Taxes: What to Pay, By Whom to Pay and Punishments for Evasion


People who complain about taxes can be divided into two classes: men and women. 


We can all agree that paying tax is something that people have complained about for centuries. The famous line, ‘Is it lawful to pay taxes to Ceaser?’ easily comes to mind. 

This begs the question, what are taxes and why should we pay them? 

What are Taxes? 

Taxes can be defined as an imposition of compulsory levies on individuals or entities by governments. They are used to generate revenue for the government. It functions as a sort of ‘tit for tat’ between the government of a country and its citizens. Citizens pay taxes and in return, it is used by the government of that country to build, develop and maintain the Country and its citizens.

Why Do We Pay Taxes?

From our definition of Taxes above, it is clear that we pay taxes in order to enable government pimp up our Country.

Through taxation, government ensures that resources are channeled towards important projects in the society. Thus, the imposition of taxes is essential to economic and social development in any given economy.

Types of Taxes Payable in Nigeria

  1. Companies Income Tax (CIT)
  2. Withholding Tax
  3. Petroleum Profit Tax (PPT)
  4. Personal Income Tax (PIT)
  5. Stamp Duties
  6. Capital Gains Tax ((CGT)
  7. National Information Technology Development Levy (NITDL)
  8. Tertiary Education Tax
  9. Customs and Excise Duties
  10. Value Added Tax (VAT)

Companies Income Tax

This is tax paid by Companies to the Federal Inland Revenue Services (FIRS) on a yearly basis. Companies pay tax based on their profits. The Companies Income Tax Act (CITA) is the legislation guiding Companies Income Tax. It is also provided for under the Exclusive Legislative List. This means, it is under the exclusive jurisdiction of the Federal Government. Item 59, Part 1 of the Second Schedule of the 1999 Constitution. Also compare with Item 7, Part 2 of the Second Schedule of the 1999 Constitution (The Concurrent Legislative List) which expressly excluded Companies.

Withholding Tax

Withholding Tax is an advance payment of income tax. In principle, WHT is a payment on account of the ultimate income tax liability of the taxpayer or company. Withholding tax is not a separate tax on its own and does not confer an exemption from the filing of annual tax returns by the company which had suffered WHT. The tax is normally to be
deducted at source when a payment is to be made to the beneficiary – Further Explanatory Comments on Withholding Tax Principle and Operation

Petroleum Profit Tax

This is governed by the Petroleum Profits Tax Act (PPTA). It is imposed on Companies that operate in upstream petroleum operations. (Upstream oil and gas production is conducted by companies who identify, extract, or produce raw materials. Downstream oil and gas production companies are closer to the end user or consumer.)

These Companies are exempted from paying Companies Income Tax on the same income as that would result to double taxing.

Personal Income Tax

Individual income tax is also referred to as personal income tax. This type of income tax is levied on an individual’s wages, salaries, and other types of income – Investopedia

Personal Income Tax is governed by the Personal Income Tax Act (PITA) Personal Income Tax can be collected by either the Federal Inland Revenue Service (FIRS) or various State Boards of Internal Revenue.

The Federal Inland Revenue Services collects only from residents of the Federal Capital Territory as well as what may be described as highly mobile federal worker; staff of the Ministry of Foreign Affairs, other Nigerians and foreigners outside the country but earning income in Nigeria (non-residents), expatriate workers resident in Nigeria, Police Officers, and Military Officers – Lagos Internal Revenue Service

Stamp Duties

Stamp Duties is a tax imposed on legal instruments/documents executed by individuals, this tax is usually placed on the transfer of homes, buildings, copyrights, land, patents and securities. It is regulated by the Stamp Duties Act.

Instruments to be stamped are contained under the Schedule of the Stamp Duties Act (This can be found if you scroll down to the bottom of the Stamp Duties Act). It can be paid to either the Federal Inland Revenue Service and or various State Boards of Internal Revenue depending on the instrument.

Capital Gains Tax

The Capital Gains Tax Act governs Capital Gains Tax. It was defined under Section 1 of the Capital Gains Tax Act as;

‘Subject to the provisions of this Act there shall be charged a tax to be called capital gains tax for the year of assessment 1967-68 and for subsequent years of assessment in respect of any capital gains, that is to say, gains accruing to any person on or after 1 April 1967 on a disposal of assets.’

Its rate is mentioned in Section 2(1) of the Capital Gains Tax Act as 10%.


