax Administration and Enforcement

Explain the roles and responsibilities of government, taxpayers, and revenue agencies in Nigeria’s National Tax Policy.

In line with the provisions of the revised National Tax Policy (NTP) in 2017, explain the roles and responsibilities of the following stakeholders:

i. The government (3 Marks)
ii. The taxpayers (3 Marks)
iii. Revenue agencies (3 Marks)

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  • 11 Marks

TAX – Nov 2023 – L2 – Q3a – Tax Administration and Enforcement

Describe the composition and functions of Nigeria’s tax administration bodies, including the Joint Tax Board and State Board of Internal Revenue.

a. Tax administration in Nigeria involves the practical interpretations and application of the tax laws. The bodies charged with the administration of tax in Nigeria are the Federal, State, and Local Governments. The tax authorities of these tiers of government derive their power from Federal laws.

i. State the composition of the Joint Tax Board. (3 Marks)

ii. Outline FOUR functions of the State Board of Internal Revenue. (3 Marks)

iii. State FIVE levies and taxes collectible by the Local Government Revenue Committee. (5 Marks)

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  • 20 Marks

TAX – Nov 2023 – L2 – Q2 – Tax Administration and Enforcement

Discuss the tax law provisions for a change in accounting year end, revenue practice, and compute assessable profits.

Forward Nigeria Limited, a Nigerian manufacturing company, has been operating for several years with an accounting year-end on June 30. The company recently decided to change its year-end to September 30. The adjusted profits for the relevant periods are as follows:

Period Adjusted Profit (N)
Year ended June 30, 2014 2,700,000
Year ended June 30, 2015 3,300,000
Period ended September 30, 2015 1,500,000
Year ended September 30, 2016 4,200,000
Year ended September 30, 2017 3,600,000

Additional Information:

  1. Income overstated:
    • June 30, 2015: N250,000
    • September 30, 2016: N280,000
  2. Expenditure understated:
    • June 30, 2014: N160,000
    • September 30, 2017: N150,000

Required: a. Explain the tax law provisions for a business changing its accounting year-end. (5 Marks)

b. Describe the Revenue practice related to these provisions. (3 Marks)

c. Compute the assessable profits for all affected years of assessment, considering the tax law and Revenue practice. (12 Marks)

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  • 30 Marks

TAX – Nov 2023 – L2 – Q1 – Personal Income Tax (PIT)

Compute the personal income tax payable by a proprietor with specific adjustments for disallowable expenses and capital allowances.

Alhaji Nura Imam, having spent over 20 years as an employee of Apex Limited, retired on November 1, 2020. On January 2, 2021, he registered a business under the name of Nura Imam Enterprises. The profit or loss account of the enterprise for the year ended December 31, 2021, is as follows:

You were provided with the following additional information:

(v) Agreed capital allowance on qualifying capital expenditure was N1,240,000.
(vi) Alhaji Imam received a gratuity of N4,000,000 during the year.
(vii) Alhaji Imam is blessed with five children, all within the ranges of 10 to 21 years.
(viii) The proprietor has a life assurance policy on which he pays a premium of N1,200,000 annually.

Required: Compute the personal income tax payable by Alhaji Nura Imam for the relevant assessment year. (30 Marks)

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

Chief Zeta created a Trust many years ago for the benefit of his four children, Alpha, Beta, Cepha, and Delphi. A lawyer was appointed as the Trustee to his Estate.

For the year ended 30 September 2014, the Trust income amounted to ₦3,120,000. Each of the beneficiaries receives an annuity of ₦150,000 every year while the expenses incurred on the administration of the Trust was ₦57,500 per annum. The trustee is on a remuneration of 2% of the Computed Income.

Chief Zeta instructed that discretionary payments of ₦22,500, ₦17,500, ₦15,000, and ₦12,500 respectively should be made to Alpha, Beta, Cepha, and Delphi respectively. In addition, nine of the ten portions of the remainder of the Computed Income should be shared equally among the four children.

Chief Zeta has requested you to supervise the administration of the above Trust.

You are requested to:

a. State the basis of assessment of Estates, Trusts or Settlements. (1 Mark)

b. Identify the persons chargeable to Income Tax under the Trust or Settlement created by Chief Zeta. (3 Marks)

c. Compute the income of the Trust. (3 Marks)

d. Determine the amount due to each beneficiary. (6 Marks)

e. Explain how the Computed Income should be apportioned and how the Income Tax burden will be shared by all the parties. (Ignore Withholding tax). (2 Marks)

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q6 – Value-Added Tax (VAT)

Analyze VAT compliance, loss carry forward, and compute tax liabilities for Hidden Treasures Limited based on provided financial data.

