Mallam Nig Ltd was granted a pioneer as 1st July, 1993. The following information was extracted from the company's records... You are required to compute the tax liabilities of the company for the relevant years of assessment.

Mallam Nig Ltd was granted pioneer status on 1st July 1993. Assuming a standard 3-year pioneer period (as no extension was sought or granted), the pioneer period covers:

• Pioneer Year 1: 1st July 1993 to 30th June 1994 (Year of Assessment 1994)
• Pioneer Year 2: 1st July 1994 to 30th June 1995 (Year of Assessment 1995)
• Pioneer Year 3: 1st July 1995 to 30th June 1996 (Year of Assessment 1996)

During these pioneer years, the company's profits are exempt from income tax. However, capital allowances must be computed to determine the tax written down value (TWDV) of assets at the end of the pioneer period. The first year of assessment for which tax will be computed is YOA 1997.

The capital expenditure incurred up to 30th June 1996 is used. We assume these assets were acquired and put to use by 1st July 1993.

• Capital Allowance Rates (Standard Nigerian Rates):
  • Industrial Building: Initial Allowance (IA) 15%, Annual Allowance (AA) 10% (on cost)
  • Non-Industrial Building: Not eligible for capital allowance.
  • Plant and Machinery: IA 50%, AA 25% (on TWDV)
  • Motor Vehicles: IA 50%, AA 25% (on TWDV)
  • Plantation: IA 25%, AA 15% (on cost)

Capital Allowance Schedule

Asset Type	Cost (N)
Industrial Building	82,500
Non-Industrial Building	13,500
Plant & Machinery	146,500
Motor Vehicles	62,600
Plantation	194,700

YOA 1994 (Basis Period 1/7/1993 - 30/6/1994)

$$\begin{align*} \text{Industrial Building: } & \\ \quad \text{IA } (15\% \times 82,500) &= \text{N}12,375 \\ \quad \text{AA } (10\% \times 82,500) &= \text{N}8,250 \\ \quad \text{Total CA} &= \text{N}20,625 \\ \quad \text{TWDV c/f} &= 82,500 - 20,625 = \text{N}61,875 \\ \\ \text{Plant \& Machinery: } & \\ \quad \text{IA } (50\% \times 146,500) &= \text{N}73,250 \\ \quad \text{Remaining for AA} &= 146,500 - 73,250 = \text{N}73,250 \\ \quad \text{AA } (25\% \times 73,250) &= \text{N}18,312.50 \\ \quad \text{Total CA} &= 73,250 + 18,312.50 = \text{N}91,562.50 \\ \quad \text{TWDV c/f} &= 146,500 - 91,562.50 = \text{N}54,937.50 \\ \\ \text{Motor Vehicles: } & \\ \quad \text{IA } (50\% \times 62,600) &= \text{N}31,300 \\ \quad \text{Remaining for AA} &= 62,600 - 31,300 = \text{N}31,300 \\ \quad \text{AA } (25\% \times 31,300) &= \text{N}7,825 \\ \quad \text{Total CA} &= 31,300 + 7,825 = \text{N}39,125 \\ \quad \text{TWDV c/f} &= 62,600 - 39,125 = \text{N}23,475 \\ \\ \text{Plantation: } & \\ \quad \text{IA } (25\% \times 194,700) &= \text{N}48,675 \\ \quad \text{AA } (15\% \times 194,700) &= \text{N}29,205 \\ \quad \text{Total CA} &= 48,675 + 29,205 = \text{N}77,880 \\ \quad \text{TWDV c/f} &= 194,700 - 77,880 = \text{N}116,820 \\ \\ \text{Total CA for YOA 1994} &= 20,625 + 91,562.50 + 39,125 + 77,880 = \text{N}229,192.50 \end{align*}$$

YOA 1995 (Basis Period 1/7/1994 - 30/6/1995)

$$\begin{align*} \text{Industrial Building: } & \\ \quad \text{AA } (10\% \times 82,500) &= \text{N}8,250 \\ \quad \text{TWDV c/f} &= 61,875 - 8,250 = \text{N}53,625 \\ \\ \text{Plant \& Machinery: } & \\ \quad \text{AA } (25\% \times 54,937.50) &= \text{N}13,734.38 \\ \quad \text{TWDV c/f} &= 54,937.50 - 13,734.38 = \text{N}41,203.12 \\ \\ \text{Motor Vehicles: } & \\ \quad \text{AA } (25\% \times 23,475) &= \text{N}5,868.75 \\ \quad \text{TWDV c/f} &= 23,475 - 5,868.75 = \text{N}17,606.25 \\ \\ \text{Plantation: } & \\ \quad \text{AA } (15\% \times 194,700) &= \text{N}29,205 \\ \quad \text{TWDV c/f} &= 116,820 - 29,205 = \text{N}87,615 \\ \\ \text{Total CA for YOA 1995} &= 8,250 + 13,734.38 + 5,868.75 + 29,205 = \text{N}57,058.13 \end{align*}$$

