Question Tag: Tax liabilities

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  • 8 Marks

ATAX – May 2016 – L3 – Q7b – Taxation of Non-Resident Companies and Individuals

Compute the tax liabilities payable in Nigeria for Apex Communications Limited, a foreign company with income originating, routed, and terminating in Nigeria.

Apex Communications Limited is a British company engaged in the business of transmission of messages by cable or any other form of wireless technology.

Its worldwide operating results for the year ended December 31, 2014, are as follows:

You are provided with the following information:
(i) The British Tax Authority has certified the Adjusted Profit and Depreciation allowance ratios.
(ii) Included in Overhead Expenses are disallowable items totaling ₦12,500,000.
(iii) The Federal Inland Revenue Service is satisfied that tax is computed and assessed in Britain, the home country of the foreign company, on the same basis as Nigeria.

You are required to:
Compute the Tax Liabilities payable by the company in Nigeria for the relevant assessment year. (8 marks)

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  • 15 Marks

ATAX – May 2016 – L3 – Q5 – Taxation of Companies

Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.

Atlas Nigeria Limited is into the sale of Mobile Phones, and the company’s year-end is December 31 of each year. The company’s Annual Tax Returns for the year ended December 31, 2012, were submitted in January 2014. Tax officials found a number of irregularities during a routine examination of the Tax Returns. They discovered that trade payables included N940,000 representing VAT for the two months to December 31, 2012. All sales attract VAT. There was no Input VAT during 2012. Tax officials were, however, of the opinion that the income of the company accrued uniformly throughout the 12 months of the year.

The accounts showed Adjusted Profits of N44,062,500, and Capital Allowances totaled N33,025,000. The tax liability arrived at was N4,406,250. The tax officials were not satisfied with the explanations received in connection with the Withholding Tax on the Director’s fee of N1,562,500, as well as Consultancy fee of N812,500. They also decided to write back 2/3 of the following expenses:

  • Printing and Stationery N168,750
  • Donations and Subscription N1,320,620
  • Losses claimed, amounting to N128,025 was disallowed. Included in the adjusted profit figure is N6,962,500 for Depreciation.

REQUIRED:

i. Show the computations resulting in the Original Tax Liability of N4,406,250 (5 marks)

ii. Compute a revised Tax liability based on the findings of the Tax Officials (10 marks)

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  • 30 Marks

ATAX – May 2016 – L3 – Q1 – Tax Incentives and Reliefs

Assess tax liabilities, the appropriateness of proposed dividends, and discuss pioneer product tax relief, including anti-avoidance measures.

You have just received an e-mail from the Senior Manager of the Tax Division of your firm of Tax Consultants.

The E-mail:
“We have just received a memo from the Audit and Assurance Division with respect to two of our clients. Curiously, the two companies have identical issues of Dividend Payments. The details are as follows:

(1) XYBLEX (Nigeria) Limited is a Pharmaceutical Manufacturing company located in Otta, Ogun State, Nigeria. It is a Subsidiary of XYBLEX PHARMACEUTICALS in Europe. At its recent Board Meeting of February 15, 2016, two resolutions were passed:
(a) A proposed dividend of 15 kobo per share subject to appropriate withholding tax deduction for the year ended December 31, 2015, to be presented to members at its Annual General Meeting on June 30, 2016.
(b) That having obtained the Patent Rights for a new drug for Arthritis called “Arthritobex,” production is expected to commence in the third quarter of the year 2016.

(2) KRYSTOL Limited is a Trading Company located in Lokoja, Kogi State, Nigeria. The Board Resolution of January 29, 2016, proposed a Dividend of 25 kobo per share subject to appropriate Withholding Tax deduction for the year ended December 31, 2015, to be presented to members at its Annual General Meeting scheduled for May 5, 2016.

It is essential to state that Johnbull Martins, the new Trainee, did make efforts to determine the Tax liabilities of the two Companies, but these are to be properly checked.

Required:
You are to review the computation by Johnbull Martins and come up with a correct position of the Tax Liability of the two Companies.

It is also essential that you determine the adequacy of the proposed Dividend by the two Companies to ensure compliance with the provisions of the Companies Income Tax Act Cap C21 LFN 2004.

