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Nigeria's free digital learning hub. Videos, lecture notes, practice questions and leaderboards aligned with CCMAS, NBTE, NCCE, WAEC, NECO, IJMB and JAMB curricula.
Accounting · 200 Level
This is the complete lecture note for TAX 222 Introduction to Taxation II, prepared for Accounting students at 200 Level. You can read it online below, open it in the full viewer, or download the PDF for offline study. It pairs with the course's video lectures, so you can read and watch together.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS TAX 222: Introduction to Taxation II (3 Units C: LH 45) Course Code: TAX 222 Course Title: Introduction to Taxation II Course Unit: 3 Units C Series 1: Computation of Tax Liability of Individuals Series 2:Income Tax Aspects of Trusts, Settlements, Estates, and Partnerships Series 3:Tax Assessment, Collection, Offences, Penalties, and Enforcement Series 4:Tax Objections, Appeals, and the Judicial System Series 5:Tax Administration and the Roles of Tax Authorities in Nigeria Series 1: Computation of Tax Liability of Individuals • Part 1: Earned Income and Tax Computation • Definition and examples of earned income • Computation of tax liability on earned income • Part 2: Unearned Income and Tax Computation • Definition and examples of unearned income • Computation of tax liability on unearned income • Part 3: Tax Reliefs and Allowances • Types of reliefs available to individuals • Application of reliefs in tax computation • Part 4: Integrated Computation of Individual Tax Liability • Combining earned income, unearned income, and reliefs • Practical examples and case studies Introduction Taxation is a key aspect of financial responsibility for individuals, and understanding how to compute tax liability is essential for compliance and effective planning. In Nigeria, individuals are taxed on both earned and unearned income, with reliefs provided to reduce the burden and promote fairness. This Series will guide you through the principles and processes of computing tax liability, ensuring you can apply them confidently in practice.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS The aim of this Series is to equip you with the knowledge and skills to compute the tax liability of individuals, taking into account earned income, unearned income, and applicable reliefs. We shall commence this Series by examining earned income and how tax liability is computed on it. Next, we will explore unearned income and its tax implications. Following that, we will study tax reliefs and allowances, focusing on how they reduce taxable income. Finally, we will bring these elements together in integrated computations, using practical examples to illustrate the complete process of determining individual tax liability. Series Learning Outcomes Upon completing this Series, you should be able to: • SLO 1.1 define earned income and demonstrate how to compute tax liability on it, • SLO 1.2 define unearned income and demonstrate how to compute tax liability on it, • SLO 1.3 identify and apply tax reliefs and allowances in individual tax computation, • SLO 1.4 integrate earned income, unearned income, and reliefs to compute total individual tax liability. 1.1 Earned Income And Tax Computation 1.1.1 Definition and examples of earned income Earned income refers to income received by an individual in exchange for labour or services rendered. It includes salaries, wages, bonuses, commissions, and professional fees. This type of income is subject to taxation because it represents compensation for work performed. Earned income is typically the most common source of taxable income for individuals. Fill in the blank: ______ income refers to salaries, wages, bonuses, and other compensation for services rendered.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Figure 1.1: Examples of earned income in Nigeria 1.1.2 Computation of tax liability on earned income The computation of tax liability on earned income involves determining the gross income, deducting allowable reliefs and allowances, and arriving at the taxable income. The applicable tax rates are then applied to the taxable income to calculate the final tax liability. Reliefs such as personal allowance and pension contributions reduce the taxable portion of earned income, ensuring fairness in the system. Fill in the blank: The computation of tax liability on earned income begins with determining the ______ income.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Table 1.1: Steps in computing tax liability on earned income Step Component Description / Formula (2026 Rules) 1 Gross Income Sum of all salaries, wages, allowances, bonuses, and benefits. 2 Statutory Deductions Subtract non-taxable contributions: Pension (8%), NHF (2.5%), and NHIS (5%). 3 Specific Reliefs Deduct Rent Relief (20% of actual rent paid, capped at ₦500,000 per annum). 4 Chargeable Income Gross Income minus (Statutory Deductions + Rent Relief). 5 Tax Band Application Apply the 2026 progressive rates (0% to 25%) to the Chargeable Income. 6 Final Tax Liability The sum of taxes calculated across all applicable bands. Pilot questions 1.1 1. Define earned income and give two examples. 2. What is the first step in computing tax liability on earned income? 3. Name one relief that reduces taxable income. 4. What is the difference between gross income and taxable income? 5. Why is earned income subject to taxation? 1.2 Unearned Income And Tax Computation 1.2.1 Definition and examples of unearned income Unearned income refers to income received by an individual without actively working for it. Unlike earned income, which comes from labour or services, unearned income arises from investments, property, or other passive sources. Examples include dividends, interest, rent, royalties, and pensions. Although the individual does not directly exert effort to generate this income, it is still subject to taxation under Nigerian law.
