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How is Corporation Tax Calculated?

The corporation tax liability is the applicable tax rate multiplied by the net profit/chargeable income or turnover. All taxpayers must retain proper accounts, documents and record, and issues proper invoices and receipts for all transactions. In determing chargeable income, the following are not allowable as expenditures or deductions.

  • The closing value of stock-in-trade on hand at year end.
  • Fines and penalties for violating laws, rules and regulations
  • Personal expenditure
  • Taxes, except those on fringe benefits
  • Bribes, tips and kick-backs
  • Business and personal entertainment
  • Depreciation and capital expenditure
  • Gifts, Prizes and Donations
  • Losses carried back

However, the following deductions are allowable:

  • The cost of stock-in-trade disposed in a tax year
  • Business expenditures generating income
  • Contribution to qualified pension schemes
  • Capital allowance and amortization
  • Pre-commencement expenditures
  • Bad debts relating to the business line
  • Losses carried forward within sic year
  • Foreign tax credit provided in a tax treaty

For example, if X & Co. Ltd’s turnover on 2014 is D5 million and the company’s net profit is D1.5 million, then the company’s tax liability, computed below, will be D465000.

 

Tax Base

Types

 

Tax Base

Amount

Tax Rate

Tax Liability

Audited

D5,000,000

1.5%

D75,000

Unaudited

D5,000,000

2.5%

D125,000

Profit

D1,500,000

31%

D465,000

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