Finally, since XYBLEX (Nigeria) Limited is proposing to start production of “Arthritobex” in the third quarter of the year, the Managing Director would like to present to the Board the Firm’s opinion on Pioneer Products with specific reference to:

  • Tax Relief Period
  • Profits and Dividends

Below are the relevant details in respect of both Companies for the year ended December 31, 2015:

Details XYBLEX (Nigeria) Limited Krystol Limited
Net Profit Per Account N 20,025,420 N 40,251,240
Balancing Charge – 1,125,000
Investment Allowance 8,285,400 –
Profit on Sale of Non-Current Assets 6,845,150 –
Capital Allowance for the Year 18,329,700 19,684,850
Depreciation 10,052,500 7,250,600
Net Assets 350,000,000 326,250,000
Turnover 125,350,000 102,500,000
Paid-up Capital (Ordinary Shares of N1.0 each) 100,000,000 120,000,000
Gross Profit 75,000,000 62,000,000
Revenue Reserve 102,350,200 165,280,000

a. Compute the tax liabilities of the two Companies. (8 Marks)

b. Advise on the appropriateness of the proposed Dividends with reference to the relevant provisions of the Law. (12 Marks)

c. Outline the Tax Relief Period and the relevant provisions with respect to Profits and Dividends of Pioneer Companies. (5 Marks)

d.
i. Explain briefly “Tax Avoidance.”
ii. List THREE Anti-Avoidance measures put in place by the Government (Ignore Double Taxation Measures). (5 Marks)

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  • 30 Marks

AT – Nov 2016 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Compute adjusted profit, assessable profit, capital allowances, and tax liabilities with election advisory for Zezee Nigeria Ltd.

Zezee Nigeria Limited was incorporated on September 7, 2012, but it did not commence business until July 1, 2013. Based on the Memorandum and Articles of Association, the company was incorporated to carry on the business of distributorship and general contracting.

Extracts of the Company’s Statements of Profit or Loss and Other Comprehensive Income are as given below:

Period 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Revenue 5,430,000 12,600,000 18,400,000
Direct Cost (890,000) (1,345,000) (1,910,000)
Gross Profit 4,540,000 11,255,000 16,490,000
Other Income 45,000 458,150 201,000
Distribution Cost (386,000) (820,000) (1,060,500)
Administrative Expenses (4,810,550) (6,510,440) (8,240,600)
Other Expenses (41,000) (113,240) (145,100)
Net (Loss)/Profit (652,550) 4,269,470 7,244,800

Additional Information:

  1. Other Income Comprises:
Details 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Sale of Scraps – 57,000 –
Interest Received on Treasury Bills – 325,000 120,000
Interest on Domiciliary Account 45,000 76,150 81,000
Total Other Income 45,000 458,150 201,000
  1. Administrative Expenses Include:
Details 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Depreciation 160,000 320,000 440,000
Preliminary and Formation Expenses 216,000 – –
Penalties and Fines – – 65,000
General Provision for Bad Debts 110,000 180,000 240,000
Staff Salaries 2,060,000 4,230,000 4,230,000
Office Rent 600,000 1,200,000 1,800,000
  1. Details of Property, Plant, and Equipment are as follows:
Asset Date of Purchase Cost (N)
Furniture and Fittings June 7, 2013 980,000
Motor Vehicles June 30, 2013 2,400,000
Office Equipment July 1, 2013 1,200,000
  1. On January 2, 2015, the company bought another motor vehicle for N1,800,000.
  2. Extracts of the Statements of Financial Position:
Period 6 Months Ended Dec 31, 2013 Year Ended Dec 31, 2014 Year Ended Dec 31, 2015
Net Assets 1,360,000 2,870,500 3,260,700
Paid-up Share Capital 5,000,000 5,000,000 5,000,000

Required:

For all the relevant years of assessment, you are required to:

a. Compute the Adjusted Profit/Loss. (9 Marks)
b. Determine the Assessable Profit/Loss and advise the Company on whether or not to exercise its right of election. (6 Marks)
c. Compute the capital allowances. (4½ Marks)
d. Compute the tax liabilities. (10½ Marks)

(Total 30 Marks)

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  • 5 Marks

ATAX – May 2019 – L3 – Q7b – Corporate Tax Compliance and Reporting

Compute the total tax liabilities for Alaba Trading Limited for the 2018 assessment year, considering its assessable profit, capital allowances, and dividend payable.

For the assessment year 2018, below are the extracts from the tax computations of Alaba Trading Limited:

Item Amount (₦)
Assessable profit 8,200,000
Capital allowances 5,400,000
Dividend payable 6,000,000

Required:
Determine the total tax liabilities of Alaba Trading Limited for the assessment year.

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  • 20 Marks

ATAX – May 2019 – L3 – Q3 – Taxation of Companies

Prepare capital allowance computations and tax liabilities for Pardo Nigeria Limited based on its financial data and asset acquisitions.

