It is no longer news that the Finance Act 2019 has revised the provisions of Section 33 of the Companies Income Tax Act Cap C21 LFN 2004 (as amended) on minimum tax. The Finance Act provides that the minimum tax to be levied and paid shall be 0.5% of gross turnover of a company, less franked investment income.
FIRS reiterates that Section 80 (3) of CITA defines franked investment income as dividend received by one company from another after deduction of withholding tax as specified in that Section. The Service then clarifies that:
Any dividend that has not suffered WHT is not a franked investment income and shall not be deducted from gross turnover for the purposes of minimum tax. As such, provision of evidence of WHT suffered is a condition to be met before treating dividend income as Franked Investment Income. Also, the franked investment income is only deductible where it has been included in the gross turnover.
On the meaning of gross turnover, the Service explains that gross turnover is the gross inflow of economic benefits (cash, revenues, receivables, other assets, etc.) arising from the operating activities of a company such as sale of goods, supply of services, lending of money, letting of assets, granting of rights, investment activities, etc. For the purposes of minimum tax, it includes all operating incomes or revenues anywhere embedded.
ILLUSTRATION
This illustration is extracted from the Information Circular released by FIRS:
The following information was extracted from the Statement of Profit or Loss of ABC Limited:
N
Turnover (main business activities) 20,000,000
Profit from Discontinued operations 305,000
Profit from other non-core operating activities 500,000
Rent received (Gross) 1,000,000
Dividend received from XYZ Limited (Gross) 2,000,000
Notes to the accounts further disclosed the following information:
Revenue from Discontinued operations 3,000,000
Less: Expenses on Discontinued operations (2,695,000)
Profit from Discontinued operations 305,000
Revenue from other non-core operating activities 5,000,000
Less: Expenses (4,500,000)
Profit from other non-core operating activities 500,000
Compute the minimum tax of the company.
The gross turnover of the company is computed thus:
` N
Turnover from main business activities 20,000,000
Revenue from Discontinued operations 3,000,000
Revenue from other non-core operating activities 5,000,000
Dividend received from XYZ Limited (Gross) 2,000,000
Rent received (Gross) 1,000,000
Total Turnover 31,000,000
Less: Dividend from XYZ (Franked Investment Income) 2,000,000
Gross Turnover (for minimum tax) 29,000,000
The minimum tax = 0.5% X N29,000,000 = N145,000
Based on the Finance Act, the following are the companies exempted from the provisions of minimum tax:
- Companies with less than N25million gross turnover.
- Companies carrying on agricultural trade or business as defined in section 11(4) of CITA.
- Any company in its first four calendar years of business operations.
The above means that companies with at least 25% imported equity are no longer exempted from payment of minimum tax. FIRS also clarifies that computation of minimum tax for insurance companies is not covered in this Section because it has been specifically provided for under Section 16 of CITA.
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