One of the objectives of the Federal Government of Nigeria is to improve the ease of doing business for investors through its various policies, programs, committees and interventions. However, some of the subsisting policies and laws of the Federal Government appear inhibitive when critically evaluated in the light of current realities.
Undoubtedly, the provisions of Section 33 of the Companies Income Tax Act (CITA) on the requirement for minimum tax is one of the controversial tax provisions that require some critical analysis and consideration for potential review.
It appears that the proposed amendment to the CITA in the National Tax Policy may have contemplated some of the concerns raised in this article because it intends to remove net assets as a basis for computing minimum tax, and amend the applicable rate and amount of turnover in arriving at minimum tax payable. However, it is necessary to examine the merits of the proposed changes in the wake of the need to increase government's revenue through taxes vis-à-vis the continued relevance of the minimum tax provision to some critical sectors of the economy.
In this article, we have reviewed the provisions of Section 33 of the CITA referenced above, in the light of current demands of businesses, and suggested recommendations for making it fit-for-purpose.
The principle of minimum tax provisions
Section 33 (1) of the CITA provides that – "Notwithstanding any other provisions in this Act where in any year of assessment the ascertainment of total assessable profits from all sources of a company results in a loss, or where a company's ascertained total profits results in no tax payable or tax payable which is less than the minimum tax, there shall be levied and paid by the company the minimum tax as prescribed by subsection (2) of this section".
Minimum tax payable is calculated as follows:
1. The highest of:
- 5% of gross profits; or
- 5% of net assets; or
- 25% of paid-up capital; or
- 25% of turnover of the company for the year.
2. Plus 0.125% of revenue in excess of ₦500,000
The exceptions to the above provision are where the company is in its first four calendar years of operation, or is engaged in agricultural trade or business, or if the company has at least 25% imported equity capital.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.