THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
OCTOBER 2012: PROFESSIONAL EXAMINATION
PROFESSIONAL 2: CASE STUDY
ATTEMPT ALL QUESTIONS.
TIME: 3 HOURS
GARBA NIGERIA LIMITED
Mr. Michael Garba, a retired director of one of the Petroleum exploration companies operating in Nigeria,
prior to his retirement has the following assets.
N
a) A detach duplex at Lekki Phase I
250,000,000
b) A twin duplex at Downtown Road
380,000,000
c) A tanker not yet in use
25,000,000
d) 5 trailers not yet in use
50,000,000
e) 1 Toyota Camry
5,000,000
f) 1Toyota Prado Land Cruiser
11,000,000
g) Ordinary shares in several companies
65,500,000
786,500,000
He formally retired from the company in March 2010. Mr. Michael Garba was paid a total retirement
package of N105,250,000 on 31 March, 2010.
In April 2010, Mr. Garba contacted Messrs Adebori , Chukwu & Co, a firm of Management, Financial and
Tax Consultants, to advise and assist him in setting up a company which he wished to nurture to a
conglomerate later. Mr. Garba also informed the Consultant that his interest is in transportation of oil
products and other goods. Messrs Adebori, Chukwu & Co, on April 10, made the following
recommendations to Mr. Garba:
1.
2.
He should incorporate a company in the name of Garba Nigeria Limited with share capital of N200m
Apart from himself, his wife and two sons, who are Masters’ degree holders, he should appoint two
other external directors to strengthen and diversify the Board of the company.
3. He should transfer the petrol tanker, the 5 trailers and the Camry car to the new company at their
current market value of N35million, N75million and N7.5million respectively.
4. Since his main resident is the detach house in Lekki, he should dispose-off the twin duplex in
Downtown for N500million which is the current market value as stated in the recent valuation report
of Adeyinka, Abu & Co, a firm of Estate Valuers.
5. He should buy a house, with a market value of N250million, in Apapa as the company’s corporate
office.
6. He should purchase 4 more petrol tankers for N140million, and 5 more trailers for N75million
Mr. Garba, after extensive discussions on the proposal with his consultant, lawyer, wife, children and
his banker friend, agreed to proceed as advised. Garba Nigeria Limited was incorporated on April 25,
2010, and by May 31, all the proposals of the consultant have been effected.
To start operation immediately, the company purchased the following additional assets in May 2010.
1.
Office Equipments:
N
- Computer systems/scanner/printer
1,000,000
- Photocopier
250,000
- Water Dispenser
50,000
2.
Office Furniture & Fittings
2,500,000
Page 1 of 43
3.
Generator set
2,500,000
The office was rugged for N250,000. The office building bought was re-designed for business purpose at a
cost of N1.5million. Two Toyota corolla cars were also purchased at a cost of N7million. Tracker system
was installed in all the tankers, trailers and the cars at a cost of N75,000 each.
Garba Nigeria Limited started operation on July 1, 2010 and an account was opened with Allwell Bank Plc,
Karshi to give effect to the above transactions. The company had successful operations and has grown
tremendously. The summary of the company’s operating statement for 2010 and 2011 is in appendix II.
OPERATIONAL STRUCTURE
Garba Nigeria Limited, since inception, has been conducting its business operations professionally,
applying the best practices in corporate governance and ethical practices. The company’s management
consists of three Executive Directors and three General Managers. The company operating under five
divisions, Fleet/Material division, Finance and Account Division, Transport Operation and Marketing
division, Administration/Public Relations division and Human Resources division. Each of the divisions is
headed by a qualified, seasoned and experienced professional in their respective field as follows:
a.
b.
c.
d.
e.
Fleet/Mechanical Division is headed by an Executive Director, Mr. Stone Khen, a Mechanical
Engineer and a member of the International Association of Transport and Fleet Management. He has
over ten years’ cognate experience in one of the international haulage companies in the UK.
Finance/Accounts Division is headed by an Executive Director, Mr. Eno Daniel, a Fellow of the
Institute of Chartered Accountants of Nigeria and Chartered Institute of Taxation of Nigeria. He also
holds a Masters degree in Financial Management. He trained in one of the biggest four accountancy
firms in the country. He has 12 years’ post qualifying experience in a multinational company before
joining Garba Nigeria Limited.
Transport Operations/Marketing Division. This division is headed by Mr. Chris Daniel. He holds a
Masters degree in Business Administration, specializing in Marketing. He is a member of the Institute
of Transport. He is also an alumnus of the Lagbako Business School, an elite business school, where
he did his “advanced management programme”. He has 15 years working experience.
Administration/Public Relations Division is headed by Mrs. Rebecca Atturum. She has a Masters
degree in Business Administration and she is a member of the Association of Public Relations
Management. She has 13 years experience as head of administration in a big company before joining
Garba Nigeria Limited.
Human Resources Division is headed by Dr. Rabiu Akanji. He holds a Masters Degree in Industrial
Relations and is a Fellow of the Institute of Personnel Management. He has 10years of varied
experience in all areas of human resources, staffing, training and development, Industrial Relation
etc.
Mr. Michael Garba as the Executive Chairman and Chief Executive Officer is responsible for coordinating
the activities of the company. In the Annual Report of the company for 2010, Mr. Garba defines corporate
governance, as it is practiced in Garba Nigeria Limited, as “an internal system encompassing policies,
processes and people, which serves the needs of shareholders and other stakeholders, by directing and
controlling management activities with good business savvy, objectivity and integrity”. He went further to
say that “key elements of good corporate governance principles include honesty, trust and integrity,
openness, performance orientation, responsibility and accountability, mutual respect, and commitment to
the organization”. He listed six critical principles of corporate governance which all managers of the Garba
Nigeria Limited should follow as:
Page 2 of 43
a.
b.
c.
d.
e.
Rights and equitable treatment of shareholders
Interest of other stakeholders.
Definition of roles and responsibilities of the board which requires a range of skills and
understanding.
Integrity and ethical behavoiur
Adequate disclosure and transparency
These corporate governance principles is also printed and form part of the practices and procedures of
doing business in Garba Nigeria limited and every member of the company is required to subscribe to it
and sign a statement of affirmation and adherence to these policies as part of the conditions for his or her
contract of employment.
In March 2011, during the executive management meeting of the company, which comprises all the head of
the divisions, a decision to computerize the business processes of the company was made. This is hinged
on the complexity and growing paper work in the operation of the company.
Three vendors quoted for the computerization of the company’s business process and the summary of their
quotations is contained in appendix I. After much consultations and discussions with the company’s IT
Consultant - IT Solution Edge Consults, one of the vendors, Highland Computers Limited, was selected for
the computerization project. The project involves computerization of the following areas of the company’s
business:
-
Finance and accounts
Transportation and fleet management system
Spare part stores and stock management system.
Sales invoicing and debtors’ control system
Office automation system i.e, word processing, mailing, conferencing, etc.
The computerization project was concluded and commissioned on July 1, 2011. As a result of this
computerization, the company experienced steady growth in 2011 as the company’s business process
becomes simpler and faster than it used to be which resulted into quicker response to customers’ needs.
One area the company has been having a recurrent problem is the growing cash advances to drivers and the
retirement of such advances. There have been so many fraudulent practices by the drivers in collusion with
other staff. It was decided therefore, in September 2011 to employ an experienced Accountant as the
company’s Internal Auditor. The Selection was made by the company in conjunction with the Company’s
External Auditors, Ajayi, Aina, Dayo & Co. Nat Silvester Mohammed was employed in November 2011
as the company’s Internal Auditor.
Garba Nigeria Limited’s summarized Operating Statement for 2010 - 2011 is in appendix II
PETROLEUM EXPLORATION BUSINESS.
Mr. Michael Garba, during his annual vacation in December 2010 travelled to the United States. While in
the State he met Mr. Roland Scort who was his colleague when he was working in the oil industry. In the
course of their discussions, Mr. Scort informed Garba of his intention to visit Nigeria for business
opportunity in the oil industry. After further discussions the two gentlemen agreed to explore together
Mr.Scort’s idea. Being an experienced Petroleum Engineer who has accumulated over 20 years of
experience in the industry, Mr. Scort believes they can both make it in oil exploration. It was agreed that
Page 3 of 43
Mr. Garba should use his contacts back home to do necessary spade work before the visit of Mr. Scort in
March 2011.
Mr. Scort visited Nigeria in March 2011 as promised and by April 2011 a new company was being
incorporated, Garba Scort Oil Exploration Limited, with the following shareholding structure;
Garba Nigeria Limited
51%
Mr. Michael Garba
9%
Mr. Roland Scort
40%
The company was granted an Oil Prospecting Licence, OPL 565 in May 2011 and by July 2011 the
company has struck oil in commercial quantity and the OPL was converted into OML in August 1, 2011.
The company’s first oil lift was on August 15, 2011.
The company has invested a total of N80,000,000 (Eighty Million Naira) in Qualifying Capital Expenditure
during the period and operates an onshore exploration. The company’s financial records reveal the
following for the period ended 31 December, 2011.
Crude oil exported @ $80 per barrel
500,000 barrels
Crude oil disposed @N250 per barrel
400,000 barrels
N
Chargeable Natural Gas
25,000,000
Other Income
10,000,000
Repairs & Maintenance
150,000,000
Interest on Borrowings
320,000,000
Rents and Royalties
1,501,250,000
Custom Duties
25,000,000
Intangible Drilling Cost
1,081,000,000
Other Operating Cost
65,000,000
Non Productive Rent
15,000,000
The following explanations were given by the company’s Financial Controller;
a.
Agreed capital allowance, after Petroleum Investment Allowance has been given as N20,000,000.
b.
Interest on borrowing includes interest of N120,000,000 paid to Garba Nigeria Limited for amount
borrowed from the company.
c.