HIDDEN TREASURES Limited is an agro-allied and trading organisation which specialises in Crop and Grain production, Animal husbandry, Sale and distribution of Grains (i.e. cowpeas, guinea corn, millet, rice, beans and groundnuts).

The company has been in business for many years and it has been filing annual Income Tax returns regularly except VAT returns. On 16 March 2015, the Federal Inland Revenue Service (FIRS) served a notice of Tax Audit covering 2010 – 2014 financial years.

The management believed erroneously that since it deals in VAT exempt goods, it did not need to file VAT returns on a monthly basis.

In preparation for the visit of the FIRS, the company’s management invited you on 23 March 2015, to their office and gave you the following extracts from the company’s Statement of Comprehensive Income and agreed Capital Allowances:

Year ended Agric Production (₦) Grain Distribution (₦)
Year ended 30/09/2010 Loss (770,000) (225,000)
Year ended 30/09/2011 Profit 630,000 280,000
Year ended 30/09/2012 Loss (600,000) (150,000)
Year ended 30/09/2013 Profit 990,000 140,000
Year ended 30/09/2014 Profit 30,000 120,000

Agreed Capital Allowances are as follows:

Tax Year Capital Allowance (₦)
2011 70,000
2012 65,000
2013 125,000
2014 115,750
2015 85,000

You are required to:

a. State the provisions of the VAT law with regard to rendition of returns by Vatable persons. (2 Marks)

b. Show by analysis the amount of losses carried forward under each income head shown above. (8 Marks)

c. Compute the tax liabilities for each year. (5 Marks)

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  • 13 Marks

TAX – May 2019 – L2 – Q7a – Introduction to Taxation

Explain key tax terminologies to help Mr. Adele understand business-related taxes.

Mr. Adele has just retired from the public service and is trying to venture into business. He is, however, concerned about the taxes that may affect his new business. As the tax consultant to Mr. Adele, he wants you to explain some terminologies to enable him to have a better understanding of them.

Required:

Explain the following:

(i) Proportional tax and progressive tax (2 Marks)
(ii) Direct tax and indirect tax (2 Marks)
(iii) Statute laws and case laws (2 Marks)
(iv) Franked investment income (3 Marks)
(v) Taxes collectible by local governments (4 Marks)

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  • 15 Marks

TAX – May 2019 – L2 – Q6 – Companies Income Tax (CIT)

Compute total profit and tax liabilities, describe zero-rated VAT items, and discuss penalties for non-registration for VAT.

Duru Cobbler Limited has been in the business of shoe manufacturing for many years. Information contained in the company’s statement of profit or loss for the year ended November 30, 2018, is as follows:

Details Amount (N)
Revenue 18,546,000
Other income:
– Rental income (gross) 240,000
– Profit on sale of property, plant, and equipment 120,000
– Interest on bank deposits (net) 234,000
Total Other Income 594,000
Total Revenue 19,140,000
Less:
Staff salaries and wages 6,180,300
Finance cost 1,144,000
General administration expenses 10,585,190
Impairment loss 420,000
Depreciation and amortization 1,690,000
Total Expenses 20,019,490
Loss before tax (879,490)
Income tax expense –
Deferred tax provision (64,380)
Loss after tax (943,870)

Additional notes provided by the accountant:

  1. Finance costs include bank charges and interest on overdrafts.
  2. General administration expenses include:
    • Bad debts of N655,000 from bulk sales of shoes to the managing director’s relations.
    • Value added tax of N985,000 not imposed on some invoices.
  3. Capital allowances for the relevant year amount to N1,294,000.

Required:
(a) Compute the total profit and tax liabilities payable by Duru Cobbler Limited for the relevant year of assessment. (10 Marks)
(b) Describe zero-rated goods and services under the Value Added Tax Act Cap VI LFN 2004 (as amended) and identify two transactions that may fall under this category. (3 Marks)
(c) Identify the penalties for non-registration for VAT. (2 Marks)

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  • 15 Marks

TAX – May 2019 – L2 – Q5 – Withholding Tax (WHT)

Calculate withholding tax credits, determine claim periods, and discuss compliance requirements.

