Turnover basis of assessment: What the law says…

Section 55 of the Companies Income Tax Act Cap C21 LFN 2004 (as amended) mandates every company including those granted exempted from incorporation and those exempted from paying tax under the Act, to file a self-assessment return with the Federal Inland Revenue Service (herein referred to as “Service”) and such return to contain the following:

(a) the audited accounts, tax and capital allowances computation for the year of assessment and a true and correct statement in writing containing the amount of profit from each and every source computed;
(b) a duly completed self-assessment form as may be prescribed by the Service, from time to time, attested to by a director or secretary of the company and such attestation shall contain a declaration that it contains a true and correct statement of the amount of its profits computed in respect of all sources in accordance with this Act and any rule made and that the particulars given in such return are true and complete; and
(c) evidence of payment of the whole or part of the tax due into a bank designated for the collection of the tax.

However, where it is difficult to ascertain a company’s assessable profit, or where the assessable profit filed by a company is in the opinion of the Service less than what might be expected from the trade or business, Section 30 of CITA empowers the Service to assess the company to tax based on the turnover for a particular period. Precisely, the Act provides that:

Notwithstanding section 40 of this Act, where in respect of any trade or business carried on in Nigeria by any company (whether or not part of the operations of the business are carried on outside Nigeria) it appears to the Service that for any year of assessment, the trade or business produces either no assessable profits or assessable profits which in the opinion of the Service are less than might be expected to arise from that trade car business or, as the case may be, the true amount of the assessable profits of the company cannot be ascertained, the Service may, in respect of that trade or business, and notwithstanding any other provisions of this Act if the company is a:


(a) Nigerian company, assess and charge that company for that year of assessment on such fair and reasonable percentage of the turn-over of the trade or business as the Service may determine;


(b) if that company is a company other than a Nigerian company and:


(i) that company has a fixed base of business in Nigeria, assess and charge that company for that year of assessment on such fair and reasonable percentage of that part of the turnover attributable to the fixed base;
(ii) that company operates a trade or business through a person in Nigeria authorized to conduct on its behalf or on behalf of some other companies controlled by it or which have a controlling interest in it; or habitually maintains a stock of goods or merchandise in Nigeria from which deliveries are regularly made by a person on behalf of the company, assess and charge to the extent that the profit is attributable to the business or trade carried on through that person,
(iii) that company executes one single contract involving surveys, deliveries, installations or construction, assess and charge the company for that year of assessment on such a fair and reasonable percentage of the turnover of the contract; and
(iv) the trade or business is between the company and another person controlled by it or which has a controlling interest in it and conditions are made or imposed between the company and such person in their commercial or financial relations which in the opinion of the Service is deemed to be artificial or fictitious, assess and charge on a fair and reasonable percentage of that part of the turnover as may be determined by the Service.

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