An amount of N5,000,000 was paid to Geo-view Nigeria Limited, for given the company information
relating to existence of petroleum deposit. This has been included in intangible drilling cost.
d.
The average exchange rate during the period is N150 to $1.
LETTER FROM NUMA STATE INTERNAL REVENUE SERVICE
On February 26, 2012 the company, Garba Nigeria Limited, received a letter from Numa State Internal
Revenue Service, giving the company 14days notice for a back duty tax audit / investigation. The letter
further states that the audit will cover all the companies in the group. The letter threatened that failure to
accede to this request will mean that the Service will assess the company on “Best of Judgment” (BOJ)
basis.
Mr. Garba was confused and wanted to know why they should receive such letter in spite of the openness
and ethical way the company has been conducting its affairs. He called the meeting of the company’s
executive management and it was decided in the meeting to send the letter to the company’s Tax consultant
for advice. Mr. Garba wrote the letter on March 1, 2012.
Page 4 of 43
APPENDIX 1
PROPOSALS FOR COMPUTERISATION PROJECT.
AREAS COVERED
COMPUTER
SERVE EDGE
HIGHLAND
IT SOLUTION LTD COMPUTER LTD SOLUTIONS LTD
1. Finance & Accounts
XXX
2. Office Automation
XX
3. Human Resources
X
4. Transportation/Fleet Management
5. Customization of Software
X
6. Training
X
7. After Sales services
X
8. Hardware Cost
750,000
9. Software Cost
500,000
10. Implementation cost
200,000
NOTE
X=
XX=
XXX=
XXXX
XXX
XX
X
XX
XX
XX
1,000,000
650,000
250,000
XX
X
X
XX
XX
XX
850,000
600,000
150,000
Not Strong
Strong
Very Strong
APPENDIX II
OPERATING STATEMENT FOR THE PERIOD
N ‘000
Turnover
Cost of Sales:
Gas & Oil
Spare Parts
Wages
Depreciation
1 JULY – 31 DEC
2010
N ‘000
N ‘000
450,000
50,000
85,000
108,000
32,613
1 JAN-31 DEC
2011
N ‘000
1,050,000
118,000
205,000
235,000
65,225
275,613
174,387
OVERHEADS
Salaries
125,000
Marketing
500
Fines & Levies
62.5
Professional fees
10,000
Audit fees
1,000
Computer Expenses
250
General Expenses
280
Travelling Expenses
260
Stationary & Postage
50
Telephone & Communication 75
Depreciation:
Office Building
6,287.5
Equipment &Furniture
252.5
623,225
426,775
275,000
12,000
500.25
5,000
2,000
625
540
1,000
200
300
12,575
695
Page 5 of 43
Cars
Generator
1,472.5
125
NET OPERATING PROFIT
2,945
250
145,615
28,772
313,630.25
113,144.75
QUESTIONS (ATTEMPT ALL QUESTIONS)
1.
Determine the following in respect of GarbaScort Oil Exploration Limited.
a
Total income
b
Allowable Deductions
c
Assessable Profit
d
Educational Tax
e
Chargeable Profit
f
Total tax liability
(4 Marks)
(6 Marks)
(2 Marks)
(2 Marks)
(3 Marks)
(3 Marks)
Assessor’s Comment
The question tests Petroleum Profit Tax. The candidates’ demonstrated lack of basic
understanding as no candidates scored up to 50% of the passed marks. It shows that
the candidates have not prepared well for this examination as the question was
straightforward enough for them to pass very well.
Candidates are required to study all the subjects in the professional examination stage
to prepare adequately for this paper in future.
SOLUTION
1.
GARBASCORT OIL EXPLORATION LIMITED
COMPUTATION OF PETROLEUM PROFIT TAX
2011 YEAR OF ASSESSMENT
N’000
INCOME
Export sales (500,000 x 80 x 150)
Crude oil disposed (400,000 x 250)
Chargeable natural gas
Other income
Total income
ALLOWABLE DEDUCTIONS
Repairs & maintenance
Interest on borrowing (320,000-120,000)
Rents and royalties
Custom duties
Intangible drilling cost (1,081,000-5,000)
Other operating cost
Non-productive rent
Education tax
Total allowable deduction
Assessable profit
Less capital allowance- lower of:
N
capital allowance
20,000
PIA (80,000x5%)
4,000
24,000
Or
Page 6 of 43
N’000
6,000,000
100,000
25,000
10,000
6,135,000
150,000
200,000
1,501,250
25,000
1,076,000
65,000
15,000
60,819
3,094,069
3,040,931
85% of assessable profit
Less 170% of 4,000
2,584,791
6,800
2,577,991
Capital allowance
Chargeable profit
Chargeable tax (3,016,931x85%)
Education tax
Total tax liability
Education tax =
6,135,000-3,033,250x 2/102
=
N60,818,627
2.
24,000
3,016,931
2,564,391
60,819
2,625,210
As the Tax Consultant of Garba Nigeria Limited, prepare necessary returns you will file with the
Federal Inland Revenue for the company’s tax returns for 2010, 2011 and 2012 years of assessment.
(20 Marks)
Assessor’s Comment
The question required calculation of both capital allowances and company income tax.
Many students wrote lengthy notes which are not required. 98% of the students
attempted the question why to score zero. This affected their overall performance.
Those that understood the question could not group assets into their respective classes
for proper capital allowance calculations, applying relevant CA rates, b CA restrictions
and basis period were missed
SOLUTION
NZO BIKO NIGERIA LIMITED
TAX COMPUTATION
2010-2012 YEARS OF ASSESSMENT
2.
2010
Profit as per account
Add: disallowable expenses:
Depreciation
Adjusted profit
Less: capital allowance
Restricted 2/3 of adjusted profit
C/F
Taxable profit
Company income tax (23,215,792 X 2%)
Education tax (69,647,375x2%)
Total tax payable
2011
(1/1/11—31/12/11)
Add: depreciation
Adjusted profit
Adjusted profit 1/7/10—31/12/10
Adjusted profit 1/1/11—30/6/11
N
28,896,875
N
242,189,500
46,431,583
195,757,917
40,750,500
69,647,375
46,431,583
23,215,792
6,964,738
1,392,947
8,357,685
=
188,635,000 x 6
12
1
Page 7 of 43
116,945,000
71,690,000
188,635,000
69,647,375
94,317,500
Assessable profit
Less capital allowance: B/F
For the year
Absorbed
C/F
163,964,875
195,757,917
64,929,000
260,686,917
109,309,917
151,377,000
109,309,917
Chargeable profit
Company income tax (54,654,758 x 30%)
Educational tax (163,964,875 X 2%)
Total tax liability
54,654,958
16,396,487
3,279,298
19,675,785
2012 (preceding year basis)
Profit as per account
Add: depreciation
Less:
116,945,000
71,690,000
188,635,000
capital allowance
B/F
For the year
Absorbed
C/F
151,377,000
617,500
151,994,500
125,756,667
26,237,833
125,756,667
Assessable profit
Company income tax (62,878,333 x 30%)
Educational tax
(188,635,000 x 2%)
Total tax liability
62,878,333
18,863,500
3,772,700
22,636,200
GARBA SCORT OIL EXPORTATION
CAPITAL ALLOWANCE COMPUTATION
MOTOR VEHICLES
2010
DATE
COST
N’000
340,850
INITIAL
ALLOWANCE
N’000
170,425
ANNUAL
ALLOWANCE
N’000
21,303
TOTAL
WDV
ALLOWANCE
N’000
N’000
191,728
149,122
N’000
1/7/10
---------
---------
-----------
42,606
42606
42,606
42,606
106,516
63,910
1/7/10
251,000
37,725
10,689
21,378
21,378
48,414
21,378
21,378
203,086
181,708
160,330
2,500
625
187.5
375
375
812.50
375
375
1,687.5
1,312.5
937.5
2011
2012
BUILDING
2010
2011
2012
PLANT & MACHINERY
2010
1/7/10
2011
2012
Page 8 of 43
EQUIPMENT & FURNITURE
2010
1/7/10
ND
2011-2
1/7/11
ST
-1
3,800
1900
-----1,990
950
475
475
2012
3.
a.
b.
285
142.5
570
712.5
285
570
855
1,235
617.50
570
1,187.5
285
570
855
2,565
1,282.5
1,995
2,177.5
997.5
1,425
1,425
What is capital Gains Tax?
(5 Marks)
Compute the Capital Gains Tax payable by Mr. Michael Garba, if any, from 2010 to 2011.
(10 Marks)
Give at least five capital gains exempted from Capital Gain Tax.
(5 Marks)
c.
Assessor’s Comment
95% of the candidates that sat for the paper attempted the question and 85% of them
scored below average.
The question is on Capital Gain Tax. The candidates could not distinguish between
Capital Gains and Income. Furthermore, many of them could state capital gains
exempted from Capital Gain Tax.
SOLUTION
3.
a.
Capital gains are gains resulting from increases in the market value of assets to a person who does
not regularly offer them for sale and in whose hands they do not constitute stock-in-trade.
Capital gain tax therefore, is a tax that is payable on capital gain accruing to a chargeable person on
the disposal of a chargeable asset.
For capital gain tax to become payable the following conditions must be met:
i.
There must be a person chargeable to tax
ii.
There must be a chargeable asset which gives rise to a chargeable gain on its disposal and
iii.
There must be a disposal of the asset by the person chargeable to tax.
Page 9 of 43
MICHAEL GARBA
COMPUTATION OF CAPITAL GAIN TAX
2010—2011 ASSESSMENT YEARS
B.