Pardo Nigeria Limited is a manufacturer of polythene bags. It was incorporated on January 1, 2013, but commenced business operations on March 1, 2013. The following is the summary of its adjusted profits for the respective years:

Period Ended Adjusted Profit (₦’000)
December 31, 2013 7,200
December 31, 2014 10,700
December 31, 2015 12,650
December 31, 2016 15,220
December 31, 2017 19,850

The company acquired the following assets:

Date Asset Type Amount (₦’000)
April 5, 2013 Factory building 5,400
January 17, 2014 Office furniture 2,750
December 1, 2014 Motor vehicle 4,500
January 3, 2015 Production plant 1,820

The company sold some of its assets on December 31, 2017 as follows:

Asset Type Cost (₦’000) Proceeds (₦’000)
Office furniture 250,000 35
Production plant 650,000 60

As the newly appointed tax consultant to the company, the managing director sought your advice on both capital allowances available to the company and the tax liabilities resulting from them for the relevant years. He, however, informed you during the finalization of the engagement that the factory building was purchased second-hand from a company that had ceased operation six months earlier.

Required:
Prepare a report addressed to the managing director of the company showing, for all the relevant years:

a. Capital allowance computations (9 Marks)
b. Tax liabilities payable (11 Marks)

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  • 20 Marks

AT – Nov 2014 – L3 – SB – Q3 – Petroleum Profits Tax (PPT)

Calculate the total tax liabilities of Jisosi Petroleum Limited to aid in dividend decision-making.

The Independent Auditors of Jisosi Petroleum Limited submitted the draft Audited Financial Statements for the year ended 31 December 2013 for management’s discussion. The executive summary revealed total revenue of N286,650,000 and Profit Before Taxation of N82,642,000.

To arrive at the proposed dividend for the consideration of the Board, there is a need to determine the total tax liabilities for the year. The draft Statement of Profit or Loss includes the following items among others:

Expense Item Amount (N)
Royalty on Crude Oil sold 13,500,000
Cost of Well Drilling 25,000,000
Custom Duties 500,000
Clearing of Oil Spillage 7,500,000
Depreciation 32,000,000
Donations 4,500,000
Community Relations Expenses 10,000,000
Transportation Expenses for 2012 8,500,000

Additionally, the revenue includes:

  1. Profit on Property, Plant, and Equipment sold: N48,000
  2. Income from transportation of crude oil for the year ended 31 December 2012: N16,894,000

The officials of Federal Inland Revenue Service (FIRS) and the Company agreed as follows:

Item Amount (N)
Annual Allowances on exploration 25,500,000
Balancing Charge on exploration 242,000
Capital Allowances on exploration b/f 11,000,000
Petroleum Investment Allowance 18,500,000
Capitalised Intangible Drilling Cost 14,000,000
Losses b/f 10,000,000
Capital Allowances on transportation 750,000

Required:
Determine the total tax liabilities of the company for the consideration of the directors to aid in the proposed dividend decision.

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  • 30 Marks

AT – Nov 2014 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Explain penalties for non-compliance, compute profit and tax liabilities, and detail exemptions from minimum tax liability.

The Tax Consultants, ABFR Consult, received an e-mail from Mrs. Deboh Komo, Managing Director of Deboko Nigeria Limited. Extracts of her e-mail are as follows:

  1. The company was incorporated on 1 February 2007.
  2. It commenced business as importers of new engines for tricycles on 1 May 2009.
  3. The Directors chose 30 June as the year-end and made the first financial statements up to 30 June 2010.
  4. The company did not file any tax returns to date due to a general lull in business activities.
  5. The tax monitoring section of the Federal Inland Revenue Service (FIRS) visited the company on 2 September 2014, uncovering non-compliance.
  6. No tax registration was done, and no returns were filed.
  7. The Accounts Officer advised the company to register for all statutory payments, including Value Added Tax (VAT) and Companies Income Tax, but the management delayed.
  8. The company pleaded for leniency, but the FIRS insisted on full compliance with tax laws.

