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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  • 20 Marks

TAX – Nov 2015 – L2 – Q3 – Personal Income Tax (PIT)

This question involves computing the personal income tax liability of an employee for two consecutive years.

Mr. Babangida Muhammed was employed as General Manager by Casio Nigeria Limited, a subsidiary of a United Kingdom-based holding company. He commenced the employment on 1 January 2013. He has provided the following details:

2013 (₦’000) 2014 (₦’000)
Basic salary 5,400 6,000
Rent subsidy 1,800 1,800
Furniture grant 600 600
Entertainment allowance 660 660
Other benefits
– Brand new car (valued at) 3,800,000
– Scholarship for children 500 500

Mr. Babangida Muhammed has approached your firm to assist him in determining his personal income tax liability for the last two years and assist in obtaining a current Tax Clearance Certificate on his behalf from his relevant tax authority. Your firm is also to determine whether he had underpaid his tax for the previous two years and if so, how much additional tax he may be required to pay.

Additional information provided:

Income/Expense Category 2013 (₦’000) 2014 (₦’000)
Gratuity from former employment 240 –
Rental income (Gross) 600 600
Interest on Fixed Deposit 75 90
Life Assurance Premium 100 100
Contribution to NHF (2.5% of Basic Salary) 2.5% 2.5%
Contribution to National Pension Scheme (7.5% of Total Emoluments) 7.5% 7.5%
Repair expenses for property – 45
Maintenance of aged parents 480 –
Personal Income Tax paid 850 960

Required:
a. The Personal Income Tax payable in 2013 and 2014 Years of Assessment.
(16 Marks)
b. The effect of previous payments on the tax payable.
(4 Marks)
(Total: 20 Marks)

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  • 10 Marks

TAX – Nov 2015 – L2 – Q2c – Tax Administration and Enforcement

This question involves advising on the proper procedure to challenge an outrageous tax assessment served by FIRS.

As a Tax Consultant, the Managing Director of your client brought an Assessment Notice served on the company by the Federal Inland Revenue Service complaining that the assessment was outrageous. You observed that the amount assessed was higher than the assessment based on the documents submitted by you.

Required:
State what you would advise your client to do under this circumstance.

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  • 20 Marks

TAX – Nov 2020 – L1 – SA – Q6 – Tax Administration and Enforcement

: State the contents of a tax return, conditions for TCC issuance, and transactions requiring TCC.

All limited liability companies in Nigeria shall at least once in a year without notice or demand from the Federal Inland Revenue Service (FIRS), file a return with the FIRS in a prescribed form which contains the relevant information and documents.

In Nigeria, a tax clearance certificate (TCC) is issued only upon the application by the taxpayer. Therefore, in issuing the certificate, the relevant tax authority would have satisfied itself that the tax assessed on the income of the applicant for the three years immediately preceding the current year of assessment has been fully paid, or that no tax is due on such income, or that the applicant is not liable to tax for any of the three years.

Required:
a. State FOUR contents of a tax return. (8 Marks)
b. State THREE conditions precedent for the issuance of a TCC. (6 Marks)
c. State SIX transactions for which a TCC is required. (6 Marks)

Total: 20 Marks

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  • 12 Marks

TAX – Nov 2020 – L1 – SA – Q5b – Taxation of Specialized Businesses

State six categories of properties exempted from land use charge in Lagos State.

In 2018, the Lagos State Government promulgated the Land Use Charge Law to provide for the consolidation of property and land-based charges and make provisions for the levying and collection of land use charge in the state and for connected purposes.

Section 12 (1) of the Land Use Charge Law, 2018, of Lagos State, provides for the exemption of specified categories of properties from the payment of land use charge.

Required:
State SIX categories of properties exempted from land use charge.
(12 Marks)

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  • 5 Marks

TAX – Nov 2015 – L2 – Q2b – Tax Dispute Resolution

Explaining the procedure for an appeal against the decision of a Tax Appeal Tribunal.

Explain the procedure for an appeal against the decision of a Tax Appeal Tribunal.

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  • 8 Marks

TAX – Nov 2020 – L1 – SA – Q5a – Taxation of Specialized Businesses

State the benefits of imposing taxes on luxury goods and services.

Luxury tax can simply be defined as tax imposed on goods and services that are considered by the government to be luxury goods and services. Luxury goods and services are those that are not considered to be essential by the government and which are consumed by the rich or wealthy class of the society.