2010
N
N
SALES PROCEEDS:
BUILDING—DOWNTOWN
500,000,000
PETROL TANKER
35,000,000
5 TRAILERS
75,000,000
610,000,000
COSTS:
BUILDING
380,000,000
TANKER
25,000,000
5 TRAILERS
50,000,000
455,000,000
CAPITAL GAINS
155,000,000
CAPITAL GAIN TAX (155,000,000 X 10%)
2011
c.
15,500,000
No Chargeable Asset was disposed and so no capital gain arose.
capital gains exempted from tax are
a.
any capital gain arising from disposal of any government security
b.
any capital gains arising from the disposal of shares and securities
c.
any capital gains from the disposal of a medal won from honors and gallantry
d.
any capital gain on the disposal of life assurance policies and any investment under a
superannuation fund scheme.
e.
any capital gain on a chattel disposed of for not more than N100 in any year of assessment
f.
any capital gain on the disposal of motor vehicle for private use.
g.
any capital gain on the disposal of a landed property by a forced acquisition by any
government in Nigeria provided
i.
the tax payer has not taken any previous step to dispose the asset by way of entering into
negotiation to sell.
ii.
the tax payer has not shown any previous intention to dispose of the assets, e.g. by way of
advertisement.
h.
any capital gain that accrues to any local authority
Page 10 of 43
i.
j.
k.
l.
m.
n.
4.
any capital gain accruing to a promising authority under any law in Nigeria to acquire any
commodity for the purpose of export or to any corporation established for the purpose of
fostering the economic development of any part of Nigeria.
any capital gain accruing to diplomatic bodies.
any capital gain accruing to charitable institution, statutory or registered friendly societies,
cooperative societies or trade union.
any capital gain on the disposal of a dwelling house
any chargeable gain by way of compensation for loss of office not exceeding N10,000.
any gain arising from the disposal of the securities of a unit trust scheme provided the
proceeds are re-invested.
a.
In the light of various happenings in the business world, the concepts of corporate governance
and business ethics have become topical issues. Discuss these new concepts and relate them to
taxation issues.
(10marks)
b.
What are the advantages of computerization to a business? Explain briefly how the computer
can assist in tax administration and practice.
(10 Marks)
Assessor’s Comment
The question tests candidates’ understanding of corporate governance and the use of
computer. The candidates’ performance was average.
Candidates are
required to study widely for this paper in the future. They should be aware
that all the subjects of the professional stage will be examined in this paper
SOLUTION
4.
Corporate governance is a set of processes, customs, policies, laws and institution affecting the way a
corporation is directed, administered or controlled. Corporate governance also includes the relationships
among the many stakeholders involved and the goals for which the corporation is governed. The principal
stakeholders are the shareholders, management, the board of directors, employees, suppliers, customers,
banks and other lenders, regulators, and the community in which the company operates.
Ethics, however, is a standard of behavior that instructs human beings on their action in different
situations. These standards are important for relationships between individual and the society at large
including the family, the church and business. The principles of corporate governance and ethics are in
tandem as regards the behaviors of business management and board of directors in the running of the
affairs of the business. These have to do with fairness, transparency, equity and accountability in decision
makings. Corporate boards are accountable to their shareholders for ensuring appropriate corporate
governance practices.
Good corporate governance is fundamental to good business. The importance of good corporate
governance and greater transparency is highlighted by the current global financial crisis.
Page 11 of 43
How a large business manages tax risk can affect its financial performance and reputation. CEO’s and board
of large businesses are increasingly considering tax risk management as part of their overall corporate
governance.
Tax administrations have a vital role to play in ensuring that corporate boards understand that they are
ultimately responsible for their business tax strategies and outcomes. Tax administrations are increasingly
focusing on encouraging good corporate governance and enhancing relationship with large businesses.
Good corporate governance is central to the integrity of business, financial institution and markets. It
underpins decision making including how a business manages risk and how it chooses to implement or not
implement transactions and business strategies.
Tax has ceased to be something that just interests tax managers. The press is taking an increasing interest
in tax issues. Many newspapers have targeted some companies over tax avoidance. Tax administrators
focus on the majority of their large company compliance resources on high risks, particularly where tax
payers are not transparent, open and complaint. Large businesses that have good corporate governance
practices and enhanced relationships with tax administrators will generally experience fewer audit
interventions. This contributes to greater certainty and potential of reduced tax compliance cost.
A good governance approach in relation to tax might include the following:


















A sound framework to manage tax risks and comply with tax obligation.
A well-resourced in-house tax capability.
Reporting requirements that ensure that significant tax risks are elevated to decision
makers such as the CFO, CEO, the board or its audit committee.
Appropriate review and sign off procedures for material transactions.
An effective tax risk mitigation capability including the business relationship with
appropriate and relevant tax authority.
Capacity to regularly evaluate the effectiveness of tax governance system.
Robust day to day accounting and control mechanism.
Strong Internal control mechanism.
Independent external audit committee.
Separation of the role of external audit and external tax consultant.
Tax operating standard/codes of conduct and assurance processes to confirm adherence.
Clear accountability in relation to tax decision.
At least half yearly letters of assurance to internal audit/CFO in relation to tax expense,
deferred and current tax provisions for tax uncertain positions.
Adequate resourcing of the tax function
Use of the tax office ruling system for material transaction.
Openness and transparency with tax officers.
Tax is considered as part of the decision making process for major transaction.
Board and senior management are aware of the risks and issues and know what
transactions the revenue authority is likely to view as risky.
Page 12 of 43
ADVANTAGES OF COMPUTERIZATION OF A BUSINESS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Speed: computerization helps in the processing data files in no time. This is possible due to the
high speed of computers for processing data and the central processing unit CPU of the computer
works at the speed of electricity which is the highest ever attainable speed.
Accuracy: the data processed by the computer are highly accurate. The programs written on the
system checks and controls data before and during processing. It detects invalid data and ensures
high degree of accuracy and reliability of output reports.
Flexibility: the modern digital computers can be used for a variety of purposes, e.g. online
processing, multi programming etc.
Choice of configuration: wide ranges of peripherals are available for many computer systems,
which allow business organization to select those which most suits its processing requirement.
Storage capacity: large volumes of data can be conveniently stored, accessed and altered.
Management information: they can be used to provide useful information of management for
control and decision making.
Data processing: computer has lifted the heavy processing constraint with the manual system and
has opened up new avenues for planning, control and data experimentation.
Volume: computers can store volumes of data and can retrieve the desired information quickly.
This is very useful in the areas like insurance, bank accounts etc where large number of documents
is handled daily.
Data base: computer facilitates the establishment of data base. Such data base integrates data
records and reduces data redundancy.
Facilitate report preparation: computer facilitates the preparation of various types of report
required by business executives for the purpose of decision making and control.
Reduces the manpower requirement: the number of persons required for performing various
organizational activities will be reduced by using computer system.
Reduction in paper work: the use of computer for data processing has helped the management of
business organization to cope with increasing problem of paper handling. The computer has
speeded up the process and has eliminated the paper needs through the storage of data in
elaborately constructed data bases files.
Just as the computer has brought speed and accuracy in generating reports for management and has
eliminated a lot of paper work, so also is the application of computer to tax planning, tax risk management.
It guarantees accurate tax calculation at a very high speed. And it eliminates a lot of paper work.
5.
As the company’s tax consultant, Mr. Garba has sent the letter the company received from Numa
State Internal Revenue Service to you for advice.
You are required to advice Mr. Garba on the following:
a)
b)
c)
The right of State Internal Revenue Service to carry out tax audit and investigation and
limitation to such audit.
(5 Marks)
Documents that the State Tax auditors are likely to request for in respect of the tax audit.
(10 Marks)
Avenues opened to the company in pursuing the outcome of the tax audit to its logical
conclusion.
(5 Marks)
Page 13 of 43
Assessor’s Comment
The question was well prepared and properly spread. About 99% of the candidates
attempted the questions. The performance was very poor and this could be attributed
to the followings:
(i) Lack of proper understand of the questions.
(ii) Inadequate preparation for the examinations.
(iii)Lack of solution presentation could also be responsible for the poor performance.
The candidates need to improve their study skill.
SOLUTION
5.
a.
The right of State Internal Revenue to carry out tax audit and investigation is contained in section
46 of the Personal Income Tax Act 104 of 1993 which states:
“ for the purpose of obtaining full information in respect of the income or gain of person, the
relevant tax authority may give notice to the person requiring him, with the time limited by the
notice, to
a.
Complete and delivered to the relevant tax authority, any return specified in the notice;
b.
Attend personally before an officer of the relevant tax authority for examination with
respect to any matter relating to such gain.
c.
Produce or cause to be produced for examination at the place and time stated in the notice
which time may be from day to day for such period as the relevant tax authority may
consider necessary, for the purpose of examination of any book, documents, account and
return which the relevant tax authority may deem necessary.
d.
Give orally or in writing any other information including name and address specified in the
notice.
And sub-section 4 states that “nothing in the foregoing provisions of this section or in any other
provision of this decree shall be constituted as precluding the relevant tax authority from verifying
by tax audit any matter relating to the income or gain of a person or any matter relating to the
entries in any book, document, account or return as the relevant tax authority may from time to
time specify in any guideline by the relevant tax authority”
However, section 54, subsection 1 limits the number of years the relevant tax authority can raise
additional assessment to six years.
b.
The documents that the state tax auditors are likely to request for in respect of the tax audit are:
i.
Petty cash vouchers
ii.
Cheque/cash payment vouchers
iii.
Payroll documents
iv.
Financial statement and accounts for the relevant years
v.
General ledger and subsidiary ledgers
vi.
Cheque stubs
vii.
Cash book
viii.
Rent agreement
ix.
Loan agreement
x.
List of suppliers / contractor
Page 14 of 43
xi.
xii.
xiii.
xiv.
xv.
xvi.
c.