Additional Information:

  1. Statement of Profit or Loss and Other Comprehensive Income:
Period Ended 30/06/13 (₦’000) 30/06/12 (₦’000) 30/06/11 (₦’000) 30/06/10 (₦’000)
Operating Profit/(Loss) 1,060 960 720 (504)
Depreciation 380 120 120 153
Staff Loans Written Off – – – 40
Stamp Duties on Incorporation – – – 16
Sales Tax 120 80 44 40
Donations to Christian Association 60 – – 10
Specific Bad Debts Written Off 28 – – 14
  1. Statement of Financial Position:
Item 30/06/13 (₦’000) 30/06/12 (₦’000) 30/06/11 (₦’000) 30/06/10 (₦’000)
Paid-Up Capital 30,000 15,000 15,000 15,000
Deposit for Shares 25,000 10,000 5,000 –
Net Assets 101,500 84,110 76,700 66,000
Revenue 210,500 180,400 162,000 104,000
Gross Profit 16,400 14,200 12,800 10,200
  1. Capital Allowances Agreed:
Year of Assessment 2014 2013 2012 2011 2010 2009
Capital Allowances 140 150 150 250 200 300

Requirement:

(a) Explain the penalties for late submission of annual returns to the FIRS. (4 Marks)

(b) Compute the Total Profit and Tax Liabilities of the company for the relevant years of assessment. (24 Marks)

(c) Explain the conditions for exemption from minimum tax liability under the Companies Income Tax Act CAP C21 LFN 2004 (as amended). (2 Marks)

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  • 20 Marks

ATAX – May 2021 – L3 – Q4 – Taxation of Non-Resident Companies and Individuals

Circumstances under which non-resident companies are taxed in Nigeria and computation of Gen Power Incorporated's tax liabilities.

“The concept of residence determines the extent to which the income of a taxpayer is liable to tax under a tax jurisdiction.”

Background:
Gen Power Incorporated, an international power plant company based in New York, USA, has subsidiary outlets in many parts of the world, including Kem Limited in Lagos, Nigeria. In 2018, Gen Power Incorporated was awarded a contract for US $3 million by the Nigerian government to construct a power plant. The project was executed by Kem Limited, and the following expenses were incurred:

Expense Description Amount (₦’000)
Materials and other direct inputs 320,800
Hire of special equipment 31,500
Foreign experts cost and emoluments 65,300
Personnel costs 110,400
Administrative expenses 52,000
Depreciation of assets 60,700
Repairs and maintenance 7,200
Fuel and oil 8,200
Miscellaneous expenses 27,100

Other Relevant Information:

  1. The exchange rate is ₦362 to US $1.
  2. A similar special equipment could be hired for ₦25 million.
  3. Administrative expenses include ₦12 million transferred to revenue reserve.
  4. Breakdown of repairs and maintenance:
Repairs and Maintenance Breakdown Amount (₦’000)
Maintenance of vehicles 2,000
Improvement to the office building 1,700
Repairs of equipment 2,100
Renewals of tools and implements 1,400
Total 7,200
  1. Miscellaneous expenses include ₦4 million as loss on exchange for imported materials.
  2. Capital allowances agreed with the tax authorities: ₦57 million.

Required:

a. Describe FIVE circumstances under which a non-resident company will be assessable to tax in Nigeria. (5 Marks)

b. Compute the tax liabilities of Gen Power Incorporated for the relevant year of assessment. (15 Marks)

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  • 30 Marks

ATAX – Nov 2021 – L3 – Q1 – Corporate Tax Compliance and Reporting

Calculation of tax liabilities, corporate tax compliance, and adjustments in financial reporting.

Carrol Nigeria Limited, a medium-sized company, commenced business in 2011. The company has three subsidiaries in the manufacturing of household utensils and baby products. Over the last three years, its fortunes have dwindled due to high costs of imported raw materials, overheads, low patronage from customers, and increasing demands from the host communities for social amenities.

Due to the challenging business environment, the board decided in 2016 to reduce workforce and permanently close one of its subsidiaries. This led to the appointment of a young accountant with limited taxation and fiscal policy knowledge as the Group Accountant after two Finance Department staff were affected.

In the past three years, the company faced challenges with tax authorities on tax compliance. The Group Managing Director was embarrassed when informed by the tax officer that essential records necessary for determining tax liabilities were not maintained. Gaps were also observed in the annual returns filed by the company, and the Revenue Service is conducting a back duty audit.

The Group Managing Director has sought assistance in addressing these challenges and provided documents for recomputation of the company’s income tax liabilities for the year ended December 31, 2020.