There are certain gains that an individual will not be expected to pay Capital Gains Tax on. These are contained under Section 26 to 34 and 36 of the Capital Gains Tax Act. They include;

  • an ecclesiastical, charitable or educational institution of a public character – Section 26;
  • any statutory or registered friendly society – Section 26;
  • any co-operative society registered under the Co-operative Societies Law of any State – Section 26;
  • any trade union registered under the Trade Unions Act – Section 26;
  • Retirement benefit schemes – Section 28;
  • Decorations – Section 29;
  • Tax on gains arising from Take overs – Section 32;

National Information Technology Development Levy (NITDL)

 The NITDA levy applies to the following companies:

  • GSM Service providers and all Telecommunication Companies;
  • Cyber Companies and Internet Providers;
  • Pensions Managers and Pension related Companies;
  • Banks and other Financial Institutions;
  • Insurance Companies.

The applicable levy is 1% and is payable on profit before tax by companies with an annual turnover of ₦100,000,000 (One Hundred Million Naira) and above – Aluko and Oyebode

Tertiary Education Tax

It is regulated by the Tertiary Education Tax Fund Act (TETFund). Tertiary Education Trust Fund Act, 2011 imposes a two percent (2%) Education Tax on the profit of all registered companies operating in Nigeria. Tertiary Education Trust Fund is charged with the responsibility to manage, disburse and monitor the education tax to public tertiary institutions in Nigeria. Tertiary Education Trust Fund administers the tax imposed by the act and disburses the amount to tertiary educational institutions at Federal and State levels.

Their website – Tetfund.

Customs and Excise Duties

This is regulated by Customs and Excise Management Act (CEMA). It is usually charged at the ports of entry into the Country and is collected by the Nigerian Customs Service. There are two types of taxes charged at the port of entry; Taxes on imported goods and Taxes on exported goods. These taxes are charged to either generate revenue or to discourage the use or consumption of certain goods.

Value Added Tax

A value-added tax (VAT) is collected on a product at every stage of its production during which value is added to it, from its initial production to the point of sale. The amount of VAT that the user pays is based on the cost of the product, less any costs of materials used in the product that have already been taxed at a previous stage – Investopedia

Interestingly, Nigeria pays one of the least amount in VAT globally. As most Countries VAT rate range from 10% – 25% (Global VAT Compliance).

The Value Added Tax Act (VAT Act) regulates VAT application in Nigeria.

Controversy Surrounding Taxes in Nigeria

The recent case between Attorney General for Rivers State (“AG Rivers”) v Federal Inland Revenue Service (FIRS) & Attorney General of the Federation (“AG Rivers case”) has caused a lot of controversy about taxes generally, VAT (Value Added Tax) in particular.

A summary of the issue in the above case is whether or not it is constitutional for the Federal Inland Revenue Service (FIRS) to collect VAT, Withholding Tax, Education Tax and Technology Tax.

The Federal High Court ruled that it is unconstitutional for the Federal Inland Revenue Service (FIRS) to impose and collect such taxes except those which have been expressly stated in the Exclusive Legislative List, Part 1 of the Second Schedule of the 1999 Constitution.

Interestingly, the issue of tax imposition between Federal and State government has been in contention as far back as 1986 in the celebrated case of Attorney General of Ogun State v. Alh. Ayinke Aberuagba

Before going into the facts of the case, let us have a little history lesson since it isn’t taught in schools anymore.

Under the Nigerian Independence Constitution, 1960, sales or purchase tax was under the Exclusive Legislative List.

Although the Constitution of the Federal Republic of Nigeria, 1963 turned the country into a Republic, there was virtually no change in the sharing of powers between the Federal Government and the States regarding the sales/ purchase tax. Thus the Exclusive Legislative List remained the same.

In 1979, another Constitution for federal Republic of Nigeria was introduced. Unlike the two earlier Constitutions, the Exclusive Legislative List in the 1979 Constitution conspicuously omitted the item dealing with sales/ purchase tax. It is against this background that the defunct House of Assembly of Ogun State enacted the Sales Tax Law, 1982, which imposed a tax upon the purchase of certain goods and services listed in the Schedule to the Law.

The appellants, who were wholesale purchasers of beer in Ogun State instituted a suit in the High Court of Ogun State on behalf of wholesale purchasers of beer in the State claiming that section 3(1), 3(4), 3(7), 4, 5, 8 and 21 of the Sales Tax Law were inconsistent with the provision of the 1979 Constitution. Since the case raised very important constitutional issues concerning the Federal and State taxing powers, the Supreme Court invited all the Attorneys General in the Federation as amici curiae (meaning, Friend of the Court) to file briefs on the issues and to appear for oral argument at the hearing.

The Plaintiffs/ Applicants submitted that the omission of the words “sale and purchase” (item 38) from the Exclusive Legislative List did not ipso facto make sales/ purchase tax residual. Rather, the subject matter of sales/ purchase tax was impliedly covered by item 15 and/or 61 of the Exclusive Legislative List in the 1979 Constitution. It was argued that the phrase “in particular” in item 61 was one of emphasis and that the provision of item 61 unequivocally vested “trade and commerce” exclusively and without any limitation on the Federal Government. Hence, sales tax/purchase tax was said to be an incidental matter within the exclusive power of the Federal Government.