Schedule of company vehicles and users
Name and address of directors
Evidence of pension fund remittance
Schedule of commission and discount paid
List of company houses and occupiers
Bank Statement
The avenues opened to the company to pursue the outcome of the tax audit to its logical
conclusion are:
i.
ii.
iii.
iv.
If the company is not satisfied with the amount on the demand notice from Lobo State
internal revenue service, for additional assessment, after the audit. The company will write
a letter of objection within 30 days from the day of receipt of the demand notice. The
objection should state precisely the grounds of objection.
The state internal revenue may thereafter call for a reconciliatory meeting. After the
meeting, a revised assessment will be raised by the State Internal Revenue Service.
Where the company is still not satisfied with the revised assessment the company can
appeal to the tax appeal tribunal. The notice of appeal shall specify the following:
Official number of assessment and the year
Amount of tax charged by such assessment
Amount of income upon which tax was charged as appeared on the notice of assessment
If the company is not satisfied with the outcome of the appeal, the company can file the
matter at the state high court. The decision of the high court is final.
Page 15 of 43
THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
OCTOBER 2012: PROFESSIONAL EXAMINATION
PROFESSIONAL 2: OIL, GAS AND OTHER MINERALS TAXATION
ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS. TIME: 3 HOURS
1.
Kenkeye Petroleum Development Company Ltd. is in Joint Venture (JV) Operation with NNPC since
1995. The Company has 40% equity and operates at 110 meters water depth. Its financial data for the
year ended 31st December,2009 are presented as follows:
Production/Exports - bbls
9,820,000
Ruling Market Price (RP)
$ 24/bbl
The Company operates offshore and incurred the
following expenses during the period:
$ ’000
Exploratory well cost
12,500
Cost of 1st two appraisal wells
15,450
Salaries and other Employee costs
4,200
Direct handling charges
5,330
Lifting cost
9,250
Field Production overhead
6,750
Other Administrative and general Expenses
10,600
Other intangible drilling expenses
8,800
Education Tax
2,300
Capital Allowances
8,400
You are required to compute:
a. Tax Reference Price (TRP) given a national margin of $2.5
b. T1/bbl and T2/bbl
c. Revised Royalty (RR at 110 metres is 16 2/3%)
d. Tax Inversion Penalty
e. Revised Petroleum Profit Tax
f. Revised Govt. Take – RGT
(2 Marks)
(7 Marks)
(2 Marks)
(3 Marks)
(2 Marks)
(4 Marks)
(Total 20 Marks)
Assessor’s Comment
The question tests candidates’ knowledge of computation of tax reference price, royalty
and petroleum profit tax. The candidates’ performance was fair. However, the allotted
marks for “e” & “f” should have been swabbed as candidates were expected to do more
work in “e”.
Page 16 of 43
Candidates are advised to study and practice past questions during their preparation
for future examinations
SOLUTION
PETROLEUM DEVELOPMENT COMPANY LIMITED
1.
(i)
Computation of TRP
TRP
=
RP ─(m + o.15 x Fc)
0.88
=
24 ─ (2.5 + 0.15 x 4)
0.88
$23.75
=
(ii)
Computation of T1/bbl
T1/bbl
$’000
Salaries and other Employee cost
4,200
Direct handling Charges
5,330
Lifting Cost
9,250
Field Production Overhead
6,750
Admin and General Expenses
10,600
Production 6520 bbls
36,130
T1
=
36130/9820
=
$ 3.6792/bbl
Computation of T2/bbl
$’000
a.
Exploration well Cost
12,500
b.
Cost of 1st 2 Appraisal Wells
15,450
c.
Intangible Drilling Cost
8,800
d.
Capital Allowances
8,400
45,150
Production (bbls)
T2/bbl =
(iii)
$45150/9820
$4.5977/bbl
Revised Royalty
RoYTRP
=
Rr x TRP x V
Rate at 110 metres water depth =
(iv)
9,820
162/3
0.1666 x 23.75 x 9,820,000
=
$38,855,285
TIP
=
(TR ─ TIR) x (TI ─ UTIT) xV
Where: UTIT = Upper Trigger Point
For Tax Inversion for TI =
$2.30/bb
Page 17 of 43
─ TR
─ TIR
:. TIP
(v)
=
=
=
=
Applicable Tax Rate
=
85%
Tax Inversion Rate
=
35%
(85% ─ 35%) x (3.6792 ─ 2.3) x 9,820,000
(0.5) x (1.3792) x (9,820,000
$6,771,872
Kenkeye Petroleum Development Co. Limited.
Revised Petroleum Profit Tax for 2004 year of Assessment.
N
N
Fiscal value of Chargeable Oil
($23.75 x 9,820,000)
233,225,000
Less:
Royalty
38,855,285
Exploration Well Cost
12,500,000
Cost of First 2 Appraisal Wells
15,450,000
Salaries/ Employees Cost
4,200,000
Direct handling Charges
5,330,000
Lifting Cost
9,250,000
Field Production Overhead
6,750,000
Other Administrative and General Cost
10,600,000
Other Intangible Drilling Cost
8,800,000
Education Tax
2,300,000
114,035,285
Adjusted profits
119,189,715
Less: Capital Allowances
(vi)
8,400,000
Chargeable/ Assessable Profit
110,789,715
Tax at 85%
94,171,257
Revised Government Take – RGT
RGT
=
ROY TRP + PPTTRP + TIP
=
$38855,285 + 9,4171,257 + 6,771,872
=
$139,798,415
Page 18 of 43
2.
a.
b.
List four (4) blends of crude oil produced in Nigeria
(4 Marks)
Write short notes on the following as they relate to Petroleum operations in Nigeria:
i. Production sharing contracts
(4 Marks)
ii. Joint Venture agreement
(4 Marks)
iii. Service Contract Agreement
(4 Marks)
iv. Over-riding Royalty
(4 Marks)
(Total 20 Marks)
Assessor’s Comment
The question tests candidates’ knowledge of blends of crude oil and various production
agreements with NNPC. The candidates’ performance was poor as most of them were
not familiar with the technical terms in petroleum industry.
Candidates are advised to cover all sections of the syllabus before writing examinations.
SOLUTION
2.
a.
b.
Types of Crude Oil blend in Nigeria
(i)
Bonny Light
(ii)
Bonny Medium
(iii)
Brass
(iv)
Condensate
(v)
Forcados
(vi)
Antha
(i)
Production Sharing Contract
This is a type of contractual arrangement where the operator provides the necessary funds
to explore, develop and produce oil on behalf of the parties involve in the concession.
(ii)
Joint Venture Agreement




(iii)
This was the first type of concessionary arrangement embarked upon by the Federal
Government of Nigeria through NNPC and the operating companies in Nigeria.
Under this arrangement, the government is a non –operating partner with the oil company
as the operator of the concession.
The government contributes proportionately to the cost of carrying out the petroleum
operations and lifts its equity share of the crude won.
The risk of the venture is borne by the parties in the venture in relation to their interest.
Service Contract


This type of contract is similar to production sharing contract in that the company
(operator) provides funds for the exploration, development and production
operations. However, it differs in the following ways:
The primary form of contract is usually five (5) years and relates to contract area or
block.
Page 19 of 43




(iv)
If there is no commercial discovery within the primary term, the contract
automatically terminates and both parties owe each other no further obligation
with respect to the contract area.
The company has the option to recover its investment and a remuneration in crude
oil; and
The company also has the first option to purchase a fixed quantity of crude oil
produced from the contract area.
The contractor is assessed to Tax under CITA.
Overriding Royalty
A royalty interest that is created out of the operating interest. Its term is co –extensive with
that of the operating interest from which it was created. In most cases, overriding royalty
occurs in farmout arrangement.
3.
a.
Write short notes on the following:
i. Casing head petroleum spirit
(3 Marks)
ii. Petroleum Operations
(2 Marks)
iii. Deep offshore
(3 Marks)
b. Briefly state the tax treatment of pre-production expenses before commencement of petroleum
operations and after commencement of petroleum operations.
(5 Marks)
c i.
What is signature bonus?
(2 Marks)
ii
State the tax treatment of signature bonus with respect to joint venture companies and PSC
companies
(5 Marks)
(Total 20 Marks)
Assessor’s Comment
The question tests candidates’ knowledge of some technical terms in the petroleum
industry and the activities of the JVC and PSC.
Candidates’ performance was poor as many would not understand the terms and the
tax treatment or implications of expenses incurred in petroleum operations.
Candidates are advised to pay more attention to some technical terms used in the
industry.
SOLUTION
3.
a.
(i)
Casing head petroleum spirit means any liquid hydrocarbon obtained in Nigeria
from natural gas by separation or by any chemical or physical process but before the same
has been refined or otherwise treated.
(ii)
Deep offshore means any water depth beyond 200 metres.
(iii)
Petroleum operation means the winning or obtaining and transportation of
Petroleum or chargeable oil in Nigeria by or on behalf of a company for its own accounts by
any drilling, mining, extracting or other like operations or processes, not including refining
Page 20 of 43
at the refinery in the course of business carried out by the company engaged in such
operation.
b.
c.
Tax treatment of pre-production expenses
(i)
Before commencement of petroleum operations, pre-production expenses incurred by the
company are accumulated in an account for that purpose till when the company will
commence bulk disposal of chargeable oils.
(ii)
After commencement of petroleum operations, the accumulated pre-production expenses
are capitalized and ammotized by way of capital allowance.
(i)
Signature bonus is payment for acquisition of right or interest on an oil
concession.
(ii)
Under PSC, signature bonus is not recovered through cost oil lifting by the contractor.
The second schedule of PPTA defines qualifying drilling expenditure for capital allowance
purposes to include the acquisition of right over petroleum deposits. From the above
therefore, signature bonus can be considered as part of qualifying drilling expenditure. This
means that it can be recovered by way of capital allowance for the PPT purposes.
