(b) where the turnover exceeds N500,000, the tax payable in paragraph (a) of this Subsection, plus such additional tax, shall be the amount by which the turnover exceeds N500,000 at a rate equal to 50% of the rate used in subparagraph (a)(iv) of this Subsection. The CIT rate is 0% for companies with a gross turnover of NGN 25 million or less. To provide taxpayers with similar palliatives, the Federal Government of Nigeria (FGN) has introduced a 50% reduction in the minimum tax rate of 0.5% of gross income minus investment income stamped at 0.25% through FA20. However, the reduced minimum tax rate applies to taxation years (YOA) due from January 1, 2020 to December 31, 2021. The 2020 Finance Law reduced the minimum tax rate for the two tax returns due between 1 January 2020 and 31 December 2021 to 0.25%. Prior to the changes introduced by the Finance Acts of 2019 and 2020, Subsection 2 of Article 33 of CITA Cap C21, LFN 2004 defined the basis for calculating the minimum tax in Nigeria as follows: Olufemi Babem of KPMG Nigeria reviews the new minimum tax rules for companies and examines the practical problems and challenges they may pose to businesses in Nigeria in the current economic climate. The minimum tax applies to companies without taxable profit or whose tax is lower than the calculated minimum tax. However, prior to the introduction of FA19 and FA20, companies engaged in agricultural activities were exempt from the minimum tax based on Article 33 of the CITA for the first four calendar years of operation and companies with an imported equity of 25% or more. In addition, various parameters were taken into account in determining the minimum tax payable by companies, including gross profit, net assets, paid-up capital and turnover of the company. This approach was cumbersome and time-consuming. It also generated various controversies, as companies paid taxes on their equity (paid-up capital) and net worth, even though the business was operating at a loss.

However, caution should be exercised as most companies would also be negatively affected by these two shocks. Many companies are already forecasting huge financial losses for the year and are starting to implement cost-cutting measures to survive. Managing corporate tax costs would be crucial. In defining the term “ordinary business activities” (or ordinary business activities), the Financial Accounting Standards Board (FASB) in the United States refers in one of its concept papers to the concept of a company`s current core or core business. In addition, IAS 7 (Statement of Cash Flows) describes “operating activities” as the entity`s most significant revenue-generating activities that are not investment or financing activities, in particular clients` cash. Therefore, it must be concluded that the “gross proceeds” provided for in the 2019 Finance Act relate to the entity`s revenues from its primary or central business activities (i.e., revenues), as opposed to the entity`s other sources of revenue, which are presented separately in the financial statements in accordance with the provisions of IAS 1. The new CMT rule is expected to increase the government`s corporate tax revenues due to the revised tax base and the broadening of the taxpayer base. This would certainly be useful for the government, given that the country`s estimated budget deficit has further deteriorated due to the current global economic collapse caused by the two shocks of falling crude oil prices and the impact of the Covid-19 pandemic. Note that dormant businesses in Nigeria are not exempt from paying the minimum tax. As a general rule, dormant companies are supposed to be exempt from paying taxes because they are not yet involved in a lucrative activity. However, this assumption is not supported by any provision of the tax laws, and the tax authorities make every effort to ensure that every company registered in Nigeria complies with the tax legislation. Dormant business owners in Nigeria are strongly advised to seek the help of registered tax professionals to determine their tax burden.

Indeed, a company is exempt from taxes in Nigeria only in the event of cessation of activity. For non-life insurance companies, the minimum tax is calculated at 0.5% of the gross premium. About 136 countries around the world have agreed to impose a corporate tax rate of at least 15% and a fairer system of taxing profits where they are generated. However, in jurisdictions that maintain the CMT, such as India and Ontario, canada, the baseline for calculating the minimum tax is often different. For example, in some jurisdictions, CMT is calculated as a levy, i.e. as a fixed amount or as a fixed percentage of the company`s turnover in a given year, and does not take into account the financial performance of such a company. However, in other jurisdictions, CMT is calculated by reference to the company`s pre-tax profit or taxable result. Taxable profit or loss is adjusted by not allowing certain items to draw a revised taxable gain or loss. In addition, minimum tax rates are sometimes lower than the standard corporate tax rate. The 2020 Finance Law allows a lower rate of 0.25% for tax returns filed (or due) during two years of taxation (YOA). That is, from January 1, 2020 to December 31, 2021. The Organisation for Economic Co-operation and Development (OECD), an intergovernmental organisation, had been in talks for a decade on a minimum rate, saying the deal could bring in additional taxes of $150 billion (£108 billion) a year, which could strengthen economies as they recover from Covid.