Oloriogun Logistics Limited renders consultancy services to newspaper publishing companies in Nigeria. All the publishers are limited liability companies which deduct appropriate withholding taxes from all consultancies and remit to relevant tax authorities within the time limit specified by the law. Oloriogun Logistics Limited makes up its accounts to December 31 each year and suffered withholding tax on the invoices raised for specific dates as follows:

Date of Remittance Month of Transaction Invoice Number Amount (N)
19/2/2015 Jan. 2015 002/01 350,000
19/3/2015 Feb. 2015 003/02 670,000
20/4/2015 March 2015 004/03 810,000
20/5/2015 April 2015 005/04 305,000
19/6/2015 May 2015 006/05 295,000
20/8/2015 June 2015 008/07 922,000
21/9/2015 Aug. 2015 009/08 270,000
21/10/2015 Sept. 2015 010/09 195,000
20/11/2015 Oct. 2015 011/10 408,000
21/12/2015 Nov. 2015 012/11 495,000
21/01/2016 Dec. 2015 012/12 396,000
21/03/2016 Jan. & Feb. 2016 01/02 1,649,000

Withholding tax credit notes on the above invoices were forwarded to Diederik Logistics Limited, but the accountant was confused as to which year of assessment to claim these tax credits.

Required:
(a) Calculate the withholding tax credits for each of the above invoices. (6 Marks)
(b) Determine the total amount of withholding tax credits to be claimed for each year of assessment. (3 Marks)
(c) What is the due date for remitting withholding tax returns to the tax authority mentioned in (b) above? (1 Mark)
(d) State three transactions exempted from withholding tax in Nigeria. (3 Marks)
(e) List four distinct groups referred to as agents of the government for the collection and remittance of withholding tax in Nigeria. (2 Marks)

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  • 20 Marks

TAX – May 2019 – L2 – Q4 – Taxation of Trusts and Estates

Explain trust-related terms and compute capital allowances and income tax for trustees based on the estate's income.

Mr. Bulamoyoh who lived in the Eastern part of Nigeria died testate in January 2015. He had three children: Moses, Peter, and Nana, but left his business with the trustees. Moses, the eldest son, thought he should be fully in charge of his father’s entire business and told the trustees not to bother about the payment of tax. The trustees claimed that they had a statutory obligation to render yearly tax returns for the estate to the relevant tax authority.

You are provided with the following information:
(i) Net profit of the business as adjusted for tax purposes for the year ended June 30, 2018 was N10,270,000.
(ii) Qualifying property, plant, and equipment acquired during the year ended June 30, 2018 were:

  • Motor vehicles: N3,650,000
  • Plant and machinery: N1,250,000
  • Furniture: N220,000
    (iii) The tax written down value of motor vehicles acquired prior to the current year was N345,000, out of which N315,000 is to be allowed as an annual allowance in the current assessment year.
    (iv) Moses, Peter, and Nana are entitled to ¼ each of the net distributable income.
    (v) Fixed annuity paid to a beneficiary was N250,000.
    (vi) Interest on debt repayment by the trustees was N120,000.
    (vii) Trustees’ fixed remuneration was N260,000 per annum.
    (viii) Administration and other expenses by the trustee amounted to N45,000.
    (ix) The trustees, in line with the terms of the trust deed, made the following discretionary payments to the children:
  • Moses: N310,000
  • Peter: N225,000
  • Nana: N460,000

Required:
(a) Explain the following terminologies:
(i) Trust (1 Mark)
(ii) Beneficiary (1 Mark)
(iii) Life tenant (1 Mark)
(b) Compute capital allowances for the relevant year of assessment. (8 Marks)
(c) Compute the income tax payable by the trustees on the income for the relevant year of assessment. (9 Marks)
(Total 20 Marks)

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  • 8 Marks

TAX – May 2019 – L2 – Q3b – Personal Income Tax (PIT)

Identify the tax authority for Mr. Muhammed and calculate his income tax liability based on salary and deductions.

In 2016, Mr. James Muhammed lived at Ojodu Abiodun village, Ogun State and worked for the Federal High Court, Ikeja, Lagos State, on an annual salary of N1,600,000. Mr. Muhammed contributes to an approved pension scheme at the appropriate rate of 8% and also pays a life assurance premium equivalent to 5% of his annual salary.

Required:
(i) Identify the relevant tax authority to which he will be subjected to tax. (2 Marks)
(ii) Compute his personal income tax liability for the relevant assessment year. (6 Marks)

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  • 12 Marks

TAX – May 2019 – L2 – Q3a – The Nigerian Tax System

Explain tax collection responsibilities of different government tiers and define residency rules for tax purposes in Nigeria.

Mr. Chukwudi, your mentee from childhood, has always been guided by your advice. He travelled to the United States to actualise his dreams. He subsequently obtained a degree in accountancy/taxation from a leading University and worked in the United States until November 30, 2016, when he returned to Nigeria. In January 2017, he attended a written interview for a post of a tax manager at the Federal Inland Revenue Service but failed the interview because of his poor knowledge of the Nigerian tax laws. Mr. Chukwudi is likely to be shortlisted for the position of inspector of taxes in his state of origin and has sought your advice on some areas of the Nigerian tax laws.

