Understanding Minimum Tax in Nigeria

Minimum tax in Nigeria is a statutory tax imposed on companies, ensuring that all businesses contribute to the economy, even if they operate at a loss. This tax applies when a company records no taxable profits or has no tax payable under the regular Company Income Tax (CIT) system.

 

In this article, we will explain the concept of minimum tax, its applicability, exemptions, calculation method, and compliance requirements in Nigeria.

 

 

What Is Minimum Tax in Nigeria?

 

Under Section 33 of the Companies Income Tax Act (CITA), minimum tax is a mandatory tax imposed on companies that report no profit or zero tax liability. The purpose is to ensure that all companies contribute some tax revenue, regardless of their financial performance.

 

 

Who Is Required to Pay Minimum Tax in Nigeria?

 

Minimum tax applies to companies operating in Nigeria that do not have assessable profits or whose tax payable is lower than the minimum tax threshold.

 

However, not all businesses are subject to minimum tax. Certain companies are exempt, as discussed below.

 

 

Exemptions from Minimum Tax

 

The following categories of companies are not required to pay minimum tax:

 

1. Small Companies: Businesses with a turnover of N25 million or less are exempt under the Finance Act 2019.

 

2. Agricultural Companies: Companies engaged in agricultural production are exempt from minimum tax.

 

3. Companies with 25% or More Foreign Equity: If at least 25% of the company’s capital is owned by foreign investors, the company is not liable to pay minimum tax.

 

 

How Is Minimum Tax Calculated in Nigeria?

 

Minimum tax is calculated as a percentage of the company’s turnover (excluding franked investment income). The standard rate is:

 

0.5% of gross turnover

 

 

If the company has imported equity, the minimum tax rate is calculated differently:

 

0.25% of gross turnover

 

 

This calculation ensures that businesses contribute to tax revenue, even if they declare losses or have no taxable income.

 

Compliance and Filing Requirements

 

Companies subject to minimum tax must:

 

1. File Annual Tax Returns: Submit annual tax returns to the Federal Inland Revenue Service (FIRS), even if they report a loss.

 

 

2. Make Payment: Pay the applicable minimum tax rate on or before the due date to avoid penalties.

 

 

3. Maintain Accurate Records: Ensure proper documentation of financial statements to justify tax liability.

 

 

 

Penalties for Non-Compliance

 

Failure to comply with minimum tax requirements can result in penalties, including:

 

Late Filing Penalty: N25,000 for the first month and N5,000 for each subsequent month.

 

Additional Fines and Sanctions: Continuous failure to file or pay taxes may lead to further penalties by FIRS.

 

 

Impact of Minimum Tax on Businesses

 

Encourages Tax Compliance: Companies are incentivized to maintain proper accounting records and file returns.

 

Financial Burden for Loss-Making Companies: Businesses struggling financially may find it difficult to pay minimum tax.

 

Policy Adjustments by Government: The Finance Act 2019 introduced exemptions for small businesses to reduce their tax burden.

 

 

Conclusion

 

Minimum tax in Nigeria ensures that companies contribute to national revenue, even when they do not make a profit. While it applies to most businesses, exemptions exist for small companies, agricultural businesses, and companies with significant foreign equity. Compliance with tax laws is essential to avoid penalties and legal issues.

 

If you need professional assistance with tax compliance or minimum tax calculation, consult a tax expert today.

 

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