4.
Medium Pet Company Limited. an oil producing company spudded oil on March 1, 2007 and started
production/lifting on continuous basis on July 1, 2007
Additional information provided include:
i. Medium Pet. Co. Nig. Ltd. did not sign the 2000 MOU with NNPC
ii. Estimated total allowable cost is $1.2/bbl
iii. Tax Reference Price(TRP) was given as $18/bbl
iv. The Ruling Market Price (RP) advised by NNPC is $20/bbl
v. Estimated lifting for the year was 120,000bbls
In March 2007, whenthe records were audited, it was found that actual value of crude oil lifted based
on the prices advised by NNPC was $2,850,935; while all costs incurred and allowable for tax
purpose was $15/bbl. The estimated lifting for the year was actually lifted.
It was however noted that the company had not fully amortized all its pre-production capitalized
expenditure in accordance with the second schedule of PPTA.
You are required to:
a. Determine within which time petroleum profit tax (PPT) is due and payable.
(4 Marks)
b.
How much PPT will be paid at each time?
(16 Marks)
(Total 20 Marks)
Assessor’s Comment
The question tests candidates’ knowledge of computation of PPT and time schedule for
the payment.
Page 21 of 43
The question was defective – typographical error in March 2008 was erroneously typed
as March 2007 and $12 per bbl was typed as $1.2 bbl.
This, however, did not affect the candidates’ understanding of the question.
The performance was poor as most candidates were unable to recognise that
commencement rule should be applied.
Candidates are advised to cover all sections of the syllabus effectively before sitting for
examinations in future
SOLUTION
4.
Medium Petroleum Company Limited
Computation of Petroleum Profit Tax for Tax year 2007
Estimate preparation
Lifting commenced in July 2007
$
Lifting for the period
120,000bbls x 20
=
2,400,000
Less: Estimated Cost
120,000bbls x 1.2
=
144,000
Chargeable Profit
2,256,000
Tax @ 65.75%
1,483,320
Monthly Payment – 6 months
247,220
Last installment which must be paid after 21 days of receiving assessment for PPT returns had been made is
May, 2008.
$
Value of Lifting
2,850,935
Allowable Cost (120,000 x $15)
1,800,000
Chargeable Profit
1,050,935
Tax @ 65.75%
690,990
Less: Payments made on Estimates
1,483,320
Future Tax Off-set
792,330
WORKINGS
(i)
(ii)
(iii)
(iv)
Lifting commenced on July 1, 2007. This is the month the PPT estimate is due but payable in
September.
Price to use was $20 since MOU was not signed.
65.75% is the applicable PPT because it has not fully recovered its pre-production cost.
Month of PPT due
Month Payable
Amount to be paid
July 2007
30 Sept. 2007
$247,220
Aug.2007
31 Oct. 2007
$247,220
Sept.2007
30 Nov. 2007
$274,220
Page 22 of 43
Oct. 2007
31 Dec. 2007
Nov. 2007
31 Jan. 2008
Dec. 2007
29 Feb. 2008
th
13 Installment after May 2008 Refund
5.
$274,220
$274,220
$274,220
$792,330
“...Revenue generated from oil, gas and other mineral resources is a blessing to Nigeria. The Federal
Government should rely solely on this for the development of all nooks and crannies of the
country....” An extract from a paper presented by a critic of the government.
You are required:
As a tax professional, what are your likely responses to the points raised, given the opportunity to
speak at the gathering?
(20 Marks)
Assessor’s Comment
The question tests candidates’ knowledge of sources of revenue to the Federal
Government. The candidates’ performance was average. The commonest pitfalls were:
 Poor communication skill as most of them are not aware of public address skills.
 Most candidates were not aware that oil and gas are wasting assets, and the
government has to diversify its revenue base.
Candidates are advised to be current and familiar with relevant development within oil
industry.
SOLUTION
5.
Good afternoon Chairman, members of the high table, ladies and gentlemen.
Nigeria as a developing country solely depends on revenue from oil, gas and other minerals which about
80% of its total revenue. The revenue generated from this source is now the mainstay of the economy
while other revenue generating sources are being neglected.
The government needs regular flow of income and additional sources of income to solve the following
department programmes.
Social Infrastructure, Construction and Rehabilitation of Road, Network, Provision of Electricity, Supply,
Improvement of Transportation System, Education, Security System and other Welfare packages.
In view of these poor social infrastructures, Government needs to generate more revenue from the
following sources in other to develop them:
Stamp duties – Import duties, Capital Gain Tax, Value Added Tax, and Export Duties
National Info Technology Levy – Companies Income Tax, Tertiary Education Tax, Personal Income Tax,
Sovereign Welfare Funds.
The following should be adequately addressed in providing funds
-
Reduction of corruption within the system
Page 23 of 43
-
Adequate enlightenment of the citizens
Regular staff training and development
Tax avoidance and tax evasion
Regular updating of relevant tax laws
These funds should be used to develop agriculture (cocoa, rice, rubber, and groundnut) welfare packages,
Industry and Social infrastructure.
In conclusion, The Federal Government should not rely solely on revenue generated from oil, gas and other
minerals as these sources has limited life span and their prices vary as they are affected by market forces.
Thank you for Listening.
(Total 20 Marks)
THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
OCTOBER 2012: PROFESSIONAL EXAMINATION
PROFESSIONAL 2: TAX AUDIT AND INVESTIGATION
ATTEMPT ALL QUESTIONS. SHOW ALL WORKINGS. TIME: 3 HOURS
1
The Managing Director of Fraudulous Nigeria Limited has just received invitation letter from Tax
Investigation Department of Federal Inland Revenue Services. He called you as a Tax Consultant to
the company to advise him.
You are required to:
a.
Properly explain to him the meaning of Tax Investigation
(10 Marks)
b.
Outline the objectives of Tax Investigation to him and his management team.
(10 Marks)
(Total 20 Marks)
Assessor’s Comment
The question was meant to test the candidates’ knowledge of what is meant by Tax
Investigation and its objectives.
The students’ knowledge on the topic, Tax Investigation were quite impressive. At least
more than 70% of the students scored more than 50% of the marks allocated to the
question
SOLUTION
1.
Explanation of Tax Investigation to Managing Director of Fraudulous Nigeria limited
Tax Investigation is a systematic and detailed search for facts in other to determine the truth of the matter.
Page 24 of 43
It is carried out with suspicion in mind that the Tax payer might have evaded taxes which will be recovered
in the process.
Every case of Tax investigation is prepared as if it is going to court or Tax Appeal Tribunal.
OBJECTIVES OF TAX INVESTIGATION






To detect and defer Tax evasion and other willful breach of Tax laws.
To determine the Tax loss arising from the breach.
To identify the penalties / sanctions imposed by law for the breach.
To trace and locate the offenders.
To identify Tax avoidance and recommend change to process system and the
Tax laws.
To provide sufficient evidence of the breach for prosecution of the offenders
2
a.


State vividly the differences between Tax Audit and Tax Investigation. (5
Marks)





b.
What are the basic techniques for gathering audit evidence in the context of tax
audit?
(5 Marks)
c.
You have just been promoted as Chief Inspector of Taxes by the Bayelsa State
Internal Revenue Services. One of your schedules of duties is the conduct of Back - Duty
Audits on companies in your territory.
Briefly, itemize 10 (Ten) of the audit requirements you will attach to your notification
letters to the companies.
(10 Marks)
(Total 20 Marks)
Assessor’s Comment
The question was meant to test the candidates’ knowledge of the differences between
Tax Audit and Tax Investigation. The students did not perform well enough as the
question was very loaded. The main problem was the lack of knowledge on audit
requirements necessary to be attached to the letter of notification to the company.
They mostly failed the question; even those that performed well were barely average in
mark scoring.
The students should endeavour to study widely particularly on
important topics in taxation.
SOLUTION
2.
a.
Tax Audit is a routine exercise and the outcome usually leads to re- assessment or
referred for special investigation if Tax evasion is suspected. It is a means of ensuring compliance
with the relevant Tax laws.
Investigations arose from suspicion or actual knowledge of the existence of Tax evasion or Tax
fraud.
b.
These are the basic techniques of collecting Tax Audit evidence.
Page 25 of 43
1.
2.
3.
4.
5.
6.
7.
8.
9.
C.
Physical examination and count
Confirmation
Examination of original documents
Re- computation
Checking, posting and retracing book keeping procedures
Inquiry
Correlation
Observation
Comparison of Industry average.
List of document required for PAYE and withholding Tax Audit
1.
Management account / Audit account
2.
Trial balance for the period
3.
Payment voucher/Cheque /Cash book
4.
Payment documents
5.
Petty cash vouchers
6.
Schedule of Tax Remittance and Receipts
7.
Schedule of Interest paid on fixed deposit and savings account at bank.
8.
List of suppliers and contractors
9.
Rent Schedule/Agreement
10.
Names and address of Landlords
11.
Names and address of Directors
12.
Copy of Certificate of Incorporation
13.
Evidence of last clearance letter of Tax Audit (If any)
14.
Letter of expatriate quota
15.
Staff list with designation
16.
Debtors and Creditors Ledger
17.
Staff Salary Structure
18.
Employees letter of appointment/ promotion
19.
Schedule of development levy paid
20.
Evidence of payment of business premises registration/ Renewal
21.
Copy of certificate of approved pension fund.
22.
Evidence of registration and remittance of NJITF.
Page 26 of 43
3
23.
Schedule of company vehicle and allocated to staff.
24.
Schedule of commission (If any)
25.
Schedule of WHT paid
26.
General ledger
27.
All other document required for Tax Audit.