You are required to provide explanations on the following:

(a) (i) The various tiers of government and their revenue authorities, responsible for the collection of levies and taxes in Nigeria. (3 Marks)
(ii) Four specific taxes and levies collectible by different tiers of government. (6 Marks)
(iii) A resident individual in Nigeria, for a particular year of assessment. (3 Marks)

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  • 20 Marks

TAX – May 2019 – L2 – Q2 – Introduction to Taxation

Explain the objectives of taxation, compare direct and indirect taxes, and outline tax filing requirements for Nigerian companies.

Mr. Ade is a Nigerian who has lived in Europe for a very long time. He is now planning to return to Nigeria to set up a business which he considers to be profitable in a developing country like Nigeria. Despite the appeal of the business in terms of profitability, he is skeptical about the perceived harsh tax environment in the country. He has approached you to explain some fundamental areas of taxation in Nigeria.

You are required to:

(a) Identify five major objectives and purposes of taxation. (5 Marks)
(b) Compare direct and indirect taxes, giving four examples of each. (6 Marks)
(c) In relation to an incorporated company carrying on business in Nigeria, explain to Mr. Ade the:
(i) Documents to be filed as annual returns to the Federal Inland Revenue Services (FIRS). (3 Marks)
(ii) Time limit for filing annual tax returns. (3 Marks)
(iii) Penalties prescribed by law for a company which failed to file its income tax returns on the due date. (3 Marks)

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  • 10 Marks

TAX – May 2019 – L2 – Q1b – Companies Income Tax (CIT)

Calculate profit sharing for the partners of Obi Consults.

ABCEE Limited has been in the business of clearing and forwarding in Nigeria since 2007. The company has a standing policy of declaring dividends to the shareholders and has continued to do so despite the dwindling business activities in recent years. The following information was extracted from the ABCEE Limited’s income tax returns submitted to the Federal Inland Revenue Service for the 2016 year of assessment:

Description Amount (N)
Total profit per 2016 tax computation 10,899,000
Tax assessed based on total profit @ 30% 3,269,700
Dividend declared 14,000,000

Required:

As the desk officer in charge of ABCEE Limited, compute the revised tax liability of the company in line with Section 19 of the Companies Income Tax Act Cap C21 LFN 2004 (as amended).

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  • 20 Marks

TAX – May 2019 – L2 – Q1a- Taxation of Partnerships and Sole Proprietorships

Compute adjusted income and profit allocation for a civil engineering partnership.

a) Obi Consults is a civil engineering consulting firm of many years. The founding partners are Bibi, Kose, and Fowora. The financial year-end of the firm is December 31 each year. The following information was extracted from the partnership’s financial statements/records for the year ended December 31, 2018:

Details Amount (N)
(i) Net profit for the year 21,575,000
(ii) Provision for depreciation 13,250,000
(iii) Fine paid for traffic offence 25,000
(iv) Donations to “politicians in business” 150,000
(v) Donation to National Library Board 165,000
(vi) Profit from sale of excavator 1,600,000
(vii) Capital allowances 6,575,000
(viii) Balancing allowance 677,000
(ix) Balancing charge 1,315,000

Additional information:

  • Profit sharing ratio: Bibi – 1/2, Kose – 1/4, Fowora – 1/4
  • Bibi and Fowora are entitled to 5% interest per annum on a loan of N10,500,000 each. Fowora’s loan was refunded fully on his retirement.
  • Salaries paid: Bibi – N10,800,000, Kose – N8,250,000, Fowora – N8,250,000
  • Fowora retired on June 30, 2018, and Jaycee was admitted as a new partner on July 1, 2018, with an annual salary of N8,250,000. Jaycee introduced a loan of N7,000,000 on July 1, 2018, entitled to a 5% interest per annum.
  • The profit-sharing ratios after Jaycee’s admission: Bibi – 1/2, Kose – 7/20, Jaycee – 3/20

You are required to:
(i) Compute the adjusted/assessable income of the partnership. (5 Marks)
(ii) Determine the share of profits among the partners. (3 Marks)
(iii) Show relevant workings for prorated salaries and interest on loans, assuming simple interest. (2 Marks)
(iv) Compute the assessable income of each partner. (10 Marks)

 

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  • 7 Marks

TAX – Nov 2018 – L2 – SC – Q7b – Tax Dispute Resolution

List seven transactions that require a tax clearance certificate before proceeding.

In a bid to bring more individuals and corporate organizations into the tax net, the submission of tax clearance certificates by taxpayers is a condition precedent before bidding for contracts.

Required:
State seven transactions which necessitate the submission of a tax clearance certificate.

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