Having the Knowledge of Taxation in Nigeria Will Help Your Business.
One area you or your business can easily run into problem is in the area of taxation in Nigeria. Whether we like it or not, taxation in Nigeria is fast becoming a vital source of revenue to every level of government. As an individual or a business you are expected to comply with the taxation in Nigeria.. Some may be direct while some are indirect.
Direct tax refers to tax that is both imposed and collected on a specific group of people or organizations. This tax is paid directly to the government by the person on whom it is imposed. The person who earns the income on which tax is payable cannot shift the payment to another person or entity. Examples of direct taxation in Nigeria are personal income tax and company income tax.
Indirect tax on the other hand is the tax that is not levied directly on the income of an individual or entity. It is levied equally upon taxpayers, no matter their income. It is a consumption tax, that is, it is imposed only if and when you purchase any item that attracts indirect tax. The only way to avoid such tax is to refrain from buying the items on which tax is levied. Examples of indirect taxation in Nigeria are Value Added Tax (VAT) and Custom Duties
This article will not go into the details of all the types of taxation in Nigeria, the main objective here is just to sensitise you on the existence these taxes. You will therefore need a tax practitioner for professional advice on tax matters. Nevertheless, it is important you understand the difference between Tax Avoidance, Tax Evasion and Tax Planning:
Read Also: Company Income Tax in Nigeria
Tax avoidance is generally the legal exploitation of the tax regime to one’s own advantage, to attempt to reduce the amount of tax that is payable by means that are within the laws guiding taxation in Nigeria whilst making a full disclosure of the material information to the tax authorities. It means making use of legal loopholes in the tax laws.
Tax evasion is the illegal concealment of parts of the tax basis, or the concealment of taxable economic activities altogether. It is the general term for efforts by individuals and organizations to evade the payment of taxes by illegal means. Tax evasion usually entails taxpayers deliberately misrepresenting or concealing the true state of their affairs to the tax authorities to reduce their tax liability, and includes, in particular, dishonest tax reporting.
Tax planning is the process of looking at various tax options in order to determine when, whether and how to conduct business and personal transactions so that taxes are eliminated or reduced. It involves organizing one’s affairs using legally acceptable means in order to minimize the amount of tax which would otherwise be payable. As well as complying with all the statutory requirements of taxation in Nigeria, the arrangement entered into should be a genuine commercial transaction or one which is a normal family arrangement. Your tax planning begins with the choice of approriate legal structure for your business. Therefore, tax planning is about planning ahead.
Before you can successfully have a good Tax Planning in place:
- You must be knowledgeable of taxation in Nigeria and other tax-related laws
- You must know which type of corporate entity to choose and how to structure the holding.
- You must understand about incomes, expenses and deductions
- You must know how to take benefits on related rights and privileges or concession as allowed by the law.
- You must know how to minimize tax at the point of entering into contract
- You must have a competent lawyer or accountant as a tax practitioner.
Read Also: Administration of Withholding Tax in Nigeria