Small businesses exempted from tax must file annual returns - FIRS

The Federal Inland Revenue Service (FIRS) says smallbusinesses will still go through the full tax computation process from 2026,even though they will not be required to pay tax. Speaking in a webinar on Wednesday, Kehinde Kajesomo, FIRSdeputy director, said the revenue service will calculate such businesses’assessable profits, deduct capital allowances and losses, and arrive at totalprofits before applying the zero tax rate. “But what it means is that they will undergo the process ofcomputing their taxable profits, and they will file these returns with the taxauthority,” Kajesomo said. “That’s what it means. They will do every other thing,compute their taxes, but the tax they will pay will be zero, meaning that theywill not pay tax.” For other companies, the deputy director said their rate oftax will be 30 percent, but the president may reduce it to 25 percent, subjectto advice from the national economic council (NEC). “If that happens, a relevant order will be published in theofficial gazette of the federal government,” he said. “Then, the turnover that defines who is a small company, hasbeen increased from N25 million to N50 million, but coupled with fixed assetsof N250 million. “Any company that meets that threshold, its tax rate is 0percent, including tax on their capital gains. “They paid capital gains tax of 10 percent before, but now,as long as they are small companies, they will pay no income tax, which willinclude the fact that they will not be having tax on their gains, or disposalof assets.” ‘CAPITAL GAINS TAX RATE DIDN’T MOVE FROM 10% TO 30%’Kajesomo said the capital gains tax rate was not increasedfrom 10 percent to 30 percent, and no specific rate is mandated by law forcapital gains. He said, instead, tax treatment depends on company size, assmall companies’ gains are effectively taxed at 0 percent — down from 10percent, while gains for larger companies are subject to their generalcorporate income tax rate of 30 percent. “In actual fact, they may not pay 30 percent, because whatit means is that for some companies that are loss-making, because the lawallows you to put all your income in one basket, it means you can deduct lossesof one item from the profit from another item,” he said. “Meaning that if you make gains in respect of yourdisposable asset, or you make losses in respect of your business income, by thetime you mix this loss and gain together, the possibility is that you may bepaying tax on your gains.” ‘NEW TAX RATES APPLY ONLY TO EXTRA INCOME ABOVE EACH BAND’The tax expert clarified that under the revised tax act,higher rates apply only to the portion of income that falls into each band, notthe entire taxable income. He said this means individuals who enter the top band willpay 25 percent only on the extra amount above the threshold, not on their fullearnings. “So if I’m an individual, and let’s assume my taxable incomeis N51 million, is that N51 million going to be subject to 25 percent? No,” heexplained. “Out of that, my N51 million, the first N800,000 will be at0%. The next 2.2 million will be at 15 percent, and so on and so forth. “That means if my total taxable income is N51 million, Iwill actually pay 25 percent on just the 1 million that is above N50 million. “We have some exemptions. For individuals earning nationalminimum wage, they are exempt from tax. Then for military officers, which wecall other ranks, their salaries are exempt from tax. “Then for those under diplomatic immunities, or when Nigeriahas an agreement that exempts them from taxation, they will be exempt fromincome tax.” The federal government in June retained the corporate incometax (CIT) at a flat rate of 30 percent for all companies, excluding smallbusinesses. The CIT framework is contained in the new provisions of theNigerian Tax Act (NTA), which will take effect in January 2026.

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