TAX PLANNING CHECKLIST

Tax planning checklist serves as a comprehensive list of important considerations and tasks to ensure that various tax-related aspects of businesses are addressed and optimized.

Here are some common items that might be included in a tax planning checklist:

1.Reviewing tax laws and regulations:

Here are some specific examples of recent tax law changes in Nigeria:

In 2023, the FIRS introduced a new VAT filing system called TaxProMax. Businesses that are required to file VAT returns must now use TaxProMax.

2. List of approved taxes and levies.

Familiarize yourself with the approved taxes and levies applicable in your jurisdiction. This includes understanding the different types of taxes, such as:

Having a comprehensive understanding of these taxes and levies will enable you to accurately assess your tax liabilities and fulfil your obligations.

3. Timing of PPE acquisition

Timing is crucial when it comes to the acquisition of Property, Plant, and Equipment (PPE) for tax purposes.

Here are some of the key points to keep in mind when timing the acquisition of PPE in Nigeria:

• The cost of PPE can be capitalized over a period of up to 5 years.
• The applicable depreciation rates vary depending on the type of asset.
• The deduction of PPE expenses must be consistent with the taxpayer’s accounting records
• The taxpayer must keep accurate records of all PPE acquisitions and depreciation expenses.

How does timing of acquisition of PPE affect the amount of capital allowance that can be claimed for tax purpose?

The timing of the acquisition of plant, property, and equipment (PPE) can affect the amount of capital allowance that can be claimed for tax purposes. The Federal Inland Revenue Service (FIRS) allows for a deduction of capital allowances on PPE over a period of time, depending on the type of asset and its useful life.

The timing of the acquisition of PPE can affect the amount of capital allowance that can be claimed in two ways:

• The earlier the asset is acquired, the longer the period over which the capital allowance can be claimed. This means that a company that acquires PPE early in the year will be able to claim more capital allowances in that year than a company that acquires the same asset later in the year.

Benefits to taxpayers

– It can help a company to reduce its tax liability in the early years of ownership of an asset.

– It can be helpful for companies that are cash-strapped or that are expecting to have a high tax liability in the near future.

4. Timing of PPE disposal

Similar to PPE acquisition, the timing of disposing of PPE can affect the amount of capital allowance claimable for tax purposes. The timing of disposal of an asset can affect the capital allowance that is granted to a taxpayer in Nigeria under the Federal Inland Revenue Service (FIRS) Tax Law.

• If the asset is disposed of within the first 3 years of its acquisition, the taxpayer is only entitled to a partial capital allowance. This is because the asset is considered to be in its “initial years” of use, and the taxpayer is not yet allowed to fully depreciate its value.
• If the asset is disposed of after the first 3 years of its acquisition, the taxpayer is entitled to a full capital allowance. This is because the asset is considered to be in its “more mature years” of use, and the taxpayer is allowed to fully depreciate its value.

5. Timing and capital allowance claim and amount to claim.

Capital allowances refer to the deductions that businesses can claim for the depreciation of their assets over time. Here are some additional details about capital allowances in Nigeria:

• The maximum amount of capital allowances that a business can claim throughout the useful life of an asset is 100% of the cost of the asset.
• Capital allowances are deductible from taxable profits, which should reduce the amount of tax that a business needs to pay.
• Capital allowances are available to both small and large businesses.

6. WHT properly deducted.

Withholding tax in Nigeria is an income tax collection method aimed at encouraging installment payments, preventing tax evasion, and ensuring cash flow to government

The current WHT rates are as follows:

7. Consider tax incentives and reliefs such as pioneer status, investment tax credit, Export Free Zone Profit Exempt, Gas Industry Incentives etc.

Tax incentives and reliefs are provisions in tax laws that encourage certain activities or sectors by providing tax benefits. Examples include pioneer status, investment tax credit, Export Free Zone Profit Exempt, Gas Industry Incentives, and others. Stay informed about the available tax incentives and reliefs in your jurisdiction, as they can significantly impact your tax liabilities. Evaluate if your business qualifies for any of these incentives and take advantage of them to optimize your tax position.

In Nigeria, some of the available tax incentives and reliefs include:

– Pioneer status: This is a tax incentive granted to companies that engage in specified industrial activities. Pioneer companies are exempt from paying corporate income tax for a period of three years, which can be extended for an additional two years. The government uses the Pioneer Status Incentive, to stimulate and promote investment in particular sectors or geographic areas. The Pioneer Status Incentive’s main objective is to draw in and encourage fresh, creative companies, particularly in industries that are seen as strategically important or essential to a nation’s economic growth.

– Investment tax credit: This is a tax credit that is granted to companies that invest in specified capital assets. The investment tax credit can be used to offset the company’s corporate income tax liability.

– Export Free Zone Profit Exempt: This is a tax incentive that is granted to companies that operate in export free zones. Companies that operate in export free zones are exempt from paying corporate income tax on their export profits.

– Gas Industry Incentives: This is a tax incentive that is granted to companies that engage in the exploration, production, and transportation of natural gas. Companies that engage in the gas industry are eligible for a number of tax benefits, including a reduction in corporate income tax rate.

Note critical tax dates (Dates to file returns, when to file Notice of Tax Objection, when PAYE, VAT and WHT are due for remittance). Maintain a calendar or reminder system to track critical tax dates. These dates may include the following:

–           Deadlines for filing tax returns,

–           When to file a Notice of Tax Objection if you disagree with a tax assessment,

–           PAYE, VAT, and WHT payments are due for remittance.

Missing these dates can result in penalties, interest charges, and other compliance issues. Stay organized and ensure you meet all the necessary tax deadlines to avoid any adverse consequences.