Income tax is due on taxable income or profits generated by companies from their activities. There are situations where the calculation of a company`s tax does not entail a tax liability. In such a situation, the company is taxable on the basis of the minimum tax. Section 33(1) of the Corporations Income Act, c. C21, LFN 2004 states: “Notwithstanding any other provision of this Act where the determination of the total recoverable profits from all sources of a corporation results in a loss or if the specified total profit of a corporation does not result in any tax payable or payable that is less than the minimum tax, the corporation shall collect and pay the minimum tax provided for in paragraph 2 of this Division.” Implicitly, the minimum tax applies to all businesses in Nigeria, especially small and medium-sized enterprises (SMEs) that do not have a taxable profit in a tax year or whose tax is lower than the calculated minimum tax. “The benefits of a proposed minimum tax will be far less than what is expected to fund Nigeria`s budget deficit, resulting in the country`s inability to cope with the fight against poverty and unemployment. Given these controversies, the federal government changed the minimum tax regime in the 2019 and 2020 finance laws. Article 14 of the 2019 Finance Law amended Article 33 of the CITA to introduce a new basis for calculating the minimum tax and move from a combination of an approach based on equity, net worth and profits to a comprehensive income-based model. In the amendment, the minimum tax must be calculated at a flat rate of 0.5% of gross turnover less stamped investment income. The amendment also removed exemptions for companies with imported equity of 25% or more and introduced a minimum tax exemption for small businesses with a gross turnover of less than N25,000,000. For companies subject to the PPT, higher education tax should be treated as an eligible deduction.

For other companies, income and profit tax is not deductible if it is taxable income. Non-resident companies and companies without legal personality are exempt from higher education tax. The minimum tax is payable by companies that have no taxable profits for the year in question or for which the tax on profits is lower than the minimum tax. However, enterprises during the first four calendar years of activity, enterprises operating in agriculture or small enterprises are exempt from the minimum tax. Article 13 of the 2020 Finance Law introduced a new amendment to Article 33 of the IRS by providing for a 50% reduction in the minimum tax rate of 0.5% of gross turnover less investment income stamped at 0.25%. This amendment applies to assessment years (YOA) beginning on January 1, 2020 to December 31, 2021. In Nigeria, tax laws recommend a fixed percentage of turnover for the calculation of cmt. Prior to the adoption of the 2019 Finance Act in February 2020, CMT was calculated using a combination of indices, including turnover, gross margin, net worth and paid-up capital.

Although a reasonable number of companies in Nigeria were exempted from paying the Minimum Tax Act before the Finance Act 2019, criticism of the old basis included the fact that non-exempt companies (mainly national companies) were sometimes required to pay taxes on accumulated capital (i.e. on net worth or paid-up capital), even if the company did not generate profits or income. The 2019 Finance Act introduced a new basis for calculation for CMT. The new base responded to most of the criticisms of the old base, but introduced new challenges, which are discussed below. Higher education tax is imposed on each Nigerian company up to 2% of the taxable profit for each valuation year. The tax must be paid within two months of the issuance of a tax notice by the FIRS. In practice, many companies pay tax on a self-assessment basis with their CIT. In the recent past, there have been many misconceptions and controversies about the introduction of minimum tax in Nigeria. Taxpayers and authorities have diverged in terms of concept and application in practice. This includes the use of different and different parameters applied to determine the minimum tax payable by companies, including the company`s turnover, gross profit, paid-up capital and the company`s net assets.