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One of the objectives of the Federal Government of Nigeria is to improve the ease of doing business for investors through its various policies, programs, committees and interventions. However, some of the federal government’s current policies and laws appear inhibiting when critically assessed in light of current realities.
There is no doubt that the provisions of Section 33 of the Corporation Income Tax Act (CITA) on the requirement of a minimum tax is one of the controversial tax provisions that require critical analysis. and a review for possible review.
It appears that the proposed amendment to CITA in the National Tax Policy may have addressed some of the concerns raised in this article, as it seeks to remove net worth as the basis for calculating minimum tax and to change the rate applicable and the amount of turnover in arriving at the minimum tax payable. However, there is a need to consider the merits of the proposed changes given the need to increase government revenue through taxes versus the continued relevance of the minimum tax provision for certain critical sectors of the economy.
In this article, we’ve reviewed the CITA Section 33 provisions referenced above, in light of today’s business requirements, and suggested recommendations for adapting them to purpose.
The principle of minimum tax provisions
Section 33(1) of CITA provides that – “Notwithstanding any other provision of this Act, where in a year of assessment the determination of the aggregate of the taxable profits from all sources of a corporation results in a loss, or where the aggregate of the eligible profits of a company result in no tax payable or tax payable less than the minimum tax, there shall be withheld and paid by the company the minimum tax as prescribed by the paragraph (2) of this article”.
The minimum tax payable is calculated as follows:
1. The greater of:
- 5% of gross profits; or
- 5% of net assets; or
- 25% of paid-up capital; or
- 25% of the company’s turnover for the year.
2. Plus 0.125% of income over ₦500,000
Exceptions to the above provision are when the company is in its first four calendar years of operation, or is engaged in agricultural trade or business, or if the company has at least 25% imported equity.
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The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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