Example, Ola sold his car, a Toyota Corolla for N150,000 on the 2nd of June, 2005. He incurred the following expenses in the course of the sale:
Adverts (online and print) N 8,000
Legal service charge N15, 000
He bought the car on December 13, 1981, at N60,000 and incurred the following expenses:
Clearing N10, 000
Agency N 6, 000
Licensed plate number N 3, 000
Wheel alignment N1, 000
Here is a computation of the amount of capital gains tax due for Ola:
N N
Proceeds from sale 150,000
Less expense:
Adverts 8,000
Legal service charge 15,000
Clearing 10,000
Agency 6,000
Licensed plate number 3,000
Wheel alignment 1,000
(43,000)
Net sales proceeds 107, 000
Less cost of acquisition (60,000)
Gains 47, 000
Capital Gains Tax = 10% of N 47, 000
= N 4,700
Exemptions
The CGT Act exempts gains accruing to the following:
a) Ecclesiastical, charitable or educational institutions of public character.
b) Any statutory or registered friendly society.
c) Any co-operative society registered under the Trade Union Act, in so far as the gain is not derived from any disposal of any asset acquired in connection with any trade or business carried on by the institution or society and the gain is applied purely for the purpose of the institution or society as the case may be.
d) Gains accruing from any local government council.
e) Companies being purchasing authorities established under any law in Nigeria empowered to acquire any commodity in Nigeria for export.
f) Superannuation funds (pension provident or other retirement benefits fund, society or scheme approved by the Joint Tax Board under Section 20 (1) (f) of the Personal Income Tax).
g) Decorations, stocks and shares (the Act provides that where a person disposes a decoration awarded for valour or gallant conduct which he acquires otherwise than for consideration in money or money’s worth, such is not a chargeable gain. The Act also recognizes disposal of Nigerian Government securities, stocks and shares as non-chargeable gains).
CGT administration
The Federal Inland Revenue Service (FIRS) and State Boards of Internal Revenue are responsible for the administration of CGT in Nigeria. The Service is a juristic person that can sue and be sued in its own name. It is empowered to acquire, hold and dispose of any property taken as a security for or in satisfaction of any such tax or penalty or of any judgement debt due in respect of any tax. FIRS’ jurisdiction is limited to the Federal Capital Territory, corporate entities nationwide and federal government’s ministries, departments and agencies (MDAs). The Service has wide powers by provisions of the CGT Act but the decisions of the Service are subject to appeal.
Reliefs
To prevent double tax relief on disposed assets, the Act provides that relief would be given in respect of replacement of business assets, compensation for assets lost and destroyed and in respect of delayed remittances from abroad. The relief would be in the form of tax deferred.
Offences and penalties
With regards the FIRS’ jurisdiction, offences and penalties under CGT are provided for by Part VI of the FIRS Establishment Act 2007. On failure to deduct or remit taxes, Section 40 of the Act provides that “any person who being obliged to deduct any tax under this Act or the laws listed in the First schedule of this Act but fails to deduct or having deducted fails to pay to the Service within 30 days from the date the amount was deducted or the time the duty to pay arose, commits an offence and shall upon conviction be liable to pay the tax withheld or not remitted in addition to a penalty of 10% of the tax deducted or not remitted per annum and interest at the prevailing Central Bank of Nigeria minimum re-discount rate and imprisonment for period not more than three years.”
On general penalty, section 49 (1) stipulates that “any person who contravenes any provisions of this Act for which no specific penalty was provided, commits an offence and shall be liable on conviction to a fine not exceeding N 50,000.00 or imprisonment for a term not exceeding six months or to both fine and imprisonment.
Whereas the contribution of CIT has been increasing steadily except in 2011 where it fell from N605.8 billion to N524 billion, the contributions from CGT and Stamp Duties have been fluctuating between highs and lows for some time.
However, the contribution from CGT surpassed that of Stamp Duties in 2009 and 2013. This is interesting given that for all other years, contribution from Stamp Duties surpassed that from CGT. Hence, an indication that the CGT, if properly harnessed would no doubt contribute immensely to the revenue purse for national development.
In other climes, the true economic gain rather than the accounting profit (sale price – cost price) is taxed by having an element of indexation that takes into account the inflation that affects the price of land and the price of appreciation of capital assets.
Challenges facing CGT in Nigeria range from poor collection of primary data such as original cost of land, improper valuation of land, and lack of comprehensive taxation of equities.
In view of the need to focus on non-oil revenue sources, it is necessary to put administrative strategies in place so as to improve the performance of CGT. This could include piggy-backing the collection of CGT on Stamp Duties or making the payment of Stamp Duties precedent on pre-payment of CGT such that a purchaser of chargeable asset would be identified at the point of getting Stamp Duties. Taxing authorities should collect and properly harmonise all primary data regarding land from Stamp Duty Commissioners. There should also be a robust engagement of professionals like lawyers, accountants, estate managers and other various stakeholders.
CGT is one of the easiest tax types to manipulate. Hence, the yield from CGT tends not to be as high as people would expect it to be. It will be needful to consider the interaction of the various tax laws particularly with the Land Use Decree of 1979 as well as other aspects of the law. This would help to clearly define the beneficiary of ‘gains’ as well as the person that is taxable on the gain.
The CGT Act is currently being governed by the CGT Act CAP C1 LFN 2004. The Act as it stands is comprehensive enough to deal with a lot of the issues that exist, especially in company land transfers of discreet properties owned in urban areas for which there is a clear market. However, the Act is not clear on how it will apply in the case of family land. For the most part, there should be a detailed review and amendment of the Act to align with global best practices.
Embuka Anna