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS Fill in the blank: ______ income refers to dividends, interest, rent, and other passive sources of income. Figure 1.2: Examples of unearned income in Nigeria 1.2.2 Computation of tax liability on unearned income The computation of tax liability on unearned income follows similar principles to earned income but with specific considerations. First, the gross unearned income is determined. Then, allowable reliefs and deductions are applied, such as investment allowances or pension exemptions. The resulting taxable income is subjected to the appropriate tax rates. Unearned
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS income is often taxed at different rates depending on its source, for example, interest income may be taxed differently from rental income. Fill in the blank: The computation of tax liability on unearned income begins with determining the ______ unearned income. Table 1.2: Steps in computing tax liability on unearned income Step Component Description / Action (2026 Rules) 1 Gross Unearned Income The total amount received before any deductions (e.g., Gross Rent, Gross Dividend). 2 Withholding Tax (WHT) Advance Payment: 10% is usually deducted at source. Note: For residents, this is often an offset, not the final tax. 3 Reliefs & Exemptions Deduct costs "wholly and exclusively" incurred to earn the income (e.g., repairs on rental property) and the ₦800,000 personal exemption. 4 Taxable (Chargeable) Income Gross Unearned Income minus Reliefs/Exemptions. This is added to your earned income (salary) for a total assessment. 5 Tax Liability Apply the 2026 progressive bands (15% to 25%) to the total taxable income. 6 Final Payable Tax Liability minus WHT already paid in Step 2. Pilot questions 1.2 1. Define unearned income and give two examples. 2. What is the first step in computing tax liability on unearned income? 3. Name one relief that may apply to unearned income. 4. Why is unearned income subject to taxation? 5. Give one example of how tax rates may differ for types of unearned income. 1.3 Tax Reliefs And Allowances
LA-NET | ONLINE LEARNING VIDEO PLATFORM FOR POST-SECONDARY & HIGHER INSTITUTION STUDENTS 1.3.1 Types of reliefs available to individuals Tax reliefs are deductions or allowances granted to taxpayers to reduce their taxable income. They are designed to ease the burden of taxation and promote fairness. Common reliefs available to individuals in Nigeria include personal allowance, which is a fixed deduction granted to all taxpayers, and pension contribution relief, which allows deductions for contributions made to approved pension schemes. Other reliefs may include life assurance premiums and allowances for dependants. Fill in the blank: ______ allowance is a fixed deduction granted to all taxpayers to reduce their taxable income. Box 1.1: Common tax reliefs available to individuals in Nigeria Relief Type 2026 Limit/Rule Documentation Needed Rent Relief 20% of rent (Max ₦500k) Rent Receipt / Tenancy Agreement Pension Actual amount contributed PFA Statement NHF/NHIS Actual amount contributed Pay slip / Scheme ID Life Assurance Actual premium paid Insurance Certificate Gifts 100% Tax-Free Proof of transfer/source 1.3.2 Application of reliefs in tax computation The application of reliefs involves deducting them from the individual’s gross income to arrive at the taxable income. For example, if a taxpayer earns a salary of ₦2,000,000 and is entitled to personal allowance and pension contribution relief, these amounts are subtracted before applying the tax rates. Reliefs therefore play a crucial role in ensuring that taxpayers are not overburdened and that taxation reflects their ability to pay. Fill in the blank: Reliefs are deducted from gross income to arrive at the ______ income. Table 1.3: Application of reliefs in tax computation
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