Minimum Tax: FIRS’ clarification on the provision of the Finance Act, 2019

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.


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:         


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:

  1. Companies with less than N25million gross turnover.
  2. Companies carrying on agricultural trade or business as defined in section 11(4) of CITA.
  3. 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.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Website Powered by

Up ↑

%d bloggers like this: