ADVANCED TAXATION – SOLUTIONS TO PILOT QUESTIONS

SUGGESTED SOLUTION TO QUESTION 1

Gberigbe Nigeria Limited

Computation of tax liabilities for 2019 year of assessment

(i) N'000 N'000

Profit for the year 195,000
Add back disallowed Expenses:
Depreciation 85,000
Refund to Managing Director's tenant 650
Foreign exchange loss on transactions 7,500
Write off of fund misappropriated by employee 1,100
Stamp duty on increase in share capital 850
Penalty for late filing of returns to Delta State 500
IFRS impairment adjustment 2,500
98,100
Deduct Non Taxable Income:
Interest on domiciliary accounts 10,000
Personal rental income of Managing Director 12,500
Interest on foreign placement repatriated (60% of N17,500,000) 10,500
Profit on sale of non-current asset 5,000
(38,000)
Adjusted/Assessable Profit 255,100
Add: balancing Charge (Working 1) 5,000
260,100
Deduct :Unrelieved loss brought forward 15,250
Relieved (15,250) (15,250)
Unrelieved loss carried forward Nil
244,850
Deduct Capital allowances:
Unabsorbed brought forward 12,500
Capital allowance for the year ( Working 2) 23,967
Total Capital allowance 36,467
Absorbed capital allowance (36,467) (36,467)
Unabsorbed carried forward Nil
Total Profit 208,383

Company Income Tax Payable @ 30% 62,515

Tertiary education tax payable @ 2% of Assessable profit 5,102

 Workings

1 Computation of Balancing Charge: N

Sale Proceeds of 5 Motor Vehicle purchased in 2012 Accounting year 5,000,050
Deduct Tax written down value at disposal in 2018 accounting year 50
(i.e. Initial and annual allowance rate of 50% and 25% respectively)
Balancing Charge 5,000,000

Workings
2 Computation of Capital Allowances for the year:

a Existing Assets N N N N
Asset Class Plant & Machinery Furniture & Fittings Motor Vehicle Total
Year of Purchase 2015 2015 2015
Tax Life (Years) 4 5 4
Expired Tax Life 3 3 3
Unexpired Tax Life 1 2 1
Tax Written down value 4,000,000 7,000,000 6,000,000
Annual Allowance 3,999,990 3,500,000 5,999,990 13,499,980
Tax Written down value carried forward to 2020 10 3,500,000 10

b Newly Purchased Assets N N N N

Cost 3,000,000 1,200,000 12,500,000
Initial Allowance (i.e.Cost x Initial allowance rate) 1,500,000 300,000 6,250,000 8,050,000
Annual Allowance ( i.e. Cost less initial allowance divided tax life) 375,000 180,000 1,562,500 2,117,500
Investment Allowance (i.e. Investment allowance rate x cost) 300,000 - - 300,000
Tax Written down value carried forward to 2020 1,125,000 720,000 4,687,500

Total Capital allowance for the year 23,967,480

Minimum Tax Computation

a The Highest of : N N
0.5% of Gross Profit 0.5% x N400,000,000 2,000,000 2,000,000
0.5% of Net Assets 0.5% x N250,000,000 1,250,000
0.25% of Paid up Share Capital 0.25% x N350,000,000 875,000
0.25% of Turnover of N500,000 0.25% x N500,000 1,250
PLUS
b 0.125% of Turnover in excess of N500,000
0.125% ( N850,000,000 - N500,000) 0.125% x N849,500,000 1,061,875

Mininum Tax Payable ( a + b) 3,061,875

Note :
1. Given that the income tax computed based on normal assessment is greater than
minimum tax liability, the income tax for 2019 year of assessment will not be based
on minimum tax.
2. The defalcation by the Chief Accountant is a disallowed expense. If it was carried out
by a junior staff, such as accounts clerk, it would have been an allowable expense.

Computation Income Tax Payable based on Dividend N

Dividend paid 120,000,000
Income Tax @ 30% 36,000,000

Note : Given that the income tax computed based on normal assessment is greater than
dividend tax, the income tax for 2019 year of assessment will not be based on dividend tax.

(ii)

25 May 2019

Managing Director
Gberigbe Nigeria Limited
22, Benson Street, Ikorodu
Lagos State

Dear Sir,

2019 Year of Assessment Corporate Tax Computations

We refer to the meeting between you and our Managing Partner and the information
obtained from your Chief Finance Officer with respect to the above subject.

We wish to inform you that we have computed the tax liabilities of your company for 2019
year of assessment based on the records provided and in line with the provisions of the
relevant Nigerian tax laws.

Please find below the summary of the computed income taxes which details are attached to
this letter for ease of reference and review:
Companies income tax based on normal assessment - N62,515,000
Companies income tax based on minimum tax – N3,061,875
Companies income tax based on dividend paid – N36,000,000

To comply with the provisions of the Nigerian tax laws, your company is expected to pay the
highest of the above which is N62,515,000. Therefore, the income tax payable for 2019 year
of assessment should be N62,515,000

In addition, we have computed the tertiary education tax and the amount due for payment is
N5,102,000

As an on-going company, your company is expected to file 2019 corporate tax returns for
2019 year of assessment with Federal Inland Revenue Service not later than 30 June 2019
since your financial year end is 31 December .

To file the returns for 2019 year of assessment, your company is expected to submit the
following documents:

• A letter forwarding the returns to the tax office;

• 2018 Audited financial statements of the company;
• 2019 year of assessment Income and tertiary education tax computation;
• Capital allowances and balancing charge computation;
• Completed and duly signed self-assessment forms; and
• Evidence of direct payment of computed income and tertiary education tax.

Please do not hesitate to contact the undersigned for further clarification on the subject.

We thank you for the interest shown in our firm and look forward to continued good
business relationship.

Yours faithfully,
For : ABC Tax Consultants

Ken Mustapha
Senior Manager

(iii)
According to Section 19 of Companies Income Tax Act, where a dividend is paid out of
profit on which no tax is payable due to no total profit, or total profit which is less than the
amount of dividend paid, the company paying the dividend shall be charged to tax at the
rate of 30% as if the dividend is the total profit of the company for the year of assessment to
which the accounts out of which the dividends is deducted relates.
SUGGESTED SOLUTION TO QUESTION 2

(a)
Midas Touch Nigeria Plc

Computation of tax liabilities for 2017 year of assessment

UK operation Nigeria operation Global operation

N N N N N

Net profit per account 3,082,000 5,214,000 8,296,000

Add back :disallowed expenses:

Donation to clubs - 750,000 750,000

Loss incurred in 2015 financial year 850,000 - 850,000
Depreciation 700,000 1,500,000 2,200,000
Allowance for bad debt 480,000 950,000 1,430,000
Foreign exchange loss provision 735,000 - 735,000
Total disallowed expenses 2,765,000 3,200,000 5,965,000

Adjusted/Assessable Profit 5,847,000 8,414,000 14,261,000

Deduct Capital allowances :

Initial - 520,000
Annual 375,000 250,000
Total Capital allowance 375,000 770,000
Absorbed/Relieved (375,000) (375,000) (770,000) (770,000) (1,145,000)
Unrelieved Capital allowance c/f Nil Nil

Total Profit 5,472,000 7,644,000 13,116,000

Company Income Tax Payable @ 30% 1,641,600 2,293,200 3,934,800

Deduct Double taxation relief ( See Workings) (820,800)

Net Compnay Income Tax Payable 3,114,000

Tertiary Education Tax Payable @ 2% of Global Assessable Profit 285,220

Workings

Commonwealth Rate of Tax ( CRT):

Tax Paid in UK X 100

Total Profit in UK 1

N1,150,000 X 100
N5,472,000 1

21.02%

Nigerian Tax : 30%

Half Nigerian Tax Rate 15%

Since Commonwealth Rate of Tax exceeds one half of Nigerian Tax rate, half of the Nigerian rate
of tax is the applicable double taxation relief rate

Also, Midas Touch Nigeria Plc is a resident company, therefore double taxation relief will be
half Nigerian rate of tax multiply by the UK total profit
15% X N5,472,000
= N820,800

(b)

The Key tests in the taxation of non-residents include:

1) Fixed base of business – S. 11 (2)(a)

The fixed base of non-resident company is the place from where it carries on its business or
trade in Nigeria. The fixed base must be easily identifiable and must possess some degree
of permanence. A fixed base will include:

(i) Facilities such as a factory, an office, a branch, a mine or an oil well;

(ii) Activities such as building construction, assembly or installation; and

(iii) Furnishing of services in connection with the activities above.