The statement of profit or loss for the year ended December 31, 2020, is as follows:

Additional Information:

  1. Other income included ₦320,000 realized from the disposal of an old plant.
  2. Administrative expenses included ₦250,000 paid to a legal practitioner for the defense and release of the company’s driver caught by traffic officers.
  3. 30% of motor running expenses was expended on the personal expenses of the Managing Director.
  4. 20% of the donation was paid to a State Government fund assisting insurgent victims.
  5. Repairs and maintenance included ₦215,000 for erecting a gate destroyed during a youth protest.
  6. Allowance for doubtful debts comprised ₦600,000 in general provision and ₦400,000 in specific provision.
  7. Miscellaneous expenses included ₦450,000 for hamper gifts to customers during Sallah and Christmas.
  8. A review revealed the gross turnover was understated by ₦750,000.
  9. The following is the schedule of qualifying capital expenditure on property, plant, and equipment:
    Nature Date of Acquisition Amount (₦’000)
    Factory building September 8, 2016 3,800
    Furniture & fittings October 12, 2016 1,600
    Motor van June 19, 2018 4,200
    Factory building March 8, 2020 6,500
    Furniture & fittings April 15, 2020 2,000
    Industrial plant July 1, 2020 5,700
    Motor van December 20, 2020 4,240
  10. Unutilized capital allowances brought forward was ₦1,500,000, with a balancing charge of ₦155,000 on disposal of the old plant.

Required:
As the company’s tax consultant, prepare a report to the Group Managing Director covering the following:

a. Provisions of the Companies Income Tax Act CAP C21 LFN 2004 (as amended) and Finance Act 2020 regarding maintenance of books or records of accounts (4 Marks)

b. Back duty audit and its implications (4 Marks)

c. Computation of the company’s tax liabilities (with supporting schedules) for the relevant tax year (22 Marks)

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  • 5 Marks

ATAX – Nov 2018 – L3 – Q3b – International Taxation

Permanent Establishment (PE) under the Nigeria-UK Double Taxation Agreement

b) Double taxation agreements exist among Nigeria and some foreign countries.

Required:
Explain the term “Permanent Establishment” as contained in the double taxation agreement between Nigeria and the United Kingdom.
(5 Marks)

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  • 15 Marks

ATAX – Nov 2018 – L3 – Q3a – International Taxation

Tax implications for Sadiq Corporation's contracts executed by its Nigerian subsidiary, including PE under Nigeria-UK tax agreement.

(a) Sadiq Corporation was incorporated in Sweden as a limited liability company and has a subsidiary, Omologede Ventures Nigeria Limited located in Akure, Nigeria. Peniel Nigeria Plc awarded a contract to Sadiq Corporation to renovate a rice milling factory in Gboko, Benue State, and another in Abakaliki, Ebonyi State. The contract value for the Gboko factory is $11,064,150, and $7,337,616 for the Abakaliki factory. Sadiq Corporation later sub-contracted the two jobs to its subsidiary in Nigeria. The renovation is expected to be completed within six months.

The following information was submitted to the Federal Inland Revenue Service by Omologede Ventures Nigeria Limited for the year ended December 31, 2017:

Description Amount (N)
Direct materials 962,100,000
Scaffolding 183,538,320
Administrative expenses on hired professionals 33,352,800
Rentals on equipment 18,708,248
Maintenance of equipment 7,431,688
Personnel card (domestic) 28,803,029
Personnel cost (foreign) 14,738,250
Fees to engineers 11,298,689
Other operational costs 6,512,070

Additional Information:

  1. Capital allowance agreed by Omologede Ventures Nigeria Limited with the Federal Inland Revenue Service for the year was N104,418,744.
  2. 60% of the total contract sum was made available to Omologede Ventures Nigeria Limited.
  3. Depreciation is N69,902,092.
  4. 70% of the total contract sum was paid at the beginning of the job, while the balance was paid in September of the same year.
  5. The exchange rate at the time of signing the contract was N180 to $1. The rate changed in August of the same year to N195 to $1.

Withholding tax provisions were fully complied with by the two companies, and the tax remitted to the relevant tax authority as and when due.

Required:
As the local consultancy firm in Nigeria, provide advice to the management of the two companies on the tax implications of the contracts for the relevant year of assessment, clearly showing their tax liabilities (if any).
(15 Marks)

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  • 30 Marks

AT – Nov 2023 – L3 – SA – Q1 – Taxation of Specialized Businesses

Compute adjusted profits, tax liabilities, and analyze Industrial Development (Income Tax Relief) Act provisions for a pioneer company.

Paper World Nigeria Limited, Ibadan, a manufacturer of paper pulp, paper, and paperboard, was granted a pioneer certificate by the Federal Government on May 1, 2017, for an initial period of three years. Due to unfavorable business conditions and interference by the Ministry of Industry on dividend policy, loss treatment, and capital allowances, the company did not apply for an extension to the pioneer status.

