AN APPRAISAL OF THE LEGAL FRAMEWORK FOR THE TAXATION OF COMPANIES INCOME IN NIGERIA

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ABSTRACT

The current wave of globalization and technological revolution has had a tremendous effect on companies‟ income tax in Nigeria. For instance, the e-commerce which is a relatively new technology epitomizes boundary, whereas the companies income tax law upholds the concepts of residence, fixed base and permanent establishment. Nigerian tax administration is ill-equipped to cope with these emerging tax problems. The old standard of corporation tax, the manual assessment and enforcement procedures cannot meet up with the fast- changing commercial activities of the companies. This consequently creates administrative ineptitude which to a large extent adversely affects revenue generation in Nigeria. There is therefore the need to probe into how the developments have affected our domestic Companies Income Tax Act. This thesisalso attempts to highlight grey areas in corporation tax system in Nigeria which affects revenue generation. Some of these areas of potential problems are: the
problems of assessment and enforcement of corporate taxes, the negative effect of globalization on corporation taxes; the legality or otherwise of operating unincorporated treaties and Double Taxation Arrangement and finally the complication of enforcement and administration of corporation tax laws.This thesis entitled “An Appraisal of the Legal Framework For the Taxation of Companies Income in Nigeria” aims at critically examining the various laws and principles relating to the taxation of companies in Nigeria. Accordingly, the objectives of the study is with a view to measuring the adequacies or inadequacies of the said laws and principles, which if frontally addressed, their menace to corporate tax laws and consequently to revenue generation will be drastically reduced to the barest minimum This research has adopted the doctrinal method which includes tax laws, various textbooks, treaties, case laws and articles drawn from relevant sources of this research topic. In the course of this research, it has been found amongst others that there are complexities in respect of the tax statutes, poor implementation and application of international corporate double taxation treaties in Nigeria, misinterpretation of corporate tax terms like “accruing in” “ brought in” or “derived from” and lack of enforcement skills in the assessment, collection of corporate taxes by tax administrators.The research concludes that unless there is a wholistic overhaul and/or introduction of a co-ordinated platform for the administration of corporate tax laws in Nigeria corporate revenue generation will continue to pose serious challenges in Nigeria.

 

TABLE OF CONTENTS

TITLE PAGE
DECLARATION
CERTIFICATION
ACKNOWLEDGEMENT
DEDICATION
LIST OF ABBREVIATIONS
TABLE OF STATUTES
TABLE OF CASES –
TABLE OF CONTENTS
ABSTRACT
CHAPTER ONE
GENERAL INTRODUCTION
1.1 BACKGROUND OF THE STUDY
1.2 LITERATURE REVIEW
1.3 STATEMENT OF THE PROBLEM –
1.4 OBJECTIVES OF THE RESEARCH
1.6 SCOPE OF RESEARCH
1.7 RESEARCH METHODOLOGY
1.7 JUSTIFICATION OF THE RESEARCH-
1.8 ORGANIZATIONAL LAYOUT

CHAPTER TWO
HISTORICAL DEVELOPMENT OF CORPORATE TAX LAW IN NIGERIA
18
2.1 INTRODUCTION – – – – – – 18
2.2 HISTORY OF CORPORATE TAX LAW IN NIGERIA – – 21
2.2.1 THE PERIOD OF TAX CONSCIOUSNESS – – – – 19
2.2.2 THE PERIOD OF FISCAL MEASURE – – – – – 20
2.2.3 THE PERIOD OF FISCAL CENSURE – – – – – 22
2.2.5 THE PERIOD OF TAX AS INSTRUMENT OF SOCIAL REFORM – 24
2.3 THE CURRENT APPLICABLE LAWS TO CORPORATE TAXATION
IN NIGERIA – – – – – – – – – 27