It is important to note that the following cannot be considered as a fixed base:

- Facilities used solely for storage or display of goods or merchandise; and

- Facilities used solely for the collection of information.

For an individual, the profit of an individual carrying on a trade or business in Nigeria

through a fixed base shall be the profit attributable to that fixed base, specifically:

-If the business is through a dependent agent, the profit attributable to that agent;
-If the business involves turnkey projects, the profit from that contract;or
-If the business is through related parties, the profit determined on arms length principle by
the relevant tax authority.

2) Agency operation – S. 11 (2)(b)

Where a non-resident does not have a fixed base in Nigeria, but habitually operates a trade
or business through a person in Nigeria:

(i) Authorised to conclude contracts on its behalf or on behalf of some other companies
controlled by it or which has controlling interest in them; or

(ii) Who habitually maintains a stock of goods or merchandise in Nigeria from which
deliveries are regularly made by a person on behalf of the company, then an agency
arrangement is deemed to have arisen. The profit deemed to have been derived from
Nigeria is the profit attributable to the business or trade or activities carried on through the
agent.

There may be two types of agents:

 Independent agent
An agent is regarded as possessing independent status when it deals on behalf of a
non-resident company in its ordinary course of its own business. The implication of
this arrangement is that the agent carries on its own trade along with his function as
an agent of the non-resident company. Therefore, if the non-resident company stops
trading in Nigeria, the independent agent is not materially affected as it will continue
in its own business.

 Dependent agent
This occurs when the agent devotes his activities wholly or almost wholly to the non-
resident company. Where a dependent agent makes an isolated sale of goods on
behalf of the principal, such a profit may not necessarily be subjected to tax in
Nigeria. Where however the sale of goods on behalf of the principal is on a regular
 basis, then the agent is deemed to trade habitually in the goods and the profit
derived therefrom is chargeable to tax in Nigeria.

3) Turnkey projects – S. 11(2)(c)

This is a trade, business or activity which involves a single contract for the surveys,
deliveries, installations and construction. For Nigerian income tax purposes, the profit from
such a turnkey project is considered as derived from Nigeria. Consequently, it is fully
chargeable to tax in Nigeria because no allowance would be given for the profit to be
divided into Nigerian and offshore.

SUGGESTED SOLUTION TO QUESTION 3

HIGHPOWER NIGERIA LIMITED

a Computation of Capital Gains

Disposal of building N
Sales Proceed 45,000,000.00
Less cost of acquisition 35,000,000.00
Capital gain 10,000,000.00

Disposal of Equipment
Sales Proceed 14,000,000.00
Less cost of acquisition 16,000,000.00
Capital Loss (2,000,000.00)

Disposal of Generating Set

Sales Proceed 15,300,000.00
Less cost of acquisition 13,500,000.00
Capital gain 1,800,000.00

Total Capital Gains 11,800,000.00

b Computation of roll-over relief

Disposal of building N N
Sales Proceed of old building 45,000,000.00
Less cost of old building 35,000,000.00
Capital gain 10,000,000.00

Less: Rollover relief

Amount re-invested in the new building 45,000,000.00
Less cost of old building 35,000,000.00
Chargeable gain rolled over (10,000,000.00)

Disposal of Equipment N N
Sales Proceed of old equipment 14,000,000.00
Less cost of acquisition 16,000,000.00
Capital Loss (2,000,000.00)

Disposal of Generating Set N N

Sales Proceed old generating set 15,300,000.00
Less cost of acquisition 13,500,000.00
Capital gain 1,800,000.00

Less: Rollover relief

Amount re-invested in the new set 13,000,000.00
Less cost of old set 13,500,000.00
Chargeable gain rolled over Nil
c Computation of Capital Gain Tax

Disposal of building N

Capital gain 10,000,000.00

Chargeable gain rolled over (10,000,000.00)
Balance liable to CGT Nil
Capital gain @ 10% Nil

Disposal of Equipment
Capital Loss (2,000,000.00)
Capital gain @ 10% Nil

Disposal of Generating Set

Capital gain 1,800,000.00
Chargeable gain rolled over Nil
Balance liable to CGT 1,800,000.00
Capital gain @ 10% 180,000.00

SUGGESTED SOLUTION TO QUESTION 4

(a) Transfer pricing is the general term for the pricing of cross-border, intra-firm
transactions between related parties. Transfer pricing therefore refers to the setting
of prices for transactions between associated enterprises for the transfer of property
or services.