The company’s financial statements for the first three years are as follows:

(i) Financial Data for the Years Ended

Year End April 30, 2018 April 30, 2019 April 30, 2020
N’000 N’000 N’000
Net loss (28,700) (25,500) (20,200)
After charging:
Salaries and wages 15,300 16,100 17,360
Transport and traveling 1,100 1,700 1,820
Depreciation 6,800 7,530 8,600
Rent and rates 1,200 1,400 1,500
Donations to social clubs 100 0 250
Allowance for doubtful debts:
Specific 1,400 1,200 1,500
General 1,850 1,750 1,800
General expenses 1,650 1,820 1,900

(ii) Qualifying Capital Expenditure (QCE) Certified by FIRS at Pioneer Period End

(iii) Additional QCE Acquired:

QCE Number of Items Amount (N’000) Date of Acquisition
Furniture and fittings 2 500 June 12, 2020
Motor vehicles 1 2,200 March 7, 2021

(iv) Operational Result (April 30, 2021)

Description N’000
Turnover 102,500
Dividend income (grossed up) 1,200
Other operating income 800
Total 104,500
Deductions:
Salaries and wages 39,600
Repairs and maintenance 3,500
Depreciation 15,300
Rents and rates 6,800
General and administrative expenses 9,970
Legal fees 2,500
Audit and accountancy fees 3,200
Allowance for doubtful debts 6,600
Bank charges 2,100
Net profits 14,930

Additional Information:

  • Dividend Income: From equity shares in a Nigerian listed company.
  • QCE Acquisitions:
    • Non-industrial building: N10,000
    • Industrial building: N25,600
    • Manufacturing industrial plants: N12,600
    • Furniture and fittings: N3,400
    • Motor vehicles: N4,000

(vi) Repairs and Maintenance Breakdown:

Category Amount (N’000)
Manufacturing plant repairs 1,500
Motor vehicle maintenance 800
Non-industrial building improvement 1,200

(vii) General and Administrative Expenses:

Category Amount (N’000)
Transport and traveling 3,750
Advertisement 4,920
Transfer to revenue reserve 1,300

(viii) Legal Fees Breakdown:

Category Amount (N’000)
Collection of trade debts 1,100
Fine for late tax filing 50
Legal expenses on new share issue 1,350

(ix) Doubtful Debts Allowance Breakdown:

Category Amount (N’000)
Bad debts written off 2,800
Specific provision 2,500
General provision 3,700
Bad debts recovered (2,400)

Required: As the company’s newly appointed Tax Consultant, prepare a report to the Managing Director stating the:

  1. Adjusted Profits for the Relevant Periods (13 Marks)
  2. Tax Liabilities Payable for the Relevant Assessment Year (11 Marks)
  3. Provisions of the Industrial Development (Income Tax Relief) Act 2007 (as amended) in respect of a Pioneer Company’s:
    • i. Dividend Payment (2 Marks)
    • ii. Losses Made During the Pioneer Period (2 Marks)
    • iii. Capital Allowances for Qualifying Capital Expenditure Acquired During the Pioneer Period (2 Marks)

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  • 30 Marks

AT- Nov 2022 – L3 – Q1 – Income Taxes (IAS 12)

Calculate adjusted profit and tax liabilities for Owoeye Machine Tools, considering pioneer period capital allowances.

As a result of the developing nature of Nigeria’s economy, there are some industries and products that are not well developed on a scale that can adequately cater to the needs of the populace. One of the investment incentives available to industries and products in this category is contained in the Industrial Development (Income Tax Relief) Act 1971. Application has to be made to the Federal Government to enjoy any of these numerous investment incentives.

Owoeye Machine Tools Nigeria Limited was incorporated on January 20, 2016, and was initially granted a pioneer certificate on April 1, 2016. At the end of the pioneer period, the company, due to negligence, failed to follow due process in applying for an extension of the pioneer certificate. The company retained March 31 as its financial year-end. The following records and information were obtained from the company:

