Subject: TAXATION

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  • 15 Marks

TAX – Nov 2023 – L2 – Q7 – Tax Administration and Enforcement

Reasons for business cessation, computation of net terminal adjusted profit, and assessable profits

Raposa Nigeria Limited, a company located in Sambisa Forest, Kutunwegi State of Nigeria, commenced operations on November 1, 2017. The accounting year-end was September 30. Due to government policy restricting rice importation, the business’s going concern was threatened, leading the Board of Directors to decide to cease operations on December 31, 2022.

The adjusted profits for the relevant periods are as follows:

Period Adjusted Profit (N)
Period to September 30, 2019 2,100,000
Year ended September 30, 2020 2,400,000
Year ended September 30, 2021 3,640,000
Year ended September 30, 2022 6,300,000
Period to December 31, 2022 500,000

Additional Information:

  1. A bad debt of N120,000, written off in the 2020 assessment year, was recovered in October 2021.
  2. N20,000 was spent to recover this debt.
  3. An expenditure of N350,000 incurred in the 2020 assessment year was accounted for in the profit or loss but was not paid until August 2022.

Upon cessation, the revenue authority planned a back-duty investigation and informed the taxpayer accordingly. As a tax consultant, you are invited to determine the assessable profits for the relevant periods from the commencement of trade to business cessation.

Required: a. State THREE reasons why a business may cease trading. (3 Marks)
b. Compute net terminal adjusted profit. (6 Marks)
c. Compute assessable profits for all the relevant years of assessment. (6 Marks)

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  • 15 Marks

TAX – Nov 2023 – L2 – Q6b – Tax Administration and Enforcement

Explain five key contents required in a Withholding Tax returns/payment schedule.

It is expected that a schedule of Withholding Tax (WHT) payable should be prepared by applying the correct WHT rate on each transaction/payment made during the month. Thereafter, a cheque for the amount due to the Federal Inland Revenue Service is raised and forwarded together with the WHT schedule to one of the approved collecting banks for processing.

Required:
Explain FIVE contents of a WHT returns/payment schedule. (10 Marks)

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  • 15 Marks

TAX – Nov 2023 – L2 – Q6a – Tax Administration and Enforcement

Explain the functions and powers of the Nigerian Customs Service Board.

The Nigeria Customs Service (NCS) is one of the major revenue-generating agencies for the Federal Government of Nigeria. The establishment of the Nigerian Customs Service Board, which is under the control of the Federal Ministry of Finance, is contained in section 1 of the Nigerian Customs Service Board Act Cap.C45 LFN 2004 (as amended). The Board is responsible for the administration of the Customs and Excise Management Act.

Required:
Explain the functions and powers of the Board. (5 Marks)

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  • 20 Marks

TAX – Nov 2023 – L2 – Q4 – Taxation of Trusts and Estates

Compute the net income assessable in the hands of trustees and assessable income of each beneficiary.

The records of the two trustees of Olalomi Children Settlement created in favor of the three children—Olami, Olambe, and Olaide—revealed the following as of December 31, 2020:

Income Type Amount (N)
Rental income (gross) 398,900
Trading income 210,000
Dividend (gross) 196,000
Profit on sale of non-current assets 600,000

Additional Information:

  1. The interest received was from Gbogbo-Ero Commercial Bank Limited.
  2. Other allowable expenses amounted to N23,000.
  3. Each beneficiary was entitled to a quarter of the net distributable income.
  4. Fixed annuity to the beneficiaries was N42,000 (gross) to be shared equally.
  5. Trustee’s remuneration per trust deed was fixed at N25,000 each, plus 2.5% of the total computed income.
  6. Discretionary payments were made to Olami (N10,000), Olambe (N34,000), and Olaide (N29,000).
  7. Agreed capital allowance was N87,600.
  8. Administrative and other expenses amounted to N106,000.