2.4 NATIONAL TAX POLICY AND CORPORATE TAXATION IN NIGERIA 27
2.4.1 MEANING OF NATIONAL TAX POLICY – – – – 29
CHAPTER THREE
THE BASIC CONCEPTS OF CORPORATE TAX LAWS AND TAXING
JURISDICTIONS IN NIGERIA – – – – – –
31
3.1 INTRODUCTION – – – – – – – 31
3.2 THE BASIC CONCEPT AND RATIONAL FOR CORPORATION TAX – 31
3.2.1 INTRODUCTION
3.3 RATIONALE FOR CORPORATION TAX – – – – 33
3.4 DEFINING A COMPANY FOR TAX PURPOSE – – – – 34
3.5 CATEGORIES OF COMPANIES – – – – – – 37
3.6 DISTINGUISHING FEATURES OF CORPORATE TAXATION IN NIGERIA 41
3.7 TAX ON PROFITS OR TURNOVER OF COMPANIES – – – 34
3.8 EXERCISE OF TAXING JURISDICTION – – – – 34
3.8.1 STATUS JURISDICTION – – – – – – – 44
3.8.2. BUSINESS JURISDICTION – – – – – – 45
CHAPTER FOUR
CHARGEABLE INCOMES OF COMPANIES
– – – – 51
4.1 INTRODUCTION – – – – – – – – 51
4.1.0 LAW AND REVENUE PRACTICE – – – – – – 52
4.1.1 RULE OF CONVENIENCE – – – – – – – 54
4.1.2 RULE OF CONCESSION – – – – – – – 55
4.2 MEANING OF INCOME – – – – – – – 55
4.2.1 RECURRENT QUALITY TEST – – – – – – 56
4.2.2 ORDINARY COURSE OF BUSINESS TEST – – – – 57
4.2.3 DESIGNATED SOURCE TEST – – – – – – 59
4.2.4 PRACTICAL APPROACH – – – – – – – 60
4.3 IMPOSITION OF TAX – – – – – – – 61
4.3.1 RENT AND PREMIUM – – – – – – – 64
4.3.2 DIVIDEND AND ANNUITY – – – – – – 65
4.3.3 SECURITY – – – – – – – – – 67
4.4 ASSESSMENT – – – – – – – – 69

ADDITIONAL ASSESSMENT
CURRENCY OF ASSESSMENT


4.5 RATES OF TAX AND LEGISLATIVE EQUIVALENCY DOCTRINE – 75
CHAPTER FIVE
MODALITIES FOR THE TAXATION OF CORPORATE BODIES IN NIGERIA
5. 1 INTRODUCTION – – – – – – – – 77
5. 2 MODALITIES – – – – – – – – – – 77
5.3 SOURCE OF ACCRUAL BASIS AND BASIS OF LIA BILITY
TO NIGERIAN TAXATION – – – – – 78
5.4 TYPES OF INCOME ASSESSABLE TO TAX – – – 79
5.4.1 TRADE PROFITS – – – – – – – – 79
5.4.2 INVESTMENT INCOME – – – – – – – 80
5.4.3 INTEREST – – – – – – – – – 80
5.4.4 DEDUCTION OF TAX FROM INTEREST AND RENTS – – 81
5.4.5 ALLOWANCES, DUE AND FEES – – – – – – 82
5.5 INCOME EXEMPTED FROM TAXATION – – – – 82
5.6 CONDITIONS TO QUALIFY FOR PIONEER STATUS – – – 84
5.6.1 PIONEER CERTIFICATE – – – – – – 85
5.6.2 OPERATIONS OF PIONEER COMPANIES – – – 85
5.6.3 COMMENCEMENT OF BUSINESS OR TRADE BY
PIONEER COMPANIES – – – – – – 85
5.6.4 POWERS OF F.B.I.R. IN RESPECT OF PIONEER COMPANIES – – 85
5.6.5 RESTRICTIONS OF PIONEER COMPANY – – – 86
5.7 COMPUTATION OF TOTAL PROFITS OF A COMPANY – – – 86
5.7.1 COMMENCEMENT OF A TRADE OR BUSINESS – – – 87
5.7.2 CESSATION/TERMINATION OF TRADE OR BUSINESS – – 87
5.7.3 PAYMENT RECEIVED AFTER THE TERMINATION
OF BUSINESS OR TRADE- – – – – – – 88
5.7.4 TRANSFER OR SALE OF BUSINESS OR TRADE – – – – 88
5.7.5 TAKEOVER, MERGER, TRANSFER OR RESTRUCTURING
OF BUSINESS – – – – – – – – – 89
5.7.6 THE BASIC RULES FOR CALCULATING A COMPANY’S
PROFITS – – – – – – – – – 89

5.7.7 WHERE THERE IS NO ASSESSABLE PROFITS – – – 89
5.7.8 DEDUCTIONS ALLOWED IN COMPUTING PROFITS OF
A COMPANY – – – – – – – – 90
5.7.9 DISALLOWABLE DEDUCTION FROM PROFIT – – – – 91
5.8 OTHER CATEGORIES OF DEDUCTIONS ALLOWED
FROM PROFITS – – – – – – – – 92
5.9 LOSSES DEDUCTIBLE FROM INCOME FOR TAX PURPOSES – – 92
5.10 CAPITAL ALLOWANCES AS DEDUCTIBLE FROM
INCOME FOR TAX PURPOSES – – – – – – 93
5.11 TAXATION OF DORMANT COMPANIES – – – – – 95
5.12 TAXATION OF DIVIDENDS – – – – – – 95
CHAPTER SIX: SUMMARY AND CONCLUSIONS
6.1 SUMMARY – – – – – – – – 104
6.2 FINDINGS – – – – – – – – – 106
6.3 RECOMMENDATIONS – – – – – – – 108
BIBLIOGRAPHY – – – – – – – – 116

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