TRUST ME, THE TAXMAN AIN’T SO SMART
In Nigeria, most people are not even aware that they should pay tax or if they are already paying, how much they pay. As much as your income is important to you, the tax you pay should be too.
Taxes are statutory obligations of every citizen and business in a country in order to fund government spending and various public expenditures.
A failure to pay, along with evasion of or resistance to taxation, is punishable by law. It is thus a major determining factor of how much income you keep to yourself, either as a business or as an individual.
The Nigerian tax law, however, provides several means by which one can avoid paying tax or at least reduce paying excessive taxes.
This is not to be confused with tax evasion, which is considered illegal.
Tax Evasion is a deliberate act on the part of a taxpayer not to pay tax.
However, tax avoidance is a legitimate way of avoiding excess taxes by exploiting loopholes and provisions in the tax code that allow you to reduce the amount of tax that you pay on your income.
Let’s find out these loopholes, shall we?
1. REGISTER AN NGO (Non-Governmental Organizations) OR A TRUST: Companies Registered as Limited by Guarantee are exempted from paying tax in Nigeria.
Organizations that are into charitable causes fall under this category. Whilst they do not pay taxes, note that transactions made by them that results in a profit can be taxed.
For example, if they invest in shares and get dividends, they will be taxed 10% withholding tax.
2. PENSION: By law, all employees are mandated to contribute 8% of their Basic, Transport, and Housing Allowance as pension. Amount paid as pension is tax-deductible (i.e., deducted from your income before charging you tax).
Since pensions are a form of savings for you, anything else you add to your pensions gets deducted from your tax as well.
For example, if you increase from 8% to 15% the entire 15% will be deducted and will not be taxed.
3. CHARITABLE DONATIONS: It is quite often that companies donate money to certain organizations and NGOs. This is considered a good cause and a sign of corporate social responsibility.
ONLY donations to certain organizations are allowed to be excluded from taxable profits.
Some of them are The Boys Brigade, Boys Scout, Christian Council of Nigeria, Girls Guide, Any Educational Institution recognized by the law, Islamic Education trust, ICAN, Nigerian Red cross, etc.
There are about 41 of them and it is important you know them. However, donations to political parties do not qualify.
4. ASSET MANAGEMENT: One way to save on taxes is creating a structure such as a limited liability company, to manage multiple investments. It could include portfolio assets, real estate, or a business.
While it could get complex, there may be opportunities to save money while at the same time creating a governance structure for your assets.
If the Limited Liability Company is a management company that provides oversight and advice to owners of the assets, under certain circumstances, the expenses incurred by the company will be deductible as business expenses.
What other ways do you know? Let us know in the comment section