  1. Qualifying Capital Expenditure on property, plant, and equipment (certified by the Federal Inland Revenue Service) incurred during the pioneer period:
    Asset Type Amount (N’000)
    Industrial building 23,800
    Building (non-industrial) 11,600
    Motor vehicles 6,200
    Plant 10,400
    Furniture and fittings 5,800
  2. Statement of Adjusted Profits/(Losses) during the Pioneer Period:
    Period Profit/(Loss) (N’000)
    Year ended March 31, 2017 (44,450)
    Year ended March 31, 2018 (23,140)
    Year ended March 31, 2019 8,700
  3. Both the qualifying capital expenditure on property, plant, and equipment and adjusted profits/(losses) were certified by the Federal Inland Revenue Service.
  4. The company made a gross turnover of N312,450,000 and an adjusted profit of N52,250,000 during the year ended March 31, 2020.
  5. Extract from the Statement of Profit or Loss for the Year Ended March 31, 2021:
    Item Amount (N’000)
    Gross turnover 320,220
    Less: Cost of sales (176,550)
    Gross profit 143,670
    Expenses
    Salaries and wages 48,430
    Transport and traveling 2,360
    Motor running expenses 1,580
    Postage and telephone 1,150
    Bank charges 870
    Repairs and maintenance 3,660
    Auditors’ remuneration 1,500
    Legal and professional fees 2,000
    Depreciation 15,770
    Donations 1,600
    Allowance for doubtful debts 7,000
    Administrative expenses 10,070
    Total Expenses 95,990
    Net Profit 47,680
  6. Notes:
    • Legal and Professional Fees: Includes N1,400,000 paid for land acquisition for the business.
    • Allowance for Doubtful Debts: Includes N1,350,000 for specific provision, N4,150,000 for general provision, and N1,500,000 for bad debts written off.
    • Administrative Expenses: Includes N850,000 paid for a feasibility study on a proposed product line.
    • Qualifying Capital Expenditure Schedule for the year ended March 31, 2021:
      Asset Type Date of Acquisition Amount (N’000)
      Motor vehicles (2) April 15, 2020 3,200
      Plant (1) July 1, 2020 5,000
      Furniture and fittings (4) February 13, 2021 1,200

Required:

As the company’s Tax Manager, you are to prepare a report for the attention of the Managing Director showing the company’s:

a. Adjusted profit for the year ended March 31, 2021

(6 Marks)
b. Tax liabilities for the 2021 and 2022 assessment years (24 Marks)
(Total: 30 Marks)

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  • 15 Marks

AT – Nov 2017 – L3 – Q6 – Tax Administration and Dispute Resolution

Company on the total tax liabilities

Pategi and Abu are brothers based in Hackettstown, New Jersey, USA. In 2009, they, along with ten other African-Americans, incorporated a telecommunications company named Pategi Telecommunications Limited. The company, headquartered in the USA, has a representative office in Share, Kwara State, Nigeria. In the year ended December 31, 2014, the following transactions were extracted from the company’s records:

  1. Number of Minutes of Telecommunication Transactions:
    • U.S. to other parts of the World: 1,705,000 minutes
    • U.S. to Nigeria: 374,000 minutes
    • Nigeria to U.S.: 426,250 minutes
    • Nigeria to Canada: 550,000 minutes
    • U.S. to Canada through Nigeria: 794,750 minutes
      Total Minutes: 3,850,000 minutes
  2. Worldwide Expenses Incurred (Naira):
    • Refurbishment: N7,150,000
    • Rent: N1,100,000
    • Depreciation: N25,991,563
    • Salaries and Wages: N4,065,188
    • Other Disallowable Expenses: N9,658,000
    • Administrative Expenses: N4,820,750
      Total Expenses: N52,785,501
  3. Telecommunication Charges:
    • Average charge rate per minute: $0.50
    • Applicable exchange rate: N198 to $1.00

Required:
Advise the company on the total tax liabilities for the relevant year of assessment. (Total 15 Marks)

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  • 30 Marks

AT – Nov 2017 – L3 – Q1 – Taxation of Companies

Explain conditions for pioneer status and compute tax for HUSNA Ltd.

HUSNA Nigeria Limited was incorporated on May 13, 2015, to manufacture adhesives using gum arabic. The company, led by Mr. Onyeocha Ben, sought to benefit from the Industrial Development (Income Tax Relief) Act. They applied and were granted a Pioneer Certificate, with the production day certified as July 1, 2015.

The company’s financial records provide the following data:

(i) Accumulated profit as of June 30, 2016 – ₦41,250,000
(ii) Capital expenditure during the Pioneer period (certified by FIRS):

  • Building – ₦20,000,000
  • Property, Plant & Equipment – ₦18,750,000
  • Motor vehicles – ₦12,500,000
  • Furniture & Fittings – ₦6,250,000

(iii) Adjusted profits from the new trade after the pioneer period:

  • For 6 months to December 31, 2016 – ₦15,000,000
  • For the year to December 31, 2017 – ₦22,500,000

Required:
a. Explain briefly the conditions for granting a Pioneer Status to a company.
b. Compute the tax liabilities of the company for the relevant assessment years.
c. Differentiate between Tax Audit and Tax Investigation.