The following are the objectives of Income Tax (Transfer Pricing) Regulations, 2018
in Nigeria:

i. To ensure that Nigerian tax authorities are able to tax on an appropriate taxable
basis corresponding to the economic activities deployed by taxable persons in
Nigeria, including their transactions and dealings with associated enterprises;
ii. To provide the tax authorities the tools to fight tax evasion through over- or
under– pricing of controlled transactions between associated enterprises;
iii. To reduce the risk of economic double taxation ;
 iv. To provide a level playing field between multinational enterprises and
independent Enterprises doing business within Nigeria ; and
v. To provide taxable persons with certainty of transfer pricing treatment in Nigeria.

(b) Objectives of Income Tax (Country by Country Reporting) Regulations, 2018 in

Nigeria are:

i. To provide tax authorities with information about Multinational Enterprises

(MNEs) global activities, profits and taxes;
ii. To provide tax authorities with information to better assess international tax
avoidance risks;
iii. To improve transparency of MNEs in their tax practices; and
iv. To prevent tax evasion or avoidance through base erosion and profit shifting.

(c) The following are the contents of a Transfer Pricing Disclosure form to be submitted
by Companies to FIRS

i. Particulars of reporting company or entity – This will include the name,

incorporation number, country of incorporation, country of tax residence, tax
identification number, registered address, web address, details of contact
person and principal business activities.
ii. Income from controlled transactions i.e. income from controlled persons in
Nigeria and overseas.
iii. Costs of controlled transactions i.e. charges by connected persons in Nigeria
and overseas.
iv. Summary of controlled transactions with connected persons
v. Transfer Pricing Methods and Documentation – This will include methods
such as Comparable Uncontrolled Price method, Resale Price method, Cost-
Plus method, Transaction Profit Split method, Transaction Net Margin
Method..
vi. Basic financial information for reporting and group consolidation.
vii. Particulars of the person making the disclosure – This will include name,
address, incorporation number, tax identification number, telephone number,
email address, web address, designation, signature and date.
viii. Declaration to be completed by a Director or the Company Secretary.
(d) Transfer pricing methods includes:

i. Comparable uncontrolled price method (CUPM)

The comparable uncontrolled price method compares the price charged for
transactions between associated enterprises (related parties) with prices charged for
similar transactions between independent enterprises (unrelated parties) in
comparable circumstances. If there is any difference between the two prices, this
might be an indication that the transactions between the associated enterprises are
not made at arm’s length. For example, X Ltd and Y Ltd are members of the same
group. If X Ltd sells a particular product to independent parties as well as to Y Ltd
under similar circumstances, the prices charged for X Ltd’s sales to independent
parties can be compared with prices charged for X Ltd’s sales to Y Ltd (internal
comparable).

Similarly, if an independent party (M Ltd) sells to another independent party (N Ltd)

the same product sold by X Ltd, the prices charged by M Ltd can also be used as the
basis for comparison (external comparable). For tax purposes, the tax authority may
reject the prices for transactions between X Ltd and Y Ltd (associated enterprises)
and adopt the prices for transactions between independent enterprises.

However, in applying the CUP method, it should be noted that prices for the same
product may differ not necessarily because of being sold to associated or
independent enterprises, but because the product is not sold under similar terms and
circumstances in comparable quantities and markets. Therefore, it may be
necessary to make reasonable comparability adjustments for such differences.

ii. Resale price method (RPM)

The resale price method begins with the resale price to an independent enterprise of
a product purchased from an associated enterprise and a gross margin is then
deducted from this resale price.

Example:

A Ltd and B Ltd are related companies. A Ltd transfers goods to B Ltd which B Ltd
sells to independent parties. Under the resale price method, the arm’s length price
of the product acquired by B Ltd in a non-arm’s length transaction is determined by
reducing the price realised on the resale of the product by B Ltd to independent
 parties by an appropriate gross margin (resale price margin). B Ltd’s gross margin
may be determined by reference to the gross margin that B Ltd usually earns in
comparable transactions with independent parties (internal comparable), or by
reference to the gross margin earned by independent enterprises in comparable
transactions (external comparable) within the industry.

iii. Cost-Plus Method (CPM)

Under this approach, the costs incurred by the supplier in making the product
transferred or services provided to an associate enterprise are ascertained and
marked-up. An appropriate mark-up may be determined by reference to what other
similar independent supplier earns in comparable transactions (internal comparable),
or by reference to the mark-up earned in comparable transactions by entirely
independent enterprises (external comparable).

