Tax is a compulsory charge by the government on goods, services, income, or profits of persons. There are different parameters for determining who, when, how, and where to pay taxes in Nigeria. After a taxable person registers with the revenue authority, the next step is to know the type and amount of tax to pay. Delaying the compliance cycle until the taxman issues a query may lead to more penalties. A good tax management system should optimize the tax structure and lower the exposure of a business. The article shows the types of taxes and levies in Nigeria payable to the following;
- Nigeria Revenue Service (NRS former name FIRS) only
- NRS or the relevant State Internal Revenue Service
- Relevant State Internal Revenue Service
A – Taxes and levies administered by the Nigeria Revenue Service only
1. Companies Income Tax
Incorporated entities are subject to Companies Income Tax on their profits from all sources. Exempt companies include an agricultural production company for a maximum period of eight years and a company with an annual turnover of ₦25 million and below. The legislation for income tax exemption on approved industries or products is the Industrial Development (Income Tax Relief) Act [IDITRA]. Companies with a pioneer status will obtain a tax holiday from income tax for an initial period of three years. A company can get an additional holiday for one or two years. More details on FAQs on CIT is available here.
2. Hydrocarbon tax
Upstream petroleum companies will pay two types of income tax. They are companies income tax and hydrocarbon tax (HCT). HCT applies to crude oil, field condensates, natural gas liquids derived from associated gas, and produced in the field upstream of the measurement points. Hydrocarbon tax and ompanies income tax has replaced Petroleum Profit Tax. To read more on the Petroleum Industry Act 2021, click here.
3. Development Levy
Development levy (DL) is a charge of 4% on the assessable profits of all companies chargeable to tax under Chapters 2 and 3 of the Nigeria Tax Act 2025. Small companies and non-resident companies are exempt from development levy. It is a new type of levy introduced under the Nigeria Tax Act 2025. DL is a consolidation of the other taxes payable by companies. Revenue accruing from the Development Levy Fund will be shared as follows;
(a) Tertiary Education Trust Fund — 50%;
(b) Nigerian Education Loan – 15%;
(c) National Information Technology Development Fund – 8%;
(d) National Agency for Science and Engineering Infrastructure – 8%;
(e) National Board for Technological Incubation — 4%;
(f) Defence and Security Infrastructure Fund – 10%; and
(g) National Cybersecurity Fund – 5%.
Note that the provisions governing the imposition of levy/tax listed in (a) to (g) above have been repealed and replaced with NTA 2025.
4. Value added tax
The rate of Value Added Tax (VAT) is 7.5% on the supply of VATable goods and services except for zero-rated or exempt items. To read more on Nigerian VAT, check here.
B – Taxes payable either to the FIRS or the relevant State Internal Revenue Service
1. Withholding Tax
Withholding tax (WHT) is an advance payment of income tax. The rate is either 5% or 10%, depending on the nature of the transaction and the taxable person. The due date for filing WHT is 21 days following the month of the transaction.
2. Personal income tax
Personal Income Tax (PIT) covers taxation of employees, sole traders, individuals, partners, communities, families, trustees. Persons earning an annual minimum wage or below are exempt from personal income tax. Exempt income includes the income of government officials, diplomats, and local government institutions. Here is a Guide on PAYE taxes in Nigeria.
3. Capital Gains Tax (CGT)
CGT is payable on chargeable gains arising from the disposal of chargeable assets. The CGT law applies a rate of 10% applies to individuals and companies. CGT is remitted to the relevant tax authority.
4. Stamp Duty
Stamp duty is the tax payable on documents as a form of agreement or transaction between two or more persons. The rate is either fixed or variable, depending on the type of transaction.
C – Taxes and levies payable to the relevant State Internal Revenue Service only
1. Consumption Tax
The Hotel Occupancy and Restaurant Consumption Law govern consumption tax in Nigeria. The consumption tax rate is 5% on the value of goods and services consumed in hotels, restaurants, and event centres.
2. Levies
It includes annual development levy on employee as well as business premises levy.
D – Others
1. Custom and Excise Duties
Customs duties are payable on goods brought into Nigeria. The rate varies from five percent (5%) to thirty-five percent (35%) of import value. Excise duty is a charge on the production, sale, or use of certain locally produced goods.
2. Expatriate Employment Levy
A flat fee for companies that hire expatriate employees in Nigeria. The annual levy is payable to the Nigeria Immigration Service.
Conclusion
A medium-sized business that generates income can pay three or more taxes in Nigeria to the revenue authority. Keeping track of the different tax laws in Nigeria can be tedious. Businesses must consider the tax impact of transactions to avoid extra costs. If you need help in managing your taxes in Nigeria, check BRC Tax Solutions.