YOA 1996 (Basis Period 1/7/1995 - 30/6/1996)

$$\begin{align*} \text{Industrial Building: } & \\ \quad \text{AA } (10\% \times 82,500) &= \text{N}8,250 \\ \quad \text{TWDV c/f} &= 53,625 - 8,250 = \text{N}45,375 \\ \\ \text{Plant \& Machinery: } & \\ \quad \text{AA } (25\% \times 41,203.12) &= \text{N}10,300.78 \\ \quad \text{TWDV c/f} &= 41,203.12 - 10,300.78 = \text{N}30,902.34 \\ \\ \text{Motor Vehicles: } & \\ \quad \text{AA } (25\% \times 17,606.25) &= \text{N}4,401.56 \\ \quad \text{TWDV c/f} &= 17,606.25 - 4,401.56 = \text{N}13,204.69 \\ \\ \text{Plantation: } & \\ \quad \text{AA } (15\% \times 194,700) &= \text{N}29,205 \\ \quad \text{TWDV c/f} &= 87,615 - 29,205 = \text{N}58,410 \\ \\ \text{Total CA for YOA 1996} &= 8,250 + 10,300.78 + 4,401.56 + 29,205 = \text{N}52,157.34 \end{align*}$$

The net profit for the year ended 30/6/1997 was N155,000 after charging depreciation N32,500 and withholding tax on rent N12,500.

$$\begin{align*} \text{Net Profit as per accounts} &= \text{N}155,000 \\ \text{Add: Depreciation (non-allowable)} &= \text{N}32,500 \\ \text{Add: Withholding Tax on Rent (non-allowable)} &= \text{N}12,500 \\ \text{Adjusted Profit} &= 155,000 + 32,500 + 12,500 \\ &= \text{N}200,000 \end{align*}$$

We use the TWDV brought forward from 30/6/1996.

$$\begin{align*} \text{Industrial Building: } & \\ \quad \text{AA } (10\% \times 82,500) &= \text{N}8,250 \\ \quad \text{TWDV c/f} &= 45,375 - 8,250 = \text{N}37,125 \\ \\ \text{Plant \& Machinery: } & \\ \quad \text{AA } (25\% \times 30,902.34) &= \text{N}7,725.58 \\ \quad \text{TWDV c/f} &= 30,902.34 - 7,725.58 = \text{N}23,176.76 \\ \\ \text{Motor Vehicles: } & \\ \quad \text{AA } (25\% \times 13,204.69) &= \text{N}3,301.17 \\ \quad \text{TWDV c/f} &= 13,204.69 - 3,301.17 = \text{N}9,903.52 \\ \\ \text{Plantation: } & \\ \quad \text{AA } (15\% \times 194,700) &= \text{N}29,205 \\ \quad \text{TWDV c/f} &= 58,410 - 29,205 = \text{N}29,205 \\ \\ \text{Total CA for YOA 1997} &= 8,250 + 7,725.58 + 3,301.17 + 29,205 = \text{N}48,481.75 \end{align*}$$

Capital allowances are restricted to 2/3 of the adjusted profit for non-manufacturing companies.
$2/3 \times \text{N}200,000 = \text{N}133,333.33$.
Since N48,481.75 is less than N133,333.33, the full capital allowance can be claimed.

$$\begin{align*} \text{Adjusted Profit} &= \text{N}200,000 \\ \text{Less: Capital Allowances} &= \text{N}48,481.75 \\ \text{Assessable Profit} &= 200,000 - 48,481.75 = \text{N}151,518.25 \end{align*}$$

Assuming a company income tax rate of 30%:

$$\begin{align*} \text{Company Income Tax} &= 30\% \times 151,518.25 \\ &= \text{N}45,455.48 \end{align*}$$

Summary of Tax Liabilities:

• Year of Assessment 1994: N0 (Pioneer Status)
• Year of Assessment 1995: N0 (Pioneer Status)
• Year of Assessment 1996: N0 (Pioneer Status)
• Year of Assessment 1997: N45,455.48

The tax liabilities of the company for the relevant years of assessment are:

• YOA 1994: $\boxed{\text{N}0}$
• YOA 1995: $\boxed{\text{N}0}$
• YOA 1996: $\boxed{\text{N}0}$
• YOA 1997: $\boxed{\text{N}45,455.48}$