ICAN ADVANCED TAXATION

PILOT QUESTIONS
Question 1
Tobi Ola Ltd commenced the business of mining in 2013. The summary of the company’s financial statements
for two (2) years are as stated
below;
Statement of profit or loss for the
years ended
31/12/17 31/12/16
N N
Export sales 800,000 600,500
Local sales 400,000 300,000
1,200,000 900,500
Deduct:
Exploration cost 160,500 150,000
Storage & transportation cost 230,700 210,000
Allowance for doubtful debts 42,000 77,000
VAT paid on revenue expenses 51,300 10,500
VAT paid on purchase of
36,800 21,000
equipment
Sales tax 13,600 11,100
Net profit 665,100 420,900

Extract of the statement of financial position as at;

31/12/17 31/12/16

Share capital 2,000,000 2,000,000

Capital reserve 200,000 150,000
2,200,000 2,150,000
[This is represented by the net asset of the company]
You are given the following additional information:
1. The loss brought forward to year ended 31/12/16 was N200,000
2. The details of allowance for doubtful debts are as follows:

31/12/17 31/12/16
Year ended
N
N
- General provision for doubtful debt c/f 5000 10,000
 - Specific provision for doubtful debt c/f 4,000 6,000
- Bad debt written off 110,000 64,000
- Loan to customers written off 6,000 27,000
- General provision for doubtful debt b/f (91,000) (30,000)
- Specific provision for bad debt b/f (6,000) (36,000)
- Bad debt written off recovered (70,000) (118,000)
- Transferred to statement of profit or loss
(42,000) (77,000)
3. Position of qualifying capital expenditure:
a. Tax written down value (31/12/16)
Amount (N) Remarks
Plant 330,000 2 years gone
Equipment 240,000 1 year remaining
Motor vehicle 345,000 3 years remaining

b. Qualifying capital expenditure acquired

Assets Amount (N) Date of acquisition
Motor vehicles (3) 600,000 01/07/16
Machinery 400,000 01/11/17

c. Disposal of qualifying capital expenditure

Assets Disposal value (N) Date of disposal
Motor vehicle (old) 210,000 01/09/16
Motor vehicle (1) (New) 150,000 01/04/17
Equipment 250,000 01/06/17
4. The company’s paid up capital is N2,000,000
5. It was agreed that both the exploration, storage and transportation costs are the relevant
direct costs.
Your firm has been appointed as the tax consultant to the company.
Required:
Advise the board of directors of Tobi Ola Limited on the tax liabilities of the company for the
relevant years of assessment. (40 marks)
Question 2
Taxation is an international tool for countries around the world to, among other uses, influence their
fiscal policies as well as generate revenue. International trade is a great feature of inter country
relationship as no country can exist as an island. Consequently, international organisations exist to
bridge gaps between countries around the world. They are necessary to activate the gains in terms
of knowledge and technical expertise.

Required:
Discuss
a. The roles played by inter-governmental and supranational organisations that shape tax policy
(5 marks)
b. The concept of tax neutrality (8 marks)
c. How international tax cooperation affect international tax policies. (7 marks)
(Total 20 marks)

Question 3
Ugochi ventures Ltd commenced business as a pioneer company on January 1, 2010. After three
years of operation, the pioneer certificate was not extended.

The following were extracted from the financial records of the company for the first five years of its
operations.

Year ended Adjusted Research Motor Agric Plant and

Dec. 31, profit/loss) & dev. vehicle tractor equipment
N N N N N
2010 (380,000) 250,000 60,000 - 750,000
2011 (145,000) - - 675,000
2012 244,000 - - -
2013 321,000 50,000 45,000 -
2014 355,000 - - -

You are required to:

a) Advise management on the company’s tax liabilities for the relevant assessment years.
(15 marks)
b) Discus the limitations to the incentives granted to taxpayers under the Industrial
development Income Tax Relief Act (5 marks)
(Note that the company’s plant and equipment were also used on plantation)
(Total 20 Marks)
QUESTION 4

You are the tax controller of Rex Pharmaceuticals (Nigeria) Limited, which has its head office at Ketu in Epe
Local Government of Lagos State.

In the past three years, the company was subjected to an array of taxes by different revenue authorities
within Lagos State and indeed the entire country.

Apart from the companies income tax, withholding tax is another tax that the company’s management is
concerned about. The Managing Director is very much worried that this multiplicity of taxes is taking its toll
on the company’s financials.

The company is already facing myriads of problems ranging from high cost of capital which led to increase
in cost of production and attendant reduction in profit. The company’s goods are becoming uncompetitive
compared with imported similar goods. The long term effect is either reduction in work force or relocation
to a more favourable economic environment. The Managing Director has invited you to his office to discuss
the following issues:

(i) Whether as a corporate body, the company ought to be subjected to myriads of taxes beyond
the corporate tax;
(ii) The jurisdictions of the tiers of government in the imposition and collection of taxes;
(iii) Withholding tax;
(iv) Pay-As-You-Earn (PAYE) as it affects the staff; and
(v) Capital gains tax.

