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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  • 30 Marks

TAX – May 2023 – L2 – SA – Q1 – Personal Income Tax (PIT)

Compute partnership income and individual partner tax liabilities.

Fadeke, Femi, Kola, and Gbenga have been in partnership as medical practitioners for eight years. The statement of profit or loss for the year ended December 31, 2021, is as follows:

  1. Capital allowances agreed with the revenue: N980,000
  2. Profits are to be shared equally among the partners.
  3. Fadeke and Femi are married with three and two children, respectively.
  4. Fadeke has a life assurance policy of N960,000 on which she pays N96,000 annually as a premium.
  5. Fadeke maintains her aged father who is over 68 years.

Required:

a. Compute the income of the partnership. (5 Marks)
b. Compute the income tax liability of each of the partners. (25 Marks)
(Total: 30 Marks)

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  • 20 Marks

TAX – Nov 2014 – L2 – Q5 – Companies Income Tax (CIT)

Compute adjusted profit, tax ratios, total profit, and income tax for Kenky Limited.

Kenky Limited, an Austrian company, operates cable undertakings in Nigeria and has significant business in several African countries. The Nigerian Revenue Authority disputed the company’s financial returns, resulting in a Best of Judgement (BoJ) Assessment. Below is an extract from Kenky Limited’s income statement for the fiscal year ending 30 September 2012:

 

Notes:

  1. The Federal Inland Revenue Service (FIRS) considers both Nigerian and Austrian operations under specialized business taxation.
  2. The Austrian authority verified the Adjusted Profit and Depreciation Ratios.
  3. A donation to Jeje, totaling ₦40,000,000, is part of the overhead expenses.

Requirements: a. Compute the Adjusted Profit for the year. (4 Marks)
b. Determine the Adjusted Profit Ratio and Depreciation Ratio. (4 Marks)
c. Compute the Total Profits and Income Tax payable in Nigeria. (4 Marks)
d. List other business activities, besides cable messages, recognized under specialized business taxation. (3 Marks)

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  • 20 Marks

TAX – Nov 2014 – L2 – Q4 – Personal Income Tax

Calculate annual and monthly tax liabilities for Mr. David Olaleye.

Mr. David Olaleye retired from the Ministry of Water Resources, Ogun State, on 31 December 2012 and was paid a gratuity of ₦4,000,000. He secured employment with OLAK Limited on 1 January 2013 as a Senior Marketing Manager, with a salary of ₦8,400,000 per annum. He is married with a wife and six children.

His records at the end of his first year of employment revealed:

  1. He was given an official car with a market value of ₦2,500,000.
  2. The company pays ₦820,000 annually for his official accommodation.
  3. He has a life assurance policy with Okonkwo Assurance Plc. (Sum assured: ₦480,000; Monthly premium: ₦4,200).
  4. He contributes ₦20,000 monthly to an approved pension scheme.
  5. He spent ₦17,000 annually for the upkeep of his two aged parents.
  6. He contributes ₦15,000 per month to the National Health Insurance Fund and ₦20,000 per month to the National Housing Fund.

Requirements:

a. Compute the annual and monthly tax liabilities of Mr. David Olaleye for the relevant tax year. (12 Marks)
b. Explain what constitutes Gross Emoluments under the Personal Income Tax (Amendment) Act 2011. (3 Marks)
c. List the benefits of applying computer models in tax administration. (5 Marks)

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  • 20 Marks

TAX – Nov 2014 – L2 – Q3 – Companies Income Tax (CIT)

Determine basis periods, tax liabilities, and conditions for loss reliefs and capital allowances for Gab Pal Limited.

Gab Pal Limited commenced business on 1 May 2008. The company makes up its accounts to 31 August each year. Below is the data for the company’s trading activities:

Year Adjusted Profit/Loss (₦’000)
Period ended 31 August 2009 (16 months) (390,000)
Year ended 31 August 2010 170,000
Year ended 31 August 2011 150,000

The capital allowances for the relevant assessment years are as follows:

Assessment Year Capital Allowance (₦’000)
2008 20,000
2009 18,000
2010 12,000
2011 8,000
2012 5,000

Requirements:

a. Determine the basis periods and the tax liabilities for the relevant years. (Ignore the Taxpayer’s right of election) (10 Marks)

b. State the TWO types of Loss reliefs acceptable to the tax authority. (2 Marks)

c. State the conditions that must be satisfied by a taxpayer to enjoy the loss reliefs stated in (b). (5 Marks)

d. State the conditions for the grant of Capital Allowances to taxpayers

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  • 20 Marks

TAX – Nov 2014 – L2 – Q2 – Companies Income Tax (CIT)

Calculate assessable profits, capital allowances, and total profits for MESINOY Ltd. upon winding up.

