Taxation and Fiscal Policy
Scope
Taxation and Fiscal Policy tests Nigerian tax computation and compliance: Companies Income Tax (CITA), Personal Income Tax (PITA), VAT, capital gains, stamp duties and the fiscal incentives that shape business decisions.
Core rules
- Company income tax. Nigeria uses a graduated CIT rate: 0% for small companies below the turnover threshold, 20% for medium-sized companies, and 30% for large companies, subject to the Finance Act rules.
- Computation. Start with accounting profit, add back disallowed expenses and depreciation, deduct capital allowances and allowable losses, then apply the rate. Capital allowances replace accounting depreciation for tax.
- VAT. VAT is an indirect tax at 7.5% on taxable supplies; registered businesses charge output VAT and claim input VAT on eligible purchases.
- Withholding tax. WHT is generally an advance payment of income tax, not a separate final tax for companies.
- Fiscal policy. Tax incentives, exemptions and government spending influence investment, consumption and compliance behaviour.
Worked example
A large company reports accounting profit of N100m. It adds back N20m depreciation and N5m disallowed entertainment, then deducts N25m capital allowances. Taxable profit = N100m + N20m + N5m − N25m = N100m. At 30%, CIT = N30m. The reasoning is that tax law, not accounting treatment, controls deductibility; depreciation is replaced by capital allowances.
Traps
Do not tax revenue instead of profit; do not deduct depreciation twice; do not treat VAT as a business cost for a registered trader; and do not confuse tax avoidance with illegal evasion.
Key check
Reconcile accounting profit to taxable profit line by line, and keep evidence for every adjustment.