The Defendant/Respondent on the other hand submitted that the effect of the omission of item 38 in the Exclusive List of the 1963 Constitution in the 1979 Constitution was to make the subject matter of the sales tax a residual matter on which States can legislate. It was argued that item 61 of the Exclusive Legislative List did not exclusively vest all aspects of trade and commerce throughout the country in the Federal Government. Rather the “federal trade and commerce” power under the item was limited to the matters set out in sub-items (a) to (f). Consequently, a State has an appreciable measure of control over trade and commerce within its territory. For instance, a State is entitled to regulate any business or trade within its territory or even, if it thinks fit, prohibit particular trades such as the sale and consumption of alcohol.

The Supreme Court rejected the extreme argument of both parties and held that both the Federal and State Governments have powers to impose sales tax on any saleable matters within their respective legislative competence. According to Bello JSC (as he then was):

“It is axiomatic that in the absence of any constitutional provision, express or implied, to the contrary, the respective taxing power of the Federation and of State includes sale taxing power. Accordingly, the Federation is entitled to levy Sales Tax on any saleable matters within its competence. It must, however, be emphasized that it is not within the competence of a State:
(1) to make sale tax law affecting any of the matters in the Exclusive Legislative List, or
(2) to make any sales tax law in any matter in the Concurrent List which is inconsistent with any
law validly made by the Federation; or
(3) to make any sales tax law on any matter in the Concurrent Legislative List where any law validly
made by the Federation has covered the field.”

Excerpt gotten from Division of Taxing Powers under the 1999 Constitution

Revenue from tax is paid into a special account and shared among the three tiers of government in the ratio of 15 per cent to the Federal government, 50 per cent to the States and Federal Capital Territory, and 35 per cent to the Local Government (15:50:35 respectively).

The present agitation by state governors arose from states who felt the sharing ratio of proceeds from VAT wasn’t fair to them as they were generating far more for the Federal Government when compared to other states.

The issue of VAT and Sales Tax has come up subsequently in the case of Uyo Local Government Council v. Akwa Ibom State Government & Anor and Attorney-General of Lagos State v. Eko Hotels

In the present AG of Rivers State Case, the FIRS has since appealed the decision of the Federal High Court. The judgment of the Federal High Court has resulted in a chain reaction of events since the decision was handed down, notably; the passage of VAT Laws by Rivers and Lagos States.

The FIRS, pre-empting the outcome of the case, wrote to the National Assembly to seek an amendment of the Constitution to accommodate the inclusion of VAT collection in the Exclusive Legislative List. The National Assembly is yet to act on the FIRS request.

On September 10, 2021, following an appeal filed by the FIRS, the Abuja Division of the Court of Appeal handed down a status quo order effectively restraining the parties from giving effect to the Decision until the determination of several pending interlocutory applications, including an application filed by the Lagos State Government to join the appeal as an interested party.

A status quo order may be issued by a court to prevent any of the parties involved in a dispute from taking any action in relation to the dispute pending the resolution of the underlying dispute.  It seeks to prevent harm or preserve the existing conditions, so that a party’s position is not prejudiced in the meantime until a resolution of the underlying dispute.

The Rivers State Government has lodged a further appeal to the Supreme Court to challenge the propriety of the status quo order on various grounds. As at the date of publication of this commentary, the Supreme Court is yet to hear and/or determine the appeal filed the Rivers State Government. 

Excerpt from Banwo and Ighodalo

Punishments for Evasion

Section 40 of the Federal Inland Revenue Service Act provides punishments for failure to remit or deduct tax. The punishment for such failure to remit or deduct tax upon conviction, such a person is to pay the tax not remitted or deducted and an additional 10% of the tax withheld or not remitted per annum and interest at the prevailing Central Bank of Nigeria minimum rediscount rate and imprisonment for period of not more than three years.

Section 42(3) provides punishments for False Declaration;

“A person who commits an offence under this section shall be liable on conviction to a fine not exceeding N200,000.00 in addition to payment of the amount of tax unpaid or overpayment made in respect of any repayment or to imprisonment for a term not exceeding 3 years or to both fine and imprisonment.”


Taxes are necessary forms of revenue generation for a Country. From tax generation, government is able to maintain and provide necessary resources needed for the growth and development of a Country. Infrastructure, free education, sponsorship programs to mention a few are provided for through or by payment of Tax to the government.

One comment on “Taxes: What to Pay, By Whom to Pay and Punishments for Evasion”

Leave a Reply

Your email address will not be published. Required fields are marked *