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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  • 1 Marks

TAX – Nov 2020 – L1 – SA – Q4 – Tax Incentives and Reliefs

Identify which taxpayers are not eligible to participate in VAIDS.

Which of the following is NOT eligible to participate in the voluntary assets and income declaration scheme (VAIDS)?
A. Those that earned income or owned assets but were yet to register with the relevant tax authorities
B. Registered taxpayers who had additional disclosures to make or needed to amend prior disclosures; and/or were registered but were not filing returns
C. Taxpayers that were not fully declaring their taxable income and assets
D. Taxpayers that were underpaying or under remitting their taxes
E. Taxpayers that were engaged in tax disputes with the relevant tax authorities but were not prepared to settle the tax disputes out of court

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  • 1 Marks

TAX – Nov 2020 – L1 – SA – Q3 – The Nigerian Tax System

Identify which tax is not collected by the Federal Government.

Which of the following is NOT a tax to be collected by the Federal Government?
A. Value added tax
B. Petroleum profits tax
C. Tertiary education tax
D. Pools betting, lotteries, gaming, and casino taxes
E. Companies income tax

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  • 1 Marks

TAX – Nov 2020 – L1 – SA – Q2 – Tax Administration and Enforcement

Identify the member who is not part of the FIRSB Technical Committee.

The Technical Committee of the Federal Inland Revenue Service Board (FIRSB) is composed of the following members, EXCEPT:
A. The Executive Chairman of Federal Inland Revenue Service (FIRS)
B. All directors and heads of department of FIRS
C. The Legal Adviser to FIRS
D. Secretary to FIRSB
E. Director, Federal Ministry of Finance

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  • 15 Marks

TAX – May 2022 – L2 – SA – Q7 – The Nigerian Tax System

Discuss the aspects of the tax system in Nigeria, focusing on tax policy, key tax laws, and administrative bodies.

The tax system in Nigeria has been reviewed in recent times with a view to ensuring ease of doing business in Nigeria, among other things. With the enactments of Finance Acts 2019 and 2020, many enabling Acts were amended.

The tax system usually involves a tripartite aspect, namely, the tax policy, tax law, and tax administration.

Required:
a. Explain tax policy. (5 Marks)
b. State notable tax legislations. (5 Marks)
c. State the bodies charged with the administration of taxes in Nigeria. (5 Marks)

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  • 15 Marks

TAX – May 2022 – L2 – SA – Q6 – Tax Administration and Enforcement

Identify the badges of trade and compute the minimum tax payable for a given year of assessment.

a. The difficulty in determining what constitutes a trade has led to many litigations and the huge number of tax cases that exist on the issue. The problem from the decided cases is that of finding an absolute test for identifying a trade.

The conclusion had always been that there are no fixed rules but that each case could be examined on its own facts.
Required:
State FOUR considerations that influence the identification of badges of trade. (8 Marks)

b. Ndakogi Nigeria Limited commenced business in 2007. The extract of the statement of profit or loss of the company for the year ended December 31, 2021, has revealed the following:

Required:
Compute the minimum tax payable

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  • 15 Marks

TAX – May 2022 – L2 – SA – Q5 – Withholding Tax (WHT)

Discuss the contents of withholding tax returns, the time frame for compliance, and the merits and demerits of the withholding tax scheme.

Withholding tax is a tax deducted at source from proceeds made to a taxable person for the supply of goods and services. It is not another form of tax, but simply an advance payment of tax, as the withholding tax deducted at source is off-set against any subsequent tax liability that may be due in respect of the income.

Required:
a. State the contents of withholding tax returns/payment schedule. (5 Marks)
b. State the time frame for compliance with withholding tax returns. (5 Marks)
c. Explain the merits and demerits of the withholding tax scheme. (5 Marks)

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  • 20 Marks

TAX – May 2022 – L2 – SA – Q4 – Companies Income Tax (CIT)

Explain the recent changes in taxation introduced by the Finance Acts of 2019 and 2020, specifically related to insurance companies.

Bakosa Insurance Co. Plc. is a company engaged in both life and other insurance businesses. You were appointed as the tax consultant of the company on June 30, 2021. The Managing Director of the company invited you to a meeting of the directors with a view to intimating them of the recent changes introduced by the Finance Acts 2019 and 2020, relating to insurance business.

Required:
Explain the following to the management of the company:
a. Recent changes introduced by Finance Acts 2019 and 2020, that relate to the computation of tax liabilities of insurance companies. (16 Marks)
b. Additional documents/information to be filed by insurance companies. (4 Marks

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  • 20 Marks

TAX – May 2022 – L2 – SA – Q3 – Tax Administration and Enforcement

Identify the taxes and levies collectible by the Federal, State, and Local Governments in Nigeria, in light of a recent court ruling.

The Federal Government of Nigeria expanded the taxes and levies which the tiers of government can impose through the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order, 2015. In this Order made by the Minister of Finance, several new tax/levy heads, such as infrastructure maintenance/development levy, wharf landing charge/fee, consumption tax, the National Information Technology Development levy, etc., were introduced.

However, on May 8, 2020, the Federal High Court sitting in Lagos, delivered judgment in suit number FHC/L/CS/1082/2019, between The Registered Trustees of Hotel Owners and Managers Association of Lagos (suing for itself and on behalf of all its members) vs The Attorney-General of the Federation and others. The court held that the Ministerial Order of 2015 is unconstitutional, null, and void.

The court submitted that the Constitution vests the legislature with the power to make laws. The court further stated that schedules to a law are part and parcel of the law and, as such, only the legislature can amend schedules to a law. The implication of this ruling is that all the taxes and levies that were added to those in the Taxes and Levies (Approved List for Collection) Act Cap. T2 LFN 2004, via the Ministerial Order 2015, are illegal and cannot be enforced.

Since the judgment, your firm has been faced with a series of inquiries from taxpayers on the taxes/levies they are now expected to pay.

Required:
a. State five (5) taxes collectible by the Federal Government.
b. State five (5) taxes/levies collectible by the State Governments.
c. State ten (10) taxes/levies collectible by the Local Governments.

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  • 20 Marks

TAX – May 2022 – L2 – SA – Q2 – Personal Income Tax (PIT)

Compute the personal income tax assessable for each partner in a partnership, considering legal fees, capital allowances, and profit-sharing.

You attended an interview for employment as Assistant Manager (Tax) in a professional firm. The following were presented to you to proffer solutions:

Mariam, Ola, Jude and Co., a firm of quantity surveyors, makes up its accounts to December 31 of each year. The following details were extracted from the firm’s accounting books in respect of the year ended December 31, 2019:

Item Amount (N)
Net profit for the year 1,540,000
Legal expenses for successfully defending one of the partners for alleged professional misconduct 100,000
Depreciation 360,000
Profit on sale of property, plant and equipment 4,220
Balancing charge 10,400
Balancing allowance 6,900
Capital allowances for the year 300,000

Additional information:

  1. Profit sharing ratio agreed by the partners: Mariam 2, Ola 3, Jude 5
  2. Mariam, Ola, and Jude received N7,400 each per annum as interest on loan to the firm
  3. Salaries paid to each of the partners are:
    • Mariam: N240,000
    • Ola: N200,000
    • Jude: N220,000

Required:
Compute the personal income tax assessable for each partner for the relevant year of assessment.

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