Example:

D Ltd and G Ltd are related companies. D Ltd transferred 10,000 units of its product
to G Ltd at N 700 per unit. The direct costs incurred by D Ltd to produce the product
amounted to N400 per unit. The arm’s length mark-up earned by companies
producing / selling similar product to independent parties is 45%. Therefore, the tax
authority will recognise D Ltd’s sales to G Ltd as N 5,600,000 (i.e. 10,000 units x N
400 x 145%) instead of N 7,000,000 (i.e. 10,000 units x N 700). If the method uses
direct costs as in the example, then, the mark-up should cover indirect costs,
overheads and profit.

iv. Profit Split Method (PSM)

The first step is to determine the combined profit that arises from a business
transaction in which the associated enterprises are engaged. This profit is then split
between the associated enterprises in a manner that reflects the division of profit that
would have been expected between independent enterprises. The combined profit
or loss attributed to the transactions in which the associated enterprises participated
is allocated to the associated enterprises in proportion to their respective
contributions to that combined operating profit or loss.
v. Transactional Net Margin Method (TNMM)

Under this method, the net profit margin that an enterprise earns from transactions
with an associated enterprise is compared with the net profit margin earned in
comparable transactions with an independent enterprise.

An appropriate net margin may be determined by reference to the net margin that
the enterprise earns in comparable transactions with independent enterprises
(internal comparable), or by reference to the net margin earned in comparable
transactions by independent enterprises (external comparable). The transactional
net margin method operates in a manner similar to the cost plus and resale price
methods. However, the transactional net margin examines the net profits in relation
to an appropriate base (e.g. costs, sales, assets) and not gross margin on resale or
mark-up on costs.

(e) Penalty for failure to disclose controlled transactions and penalty for late filing of
Country by Country returns

(i) Failure to disclose controlled transactions - A taxable person who fails to

make disclosures of controlled transactions shall be liable to penalty of:

(a) ten million naira or one percent of the value of controlled transaction not
disclosed, whichever is higher; and
(b) ten thousand naira for every day in which the failure continues.

(ii) Late filing of Country by Country returns – Where a reporting entity fails to file
the country by country report on or before 12 months after the last day of the
reporting accounting year, the service shall impose administrative penalty of
N10,000,000 in the first instance and N1,000,000 for every month in which the
defaults continue.
SUGGESTED SOLUTION TO QUESTION 5

(a) (i) LEGACY TAX CONSULTANTS

75b, Maina Avenue, Kano, Kano State

15 July 2018

The Chairman
Federal Inland Revenue Service
45, Aminu Turaki Road, Kano
Kano State

Dear Sir,

Hammadan Kriesman Nigeria Limited

TIN Number : 58141276 – 0001
Objection to Best of Judgement assessment numbered LC/00444/2018 for N15,000,000

We refer to your letter and the notice of assessment that was served on our above named
client and wish to inform you that although the notice of assessment was dated 10 June
2018, it was received by client on 14 July 2018.

The details of the assessment notice are stated below for ease of reference:

Assessment number:LC/00444/2018
Year of aassessment: 2018
Date of aassessment: 10/6/2018
Total profits : N50,000,000
Tax payable : N15,000,000

We hereby give notice of objection on the following grounds:

i. The assessment was based on estimate sum.
ii. The assessment was arbitrary and excessive and not in line with our client’s records.
iii. The accounts for the year ended 30 December 2017 which formed the basis of the
2018 year of assessment together with the relevant capital allowances and income
tax computations were filed with your office on 25 June 2018. Please find attached
the acknowledged copy for ease of reference
iv. In line with the returns submitted to your office, our client’s tax payable for 2018 year
of assessment was N11,500,000 which was paid and payment evidence submitted
when the returns were filed.

In view of the foregoing grounds of objection, we plead that you kindly discharge the above
assessment, but instead raise a revised assessment based on the returns submitted and
update our client’s tax records accordingly.

We thank you for your usual co-operation and understanding.