“….Work Programmeare schedules of activities to be carried out in the course of a particular tax
audit exercise; they are product of the planning process.” State the advantages ofusing work
programmes in tax audit.
(Total 20 Marks)
Assessor’s Comment
This question allowed discretion on the part of the candidates to write anything. Bye
and large all candidates attempted it, and scored relatively very high scores. It was
seen to be a bonus.
I recommend that an (a) part where “what I work programme”? was asked, followed by
an outline of both, the merits and demerits of work of programme in tax audit exercise.
SOLUTION
3.
Work programmes are schedule of activities to be carried out in the course of a particular audit exercise.
They are product of the planning process. In drawing up a work programme, the auditor takes into
consideration the nature of business the client is engaged in. The auditor is expected to draw up a
programme that will suit his client organization.
Programmes:





It provides a permanent record of work done.
It ensures that no area of operation is left unchecked due to omission.
It ensures that work is not duplicated
It sets out guide-line for the orderly conduct of work
It provides evidence of work done and therefore available for use in defending actions for
negligence
With the aid of work programmes the risk of necessary procedures being omitted or incorrect procedures
being applied by inexperienced staff is reduced.
4.
a.
b.
You have just been engaged by the management of a Start –Up Companyas Tax
Consultant. The company which was incorporated in June 2010 commenced
business operations on 1st October, 2011.
You are required to state the steps you would take to ensure that your client complies with
Value Added Tax (VAT).
(10 Marks)
Enumerate five (5) of the taxes/levies that are legally collectible by the Local Authority
under which the company is located.
(10 Marks)
(Total 20 Marks)
Page 27 of 43
Assessor’s Comment
The question tested the candidates’ knowledge on the steps that should be taken by
companies to comply with the “Value Added Tax” and types of Taxes/Levies that are
legally collectable by Local Authority. The candidates showed good understanding of
the question as a high percentage of students scored above average
4.
a.
Steps to take to ensure compliance with VAT Law:
a. According to VAT Act Section 8 (1) of the VAT Act, a taxable person is expected to register with the
tax authority (FIRS) within six months of the commencement of business. Hence, steps shall be
taken to register as appropriate.
b. Enquire from the revenue authority for the appropriate late filing penalty and take steps to settle
things.
c. Educate the client on the computation of input and output VAT.
d. Assist the client in the arrears of monthly returns prior to his engagement as tax consultant.
e. Ensure that the client renders monthly return to revenue authority in line with the requirements of
VAT Act.
b.
TAXES AND LEVIES COLLECTIBLE BY STATE GOVERNMENT
1.
Personal Income Tax
a.
Pay as you earn (PAYE)
b.
Direct (self and government) assessment.
c.
Withholding Tax (individual only)
2.
Capital Gain Tax (Individual)
3.
Stamp duties on instrument executed by individual
4.
Withholding Tax (individual only)
5.
Pools betting and lotteries, gaming and casino taxes
6.
Road Taxes
7.
8.
Business premises registration fees in respect of urban areas as defined by each
State Maximum of N10,000 for registration and N5,000 per annum for renewal
of registration, and in rural areas – N2,000 for registration. N1,000 per annum
for renewal of registration.
Development levy individual, only not more than N100 per annum on all taxable individuals
9.
Naming of street registration fee in the state capital
Page 28 of 43
10.
Right of occupancy fee on land owner by state government in urban areas of the state.
11.
Market taxes and levies where some finances are involved
TAXES / LEVIES COLLECTIBLE BY LOCAL GOVERNMENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
Shops and kiosk rate
Tenement rate
On and off liquor levy/fee
Slaughter slab fee
Marriages, Births & Death registration fee
Naming of street registration fee, excluding any street in the state capital
Right of occupancy fee on lands in rural areas, excluding those collectible by the Federal and State
Governments
Market taxes and levies excluding any market where state finance is involved
Motor park levies
Domestic Animal licenses fee
Bicycle, Trucks, Canoe, wheelbarrow and cart fees other than mechanically propelled truck
Cattle tax payable by cattle farmers only
Movement and road Closing Levy
Radio and TV levies fees (other than Radio and TV transmitters
Car Radio license fee (to be imposed by the local government of the State in which the Car is
registered)
Wrong Packing charges
Public convenience, sewage and refuse disposed fees
Customary burial ground permit fees
Distinguished between ‘Desk Audit’ and ‘Field Audit’.
(6 Marks)
What is audit checklist?
(5 Marks)
Briefly discuss the various activities that would take place before embarking on field audit.
(9 Marks)
(Total 20 Marks)
Assessor’s Comment
5
a.
b.
c.
(a):
All the candidates attempted this part, highlighting the “Venue”/“Place” where
either is conducted as a major difference. The performance was impressive.
(b) This is another part that was well answered by the candidates with many being offpoint.
However, the performance was generally satisfactory.
(c) Candidates were listing all the activities involved, without distinguishing between
the “pre”, “during” and “pest” field audit.
Very few scored relatively high and most being average, while a few scored below
average. The performance was generally o.k.
SOLUTION
Page 29 of 43
5.
a.
Desk Audit – This is an audit or examination carried out in the office of the
revenue
authority on the self-assessment returns of a tax payer. This is carried
out on a routine basis.
Field Audit, on the other hand is the Audit carried out by tax officers in the business premises of
the tax payer. This exercise examines the accounting records kept by the tax payer with a view to
ascertaining the correctness of the profit declared or reported in tax returns submitted by the tax
payer. A field Audit is more comprehensive in nature than desk Audit.
b.
Audit checklist serves as a guide to Tax Auditors in the conduct of a Tax Audit. Audit checklist is
prepared at the planning stage to ensure that no aspect of the exercise is left uncovered. The
checklist assist the auditors in ensuring that their job is done thoroughly.
During the Audit exercise, each activity listed in a checklist is ticked off as the work
progresses until the exercise is completed.
c.
In preparing for a field Audit, the following activities are usually carried out:
a.
A selection of the target tax payer will be done.
b.
The head of audit team will review the tax payer’s file.
c.
Notification letter will be issued and dispatched to the tax payer.
d.
Pre-audit meeting will be held before the commencement of the field Audit.
THE CHARTERED INSTITUTE OF TAXATION OF NIGERIA
OCTOBER 2012: PROFESSIONAL EXAMINATION
PROFESSIONAL 2: TAX PRACTICE AND BUSINESS MANAGEMENT
ATTEMPT ALL QUESTIONS. TIME: 3 HOURS
1.
a.
Tax planning involves the ability to identify and avail clients of the opportunities for minimizing
tax liability by making full use of available options.
Comment vividly on this statement and describe how this can be achieved in practice in the
following areas:
i.
Capital allowances.
ii.
Losses.
iii. Right of election.
iv. Incentives.
v. Timing of payment of tax liabilities
b.
In relation to Pioneer industries, explain the following terms:
i. Production day.
ii. Income Tax Relief.
iii. Losses.
iv. Pioneer Certificate.
Page 30 of 43
(10 marks)
v. Certificate of qualifying expenditure.
(10 marks)
(Total 20marks)
Assessor’s Comment
The candidates did not perform well in part (a) of the question but performed
satisfactorily in part (b).
SOLUTION
SOLUTION
1
It has been established that no tax payer has the obligation to allow the tax authority to dig the
deepest hole in his income. It therefore means that the taxpayer should be in a position to avail him
of all the available opportunities to minimize his tax liability. This is the essence of tax planning.
The following are some of the vehicles that can be used by the tax payer to minimize tax liabilities.
(a)
i.
CAPITAL ALLOWANCES
Generally, capital allowance is used to reduce tax liability; this can be achieved
through the use of capital allowances to reduce assessable profit. Under the
provisions of the law, businesses that are in the Agricultural and Manufacturing
sectors of the economy may fully utilize the capital allowance available no matter
the amount of assessable profit. The consequence of this is that the company may
have no taxable profit even where it has generated profit. In a situation where
dividend is declared and paid, the Revenue will use the amount of the dividend paid
as taxable profit.
Certain companies are also entitled to accelerated capital allowances rate of 50%.
This will enable them take advantage very early in the life of the assets.
2 Marks
(ii)
LOSSES
Under the tax provision, any loss incurred by a business may be carried forward for
relief against the assessable profits of subsequent tax years. The general rule is that
losses when incurred can be carried forward indefinitely, which indicate that losses
incurred is not totally lost and is available for use in reducing subsequent years tax
liability.
2 Marks
(iii)
RIGHT OF ELECTION
Under the commencement rule, a tax payer may exercise its right of election where it
can apply to the tax authority for it to be assessed in the second and third years on
actual year basis. This right is generally exercised only if it reduces the tax liability
of the tax payer.
The implication of this provision is that whereas the commencement rule is deemed
to be punitive, the advantage given by the right of election is an additional
opportunity to minimize tax liability.
Page 31 of 43
2Marks.
(iv)
INCENTIVES
There are several incentives available to the tax payer in order for tax liability to be
minimized such incentives are used to attract the taxpayers to invest in certain
sectors of the economy. For example, capital allowances may be fully claimed by an
Agricultural and Manufacturing companies, because government considers the two
sectors to be preferred and therefore must be encouraged. Other incentives are :
2
Marks
-
b.
Liquefied Natural Gas 10 yrs.
Investment allowances
Downstream Sector in the Gas industry
Manufacturing Companies Operating in EPZ
Companies Manufacturing for Export
Incentives for Exportation of manufactured products
Mining of Solid Minerals.
Small Companies engaged in Manufacturing, Agricultural Production, Mining of
solid minerals or wholly Export Trade.
Tourism Development, Provision of Infrastructure in rural areas.