MESINOY Limited has been carrying on business in Nigeria for many years. The company makes up its accounts to 31 December each year. Due to the increasing costs of operating in Nigeria, the board of directors decided to wind up the company’s business in Nigeria and relocate to a more tax-friendly country as of 31 May 2011.

Tax laws specify that a company winding up its business must comply with specific regulations. MESINOY Limited’s unutilized Capital Allowances were agreed upon by the tax authority, amounting to N460,000. The company applied for a claim to carry back this unutilized Capital Allowance, which was granted by the tax authority. Below are the adjusted profits for the relevant periods:

Year Ended Adjusted Profit (₦)
31 December 2009 520,000
31 December 2010 450,000
31 May 2011 300,000

Additionally, a bad debt of N58,000 was recovered on 30 November 2011.

Requirements:

a. Compute the Assessable Profits of the company for the relevant years of assessment. (5 Marks)

b. Calculate the Capital Allowances to be rolled back to the relevant years. (5 Marks)

c. Compute the Total Profits for the relevant years of assessment. (5 Marks)

d. Briefly explain Best of Judgment (BoJ) Assessment. (5 Marks)

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  • 30 Marks

TAX – Nov 2014 – L2 – Q1 – The Nigerian Tax System

Compute CIT and Education Tax for Chief Ozone's business based on given financials.

Chief Ozone, a versatile business personality who has been in business for many years, decided to set up a new family business. He commenced the new business of publishing books on 1 July 2008, under the name Seye Ventures Limited. The accounting year-end is 31 December each year.

Extracts from the financial records are as follows:

Period 31/12/08 (6 Months) Year Ended 31/12/09
Revenue N1,850,000 N2,320,000
Cost of Sales (N500,000) (N900,000)
Gross Profit (A) N1,350,000 N1,420,000

Deductions:

Item 31/12/08 31/12/09
Newspapers N75,000 N95,000
Depreciation N150,000 N200,000
Salaries N45,000 N55,000
Transport expenses N85,000 N64,000
General provision for bad debts N50,000 N46,000
Vehicle repairs N95,000 N73,000
Formation expenses N35,000 –
Purchase of equipment N78,000 N68,000
Donation to political party N25,000 N42,000
Loss on sale of Non-Current Assets – N60,000
Medical expenses N30,000 N40,000
Total Cost (B) N668,000 N743,000

Net Profit Calculation: Net Profit (A – B):

  • For period ending 31/12/08: N682,000
  • For year ending 31/12/09: N677,000

Additional Information:

  • Agreed Capital Allowances:
    • 2009 Year of Assessment: N240,000
    • 2010 Year of Assessment: N120,000

Chief Ozone traveled for a meeting, which led to discussions on compliance with taxation laws regarding change of accounting date.

Chief Ozone travelled from Benin to Abuja for a meeting between a team of
businessmen and the Federal Minister of Trade. During the meeting, the Minister
informed the delegates that for the operations of any business entity to be considered
for approval, it must comply with taxation laws.

Some of the delegates at the meeting gave different interpretations to the provisions of
the tax laws on the Change of Accounting Date. Chief Ozone was of the opinion that
whether a company changes its accounting date or not, normal tax computations
should apply. Mr. Jay, one of those who attended the meeting was of the opinion that
the procedure for determining the Change of Accounting Date was not clear to him.

The meeting was postponed till another date since the issues raised remained
unresolved.

Required:

a. Using the extracts provided, compute the Income and Tertiary Education taxes
for 2009 and 2010 Years of Assessment.
NOTE: Ignore the tax payer’s right of election. (15 Marks)

b. Explain briefly the rules on Change of Accounting Date under the Companies
Income Tax Act (CITA) that may resolve the issues of the pending delegates’
meeting. (10 Marks)

c. State the procedure for determining Companies Income Tax Liability arising
from a Change in Accounting Date. (5 Marks)

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  • 15 Marks

TAX – May 2024 – L2 – SA – Q7 – The Nigerian Tax System

Describe professional tax-related issues your firm can handle, sources of Nigerian tax law, and allowable expenses in calculating assessable profits.

