18 Jan



  • Statutory framework.
  • Taxable persons and income.
  • Offences and penalties.
  • Administration of PITA



:: The collection of tax on income is vested on the Federal government by virtue of Item 59 of the Exclusive Legislative List. By Item D7 and D8, the States may administer same on behalf of the FG to prevent double taxation.

:: In AG Abia V Ag Federation, the court held that the tax collected is given to the State on derivation basis thereby making the FG a Trustee.

:: The PITA seeks to eliminate multiplicity of taxes. It consists of 109 sections and 8 schedules.

  • First Schedule: determination of residence.
  • Second Schedule: Income from settlements.
  • Third Schedule: exempted income.
  • Fourth Schedule: Retirement Benefit.
  • Fifth Schedule: Capital Allowance.
  • Sixth Schedule: Income Tax Table.
  • Seventh Schedule: Double Taxation Arrangements.
  • Eight Schedule: Warrant and authority to enter premises.

Aside from the PITA, there are other laws and regulations that imposes tax on personal income… like Withholding Tax Regulation 1997, Pay As You Earn Regulation 2002, Self Assessment Revgulation 2011, and a host of other.


:: By virtue of Section 1 PITA, the income of individuals, family, community… are taxable. In Benin Divisional Council V Oba Akezua, the court noted that income of the community accrue to the people of the community and not the Oba. Such income can be taxed.

:: Assessment: is the process of determining one’s tax liabilities.

:: What is a “trade” it is generally means an endeavour capable of bringing income. In Arbico V FBIR, the staff accommodation kept by the Methodist church was not taxed but upon sale, the profit derived from sale was declared taxable.


  1. Nationality: that is a citizen of Nigeria.
  2. Residence: a person may not be a citizen of Nigeria but may be made taxable where he is resident in Nigeria for more than a specified period of days.
  3. Source of income: when a person’s income can be said to be derived from Nigeria.

Computation of personal income

STEP 1: Aggregate all incomes from all sources: This would give you; “gross income”.

STEP 2: Deduct allowed expenses: These expenses are provided under Section 19,20, 21 of the PITA.

:: Such expenses must have been “incidental”, “reasonable” and “necessary”-Shell V FBIR.

:: Deductibles include:

  • Capital Allowance: capital allowance is granted in respect of costs incurred in acquiring certain assets which shall be used for the business. In the first year, an initial allowance of 20 percent is granted. In the second year, another 20percent allowance is granted same is done on the 3rd and 4th In the 5th year, 19 percent allowance is granted. Thereby remaining 1 percent of the cost of the asset. This encourages companies to buy assets like vehicles, accommodation and the likes for their employees. This is why certain employers buy official cars for their employees. The cost incurred in purchasing these vehicles are deducted from total tax liability.
  • Bad debts and loss relief: allow you to set off loss in previous year by subsequent year’s profit. E.g. if Mr Benson’s business made a loss of 60,000 in 2014 and makes a profit of 600,000 in 2015, he can deduct N60,000 from his total profit therefore amounting to 540,000.
  • Interest on Loans: can be deducted from the gross profit-Section 20. Take for example; Ayo borrows N100,00 from XYZ bank and is to repay with 20% interest. Ayo uses the 100,000 to stock his shop with new goods and makes a total of 150,000 from the sale of the goods. Ordinarily we would say that Ayo has made a profit of N50,000. But he can deduct 20,000 being the interest from the loan (because he is going to be repaying XYZ bank N120,000) therefore, he is generally left with 30,000 rather than 50,000 taxable profit. This encourages people to borrow. In practice people take advantage of this provision by borrowing their business rather than investing in it. Note however that the FIRS can review fictitious transactions.
  • Loans for building residential houses.
  • Interest accruing from domiciliary account are deductible as they shall not be taxed.
  • Costs incurred from renovation and maintenance of business machinery.
  • Judicious tax payment attracts a bonus of 1 percent. Therefore 1 percent of the income is deducted from the tax liability.

STEP 3: We look at the sixth schedule of the PITA which has provisions on the calculation of tax liability.

STEP 4: After calculating in accordance with the 6th Schedule, we remove the Consolidated Relief Allowance[1]. This involves ascertaining 20% of our gross income and subtracting it from our result (the calculation under the 6th Schedule)..

:: There are other reliefs which can be deducted/pled like; relief for disabled persons, rent housing allowance, transport allowance, utility, entertainment and others. Such reliefs must be pled where the taxpayer wants to enjoy them.

:: Section 43 provides that an employee that earns less than 30k per annum is exempted from tax payment[2]. See Section 19.

Step 5: Whatever is left (after the following steps have been followed) is subject to tax… i.e. the chargeable income. If a taxpayer has followed all these steps and arrives at zero liability, the PITA provides that one percent tax would be imposed on his gross income.

:: A person who diligently follows these steps, files tax returns and remits on time is granted a bonus of 1 percent.

:: The concept of “presumptive tax” has been introduced. This is because some high income earners may declare returns that don’t fit their calibre or status. E.g. Aliko Dangote declaring that he made only 2million Naira in 2014. Also it is quite difficult to tax the informal sector.  Presumptive Tax is an estimate of a persons income based on the circumstances and status of the person. the tax authorities can presume that Mr Otedola earns N100,000,000 every month. Therefore, where he files returns and says that he earned N20,000 the authorities can refute this and charge him to tax based on the presumed 100,000,000.


  • Call for books of account and evidence (the law requires taxpayers to keep books of account). Information so received must be treated with secrecy.
  • Audit Accounts.
  • Trace back to six years to check whether tax has been paid. Where the case involves fraud, dishonesty or concealment. E.g. Mr Tayo had been earning 400,000 from his business that was established in the year 2000. In 2010, Tayo decides to be judicious and pays tax. The tax authority can call Tayo and ask him to remit for previous years too.

:: Section 59 bars suits on error in assessment except it substantially prejudices the taxpayer or it is raised according to an invalid law. He can raise the objection within 30 days. He then proceeds to the tax appeal tribunal.


[1] Initially, we had various allowances under the PITA like: personal allowance, alimony allowance (which was N3,000), children allowance (which was not more than N10,000), dependant/relative Allowance, and so on. These allowances were used as a medium for tax evasion and made filing of tax returns cumbersome. Therefore, the Consolidated Relief Allowance was introduced.

[2] In modern times, this figure cannot stand as inflation has rendered it almost impossible for a person to earn less than 30 thousand Naira per annum.


Quite eccentric really

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