Required: a. Compute the net income assessable in the hands of the trustees. (14 Marks)
b. Compute the assessable income in the hands of each beneficiary. (6 Marks)

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  • 9 Marks

TAX – Nov 2023 – L2 – Q3b – Tax Administration and Enforcement

Explain the roles and responsibilities of government, taxpayers, and revenue agencies in Nigeria’s National Tax Policy.

In line with the provisions of the revised National Tax Policy (NTP) in 2017, explain the roles and responsibilities of the following stakeholders:

i. The government (3 Marks)
ii. The taxpayers (3 Marks)
iii. Revenue agencies (3 Marks)

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  • 11 Marks

TAX – Nov 2023 – L2 – Q3a – Tax Administration and Enforcement

Describe the composition and functions of Nigeria’s tax administration bodies, including the Joint Tax Board and State Board of Internal Revenue.

a. Tax administration in Nigeria involves the practical interpretations and application of the tax laws. The bodies charged with the administration of tax in Nigeria are the Federal, State, and Local Governments. The tax authorities of these tiers of government derive their power from Federal laws.

i. State the composition of the Joint Tax Board. (3 Marks)

ii. Outline FOUR functions of the State Board of Internal Revenue. (3 Marks)

iii. State FIVE levies and taxes collectible by the Local Government Revenue Committee. (5 Marks)

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  • 20 Marks

TAX – Nov 2023 – L2 – Q2 – Tax Administration and Enforcement

Discuss the tax law provisions for a change in accounting year end, revenue practice, and compute assessable profits.

Forward Nigeria Limited, a Nigerian manufacturing company, has been operating for several years with an accounting year-end on June 30. The company recently decided to change its year-end to September 30. The adjusted profits for the relevant periods are as follows:

Period Adjusted Profit (N)
Year ended June 30, 2014 2,700,000
Year ended June 30, 2015 3,300,000
Period ended September 30, 2015 1,500,000
Year ended September 30, 2016 4,200,000
Year ended September 30, 2017 3,600,000

Additional Information:

  1. Income overstated:
    • June 30, 2015: N250,000
    • September 30, 2016: N280,000
  2. Expenditure understated:
    • June 30, 2014: N160,000
    • September 30, 2017: N150,000

Required: a. Explain the tax law provisions for a business changing its accounting year-end. (5 Marks)

b. Describe the Revenue practice related to these provisions. (3 Marks)

c. Compute the assessable profits for all affected years of assessment, considering the tax law and Revenue practice. (12 Marks)

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  • 30 Marks

TAX – Nov 2023 – L2 – Q1 – Personal Income Tax (PIT)

Compute the personal income tax payable by a proprietor with specific adjustments for disallowable expenses and capital allowances.

Alhaji Nura Imam, having spent over 20 years as an employee of Apex Limited, retired on November 1, 2020. On January 2, 2021, he registered a business under the name of Nura Imam Enterprises. The profit or loss account of the enterprise for the year ended December 31, 2021, is as follows:

You were provided with the following additional information:

(v) Agreed capital allowance on qualifying capital expenditure was N1,240,000.
(vi) Alhaji Imam received a gratuity of N4,000,000 during the year.
(vii) Alhaji Imam is blessed with five children, all within the ranges of 10 to 21 years.
(viii) The proprietor has a life assurance policy on which he pays a premium of N1,200,000 annually.

Required: Compute the personal income tax payable by Alhaji Nura Imam for the relevant assessment year. (30 Marks)

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  • 15 Marks

TAX – May 2015 – L2 – SC – Q7 – Taxation of Trusts and Estates

Determine computed income of a trust, tax liabilities, and apportionment of income among beneficiaries.

Chief Zeta created a Trust many years ago for the benefit of his four children, Alpha, Beta, Cepha, and Delphi. A lawyer was appointed as the Trustee to his Estate.