2 Marks.
(v)
TIMING OF PAYMENT OF TAX LIABILITIES
The advantage given by the provision of the tax law is the fact that it helps to ease
the cash flow/ Before the introduction of self-assessment scheme in 1996,
provisional tax was being paid, this requires that an amount that is equal to the
liability of the previous year should be paid in advance/ With the self-assessment,
tax is now expected to be paid over six equal installments and from 6 months after
the year end.
2 Marks
(i)
PRODUCTION DAY
This is the day the pioneer company commences its operations for the purpose of the
Industrial Development (Income Tax) Act of 1990. This is also taken as the day
when the pioneer company commences production in commercial quantities
specifically for a company in manufacturing, processing, mining industry. The
production day certificate is being issued by Inspectorate Department of Federal
Ministry of Industry.
2 Marks
(ii)
INCOME TAX RELIEF
The provision of Industrial Development (Income Tax) Act requires that during its
pioneer period no income tax is due because tax holiday is granted. It ranges
between 3 to 5 years depending on the consideration given by Nigerian Investment
Page 32 of 43
Promotion Commission (NIPC).
2 Marks
2.
a.
(iii)
LOSSES
Where a pioneer company incurs net loss during an accounting period in its old trade
or business, that loss shall be deemed to have been incurred by the company on the
day on which its new trade or business commences, for the purpose of computing the
total profits of the company.
Where the Board is satisfied that the pioneer company has incurred such a loss, a
certificate shall be issued accordingly.
2 Marks
(iv)
PIONEER CERTIFICATE
This means a certificate given certifying among other things, a company to be a
pioneer.
The pioneer certificate should contain the following information
The names of the main and by –product together with their relative
quantities and values.
The date of the production day.
The values of the qualifying capital expenditures.
2 Marks
(v)
CERTIFICATION OF QUALIFYING EXPENDITURE
A pioneer company is expected to make an application in writing to the FIRS to
certify the amount of the qualifying expenditure incurred by the company prior to
the production day. This application must be made not later than one month after
the production day of the pioneer company has been finally determined and
certified by the Director or within the period of extension that might have been
granted.
2 Marks
Tax incentive provisions are enacted for a variety of objectives. Give (5) five out of the
objectives.
b.
(5 marks)
As enshrined in Section 3 of the Federal Inland Revenue Service Establishment Act No 13 of
2007, state any (5) five members of the Federal Inland Revenue Service Board.
(5 marks)
c.
Hassan Ibironke Nigeria Limited, a dealer in general commodities wrote to the Federal Inland
Revenue Service objecting against the sum of N1,680,000 which it was assessed to pay as
Companies Income Tax for 2009 year of assessment on the ground that there were some
mistakes in the returns resulting in over assessment. On the strength of this objection, the Inland
Revenue conducted a review of the assessment and discovered that N1,680,000 which the
company had returned as profit on the disposal of its piece of land at Apapa was inadvertently
included in the trading profit. The cost of the land in year 2000 was N500,000; by the same
token, N200,000 representing legal and allied expenses incurred in the disposal of the said land,
Page 33 of 43
was also deducted from trading profit as part of the trading expenses. The company claimed and
was granted N700,000 as capital allowance.
You are required to compute the company`s
i. Assessable profit
ii. Total profit
iii. Income Tax payable
iv. Education Tax
v. Capital Gains Tax
(10 marks)
(Total 20 marks)
Assessor’s Commet
The candidates performed very well in this question especially on the (b) part of the
question on membership of the Board of the Federal Inland Revenue Service. This was
a bonus to majority of the candidates.
SOLUTION
2.
(a)
(i)
(ii)
(iii)
To encourage investments in some preferred sector of the economy
through the granting of tax holiday, or accelerated capital allowances.
To give relief to certain small businesses during the early years of operation by way
of reduction in the rate of tax.
To encourage repatriation of funds held by Nationals outside the country in order to
boost domestic investment.
(iv)
To encourage long term foreign investments in the country.
(v)
To encourage research which enhances the quality of production and for the benefit
of the public and;
(vi)
To encourage non-business activities which Government considers socially desirable
such as charities like motherless babies’ homes or houses for the physically
challenged people.
Any 5 points x 1 mark = 5 Marks.
(b)
COMPOSITION OF FEDERAL INLAND REVENUE SERVICE BOARD
(i)
(ii)
(iii)
(iv)
(v)
The Executive Chairman of the Service who shall be experienced in Taxation as
Chairman of the Service to be appointed by the President and subject to the
confirmation by the senate.
Six members with relevant qualifications and expertise who shall be appointed by
the President to represent each of the 6 geo political zones.
A representative of the Attorney General of the Federation
The Central Bank of Nigeria’s Governor or his representative.
A representative of the Minister of Finance not below the rank of a Director.
Page 34 of 43
(vi)
(c)
The Chairman of the Revenue Mobilization Allocation and Fiscal Commission or his
representative who shall be any of the commissioners representing the 36 States of
the Federation.
(vii) The Group Managing Director of the NNPC or his representatives who must not be
below the rank of a Group Executive Director of NNPC or equivalent.
(viii) The Comptroller-General of the Nigeria Customs Service or his representative not
below the rank of Deputy Comptroller-General.
(ix)
The Registrar-General of the Corporate Affairs Commission or his representative not
below the rank of a Director and
(x)
The Chief Executive Officer of the National Planning Commission or his
representative not below the rank of a Director.
5 Points x 1 mark = 5 Marks.
HASSAN IBIRONKE NIGERIA LTD.
RE-COMPUTATION OF TAX LIABILITY FOR 2009 YEAR OF ASSESSMENT.
₦
₦
Chargeable Profit Reported
₦1,680,000 to be grossed up
5,600,000
ADD:Capital allowance
700,000
Legal expenses
200,000
900,000
Less:-Profit on disposal of
Fixed Asset
(1680,000)
(a) Revised
Assessable
Profit
Less
Capital
allowance
4,820,000
(b) Total Profits
4,120,000
(c) Income Tax Payable
of 30%
(d) Education Tax 2% of
₦4,820,000
(e) COMPUTATION OF
CAPITAL
GAINS
TAX Sale proceeds
(₦1,680,000
+
500000)
Less:- cost of acq
1,236,000
(700,000)
= ₦96,400
2,180,000
Legal expenses
Page 35 of 43
Capital Gains
500,000
200,000
Capital Gains Tax of
10%
(700,000)
1,480,000
148,000
15 Ticks x 2/3 = 10 Marks.
3.
You are the Tax Consultant to Onuora Ajomale Nigeria Limited. The Company always make its
account to 31 December each year. Due to issues to be cleared with the Board of Directors and the
statutory External Auditor, the Finance Director intimated your firm that the company would not be
able to file its income tax returns on the following 30 June.
Required
a.
What is the penalty for late filing of audited accounts as at June 30?
(2 marks)
b.
What are the conditions to be fulfilled for an extension of making returns to be granted?
(2 marks)
c.
When can minimum tax be levied and what are the rates according to section 29 A of CITA?
State the exemptions to the rule
(6 marks)
d.
What constitute a valid objection?
(5 marks)
e.
Explain the provision of Sections 8A and 8B of value Added Tax Act 1993 that deals with
registration of government ministries and non-residents. (5 marks)
(Total 20 marks)
Assessor’s Comment
The candidates performed averagely on this question
3.
SOLUTION
(a)
Section 41 (3) of CITA 2004 states that any company which fails to file its tax
returns on due dates shall be liable to pay as penalty for late filing as follows:
i.
₦25,000 in the first month in which the failure occurs and
ii.
₦5,000 for each subsequent month in which the failure continue.
2 Marks.
(b)
A company may apply in writing to the Federal Inland Revenue Service in
accordance
with provision of section 43 (5) of CITA 2004 for an extension of the time for the filing of
Annual Return. The application would be approved only under the following conditions:
i.
Makes the application before the expiry of the time stipulated in the Act for making
the returns.
Page 36 of 43
ii.
(c)
Shows good cause for his inability to comply with the provision of the Act.
2 Marks
Minimum tax can be levied when any of the following happens according to section 28 A of
CITA:
i.
ii.






Where there is no taxable profit
When the taxable profit results in a tax liability that is lower than the minimum tax
payable. The minimum tax liability will be computed using the following rate.
Where the turnover does not exceed ₦500,000 Highest of!
0.5% of Gross Profit
0.5% of Net assets
0.25% of Paid Up Share Capital
0.25% of Turnover that does not exceed ₦500,000
Where the turnover exceeds ₦500,000 the minimum tax is the addition of the highest
figure in (i) plus 0.125% of turnover in excess of ₦500,00
The provision for minimum tax shall not apply to the followings:
 A company carrying on Agriculture trade or business as defined in the Act.
 A company for the first four calendar years of its commencement of business.
6 Marks
(d)
For an objection to be valid, it must satisfy the following:i.
The name and address of the applicant.
ii.
The official number and the date of the Notice of Assessment.
iii. The amount of the Assessable profit, total or chargeable profit and of the tax charged
as shown by that notice and the year of assessment concerned.
iv.
The precise grounds of appeal against the assessment which must be limited to the
grounds stated in the notice of objections.
v.
The address for service of any notice of other documents to be given to the applicant.
vi.
The date the applicant was served with the notice of refusal to amend.
vii.
The notice of objection must be filed within 30 days from the date of receipt of the
notice of assessment.
Any 5 points x 1 mark = 5 Marks.
(e)
Under the provision of section 8A and 8B of VAT Act 1993(as amended) every government
ministry statutory body and other agency of Government shall register as agents of the
Board of Internal Revenue for the purpose of collection of VAT.
Consequently, every contractor transacting business with a Government Ministry, statutory
body and other agency of the Federal, State or Local Government shall reproduce evidence
of registration with the Board as a condition for obtaining contract.
Non-Residents
Page 37 of 43
A non-resident company in business in Nigeria shall register for the tax with the Federal
Board of Internal Revenue, using the address of the person with whom it has a subsisting
contract as its address for the purpose of correspondence relating to tax.