Yours faithfully,
For : Legacy Tax Consultants

Clement Abba
Managing Partner

CC: The Managing Director

Hammadan Kriesman Nigeria Limited
20, Sabon Gari Road, Kano
Kano State

(ii)

On receipt of a notice of refusal to amend the assessment from the Federal

Inland Revenue Service (“the Board”), I will advise my client to appeal to the Tax Appeal
Tribunal.

The appeal will be in the form of notice to the secretary of the tribunal and must be made
within 30 days after the date of service of notice of the refusal of the Board to amend the
assessment.

The notice of appeal against the assessment will contain the following:

i. The official number of assessment and the year for which it was made;
ii. The amount of tax charged by the assessment;
iii. The amount of total profits upon which the tax was charged;
iv. The date the notice of refusal was served;
v. The grounds of appeal as contained in my notice of objection; and
vi. An address for service of the notice of appeal.

Should the Tax Appeal Tribunal refuse my appeal on points of law, I will appeal such
decision to the Federal High Court. If the Federal High Court disagrees with my grounds of
appeal, we have opportunity to recourse to the court of appeal. And if the Court of Appeal
disagrees with our grounds of appeal, we shall further appeal to the Supreme Court which
is the final arbiter in this case.

(b)
The following are the techniques usually adopted by multinational enterprises
(MNEs) to achieve base erosion and profit shifting tax avoidance strategies:

i. Trademark and technology licensing/transfer pricing

Managing the group’s trademark, design and patent through an entity that applies a
lower tax rate to intellectual property, then charging companies in the group royalties
on the use of the brand;

ii. Thin capitalisation

By setting up subsidiaries with minimal share capital, a group can use a financing arm
to fund the new company’s operation with debt. This large debt attracts interest,
which has different treatments in some jurisdictions and can therefore reduce the
group’s tax liabilities, if structured correctly;

iii. Hybrid mismatch arrangements

Different tax rules between countries can sometimes give rise to unintended effects
like “double non-taxation” which can be exploited by businesses to reduce their tax
liabilities. This primarily applies to national treatment of certain instruments in such a
way that they are treated in the paying country as tax deductible debt, but seen in the
receiving country as tax exempt income; and

iv. Putting assets into entity without substance

Some countries introduce preferential tax regimes as a way to compete for business.
However, this is only useful if the business with substance begins to locate
themselves in the country, otherwise, this form of tax competition simply erodes the
tax base of the country where the activity take place.
SUGGESTED SOLUTIONS QUESTION 6

(a)

Mining is the extraction of valuable minerals or other geological materials from the earth,
usually from an ore body, lode, vein, seam, reef or placer deposit. These deposits form a
mineralised package that is of economic interest to the miner.

Tax incentives available to companies engaged in mining operation include:

According to S.5.2.1 under the Mining Act:

i. Tax holiday for an initial period of 3 years from commencement of operations and
renewable for additional 2 years. Any dividend recorded during the tax holiday period will
not be subject to withholding tax upon distribution to shareholders;

ii. Exporters of mineral products may be permitted to retain part of their foreign exchange
earnings in a domiciliary account for the purpose of acquiring spare parts and other mining
inputs;

iii. Exemption from customs and import duties in respect of plant, machinery equipment and
accessories imported exclusively for mining operations. However, the plant and equipment
can only be disposed of locally upon payment of the applicable customs and import duties;

iv. Free transferability of foreign currency through the Central Bank of Nigeria (CBN) for the
following:

• Payment for servicing of certified foreign loan; and

• Remittance of foreign capital in the event of sale or liquidation of the business.

v. Grant of personal remittance quota for expatriate personnel free from any tax imposed by
any enactment for the transfer of external currency out of Nigeria;

vi. Accelerated capital allowances on mining expenditurs (95% initial allowance and
retention of 5% until asset is disposed);

vii. Grant of investment allowance of 10% on qualifying plant and machinery;

viii. All infrastructure costs provided by the mining company and approved by the Mining
Cadastre Office (MCO) to be capitalised and capital allowances claimed at 95% in the first
year of operation;

ix. A company may also be entitled to claim an additional rural investment allowance on its
infrastructure costs, depending on the location of the company and the type of infrastructure
provided;