For the year ended 30 September 2014, the Trust income amounted to ₦3,120,000. Each of the beneficiaries receives an annuity of ₦150,000 every year while the expenses incurred on the administration of the Trust was ₦57,500 per annum. The trustee is on a remuneration of 2% of the Computed Income.

Chief Zeta instructed that discretionary payments of ₦22,500, ₦17,500, ₦15,000, and ₦12,500 respectively should be made to Alpha, Beta, Cepha, and Delphi respectively. In addition, nine of the ten portions of the remainder of the Computed Income should be shared equally among the four children.

Chief Zeta has requested you to supervise the administration of the above Trust.

You are requested to:

a. State the basis of assessment of Estates, Trusts or Settlements. (1 Mark)

b. Identify the persons chargeable to Income Tax under the Trust or Settlement created by Chief Zeta. (3 Marks)

c. Compute the income of the Trust. (3 Marks)

d. Determine the amount due to each beneficiary. (6 Marks)

e. Explain how the Computed Income should be apportioned and how the Income Tax burden will be shared by all the parties. (Ignore Withholding tax). (2 Marks)

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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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  • 30 Marks

TAX – May 2022 – L2 – SA – Q1 – The Nigerian Tax System

Discuss the tax filing obligations and implications of non-compliance for a new company, covering both corporate tax and VAT.

Mr. Danko Chinyere, who has worked in a neighboring African country for many years, returned to Nigeria in August 2018. He incorporated a private limited liability company known as ChiDan Limited located in Lagos on October 30, 2018. The company deals in processing and packaging of plantain chips for local consumption.

The directors of the company opened a business bank account with one of the leading commercial banks in November 2018. The company commenced full operations on January 2, 2019.

Your firm, Adama & Co., was appointed as the tax consultant to ChiDan Limited in January 2021. At the first engagement meeting with the company, you discovered that the company was yet to register with the Federal Inland Revenue Service (FIRS). Relevant taxes, including value-added tax (VAT), were not remitted to FIRS.

An extract of the company’s first set of financial statements made up to December 31, 2020, is as follows:

Required:
Advise management of the company on the following:
a. Due date for submission of audited financial statements to the tax office. (2 Marks)
b. Requirements for filing of VAT returns and remittance of VAT liabilities – Section 16 of VAT Act (as amended). (4 Marks)
c. Basis of assessment on commencement of business – Section 29 (3) of CITA
(as amended) (6 Marks)
d. The income tax liabilities payable for the relevant year of assessment
(18 Marks)

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  • 15 Marks

TAX – Nov 2016 – L2 – Q7 – Value Added Tax (VAT)

Discuss the VAT position of Trevor Optimal Nigeria Limited and recommend actions to address Input VAT buildup.

Trevor Optimal Nigeria Limited has been operating in the oil and gas sector in Nigeria since January 1, 2005. The company is engaged in the importation and sale of oil tools. With the introduction of the Reverse Charge Mechanism in Nigeria, the company has accumulated Input VAT since 2008, which, as of December 31, 2015, stood at N6,000,000. This Input VAT resulted from the importation of oil tools that the company sells to oil companies.

The company’s Output VAT is withheld by its customers at source and remitted to the Federal Inland Revenue Service (FIRS). This practice has left the company with a significant buildup of Input VAT without any Output VAT to offset it.

The Chief Executive Officer has expressed concern over this buildup of Input VAT and has invited you for a meeting to discuss the issue. The CEO reasoned that as long as the company continues in its line of business, the Input VAT will continue to grow and has requested you to advise the company.

Required:
a. Provide brief information for the Chief Executive Officer on why the company is in the current position. (5 Marks)
b. Advise the Chief Executive Officer on the best action to follow in accordance with the law. (5 Marks)
c. State the steps required by FIRS to grant a tax refund to a taxpayer. (5 Marks)

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  • 15 Marks

TAX – Nov 2016 – L2 – Q6 – Tax Planning and Management

Compute the capital allowances for John Bull Nigeria Limited over the first five years of assessment and allocate initial allowances.

