TAX 2.1 CITA (BRIEF HISTORY)
HISTORICAL BACKGROUND OF THE CITA.
The war had far reaching effects on the number of viable companies left. Thus, the first CITA (of 1939) died prematurely.
Before the CIT 1939, companies’ income was taxed under the Personal Income tax ordinance. Then came the 1961 Companies Income Tax Act. After undergoing several amendments, the Principal act was enacted in 1979. This principal act underwent several amendments and was consolidated in the 1990 Act Cap 60 LFN 1990.
CIT (Companies Income Tax) has always been a federal matter. It is contained in Item 59 of the Exclusive Legislative list.
In 2002-3 the Dotun Philips Tax Study Group was set up to review the Nigerian tax system. It noted the following:
- CIT should be reduced from 30 percent to 20 percent because a low tax regime is the best incentive especially when coupled with good governance and economic stability.
- The tax system was unduly complex and poorly administered therefore constituting more nuisance than value.
- The tax system should be simplified such that tax be levied on only income and expenditure.
- Companies that are making losses should not be taxed… furthermore, Tax exempt companies should not be subjected to withholding tax.
To this effect, there is an Amendment Act of 2007 which does not really implement any of the recommendations. Note however that the Amendment process culminated in the Ambivalence we have today as to the applicable CIT law. The dilemma can be traced to the attempt to reform the tax law by the Dotun Philips Tax Study Group in 2003. Their bill was made based on the 2004 LFN. They were however requested to go back and make the revision based on the 1990 LFN. By the time this was done, LFN 1990 had been repealed. This notwithstanding, the CITA 2007 (which was made based on the repealed LFN 1990) was validated by the president. We now have a situation where the major players, lecturers and students are confused as to the applicable law.