The taxable period is the fiscal year, which runs from 1 January to 31 December.
Companies are required to register for tax and file their audited accounts and tax computations with the FIRS within six months of their financial year-end on a self-assessment basis or 18 months after incorporation (whichever comes first). A company may file an application for extension of filing tax returns for up to two months at the discretion of the FIRS.
Upon registration, a company is issued a TIN, which serves as the company's file number for all federal taxes and future correspondence with the FIRS.
The company must file the following documents with the tax authority on an annual basis:
- Tax computation for the relevant year of assessment.
- The audited financial statements for the respective period; this should be in conformity with the International Financial Reporting Standards (IFRS).
- A duly completed and signed self-assessment form for CIT.
- Evidence of remittance of the income tax liability (partly or in full).
PPT/Hydrocarbon tax is payable on an actual year basis. Estimated tax returns must be filed within two months of the fiscal year. Actual tax returns should be filed within five months after the end of the accounting period, that is, not later than 31 May.
Nigerian companies file their tax returns based on a self-assessment system where the taxpayer prepares its annual returns and determines its tax liability. However, the FIRS may apply a best of judgment (BOJ) assessment where it is of the opinion that the tax returns filed are deliberately misstated or where no returns are filed within the stipulated period.
Payment of tax
A company that files its self-assessment within six months after the accounting year-end can apply to the FIRS in writing to pay its income tax in instalments. The maximum number of instalments the FIRS may approve is three. Such application must go with a portion of the tax liability. It is due on or before the due date for filing.
Large companies are granted a bonus of 1% against income tax of future tax years (2% for medium companies) where the income tax is paid 90 days before the due date for filing.
Assessments are made on a preceding year basis. This means that the financial statements for a period ended in 2017 will form the basis for the 2018 year of assessment.
Payments with respect to PPT/Hydrocarbon tax in any accounting period of 12 months are made in 12 instalments, with a final 13th instalment (if there is an underpayment). The first instalment for the year is due by the end of March.
Penalty for non-compliance
Failure to file CIT returns attracts a penalty of NGN 25,000 for the first month and NGN 5,000 for each subsequent month of default. Late payment of CIT attracts a 10% penalty and interest at the commercial rate.
Late submission of PPT returns attracts an initial penalty of NGN 10,000 and NGN 2,000 for each day such failure continues, while late payment of tax attracts a penalty of 5% of the tax not paid.
Tax audit process
Generally, the tax authority will commence a desk examination of a taxpayer's returns immediately after filing. This may be followed by a tax monitoring exercise whereby tax officers visit taxpayers to conduct an interview and on-site high level review of their tax affairs.
Random or specific tax audit may be carried out usually within six years of filing tax returns. In unusual cases, a back-duty tax investigation may be conducted for more than six years, especially where a tax fraud or wilful default is suspected.
In the past, tax audits took a long time to conclude, usually between three to five years. However, the tax authorities are seeking ways to improve the average turnaround time.
In 2018, the Joint Tax Board issued a collaborative framework for cooperation between the FIRS and the state tax authorities. This indicated that there is now clear movement in improving collaboration after many years of simply discussing the concept.
Statute of limitations
The tax authority may carry out a tax audit and issue an additional assessment within six years from the relevant tax year. However, the limitation does not apply in the event of a fraud, wilful default, or neglect by the company.
Topics of focus for tax authorities
The tax authorities are currently exploring ways to generate more tax revenue. As a result, certain areas of taxation, such as tax collection, increasing the tax base, transfer pricing (most especially pricing for commodities, intangibles, etc.), tax transparency, filing of tax returns by PEs, and review of tax incentives and waivers have become a central focus for tax authorities.
There has been increased scrutiny by the FIRS on related-party transactions as a way of preventing taxpayers from shifting profits away from Nigeria. It is expected that transfer pricing audits are expected to be an area of focus in the next one to two years.
Further, for non-resident entities that create a PE in Nigeria, the tax authorities are focused on ensuring that they file full tax returns, including audited accounts, as opposed to filing on a deemed-profit basis. It is expected that the expenses of these PEs will be scrutinised for tax deductibility.
The tax authorities at the federal and state levels are sealing up companies, putting up non-compliance stickers, and holding principal officers of organisations to public scrutiny and prosecution under the tax law for non-compliance in terms of tax default or failure to make timely payments or to file tax returns. On a related note, the Lagos state government has set-up a rapid tax prosecution unit to prosecute tax evaders with considerations to a jail term.
The FIRS has started writing to banks to appoint them as collection agents of taxpayers considered to be in default of tax payments. In order to achieve this, the FIRS is directing the relevant banks to freeze the accounts of the taxpayers to prevent them from drawing funds from the accounts. This practice has been put on hold based on case law, which was decided against the FIRS and the banks.
The Finance Act 2020 amended Sections 25 & 26 of the FIRS Establishment Act, granting the FIRS powers to:
- deploy proprietary or third party Payment Processing Companies (PPCs) or digital platforms as agents to collect taxes due on international transactions in the supply of digital services.
- deploy technology to automate the tax administration process including assessment, collection and information gathering, provided that it gives the taxpayer a notice of 30 days.
- receive assistance in the collection of revenue claims or other tax matters relating to agreements between Nigeria and other countries or bodies.
The FIRS has released the TaxPro-Max platform for tax compliance. TaxPro-Max becomes the channel for filing Naira-denominated tax returns. It is expected that this platform will be updated for foreign currency returns in the near future.
The Finance Act 2021 provided that the FIRS is the only tax authority to account for taxes due to the Federal Government.