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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  • 8 Marks

TAX – Nov 2018 – L2 – SC – Q7a – Tax Dispute Resolution

Advise the managing director on the actions to be taken to resolve a disputed tax assessment by the FIRS.

As tax consultants to Aderibigbe and Associates Limited, the managing director of your client brought an assessment notice served on the company by the Federal Inland Revenue Service. He complained that the assessment was outrageous. You observed that the amount assessed was higher than that based on the documents submitted to the tax office.

Required:
Advise the managing director on the action to be taken to resolve the disputed assessment.

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  • 9 Marks

TAX – Nov 2018 – L2 – SC – Q6b – Taxation of Partnerships and Sole Proprietorships

List six considerations used to determine whether an activity constitutes a trade.

The difficulty in determining what constitutes a trade has led to many litigations and numerous tax cases on the issue. The problem from decided cases is that of finding an absolute test for identifying a trade. The conclusion has always been that there are no fixed rules, but that each case must be determined on its own facts.

Required:
State six considerations that influence the determination of when an activity constitutes a trade.

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  • 6 Marks

TAX – Nov 2018 – L2 – SC – Q6a – Withholding Tax (WHT)

Explain the main features of withholding tax and the relevant tax authorities for WHT in Nigeria.

Recently, the Federal Inland Revenue Service offices across the country embarked on a nationwide sensitisation programme. At a forum organised for this purpose in one of their offices in the South West zone, consultants were invited to present papers. As one of the tax consultants, you are required to explain:
(i) Three main features of withholding tax (3 Marks)
(ii) The relevant tax authorities in relation to withholding tax in Nigeria (3 Marks)

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  • 4 Marks

TAX – Nov 2018 – L2 – SC – Q5b – Companies Income Tax (CIT)

State the categories of companies exempted from minimum tax liability.

State the categories of companies that are exempted from minimum tax liability.

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  • 16 Marks

TAX – Nov 2018 – L2 – SC – Q5a – Companies Income Tax (CIT)

Compute the companies' income tax payable for Mandy Construction Nigeria Limited for the 2017 assessment year.

Mandy Construction Nigeria Limited is an engineering company incorporated on January 1, 2009, and commenced business the same day. The company makes up its accounts to June 30 each year. The company had prepared its tax returns for the 2017 assessment year and was of the opinion that it had no total profit and therefore was not subject to companies income tax.

As a tax consultant, the chief executive officer has requested you to review the tax returns to ascertain if any provision of the tax laws stipulates procedures to determine the tax payable in situations where there is no taxable profit or the total profit results in no tax payable.

The following information relates to the company’s records for the year ended June 30, 2016:

Statement of Profit or Loss for the year ended June 30, 2016:

Particulars N’000
Revenue 5,656,000
Cost of Sales (4,404,211)
Gross Profit 1,251,789
Other Income 152,240
Administrative Expenses (907,906)
Operating Profit 496,123
Investment Income 50,934
Finance Costs (890,657)
Loss Before Tax (343,600)
Income Tax –
Loss for the Year (343,600)

Additional Information:
(i) Included in administrative expenses are the following:

  • Loss on disposal of property, plant, and equipment: N4,352,400
  • Depreciation: N5,184,700

(ii) Capital allowances agreed with the tax office: N1,065,000

The company’s authorized, issued, and fully paid-up share capital of N1 each is provided as follows:

The net assets of the company extracted from the statement of financial position as at June 30, 2016, was N3,441,041,000.

Required:
From the available information, compute the companies income tax payable by Mandy Construction Nigeria Limited for the relevant assessment year.

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  • 4 Marks

TAX – Nov 2018 – L2 – SB – Q4b – Taxation of Partnerships and Sole Proprietorships

Discuss the rules of commencement in respect of partnership business.

Discuss the rules of commencement in respect of partnership business.

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  • 16 Marks

TAX – Nov 2018 – L2 – SB – Q4a – Taxation of Partnerships and Sole Proprietorships

Calculate each partner’s income from the partnership for 2016 and indicate the tax basis for assessment.