You have also been provided with the following information:

• The company’s technical agreement with the foreign head office and the need to remit funds;
• Non-resident directors are to receive N2,500,000;
• Staff P.A.Y.E has been centralised;
• Dividend was paid to shareholders in different parts of the country, and those resident in Kogi
State of Nigeria, received N375,000;
• Land for a factory in Abuja was purchased from Alhaji Garuba Maito who resides in Kano;
• The company received N4,500,000 as net dividend from an associated company, Laiketop
Limited, for the year ended September 30, 2014;
• In the audited financial statements of Rex Pharmaceuticals for the year ended December 31,
2015, a dividend of N9,500,000 was proposed. Out of this amount, N3,500,000 was from
dividend received from Laiketop Limited while the balance was from a total profit of
N22,500,000 from other trading activities; and
• Out of the thirty employees in Abuja, five are resident in Suleja, Niger State.

You are required to:

Prepare a memo to the Managing Director explaining the following:

(a) i. Double/multiple taxation (2 marks)

ii. Double taxation treaty (2 marks)
 iii. Multiple taxation in Nigeria (2 marks)
iv. Measures put in place to reduce cases of multiple taxation in Nigeria (2 marks)
v. Withholding tax with respect to (i) to (v) (2 marks)
vi. Penalty for non-deduction/remittance of withholding tax. (2 Marks)

(b) The arms of government empowered to legislate on tax matters by the Constitution.(4 marks)

(c) Relevant tax authority and the withholding tax due, if any. (4 marks)

(Total 20 marks)

Question 5
Ekoro Oil (Nig.) Ltd is an oil producing company. Crude oil lifting for 2014 accounting period was
at the rate of 4,000 barrels per day. The company confirmed that 95 percent of the crude oil lifted
was exported while the remaining 5 percent was sold in the home market (i.e. domestic sales).
Other relevant details are as follows:

i) Posted price of crude oil of 35o was N20.55 during the period under review and it was
agreed with the Federal Government that for every degree decrease in the API gravity of
crude oil exported, the posted price was to be reduced by N0.11 kobo. The API gravity of
crude oil exported was 30o.
ii) Sale of crude oil
N N
Export 26,353,000
Domestic 1,095,000
Less: Production cost 584,000
Transportation 1,500,000
2,084,000
25,364,000
Deduct:
Salaries 500,000
General overheads 70,000
Bank charges and interest 75,000
Interest on bills payable 93,000
Interest on loan from subsidiary
company at commercial rate 160,000
Loss on disposal of property,
plant and equipment 25,000
Depreciation 1,450,000
Royalties and producing
rentals 6,500,000
Non-producing rentals 60,000
Customs duties 30,000
Harbour dues 24,000
 8,987,000

Profit before taxation 16,377,000

iii) The company has capitalised intangible drilling costs amounting to N1,500,000.

iv) Capital allowances for the year were:

Annual 1,700,000
Balancing charge 15,000

v) Petroleum investment allowance as agreed was N200,000

vi) Capital allowances brought forward from previous year were N250,000

vii) The company executed the production sharing contract (PSC) with the Nigerian
National Petroleum Corporation (NNPC) in 1993. The proportion of the percentage of
profit oil split was 30% and 70% for NNPC and Ekoro Oil Nigeria Ltd, respectively.

viii) Other income from ocean going tankers transportation was N4m. The related expenses
amounted to N1.5m.

ix) An asset costing N500,000 some years ago with a book value of N200, 000 was
disposed for N1.1m.

You are required to compute:

a. Adjusted posted price of crude oil exported (1½ marks)
b. The assessable profit for the accounting period (10 marks)
c. Chargeable petroleum profit (2½ marks)
d. Assessable petroleum profit tax (1 mark)
e. Chargeable tax. (3 mark)
f. Total tax payable (2 marks)
(Total 20 marks)
Question 6
Mr. Goodygoody is a proud owner of so many properties. The following relates to three of his
buildings, which were disposed of:

Property A Property B Property C

N N N
Cost 50,000 70,000 90,000
Tax written down value 10,000 5,000 12,000
Expenses of sales (all allowable) 2,000 - 3,500
Additional cost 30,000 25,000 15,000

Notes:
i) Property A was acquired in 2014. After refurbishing the asset at a cost of N5,500, it was
disposed of in 2015 for N150,000.
ii) Property B was acquired in 2010. One half of the asset was disposed for N100,000 in
February 2014 when the market value of the part not disposed was N70,000. The remaining
part was disposed in March 2015 for N80,000
iii) Property C was disposed to Mr. Goodygoody’s brother-in-law for the sum of N150,000 in
January 2013. The market value of the asset as at the date of disposal was N200,000.

You are required to:

a. Compute the capital gains tax payable for relevant years of assessment. (16marks)
b. Under what circumstances will a person be deemed to be connected to another person for
the purpose of computing capital gains tax? (4marks)
(Total 20 marks)