Goods and services that are classified as luxury are usually assessed to tax as a percentage of the sales price but likely at a higher percentage than the regular sales tax or value added tax on essential commodities.

Required:
State FOUR benefits of taxation of luxury goods and services.
(8 Marks)

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  • 5 Marks

TAX – Nov 2015 – L2 – Q2a – Tax Dispute Resolution

Discussing the required particulars to be included in a Notice of Appeal against an assessment pending before a Tax Appeal Tribunal.

What are the specific particulars to be included in a Notice of Appeal against an assessment pending before a Tax Appeal Tribunal?

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  • 15 Marks

TAX – Nov 2020 – L1 – SA – Q4b – Companies Income Tax (CIT)

Compute tax liabilities for Oxygen Nigeria Limited, considering capital allowances and available options.

(ii) Capital allowances as agreed with the Federal Inland Revenue are as follows:

Year of Assessment Amount (N)
2016 600,000
2017 490,000
2018 420,000
2019 385,000

Required:
Compute the tax liabilities of the company for the relevant years of assessment, taking into consideration the options available to the company.

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  • 30 Marks

TAX – Nov 2015 – L2 – Q1 – Companies Income Tax (CIT)

Discussing taxation and capital allowance claims of Quickfix Limited for several years of assessment and computation of total profits and tax payable.

Quickfix Limited deals in the sale of Sweetmilk brand of drink. The company commenced business on 1 May 2000. Due to the prohibitive cost of doing business in Nigeria, it decided to cease business on 1 July 2012. The following information was extracted from its records:

Year of Assessment Assessable Profit/(Loss) Capital Allowance Total Profit Tax Paid
2007 (1,921,400) 4,681,450 – –
2008 3,942,000 5,817,000 1,314,000 394,200
2009 9,201,750 4,168,500 3,067,250 920,175
2010 7,581,750 6,633,000 2,527,250 758,175
2011 11,580,750 9,058,000 3,860,250 1,158,075
2012 4,664,375 4,190,500 1,554,790 466,438

The company made a claim for unutilized capital allowances to be carried back. During the period, 1 January to 30 June 2013, the adjusted loss of the company was N1,614,500. Capital Allowance due was N2,561,250.

The tax computations as agreed are as follows:

Required:
a. Compute the revised assessment of Quickfix Limited on cessation basis, taking into account unutilized capital allowances.
b. Determine the tax refundable by the Federal Inland Revenue Service (FIRS) for the relevant years of assessment.

 

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  • 5 Marks

TAX – Nov 2020 – L1 – SA – Q4a – Companies Income Tax (CIT)

Compute the assessable profit for Oxygen Nigeria Limited for the relevant period based on given profit or loss statements.

Oxygen Nigeria Limited was incorporated on October 2, 2015, but it did not commence business until July 1, 2016. At the meeting of directors held on June 17, 2016, it was decided that the nature of the business of the company should be influenced by the main object clause of the Memorandum of Association of the company, which is, “to carry on business of importers, exporters, distributors, agents, and general contractors”.

Extracts of the company’s statements of profit or loss for the relevant period:

Description Year ended Dec. 31, 2018 (N) Year ended Dec. 31, 2017 (N) 6 months ended Dec. 31, 2016 (N)
Revenue 19,500,000 17,200,000 8,210,000
Direct cost (2,900,000) (2,800,000) (1,200,000)
Gross profit 16,600,000 14,400,000 7,010,000
Other income 36,000 18,000 9,000
Distribution cost (3,710,300) (3,200,000) (1,700,000)
Administrative expenses (7,700,000) (7,400,000) (2,900,500)
Other expenses (1,300,300) (1,201,000) (48,000)
Finance cost (970,000) (890,000) (420,000)
Operating profit 2,955,400 1,727,000 1,950,500

Additional information:

(i) Administrative expenses include:

Expense Description Year ended Dec. 31, 2018 (N) Year ended Dec. 31, 2017 (N) 6 months ended Dec. 31, 2016 (N)
Penalties and fines 700,000 0 0
Allowance for doubtful debts 197,000 400,000 130,000
Depreciation 210,000 250,000 290,000
Preliminary and formation expenses 0 0 200,000
Staff salaries 2,600,000 2,150,000 1,960,000
Office rent 970,000 750,000 750,000
Donation (Boys Brigade) 30,000 0 9,000

Required:
Compute the assessable profit for the relevant assessment year.
(15 Marks)

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