A non-resident company is required to include VAT in its invoice but the person to whom
the goods or services are supplied in Nigeria will remit the tax in the appropriate currency.
Every Ministry, statutory body or other agency of Government shall, at the time of making
payments to a contractor remit the tax charged on the contract to the nearest local tax office.
Also companies operating in the oil and gas sector shall deduct VAT at source and remit
same to Federal Inland Revenue Service.
5 Marks.
4.
a.
You have just been appointed as Tax Consultant to a multinational company, whose head office
is located in South Africa. The management of the company would like to know the provision of
Nigeria tax laws as it relates to chargeable profit and capital allowances. State these laws.
(12 marks)
b.
What are chargeable assets under Capital Gains Tax Act Cap 42 LFN 2004?
(3 marks)
c.
State 5 (five) items specifically exempted from Capital Gains Tax.
(5 marks)
(Total 20 marks)
Assessor’s Comment
Candidates performed woefully in this question especially on (a) part as it relates to
Chargeable Profit and Capital Allowances.
question.
The candidates did not understand the
Candidates should be tested further on Chargeable Profit and Capital
Allowances
4.
SOLUTION
(a)
Section 8A of CITA as amended provides that tax shall for each year of
assessment be payable upon the profits of any company accruing in, derived from brought
into, or received in Nigeria in respect of :
i.
Any trade or business regardless of how long such trade or business may have been
carried on.
ii.
Rent or any premium arising from a right granted to any other person for the use of
occupation of any property.
iii. Dividends, interests, discounts, royalties, charges or annuities.
iv.
Any source of annual profits or gains not included in (i) – (iii) above.
v.
Any amount deemed to be income or profit under a provision of this Act, or with
respect to any benefit arising from a pension or provident fund, of the Personal
Income Tax Act.
vi.
Fees, dues and allowances (where ever paid) for services rendered.
Page 38 of 43
vii.
viii.
ix.
x.
xi.
xii.
xiii.
Any amount of profits or gains arising from the acquisition or disposal of short term
money instruments like Federal Government Securities, Treasury Bills, Treasury and
Saving Certificates, Debenture Certificates and Treasury Bonds.
If that company has a fixed base of business in Nigeria to the extent that the profit is
attributable to that fixed base.
The profits of a company, other than a Nigerian company from any trade or business
shall be deemed to be derived from Nigeria.
If that company has a fixed base of business in Nigeria to the extent that the profits
is attributable to that fixed base.
If it does not have such a fixed base in Nigeria, but habitually operates a trade or
business through a person in Nigeria authorized to conclude contracts on its behalf
or on behalf of some other companies controlled by it or which have controlling
interest in it, or habitually maintain a stock of goods or merchandise in Nigeria from
which deliveries are regularly made by a person on behalf of the company , to the
extent that the person is attributed to the business or trade or activities carried on
through that person.
If that trade or business or activities involve a simple contract for surveys, deliveries,
installation or construction, the profit from that contract.
Where the trade or business or activities is between the company and another person
controlled by it or which has controlling interest in it and conditions are made or
imposed between the company and such person in their commercial or financial
relations which in the opinion of the Board is deemed to be artificial or fictitious so
much of the profits adjusted by the Board to reflect arm’s length transaction.
CAPITAL ALLOWANCES
The Companies Income Tax act specifically disallows “any expenditure of a capital
nature” and therefore provides capital allowance in lieu of depreciation:(i)
Qualifying Expenditure and capital allowances rate:The qualifying expenditure is one incurred on a fixed asset within a basis period.
This includes capital expenditure incurred on.
Qualifying Expenditure
Initial Annual
Rate Rate
%
%
Building (Industrial & Non Industrial)
15
10
Mining
95
NIL
Plant and Machinery
- Agricultural Production
Page 39 of 43
- Others
95
NIL
50
25
25
20
95
NIL
50
25
Plantation Equipment
95
NIL
Ranching and Plantation
30
50
Research and Development
95
NIL
Housing Estate
50
25
Furniture & Fittings
Motor Vehicles
- Public Transportation
- Others
Conditions for granting Capital Allowances.
The following conditions must be met by a company before capital allowances can be
granted.
i.
The asset must be owned by the company.
ii.
The asset must be a qualifying capital expenditure
iii. It must have been used for the purpose of the trade.
iv.
It must be in use at the end of the basis period.
v.
The tax payer is required to present an acceptance Certificate issued by the Federal
Ministry of Industries in respect of assets acquired for ₦500,000 and above (in each
asset category)
Types of Capital Allowances.
(a)
(b)
(c)
(d)
Initial Allowances
Annual Allowances
Balancing Allowances
Investment Allowances.
12 Marks.
Page 40 of 43
4
(b)
Section 3 of Capital Gains Tax Act Cap 42 LFN 2004 defined chargeable assets
as follows:
Options, debts, and incorporeal property generally.

Any currency other than Nigerian Currency

Any form of property created by the person disposing of it, or otherwise coming to
be owned without being acquired, and without prejudice to the foregoing provisions.
3 Marks.
(c)
Exemptions from Capital Gains Tax are:
i.




ii.
iii.
iv.
v.
vi.
vii.
Gains accruing to
An ecclesiastical, charitable or educational institutions of public character
Any statutory or friendly society
Any cooperative society
Any trade union registered under the Trade Union Act.
Gains accruing to local government council
Gains accruing to any company being a purchasing authority established by or under
any law in Nigeria empowered to acquire any commodity in Nigeria for export from
Nigeria.
Gains accruing on disposal of investment held as part of super annuity fund.
Gains accruing on disposal by any person of decoration awarded for valour or
gallant conducts which he acquires otherwise than for consideration.
Gains accruing from the disposal of Nigerian Government Securities.
Gains accruing on disposal of land compulsorily acquired by an authority having and
exercising full powers.
Any 5 points x 1 mark = 5 Marks.
5.
a.
You have been nominated by the Council of The Chartered Institute of Taxation of Nigeria to
make a position paper to Nigeria Employers Consultative Association (NECA), the reasons for
tax incentives in Nigeria. The reason for this paper is to enable NECA to present their position to
the National Assembly. State your points in a bullet form for case of codification.
(10 marks)
b.
Discuss tax incentives available to tax payers.
(5 marks)
c.
What are the fundamental principles guiding Tax Practice in Nigeria?
(5 marks)
(Total 20 marks)
Assessor’s Comment
The candidates were unable to mention the Tax Incentives as applicable to Tax Payers
but did well in part (a) and (c) of this question.
SOLUTION
Page 41 of 43
.5. a
REASONS FOR TAX INCENTIVES IN NIGERIA
i.
SOCIAL DEVELOPMENT
The capacity utilization of companies will be enhanced and this will lead to more
employment in the country. On the long run, it will lead to social equilibrium and
stability in the economic system of the nation.
ii.
INDUCEMENT OF INVESTMENT
The issue of investment and tax incentive are germane in the National Policy
formulation. With investment in place as a result of tax incentives there will be
increased or widened profit margins of companies through reduction in various tax
liabilities.
iii.
TO ENCOURAGE SPECIAL SECTORS.
There are at times when government wants to stimulate a particular sector of the
economy. In that direction, generous tax incentives are usually given to such sector
to attract investors in that sector. These could be seen on the cases of Pioneer
companies, Agricultural sectors, Export Processing Zone and Free Trade Zones
iv
VOLUNTARY COMPLIANCE
The granting of tax incentives to companies engenders voluntary compliance which
give rise to increased revenue to the government. The reduction in the rate of tax or
the increase in the capital allowance rates will enable companies to avoid tax
avoidance strategy and hence comply.
v.
TO CONTROL INFLATION
By the use of tax incentives, the purchasing power of consumers in an inflationary
economy is enhanced. This leads to the increase in the real income of the consumers
because of the enhanced value of their disposable income.
vi.
PRODUCTION AND CONSUMPTION
In most economic situations, people concentrate on increasing the productive
capacity and disposable income. With tax incentives, these turn objectives for
economic growth i.e increasing production and increasing disposable income and
achieved.
vii.
PROTECTION OF LOCAL INDUSTRIES
The potent use of tax incentives to protect local industries, this will make their prices
cheaper than the imported ones.
viii.
INTERNATIONAL TRADE
In order to stem capital flight, and attract foreign trade, tax incentives are at times
used. For instance export commodities are given bountiful tax incentive to enable it
competes favourably in international trade.
Any 5 points x 2 marks = 10 Marks.
Page 42 of 43
(b)
(c)
TAX INCENTIVES UNDER THE NIGERIAN TAX LEGISLATION – COMPANIES
Pioneer Status
Accelerated Capital allowances
Investment allowances
Franked Investment income
Small Companies incentives
Tax exemption on foreign income repatriated
Indefinite carry forward of tax losses
Roll over relief
Export Expansion Grant
Petroleum incentives
Export Promotion
Rural Investment allowance
Relief from Tax Infrastructure
Agricultural and Mining Production
New companies going into the mining of solid minerals
Tourist income
Unit trusts.
Any 10 points x ½ mark = 5 Marks.
A member should behave with integrity in all professional and business relationships.
A member should strive for objective in all professional and business judgements. It
is the state of mind which has regard to all considerations relevant to the task in hand
but no other.
Should not accept or perform work which he or she is not competent to undertake
unless he obtains such advice and assistance as will enable him competently carry
out the work.
Should carry out his or her professional work with due skill, care, diligence,
expedition, with proper regard for the technical and performed standards expected of
him as a member.
Should conduct himself or herself with courtesy and consideration towards all with
whom he comes into contact during the course of performing his work.
4 ticks x 1 ¼ = 5 Marks.
Page 43 of 43