ACC 306 — TAXATION 2: Lecture Note

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LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS COURSE CODE:ACC 306 COURSE TITLE: Taxation II COURSE UNIT LOAD (3 Units C: LH 30; PH 15) • Series 1: Computation of Companies’ Income Tax • Series 2: Taxation of Small, Medium-Sized, and Pioneer Companies • Series 3: Taxation of Specialised Businesses and Transaction Taxes • Series 4: Transfer Pricing Regulations and Practices • Series 5: Tax Audit, Investigation, and Additional Liabilities Series 1: Computation of Companies’ Income Tax Outline of Parts and Sub-Parts Part 1.1 Principles and Scope of Companies’ Income Tax • 1.1.1 Definition and scope of companies’ income tax • 1.1.2 Legal framework and statutory basis • 1.1.3 Objectives of companies’ income tax Part 1.2 Commencement, Change of Accounting Date, and Cessation of Business • 1.2.1 Rules for commencement of business • 1.2.2 Treatment of change in accounting date • 1.2.3 Tax implications of cessation of business Part 1.3 Computation of Taxable Income and Reliefs • 1.3.1 Allowable and disallowable expenses • 1.3.2 Taxable and non-taxable income • 1.3.3 Loss relief and capital allowances Part 1.4 Computation of Total Profit and Taxes • 1.4.1 Determination of total profit • 1.4.2 Computation of companies’ income tax • 1.4.3 Computation of tertiary education tax

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Series 1: Computation of Companies’ Income Tax Introduction Taxation of companies is a central aspect of fiscal policy, as it provides governments with revenue while ensuring businesses contribute fairly to national development. For learners, understanding how companies’ income tax is computed is essential, since it forms the foundation for more advanced topics in taxation. This Series sets the stage by examining the principles, scope, and mechanics of corporate tax computation, preparing you to handle practical scenarios in business taxation. The aim of this Series is to equip you with the knowledge and skills to compute companies’ income tax accurately, taking into account commencement, changes in accounting dates, cessation of business, allowable and disallowable expenses, and the determination of total profit and related taxes. We shall commence this Series by exploring the principles and scope of companies’ income tax, including its statutory basis and objectives. Next, we will examine how taxation is applied at different stages of a company’s lifecycle, such as commencement, change of accounting date, and cessation of business. Following that, we will analyse the computation of taxable income, focusing on allowable and disallowable expenses, non-taxable income, loss relief, and capital allowances. Finally, we will conclude by demonstrating how total profit is determined and how companies’ income tax and tertiary education tax are computed. Series Learning Outcomes By the end of this Series, you should be able to: • SLO 1.1: Define and explain the principles and scope of companies’ income tax. • SLO 1.2: Analyse the tax implications of commencement, change of accounting date, and cessation of business. • SLO 1.3: Identify and classify allowable and disallowable expenses, taxable and non-taxable income, and apply loss relief and capital allowances. • SLO 1.4: Compute total profit, companies’ income tax, and tertiary education tax. 1.1 Principles and Scope of Companies’ Income Tax 1.1.1 Definition and scope of companies’ income tax Companies’ income tax refers to the tax imposed on the profits of incorporated businesses, as stipulated by law. In Nigeria, this is governed by the Companies Income Tax Act (CITA). The scope covers all resident companies, which are taxed on their worldwide income, and non-resident companies, which are taxed on income derived from Nigeria.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS In-text question: Companies’ income tax is imposed on the __________ of incorporated businesses. Box 1.1 Definition and scope of companies’ income tax Key points on the definition and scope of companies’ income tax. 1.1.2 Legal framework and statutory basis The legal framework for companies’ income tax in Nigeria is provided by the Companies Income Tax Act (CITA), which outlines the rules for assessment, computation, and collection of tax. It specifies the rates, exemptions, reliefs, and penalties applicable to companies. The

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Federal Inland Revenue Service (FIRS) is the body responsible for administering and enforcing the Act. In-text question: The Federal Inland Revenue Service is responsible for administering and enforcing __________. Figure 1.1 Legal framework of companies’ income tax Diagram showing the relationship between CITA, FIRS, and companies. ”

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS 1.1.3 Objectives of companies’ income tax The objectives of companies’ income tax include: • Raising revenue for government expenditure. • Ensuring fairness in the distribution of tax burden among businesses. • Regulating corporate behaviour by encouraging compliance. • Promoting economic development through incentives and reliefs. In-text question: One objective of companies’ income tax is to raise __________ for government expenditure. Table 1.1 Objectives of companies’ income tax Summary of objectives such as revenue generation, fairness, regulation, and development. ”

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Pilot questions 1.1 1. Companies’ income tax is imposed on the: a) Profits of incorporated businesses b) Salaries of employees c) Market reputation of companies d) Inflation rate 2. Resident companies in Nigeria are taxed on: a) Worldwide income b) Nigerian-sourced income only c) Employee morale d) Inflation indices 3. The legal framework for companies’ income tax in Nigeria is provided by: a) Companies Income Tax Act (CITA) b) Labour Act c) Investment and Securities Act d) Market Regulation Act 4. The body responsible for administering companies’ income tax in Nigeria is: a) Federal Inland Revenue Service (FIRS) b) Central Bank of Nigeria c) Ministry of Labour d) Nigerian Stock Exchange 5. One objective of companies’ income tax is to: a) Raise revenue for government expenditure b) Measure employee morale c) Control inflation rates d) Enhance market reputation only 1.2 Commencement, Change of Accounting Date, and Cessation of Business 1.2.1 Rules for commencement of business When a company begins operations, special rules apply to determine the basis period for taxation. The basis period is the time frame used to assess taxable profits. For commencement, profits are assessed from the date business starts until the end of the first accounting year. Subsequent years follow defined rules until the company stabilises into a normal basis period. In-text question: The basis period for commencement of business runs from the date business starts until the end of the first __________ year.

LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Box 1.2 Commencement rules Key rules for determining basis periods when a company commences business. 1.2.2 Treatment of change in accounting date A company may decide to change its accounting year end. In such cases, the tax authority requires adjustments to ensure profits are not omitted or taxed twice. The rules specify how to align the old and new accounting dates, often involving apportionment of profits across overlapping periods.

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