When it comes to starting a business, so many factors come to play, and many of them have nothing to do with your idea or the availability of capital. You have to think about the sustainability of your business, your target market, how to source for projects or clients, and many more. One of the most important, however, is tax. Yes, Tax. While working a full time job, it is easy to forget absolutely tax. After all, your company does all of that for you.
Why do you need to pay taxes on your business?
As a registered business, as long as you derive income or operate in Nigeria, you are required to pay a range of taxes. Some to the federal government, some to the state, and others to the local government your business operates under. It is a necessary evil you cannot run away from. If you try to avoid it, you might end up shooting yourself in the leg. For example, your tax payment is what entitles you to a tax clearance certificate (TCC), without which you cannot bid for most contracts or operate within certain capacities. Of course, you also stand the risk of getting into big trouble. In all honesty, taxes can be burdensome. It just seems like you’ll be losing all your money to the government. However, sometimes the reason we’re losing money is because the right thing isn’t being done. Even if you have a professional carrying out the processes for you, it is important that you understand the basics.
Types of Taxes To Be Paid
- Personal Income Tax (PIT)
The personal income tax is the tax that is charged against your direct income. This is the same tax that is deducted from your income when working a 9-5. As a business owner, you would pay this for yourself and for your employees as well, using progressive tax rates, depending on their income. Also, sole proprietors and partners pay self-employment taxes. Various rules and conditions apply, however.
- Company Income Tax (CIT)
This is the main tax burden you undertake when you register your company. Company income tax is payable to the federal government and it requires you to file your audited returns at the end of any business year.
- Value Added Tax (VAT)
This is also known as sales tax and it is one of the taxes that we erroneously treat. The ideal thing to do is collect this tax on behalf of the government from your customers or clients. Hence, it should be added to the invoice you give clients and paid in total to the government.
While other taxes exist, these are the main ones across board. Others depend on the industry you’re in and your scale of operations. Note that the rates differ also depending on these conditions.
BY: LAWRETTA EGBA