Tax Rates in Nigeria and Recent Changes

Tax Rates in Nigeria and Recent Changes

Tax Rates in Nigeria

Stay informed about personal income tax, corporate income tax, and Value Added Tax (VAT) rates to optimize your tax planning and ensure compliance with the latest regulations from the Federal Inland Revenue Service (FIRS). You also need to stay ahead in the dynamic tax rates in Nigeria to foster sustainable growth and contribute to the nation’s economic development.

Tax Rates in Nigeria
Tax Rates in Nigeria

As we know, taxation plays a crucial role in any nation’s economic development and stability, and Nigeria is no exception. As a populous African nation with a dynamic economy, Nigeria relies on various taxes to fund public services and foster sustainable growth. This article provides a comprehensive analysis of the tax rates in Nigeria, including recent changes and their implications for businesses operating in the country. Here is a comprehensive list of the different tax rates in Nigeria.

Personal Income Tax

Personal income tax is one of the primary sources of revenue for the Nigerian government, and individuals who earn a living in Nigeria are taxable on their income. The personal income tax rates are progressive, meaning they increased with higher income levels. Personal income tax rates in Nigeria are as follows:

Annual IncomeTax Rate
₦30,000 and ₦300,0007%
₦300,001 and ₦600,00011%
₦600,001 and ₦1,100,00015%
₦1,100,001 and ₦1,600,00019%
₦1,600,001 and ₦3,200,00021%
Above ₦3,200,00024%
Personal Income Tax Rate in Nigeria

Corporate Income Tax

Corporate income tax is levied on the profits of companies operating in Nigeria. Companies are categorized into large, small, and medium scale for taxation purposes. Currently, the standard corporate income tax rate for large companies is 30%. The tax rate for small and medium-sized enterprises is 0%, while the tax rate for medium scale enterprises is 20%.

How can I determine what category my company falls under?

  • If your annual turnover is greater than ₦100 million, you fall into the category of a large company
  • If your annual turnover is greater than ₦25 million but less than ₦100 million naira, you fall into the category of a medium scale business.
  • If your annual turnover is less than ₦25 million, you fall into the category of a small company.

For petroleum companies, their corporate income tax is the petroleum profit tax (PPT). The PPT rates are as follows:

  • 50% for petroleum operations under production sharing contracts (PSC) with the Nigerian National Petroleum Corporation (NNPC).
  • 65.75% for non-PSC operations, including joint ventures (JVs), during the first five years, provided the company has not fully amortized all pre-production capitalized expenditure.
  • 85% for non-PSC operations after the initial five years.
  • 30% for upstream gas profits.

Value Added Tax (VAT)

VAT is a consumption tax applied to the supply of goods and services in Nigeria. The VAT rate used to be 5% but was revised to 7.5% in 2021. You can refer back to our article on VAT for a more detailed explanation on this tax.

Withholding Tax (WHT) 

Withholding Tax (WHT) is another significant aspect of taxation in Nigeria. It is a tax deducted at the source by a payer when making payments to a recipient for specific types of income. The withheld amount is remitted to the tax authorities on behalf of the recipient. Withholding tax rates in Nigeria can vary depending on the type of income being paid and the status of the recipient. Here are some common WHT rates:

  • WHT on Interest: The standard WHT rate on interest paid to individuals is 10%, while it is 15% for interest paid to companies.
  • WHT on Dividends: WHT on dividends distributed by Nigerian companies to individuals is 10%, while it is 10% for dividends paid to companies.
  • WHT on Royalties: The WHT rate on royalties paid to individuals is 10%, and it is 15% for royalties paid to companies.
  • WHT on Rent: The standard WHT rate on rent paid to individuals is 10%, while it is 10% for rent paid to companies.
  • WHT on Management and Technical Services: The WHT rate on management and technical service fees paid to both individuals and companies is 10%.
  • WHT on Contractual and Professional Fees: The standard WHT rate on fees for contracts and professional services paid to both individuals and companies is 5%.

What are the other types of taxes being paid in Nigeria?

In addition to the taxes mentioned earlier (Personal Income Tax, Corporate Income Tax, Value Added Tax, Petroleum Profit Tax, and Withholding Tax), there are other types of taxes and levies paid in Nigeria. Here are some of the major ones and their tax rates.

Capital Gains Tax (CGT)

CGT is imposed on the gains derived from the disposal of assets, such as real estate, stocks, and other investments. The CGT rate for individuals and companies is 10% of the net capital gains.

Stamp Duties

Stamp duties are taxes levied on certain documents, transactions, and agreements. Stamp duty in Nigeria is calculated using either fixed rates or ad valorem (proportionate to the value of the transaction), depending on the type of instrument involved. For instance, a stamp duty rate of 0.75% is imposed on the authorized share capital during a company’s incorporation or registration of new shares.

Furthermore, all deposit banks and financial institutions must charge a stamp duty fee of NGN 50 for each eligible transaction above NGN 10,000. However, certain exemptions apply, such as transactions between accounts held by the same bank customer and salary account transactions.

Excise Duties

Excise duties are imposed on specific goods produced or manufactured in Nigeria, such as alcoholic beverages, tobacco products, and carbonated drinks. The rates for excise duties are specific to each product and may vary. For wines and spirits. The tax rate is 20%. For non-alcoholic beverages, excise duties is tagged at ₦10 per litre. Foe cigarette and tobacco, the rate is 30%.

Education Tax (EDT)

Education Tax is a tax on the assessable profit of all companies registered in Nigeria. The EDT rate is 2% of the assessable profit for each year of assessment. This tax is collected to support the funding of education in the country.

Technology Tax (NITDEF Levy)

The National Information Technology Development Fund (NITDEF) Levy is a tax levied on companies to support the development of Information Technology (IT) infrastructure in Nigeria. The NITDEF Levy rate is 1% of the assessable profit for companies with an annual turnover of ₦100 million or more.

Customs Duties and Import Taxes

Customs duties and import taxes are levied on goods imported into Nigeria. The rates for these duties and taxes depend on the classification of the goods under the Nigerian Customs Tariff. However, they typically range from 5%-35%.

The Bottom Line

Navigating the Nigerian tax landscape can be daunting, but staying informed about recent changes and compliance requirements is crucial to avoid penalties and maintain smooth business operations. The recent enactment of the Petroleum Industry Act 2021 and its implications on the taxation of companies in the petroleum sector underscore the importance of staying up-to-date with evolving tax laws.

As Nigeria’s tax regulations evolve to meet the nation’s changing needs, businesses must adopt a proactive approach to compliance and adapt to new tax requirements. By ensuring accurate tax reporting, timely remittance, and adherence to tax rates in Nigeria, businesses can foster an environment of transparency and contribute to a prosperous and sustainable economic future for Nigeria.

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