Solomon, Musa, and Chinnedu were classmates in their secondary school days. They are friends with a passion for running a joint business because of their trust in one another. They formed a partnership some years later, providing specialized agricultural engineering services to the agricultural sector. Accounts are made up to December 31 each year. The following are the adjusted profits for tax purposes:

Year Ended Adjusted Profits (N)
December 31, 2014 3,240,000
December 31, 2015 3,712,500
December 31, 2016 5,400,000
December 31, 2017 4,950,000

Additional information:
(i) Solomon, Musa, and Chinnedu are to share profits in the ratio of 3:6:3, respectively.
(ii) Salaries drawn:

  • Solomon: N810,000
  • Musa: N540,000
  • Chinnedu: N405,000

(iii) Interest on capital is 7½%.
(iv) Capital account of each partner:

  • Solomon: N337,500
  • Musa: N675,000
  • Chinnedu: N473,500

(v) On May 31, 2016, Solomon retired, and Bakare, another old school mate, was admitted on June 1, 2016, on an annual salary of N405,000. He introduced a capital of N472,500 and was to have the same profit-sharing ratio as Solomon.

Required:
Calculate each partner’s income from the partnership business for the 2016 year of assessment and indicate the basis for which each partner will be assessed to tax.

 

 

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  • 20 Marks

TAX – Nov 2018 – L2 – SB – Q3 – Taxation of Specialized Businesses

Advise on the cessation of operations for J&P Nigeria Limited and compute assessable profits.

J & P (Nigeria) Limited, a construction and civil engineering company, has been in business for many years. The harsh economic climate in the country resulted in a decline in the profits of the company which necessitated the decision of the board of directors to either cease operations on December 31, 2017 or March 31, 2018.

Recent accounts adjusted for tax purposes revealed the following adjusted profits:

Year ended Adjusted Profit (N)
July 31, 2013 5,460,000
July 31, 2014 4,970,000
July 31, 2015 4,320,000
July 31, 2016 3,450,000
July 31, 2017 1,875,000
8 Months ended March 31, 2018 750,000

Required:
Advise the board of directors on whether or not to cease operations on December 31, 2017, or March 31, 2018. Show all workings.

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  • 20 Marks

TAX – Nov 2018 – L2 – SB – Q2 – Companies Income Tax (CIT)

Compute total profit and companies' income tax payable, calculate tertiary education tax, and identify exempt companies from minimum tax.

Adamu Musa Company Limited is a Nigerian telecommunications company that has been in business for several years. The company’s annual report for the year ended October 31, 2017, provides the following summary of the statement of profit or loss:

  • Gross profit: N3,062,500
  • Dividend received from other Nigerian companies (gross): N175,000
  • Profit on sale of property, plant, and equipment: N160,000
  • Rents received (gross): N140,000
  • Expenses:
    • Rent paid: N250,000
    • Wages and salaries: N725,000
    • Lighting and air conditioning: N37,500
    • Travelling expenses: N50,000
    • Rates: N60,000
    • Repairs to premises: N150,000
    • Depreciation: N125,000
    • Bad debts written off: N50,000
    • Income tax provision: N175,000
    • Stationery: N75,000
    • Postages and telephone: N30,000
    • Business name sign post: N10,000
    • Legal expenses: N100,000
    • General expenses: N200,000
    • Expansion of cold room: N500,000

Additional information:

  • Bad debts include general provisions of N22,500 written off on the sale of trade inventory.
  • Legal expenses include N25,000 for acquiring a new lease and N12,500 for renewing an old lease.
  • General expenses include 
  • Travelling expenses include Chief Taragi‟s (managing director) private hotel bill of N11,250
  • Capital allowances agreed with the tax office total N125,000.
  • Withholding tax at 10% was deducted from rental income.

Required:
(a) Compute the total profit and companies’ income tax payable.
(b) Calculate tertiary education tax (TET).
(c) State five categories of companies liable to information technology tax.

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  • 10 Marks

TAX – Nov 2018 – L2 – SA – Q1b – Personal Income Tax (PIT)

Explain the national housing fund, contributory pension scheme, and national health insurance scheme contributions.

In accordance with the Personal Income Tax Act CAP P8 LFN 2004 (as amended), you are required to write short notes on:
(i) National Housing Fund Contribution (3 Marks)
(ii) Contributory Pension Scheme (4 Marks)
(iii) National Health Insurance Scheme Contribution (3 Marks)

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