Tax Education: Tax-deductibility of donations

For the purpose of ascertaining the profit or loss of any company for any assessment year, Section 25 of the Companies Income Tax Act Cap C21 LFN 2004 (as amended) allows the deduction of donations made by the company for the period to specified fund, body or institution in Nigeria.

However, for a donation to be deductible for tax purpose, other than specified bodies to which donations can be made, the extant law provides other specific conditions that must be fulfilled by a company. These conditions include the following:

1. The donations must be made out of  profits of the company
2. The donations must not be capital in nature (except for donations to a University and other tertiary or research institutions)
3. Any donation to be allowed as deduction for any year of assessment, shall not exceed 10 per cent of the total profits of the company for that assessment year before any deduction any deduction is made. This excludes donations to a University and other tertiary or research institutions.
4. For University and other tertiary or research institutions, the deductible donation shall not exceed the higher of 15 per cent of the company’s total profit and 25 per cent of the tax payable in the year the donation is made.
5. The donation must be clearly different from the allowable expenses under Section 24 of the CITA
6. The donation must not be for a valuable consideration

Section 25 of CITA applies to the following:

1. Public funds
2. Statutory bodies and institutions
3. Ecclesiastical, charitable, benevolent, educational and scientific institutions established in Nigeria

The fifth Schedule to CITA specifically listed the following bodies and institutions as to which donations can be made:

1. The Boys Brigade of Nigeria
2. The Boys Scouts of Nigeria
3. The Christian Council of Nigeria
4. The Cocoa Research Institute of Nigeria
5. Any educational institution affiliated under any law with any university in Nigeria, or established under any law in Nigeria and any other educational institution recognized by any Government in Nigeria
6. The Girl Guides of Nigeria
7.  Any hospital owned by the Government of the Federation or of a State or any University Teaching Hospital or any hospital which is carried on by a society or association otherwise than for the purpose of profits or gains to the individual members of that society or association
8. The Institute of Medical Laboratory Technology
9. The National Commission for Rehabilitation
10. The National Library
11.  The Nigerian Council for Medical Research
12. The National Science and Technology Development Agency
13.  The Nigerian Institute for International Affairs
14. The Nigerian Institute for Oil Palm Research
15. The Nigerian Institute for Trypanosomiasis Research
16. The Nigerian Museum
17. The Nigerian Red Cross
18. A public fund established and maintained for providing money for the construction or maintenance of a public memorial relating to the civil war in Nigeria which ended on 15 January, 1970.
19. A public institution or public fund (including the Armed Forces Comfort Fund) established or maintained for the comfort, recreation or welfare of members of the Nigerian Army, Navy or Air Force.
20. A public fund established and maintained exclusively for providing money for the acquisition, construction, maintenance or equipment of a building used or to be used as a school or college by the Government of the Federation or a State or by a public authority or by a society or association which is carried on otherwise than for the purpose of profit or gain to [lie individual members of that society or association
21. The National Youth Council of Nigeria
22. National Sports Commission and its State Associations
23. The Nigerian Society for the Deaf and Dumb
24. The Society for the Blind
25. The Nigerian National Advisory Council for the Blind
26. Associations or Societies for the Blind in Nigeria
27. Training Centres and Residential Schools for the Blind in Nigeria
28.  The National Braille Library of Nigeria
29.  The Nigerian Youth Trust
30. Van Leer Nigerian Educational Trust
31. Southern Africa Relief Fund
32. Islamic Education Trust
33. The Institute of Chartered Accountants of Nigeria Building Fund
34. Murli T. Chellaram Foundation
35. Any public fund established or approved by the Government of the Federation or established by any of the State Governments in aid of or for the relief of drought or any other national disaster in any part of the Federation.
36. A public institution established and maintained by a society or association for the promotion or defence of human rights, women empowerment and development or for reorientation or rehabilitation/welfare support service for orphans, widows, physically challenged, refugees and all categories of persons that may require social or economic rehabilitation and transformation or for youth empowerment and development which is carried on other than for the purpose of profits or gains to the individual members of the society or association or person
37. A public institution established and maintained by a society or association for Leadership and Resource Development or for the Promotion of National Unity and Patriotism or for the Promotion of Social and Economic Development which is carried on other than for the purpose of profits or gains to the individual members of the institution, society, association or person
38. A public institution or public fund established and maintained by a society or association for accident prevention and control activities or for information system development and awareness which is carried on other than for the purpose of profits or gains to the individual members of the institution, society, association or person
39. A public institution established and maintained by a society or association for creation of awareness for transparency in governance and electoral processes or for the promotion of national unity and patriotism which is carried on other than for the purpose of profits or gains to the individual members of the society, association or person
40. Any public institution or public fund established and maintained by a society or association for museum development and promotion of sports, arts and culture which is carried on otherwise than for the purpose of profits or gains to the individual members of the society, association or person
41. Any public institution or public fund established and maintained by a society or association for rendering assistance in the provision of safe water, electricity, infrastructure and agricultural development which is carried on other than for the purpose of profits or gains to the individual members of the society, association or person
42. Any professional body established under an Act of the National Assembly for the regulation and practice of the profession.

The CITA empowers the Minister of Finance to issue an order in the Federal Gazette, amending the fifth Schedule to the Act. However, the fund, body or institution to be added to the Schedule is a public fund established in Nigeria, or the body or institution is a statutory body or institution, or is a body or institution of a public character, established in Nigeria.