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q6 – Value-Added Tax (VAT)

Analyze VAT compliance, loss carry forward, and compute tax liabilities for Hidden Treasures Limited based on provided financial data.

HIDDEN TREASURES Limited is an agro-allied and trading organisation which specialises in Crop and Grain production, Animal husbandry, Sale and distribution of Grains (i.e. cowpeas, guinea corn, millet, rice, beans and groundnuts).

The company has been in business for many years and it has been filing annual Income Tax returns regularly except VAT returns. On 16 March 2015, the Federal Inland Revenue Service (FIRS) served a notice of Tax Audit covering 2010 – 2014 financial years.

The management believed erroneously that since it deals in VAT exempt goods, it did not need to file VAT returns on a monthly basis.

In preparation for the visit of the FIRS, the company’s management invited you on 23 March 2015, to their office and gave you the following extracts from the company’s Statement of Comprehensive Income and agreed Capital Allowances:

Year ended Agric Production (₦) Grain Distribution (₦)
Year ended 30/09/2010 Loss (770,000) (225,000)
Year ended 30/09/2011 Profit 630,000 280,000
Year ended 30/09/2012 Loss (600,000) (150,000)
Year ended 30/09/2013 Profit 990,000 140,000
Year ended 30/09/2014 Profit 30,000 120,000

Agreed Capital Allowances are as follows:

Tax Year Capital Allowance (₦)
2011 70,000
2012 65,000
2013 125,000
2014 115,750
2015 85,000

You are required to:

a. State the provisions of the VAT law with regard to rendition of returns by Vatable persons. (2 Marks)

b. Show by analysis the amount of losses carried forward under each income head shown above. (8 Marks)

c. Compute the tax liabilities for each year. (5 Marks)

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  • 20 Marks

TAX – Nov 2014 – L2 – Q3 – Companies Income Tax (CIT)

Determine basis periods, tax liabilities, and conditions for loss reliefs and capital allowances for Gab Pal Limited.

Gab Pal Limited commenced business on 1 May 2008. The company makes up its accounts to 31 August each year. Below is the data for the company’s trading activities:

Year Adjusted Profit/Loss (₦’000)
Period ended 31 August 2009 (16 months) (390,000)
Year ended 31 August 2010 170,000
Year ended 31 August 2011 150,000

The capital allowances for the relevant assessment years are as follows:

Assessment Year Capital Allowance (₦’000)
2008 20,000
2009 18,000
2010 12,000
2011 8,000
2012 5,000

Requirements:

a. Determine the basis periods and the tax liabilities for the relevant years. (Ignore the Taxpayer’s right of election) (10 Marks)

b. State the TWO types of Loss reliefs acceptable to the tax authority. (2 Marks)

c. State the conditions that must be satisfied by a taxpayer to enjoy the loss reliefs stated in (b). (5 Marks)

d. State the conditions for the grant of Capital Allowances to taxpayers

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  • 15 Marks

FR – May 2024 – L2 – SA – Q7 – Accounting for Income Taxes

Explains the qualitative characteristics of financial statements and describes the methods of valuation for property, plant, and equipment.

a. The Conceptual Framework for Financial Reporting states the qualitative characteristics of financial information.

Required:
Identify and explain FIVE qualitative characteristics of general-purpose financial statements. (10 Marks)

b. IAS 16 prescribes the principles and the valuation methods in recognizing items of property, plant, and equipment in the financial statements of an entity.

Required:
Describe the TWO methods of valuation recognized in IAS 16 on property, plant, and equipment. (5 Marks)

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  • 9 Marks

TAX – Nov 2015 – L2 – Q5b – Companies Income Tax (CIT)

This question requires the computation of Adebola Nigeria Limited's tax liabilities and withholding tax payable for 2013 and 2014.

Adebola Nigeria Limited has been trading for many years. The company makes up its accounts to 31 December annually. The extracts from its Statement of Comprehensive Income for the years ended 31 December 2013 and 2014 (as adjusted for tax purposes) are as follows:

Year ended 31 December 2014 (₦) 2013 (₦)
Profit for the year 14,000,000 10,000,000
Bank interest received (gross) 2,400,000 1,600,000
Debenture interest received (gross) 800,000 800,000
Dividend received from Adesemowo Ltd. (Net) 720,000 720,000
Dividend paid to shareholders (gross) 6,000,000 4,000,000

Required:
i. Compute the company’s tax liabilities for the relevant years of assessment. Ignore capital allowances. (5 Marks)
ii. Determine the net withholding tax payable or receivable by Adebola Nigeria Limited, arising from dividends paid and received by it. (4 Marks)

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