Kanbus Nigeria Plc is a company incorporated to manufacture and distribute food products that are widely accepted in many homes in Nigeria. It has operated for over 15 years since taking over the business of JHN Nigeria Limited. The main business of JHN Nigeria Limited was distribution of food items and other agricultural produce in the South-West geographical zone of Nigeria.
The Chief Executive Officer (CEO) of Kanbus Nigeria Plc, Mr. Babadada, was a former staff of Collinson India Limited for several years and thus brought into Kanbus Nigeria Plc a wealth of experience. Earlier in his working career, Mr. Babadada, had worked with Kong Manufacturing Limited, a Chinese company, where he imbibed the culture of collaboration with staff in the decision making process. Mr. Babadada, is
assisted by a formidable team of managers recruited from major food and beverage companies in the country.
The management of Kanbus Nigeria Plc. engaged different consultants to handle professional issues, including consultancy matters in respect of law, medical, finance, tax, accounting, etc. which were outsourced to different, well-known and competent hands.
Your firm, Kassman and Co. (Chartered Accountants), were engaged to handle both corporate and personal income tax matters

Required:
As the consultant, you have been requested by the Managing Partner, Kassman and Associate, to explain to the Chief Executive Officer of Kanbus Nigeria Plc., the following:

a. Professional issues that can be handled by your firm. (5 Marks)
b. Five main sources of Nigerian tax laws. (5 Marks)
c. Five allowable expenses in the ascertainment of assessable profits of companies. (5 Marks)

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  • 15 Marks

TAX – May 2024 – L2 – SA – Q6 – Tax Administration and Enforcement

List FIRS Board members, outline FIRS duties, and explain tax dispute basis.

Mr. Abiodun James returned to Nigeria after a long period in America. In 2018, he incorporated James and Sons Nigeria Limited. At a board meeting in August 2021, the company’s accountant presented a tax query from the Federal Inland Revenue Service (FIRS) for review. Some directors believed that since external auditors were engaged, the FIRS should rely on their competence to confirm the accuracy of audited financial statements. The Managing Director clarified the role of the FIRS in corporate tax administration, managed by the Federal Inland Revenue Service Board (FIRSB).

Required:
a. State five members of the Federal Inland Revenue Service Board. (5 Marks)
b. Outline and briefly explain five duties of the Federal Inland Revenue Service (FIRS). (5 Marks)
c. Explain the basis for tax disputes that may arise with the Revenue. (5 Marks)

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  • 15 Marks

TAX – May 2024 – L2 – SA – Q5 – Value Added Tax (VAT)

Compute VAT payable by Havillah Manufacturing Limited and identify VAT-exempt goods and services.

Havillah Manufacturing Limited, engaged in manufacturing perfumes and other cosmetic products, has the following profit or loss statement for the year ended September 30, 2021:

Additional Information:

  1. Turnover includes N64,350,000 from export sales and N141,900,000 from local sales.
  2. Cost of Sales includes:
    • Opening inventory (VAT inclusive): N24,915,000
    • Closing inventory (VAT inclusive): N40,865,000
    • Purchase of raw materials: N94,600,000
    • Freight charges: N20,570,000
    • Other direct materials: N13,530,000
  3. Plant and machinery purchased for N24,750,000 is included in opening inventory, VAT inclusive.
  4. VAT and withholding tax remitted during the year amounted to N2,173,180 and N1,787,500, respectively.

Required: a. Compute the net VAT payable by Havillah Manufacturing Limited for the year. (10 Marks)
b. State FIVE VAT-exempt goods. (2½ Marks)
c. State FIVE VAT-exempt services. (2½ Marks)

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  • 20 Marks

TAX – May 2024 – L2 – SA – Q4 – Cost-Volume-Profit (CVP) Analysis

Compute minimum tax liability for Pkikan Nigeria Ltd and discuss exemptions and basis.

Pkikan Nigeria Limited has been in business for several years and prepares accounts annually to December 31. The following data is available for the year ended December 31, 2021:

Description Amount (N’000)
Turnover 1,300
Cost of Sales (400)
Gross Profit 900
Less: Total Expenses (1,100)
Net Loss for the Year (200)

Additional information:

You were informed that:
(ii) After the review of the company‟s accounting records, N400,000 meant for the Managing Director of the company was erroneously included in the turnover for the year.
(iii) The issued share capital of the business was N1.8 million, out of which, the shareholders representing N300,000 are yet to pay the final call.
(iv) The net assets of the company was N850,000.
(v) There was a loss brought forward of N210,000 relating to the previous year ofassessment and the agreed capital allowance with the Revenue was N385,000.

Required:
a. Compute the minimum tax liability for the assessment year. (14 Marks)
b. Explain the reasons for calculating minimum tax liability. (3 Marks)
c. Identify companies exempt from minimum tax liability calculations. (3 Marks)

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