Every year, people across the globe are required to pay their countries’ taxes. It is an important obligation for every citizen of a country, irrespective of where they live or what they earn. The tax system ensures that public funds are used appropriately. However, many people do not know how much tax they should be paying and why it is so important to avoid the consequences of not paying taxes.
Tax can be defined as compulsory payments made by individuals or businesses to the state on income or profits. The amount you pay will depend on your personal status and your business activities. There are many reasons why it’s important to understand tax, even if you never plan to pay any yourself!
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Tax in Nigeria
Taxes come in a range of different types and are collected by governments to provide a number of services to the citizens. In Nigeria, most taxes are levied on personal income, imports, and corporations.
In most African countries taxes are levied at federal or state levels. In Nigeria, they include the following: Income Tax, Import Duties, Value Added Tax (VAT), Excise Duty, and Stamp Duties.
Nigeria’s Tax System – What You Need To Know
The Nigerian tax system is a complicated system with various taxes and revenue streams. The Nigerian tax system is made up of federal taxes, state taxes, local taxes, Federal Inland Revenue Service (FIRS) Taxes, and Excise Duties.
The Nigerian tax system has been through a number of reforms since independence from British colonial rule in 1960. One major reform is the introduction of the Value Added Tax (VAT). Taxation laws in Nigeria are also subject to change as they are created and amended by the National Assembly.
Types of Taxes In Nigeria Explained
The Nigerian tax system is composed of three main taxes:
Value-Added Tax (VAT)
General Sales Tax (GST)
Corporate Income Tax (CIT)
Value-Added Tax: VAT is a consumption tax that taxes the value-added at each stage of production. The VAT rate varies from 0% to 25% depending on the good. The Nigerian government introduced the Value Added Tax Act in 1990 and it has been a major revenue source since then. In 2018, it collected N570bn from this tax.
Corporate Income Tax: Corporate income tax is a direct tax that companies pay on profits they earn from their business activities at the corporate level. In Nigeria, corporate income tax rates range from 0% to 30%. This means that as a company
How Much do I Have to Pay?
Nigeria’s income tax rate is 30% for personal incomes over ₦1,000,000 (less than $5,000) and 40% for those earning more than ₦2,500,000 (about $12,500). The country has a progressive tax system with rates increasing as income levels grow.
Taxation Basics – What every Nigerian should know about taxes
Taxation is a significant component of any country’s economy, and Nigeria is no different. In the Nigerian economy, taxes exist at federal, state, and local levels. Taxation is a significant component of government revenue for the government to be able to fund its various plans and projects.
There are three types of taxes in Nigeria: indirect taxation, direct taxation, and capital gains tax.
Indirect Taxes: These include customs duties on imports or exports, excise duties on goods manufactured or produced in Nigeria, etc.;
Direct Taxes: Income tax, corporate tax, etc.;
Capital Gains Tax: The profit one makes from an investment such as stocks, property, etc., which he/she sells at a later date for a higher price than what they bought it for.