John Bull Nigeria Limited, a manufacturing company, commenced business on August 1, 2011, and prepared accounts to July 31 each year. The company incurred the following qualifying capital expenditure:

  • July 1, 2011: Plant and Equipment (N500,000)
  • October 31, 2011: Motor Vehicle (N300,000)
  • December 13, 2011: Factory Building (N400,000)
  • January 15, 2012: Motor Vehicle (N1,000,000)
  • June 1, 2012: Plant and Equipment (N200,000)

The following disposals were made:

  • Part of equipment bought for N200,000 on July 1, 2010 was sold for N50,000 on December 31, 2013.
  • Motor vehicle bought for N300,000 on October 31, 2011, was sold for N400,000 on December 31, 2012.

Required:
a. Compute Capital Allowances for the first FIVE Years of Assessment. (11 Marks)
b. Place the assets in the relevant Years of Assessment for the purpose of initial allowance. (2 Marks)
c. Compute the Balancing Charge or Allowance in relation to the assets disposed. (2 Marks)

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  • 5 Marks

TAX – Nov 2016 – L2 – Q5b – Value Added Tax (VAT)

Compute the total VAT payable to the Federal Inland Revenue Service (FIRS) for a series of transactions involving a textile company, wholesaler, and retailer.

Olamide Limited is a textile company based in Abuja. The company sold its vatable products to a wholesaler, Qudus Enterprises, for N1,800,000. The wholesaler in turn sold the products to a retailer, Mr. Lekan, for N2,500,000, who finally sold to consumers for N5,000,000. Assume there was no closing inventory at each stage of the transactions.

Required:
Compute the total VAT payable to the Federal Inland Revenue Service.

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  • 10 Marks

TAX – Nov 2016 – L2 – Q5a – Stamp Duties

Discuss the administration of Stamp Duties in Nigeria and explain five chargeable instruments.

i. Discuss briefly the administration of Stamp Duties in Nigeria. (5 Marks)
ii. List and explain any FIVE instruments that are chargeable to Stamp Duties. (5 Marks)

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  • 20 Marks

TAX – Nov 2016 – L2 – Q4 – Tax Administration and Enforcement

Explain the grounds for objecting to tax assessments, functions and composition of the Joint Tax Board, and taxes collectible by federal and state tax authorities.

Mr. Drury is a sole proprietor who has approached you regarding the assessment given to him by the tax authority. He has registered his intention to object to the assessment and needs your professional advice.

You are required to explain briefly the following:
a. Grounds for a valid objection to a tax assessment (3 Marks)
b. The composition of the Joint Tax Board (2 Marks)
c. Functions of the Joint Tax Board (5 Marks)
d. Taxes that are exclusively collectible by the Federal Inland Revenue Service (5 Marks)
e. Taxes that are collectible by both the Federal Inland Revenue Service and State Internal Revenue Service (5 Marks

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  • 20 Marks

AX – Nov 2016 – L2 – Q3 – Taxation of Partnerships and Sole Proprietorships

Discuss the tax implications of converting a partnership into a limited liability company and the treatment of incorporation costs.

Johnson, Seyi, and Bernard, based in Kaduna State, have run the firm Johnson, Seyi & Bernard (Estate Managers) for several years. The partnership agreement provides the following:

(i) Salary paid to partners:

  • Johnson: N288,000
  • Seyi: N576,000
  • Bernard: N1,152,000

(ii) Profit-sharing ratio:

  • Johnson: 2
  • Seyi: 3
  • Bernard: 5

In April 2015, there was a decision to review the partnership agreement. Messrs Johnson, Seyi, and Bernard were unable to find worthy successors to take over as partners. Rather than review the partnership agreement, they agreed to convert the partnership into a limited liability company.

