CRITICAL ANALYSIS OF THE COMPLIANCE WITH TAXES BY PARTIES TO REAL PROPERTY TRANSACTIONS IN NIGERIA
CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Issues of tax compliance have been a challenge for the successive government in Nigeria including various taxes on real estate property transaction. There are various taxes that apply to real estate or real property transactions in Nigeria. The common public representation or perception that there are no real property or real estate taxes in Nigeria is not correct. Some of the common taxes that apply to real property transactions in Nigeria include the company’s income tax, value added tax, capital gains tax and stamp duties tax. Any income with the resulting profit earned by any person from such income, whether such a person is a corporation or an individual, from a property transaction, is liable to the payment of tax. Where the income earner is a corporation, the
corporate tax rate in Nigeria is thirty per cent (30%) of the annual profit of the corporation; and where the income earner from a property transaction is an individual or a registered business enterprise or partnership, the graduated tax rate is twenty-four per cent (24%) for individuals earning N3,200,000 and
above, per annum (Nwosu, 2004). In addition to paying Companies Income Tax, incorporated corporations in Nigeria, engaged in any commercial activity, including real estate or real property transactions from which they make a profit, are liable to pay two per cent (2%) of such profit as Education tax to the Education Trust Fund. This Tax is collected on behalf of the Education Trust Fund by the Federal Inland Revenue Service (“FIRS”). All goods and services in Nigeria, including goods and services utilized in the real estate industry, are liable to be invoiced and to the payment of Value Added Tax (“VAT”) at the rate of five per cent (5%) of the value of such real estate goods and services. The Capital Gains Tax Act provides that any time an asset, including a real estate asset, whether situated in Nigeria or outside of Nigeria, is disposed of by a Nigerian tax payer, and a gain is
derived as a result of such disposal, the resulting gain or profit shall be liableto a ten per cent (10%) Capital Gains Tax (“CGT”) less such allowable expenditures that were utilised to enhance or preserve or defend the title to the asset.
However, gains arising from the disposal of an individual’s principal private residence for another person’s principal private residence are exempted from the provisions of the Capital Gains Tax Act. Also exempted from CGT are commercial motor vehicles and personal Gis from which no monetary gain is derived.
The Stamp Duties Act requires that all written instruments, including instances where any property or interest in property is or are transferred or leased to any person, must be stamped.
Generally, Stamp Duties is charged at the rate of 75 kobo for every N200 of the consideration of certain real estate transactions like mortgages, while for conveyances or the transfer or sale of real property, the stamp duties rate is 75kobo for every N50. The Stamp Duties rate for lease and rental agreements is 16kobo for every N200 of the consideration of the lease or rental agreement. Any written document that is not stamped is not allowed to be received in any judicial proceeding in Nigeria until the stamp duty and the resulting penalty for the nonpayment of the stamp duty is paid. There are fines and other penalties for any failure to pay stamp duties on any written instrument that is not exempted from the payment of stamp duty. A real estate transaction is the process whereby rights in a unit of property (or designated real estate) is transferred between two or more parties, e.g. in case
of conveyance one party being the seller(s) and the other being the buyer(s). It can often be quite complicated due to the complexity of the property rights being transferred, the amount of money being exchanged, and government regulations.
