Minimum Tax

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A settled sum that a taxable person pays as tax no matter how bad things go with profits.

That is, bad as e bad, tax must be paid!

This may seem like a ‘Company thing’ but ‘Taxable person’ for Minimum Tax purposes actually means a Company or an individual.

So yeah, it involves you too!

When do you have to pay Minimum Tax?

For Companies, the idea behind minimum tax is that Government must collect its fair share even where situations arise that hinder payment of the actual Companies Income Tax (CIT). These situations usually occur where:

  1. the Company makes losses and there’s nothing to pay CIT on; or
  2. it makes profits but there is still no CIT payable.

Government also just flat out demands Minimum Tax even where nothing hinders the Company’s CIT payment as long as the amount payable as Minimum Tax turns out higher than the amount payable as CIT. Talk about cherry picking!

You’re probably wondering why Government conceived something as atrocious as Minimum Tax, especially for Companies in positions 1. and 2. above.

Well, Minimum Tax is an anti-avoidance strategy. Many Companies deliberately arrange their affairs in a manner that allows them to pay less tax or even no tax at all. Imagine that all Companies did this. We would all be in trouble as Government would not have enough tax revenue to run things. Chaos would reign?!

So through Minimum Tax, Government ensures that Companies always pay taxes.

Not all Companies though. Small Companies with an annual turnover of less than 25 Million naira, Companies in agricultural trade/business and Companies in business for their first four calendar years do not need to pay minimum tax.

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Minimum Tax is generally computed as 0.5% of Gross Turnover minus Franked Investment income but has been reduced to 0.25% for CIT returns filed for assessment periods falling between 1 January 2020 and 31 December 2021.

Individuals are also subject to Minimum Tax where PIT payment is hindered. This arises where the individual has no chargeable income and so there’s nothing to pay PIT on.

Similar to Companies, individuals must also pay Minimum Tax where the amount payable as Minimum Tax is higher than the amount payable as PIT.

Minimum Tax for individuals is computed at 1% of their Total or Gross Income but is also not payable by all Individuals. Those who earn Nigeria’s National Minimum Wage or less from an employment are exempt from paying Minimum Tax.

Till the next ‘Term’! 😉

Eniola Akinoso is the Initiator of TaxVille

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Image credits

Image 1 – PresenterMedia; Images 2 – 8 – Tenor.

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