A firm of legal practitioners was contacted to incorporate a new company, JSB Consultants Limited. The Authorised Share Capital was agreed at N50,000,000, made up of 50,000,000 Ordinary Shares of N1.00 each. The shareholding structure is as follows:

  • Johnson: 20%
  • Seyi: 30%
  • Bernard: 50%

The Certificate of Incorporation was dated July 15, 2015, and the company commenced business on September 1, 2015. The cost of incorporation includes:

  • Payment for Stamp Duty: N400,000
  • Professional fee for incorporation: N250,000
  • Corporate Affairs Commission (CAC) registration fee: N500,000
  • Miscellaneous costs: N200,000
    Total: N1,350,000

The financial results for the year ended December 31, 2015, are as follows:

  • Revenue: N20,000,000
  • Expenses:
    • Cost of incorporation: N1,350,000
    • Transport and travelling: N675,000
    • Medical: N600,000
    • Hotel and accommodation: N625,000
    • Audit and accountancy: N550,000
    • Postages and telephone: N750,000
    • Salaries:
      • Johnson: N1,440,000
      • Seyi: N2,880,000
      • Bernard: N5,760,000
        Total expenses: N14,630,000
  • Net Profit: N5,370,000

Required:
As the Tax Consultant, you are required to write a report to Messrs Johnson, Seyi, and Bernard highlighting:
a. Tax implications of the decision to convert to a limited liability company, limiting yourself to the details provided. (11 Marks)
b. Your comment on the breakdown of the cost of incorporation of N1,350,000 and the tax implication of each item. (9 Marks)

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  • 20 Marks

TAX – Nov 2016 – L2 – Q2 – Tax Administration and Enforcement

Explain the composition and functions of the State Board of Internal Revenue and list taxes collectible by State Governments.

The present economic recession in Nigeria has called for the review of the activities of every State Board of Internal Revenue. One State Government from the South West recently called for the forum of Tax Consultants. As one of the consultants, you are required to explain the following:

a. Composition of the State Board of Internal Revenue and what constitutes a quorum. (7 Marks)
b. Any THREE functions of the State Board of Internal Revenue. (6 Marks)
c. Any SEVEN taxes collectible by a State Government. (7 Marks)

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  • 25 Marks

TAX – Nov 2016 – L2 – Q1a – Personal Income Tax (PIT)

Compute tax payable by Mr. Adeola based on trading and employment income, deductions, and allowances.

Mr. Adeola has been in the employment of Hope Nigeria Limited for a long time, rising to Senior Manager, while also running a trading business. He ceased trading on December 31, 2014, to focus on his employment fully. The following information pertains to his income:

Trading: (i) Trading results for the periods:
Year ended August 31, 2012: N2,400,000
Year ended August 31, 2013: N1,800,000
Year ended August 31, 2014: N2,625,000
Period ended December 31, 2014: N360,000

(ii) Capital Allowances for the Years of Assessment:
2012 Assessment Year: N240,000
2013 Assessment Year: N180,000
2014 Assessment Year: N120,000

(iii) On January 1, 2015, N360,000 was received from a debtor whose debt had been written off.

Employment:
(i) Annual salary: N3,600,000.
(ii) Transfer cost spent by the company: N52,000.
(iii) A motor car provided for his exclusive use, costing N7,200,000.
(iv) Domestic staff with a salary of N600,000 per annum provided by the company.
(v) He receives assignable luncheon vouchers worth N360,000 annually.

Other Information:
(i) He derives a gross rent of N1,200,000 annually, with 10% withholding tax deducted.
(ii) Receives annual interest of N80,000 on fixed deposits.
(iii) Pays N240,000 annually as life assurance premium.
(iv) Contributes N180,000 to the National Housing Fund and N150,000 to the National Health Insurance Scheme.
(v) Pays N596,250 annually for Pension Fund Contribution.

Required:
Compute the tax payable by Mr. Adeola in respect of 2014 Year of Assessment. (Ignore the penultimate year)

 

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