x. Annual indexation of unutilised capital allowance carried forward by 5% for mines that
commenced production within five (5) years from the date of enactment of the Act. Whilst
the period for new companies to enjoy this incentive lapsed in 2012, new producers may
apply to the Minister of Finance, through the Minister of Mines and Steel Development, to
enjoy this incentive. Such application may be considered on a case by case basis;

xi. The Minister may grant a concession for the royalty payable on any mineral to be
deferred for a number of years, subject to the approval of the Federal Executive Council;
and

xii. Actual amount incurred out of reserves made for environmental protection, mine
rehabilitation, reclamation and mine closure costs shall be shall be established by company
engaged in the exploitation of mineral resources; provided however, that the
appropriateness of the reserve is certified by an independent qualified person taking into
account determination made under the provision of this Act.-

a. The reserve is recorded in the audited financial statements of the companies;

b. Tax deductibility will be restricted to actual amount incurred for the purpose of
reclamation; and

c. A sum equivalent to the reserve amount is set aside every year and invested in
dedicated account or trust fund managed by independent trustees appointed
pursuant to the provision of this Act..

According to the CITA provision;

i. The profits earned by a mining company after the initial tax holiday period may
continue to be exempted from income tax under the following circumstances:
 • If the minerals are exported from Nigeria, and the proceeds from such exports are
repatriated to Nigeria and used exclusively for the purchase of raw materials, plants,
equipment and spares;

• If the minerals produced are exclusive inputs for the manufacture of products for
exports, provided the exporter gives a certificate of purchase of input to the
company; and

• Potential full or partial exemption of interest on foreign loan from income tax,
subject to the conditions stipulated under CITA.

ii. Where a mining company records a turnover below ₦1million within the first five
years of commencement of business, it will be liable to tax at the rate of 20% on any
taxable profit recorded.

iii. Any interest, rent, royalty, or dividend received by a Nigerian company from abroad,
and brought into the country through any of the approved Nigerian banks, will be
exempted from corporate income tax.

iv. Interest and/or gains received from bonds issued by any government or corporate
body in Nigeria, as well as from short term securities issued by the Federal
Government, are exempt from income tax. This exemption is only applicable until
2022 financial year (i.e., 2023 tax year). However, bonds issued by the Federal
Government of Nigeria shall continue to enjoy this exemption.

v. The Company may be entitled to the following reliefs:

• Employment tax relief (ETR): To qualify for this relief, the company must have a
minimum net employment of 10 employees in an assessment year, out of which
60% must be individuals without prior work experience and have recently graduated
from a school or vocation (not older than 3 years). The ETR claimable is limited to
the lower of the gross emoluments paid to qualifying employees, or 5% of the
assessable profits for the year.

• Work experience acquisition programme relief: Any company with a minimum net
employment of five new employees in any year, and where the company has
retained the employees for a minimum of two years. This relief exempts from
income tax, 5% of the assessable profits.
 • Road Infrastructure Development and Refurbishment Investment Tax Credit
Scheme

The Scheme is a public-private partnership, which enables private companies fund

the construction and refurbishment of eligible roads in Nigeria. In return, participants
in the scheme are entitled to recover the project funds by way of tax credits,
claimable against Companies Income Tax (CIT) payable.

The primary benefit of this Scheme to participants is the ability to recover the project
cost as tax credit against CIT payable. This credit is represented by the Road
Infrastructure Tax Credit (RITC). RITC covers:

- Project cost (any expenditure wholly, reasonably, exclusively and necessarily

incurred by a participant for the construction or refurbishment of an eligible
road as quoted by the participant in its project cost bid and as certified by the
Committee); and

- A single uplift (similar to interest), which is equivalent to the prevailing

monetary policy rate (MPR) of the Central Bank of Nigeria (CBN), plus 2% of
the project cost. The uplift (income) would not constitute taxable income in
the hands of a participant.

(b)

(i)The surviving company must file returns not more than six months after the end of
its accounting year in accordance with the provisions of companies income tax act
(ii) Commencement rule will not be applicable

(iii) No initial allowance on assets transferred

(iv) Claim of annual allowance on tax written down values of the assets transferred

(v)The company cannot inherit the unabsorbed losses and unutilised capital
allowances of the merger unless there is evidence that the company is
reconstituted

(vi) All fees paid will be liable to VAT and WHT

(vii) Stamp duties will be paid on increase in share capital