Tax & Accounting Glossary

Accrual Accounting — An accounting method where revenue and expenses are recorded when earned or incurred, regardless of when cash is received or paid.

Allowable Expense — Business expenses that can legally reduce taxable profit under Nigerian tax law.

Annual Tax Return — A yearly filing submitted to tax authorities detailing income, expenses, and tax liabilities.

Assessment Year — The year in which income earned in the preceding year is assessed for tax purposes.

Audit — A formal examination of financial records, transactions, and compliance processes to ensure accuracy and adherence to regulations.

Audit Trail — A chronological record of transactions and activities that provides evidence of compliance and financial accuracy.

Balance Sheet — A financial statement showing a company's assets, liabilities, and equity at a specific point in time.

Basis Period — The period of account used to determine assessable income for a given year of assessment under Nigerian tax law.

Bookkeeping — The recording and organization of financial transactions for a business.

Capital Allowance — A tax deduction claimed for the wear and tear of qualifying capital assets used in a business, replacing accounting depreciation for tax purposes.

Capital Gains Tax (CGT) — A tax on the profit realized from the sale or disposal of a capital asset, charged at 10% in Nigeria.

Cash Accounting — An accounting method where income and expenses are recorded only when cash is received or paid.

Company Income Tax (CIT) — A tax levied on the profits of incorporated companies operating in Nigeria, administered by the FIRS.

Compliance Certificate — A document issued by the FIRS confirming that a taxpayer has met all outstanding tax obligations.

Consolidated Relief Allowance (CRA) — A statutory relief of N200,000 or 1% of gross income (whichever is higher) plus 20% of gross income, granted to individual taxpayers.

Deductible Expense — An expense incurred wholly, exclusively, necessarily, and reasonably for the purpose of generating business income that can be deducted from taxable profit.

Depreciation — The systematic reduction of the recorded cost of a fixed asset over its useful life in accounting records.

Development Levy — A 4% levy on assessable profits of large companies under the Nigeria Tax Act 2025 §59, replacing the former Education Tax. Small companies are exempt.

Double Taxation Agreement (DTA) — A treaty between two countries to prevent income from being taxed twice, applicable to Nigeria's agreements with various countries.

E-Invoicing — The electronic generation, transmission, and storage of invoices in a structured digital format for tax compliance and record-keeping.

Education Tax — Formerly a 2.5% tax on the assessable profit of companies, used to fund the Tertiary Education Trust Fund (TETFund). Abolished and consolidated into the 4% Development Levy under the Nigeria Tax Act 2025 (effective 1 January 2026).

Equity — The residual interest in the assets of a business after deducting all liabilities, representing the owners' stake.

Exempt Income — Income that is specifically excluded from taxation under the provisions of relevant tax legislation.

FIRS — Federal Inland Revenue Service — the agency responsible for assessing, collecting, and accounting for federal taxes in Nigeria.

Fiscal Year — A 12-month accounting period used by a business or government for financial reporting and tax computation.

Fixed Asset — A long-term tangible asset used in business operations, such as buildings, machinery, or vehicles.

Franked Investment Income — Dividend income received by a Nigerian company from another Nigerian company on which tax has already been paid.

General Ledger — The master accounting record containing all financial transactions of a business, organized by account.

Gross Income — Total income earned before any deductions, exemptions, or reliefs are applied.

Gross Profit — Revenue minus the cost of goods sold, before operating expenses are deducted.

Holding Company — A company that owns controlling interests in one or more subsidiary companies, with specific tax implications under Nigerian law.

Income Tax — A tax levied on the income of individuals or entities, including PIT for individuals and CIT for companies in Nigeria.

Information Circular — An official publication by the FIRS providing guidance on the interpretation and application of tax laws.

Input VAT — VAT paid on goods and services purchased for business use, which can be offset against output VAT collected.

Internal Audit — An independent review function within an organization that evaluates risk management, controls, and governance processes.

Joint Tax Board (JTB) — A body that harmonizes the administration of personal income tax across all states in Nigeria.

Journal Entry — A record in the accounting system that documents a financial transaction with corresponding debits and credits.

Key Performance Indicator (KPI) — A measurable value used to evaluate the financial performance and compliance effectiveness of a business or tax function.

Ledger — A book or system of accounts in which financial transactions are classified and recorded.

Levy — A compulsory payment imposed by a government authority, such as the NASENI levy or NITDA levy in Nigeria.

Liability — A financial obligation or debt owed by a business to external parties.

Management Account — Internal financial reports prepared for business decision-making, not subject to statutory audit requirements.

Minimum Tax — The lowest amount of tax payable by a company regardless of whether it has taxable profit, calculated as a percentage of turnover under Nigerian tax law.

Monthly Remittance — The periodic payment of deducted taxes (PAYE, WHT, VAT) to the relevant tax authority, typically due by the 21st of the following month.

NASENI Levy — A 0.25% levy on the profit before tax of companies with a turnover of N100 million or more, funding the National Agency for Science and Engineering Infrastructure.

Net Income — The amount of income remaining after all expenses, taxes, and deductions have been subtracted from gross income.

Nigeria Revenue Service (NRS) — The successor agency to the FIRS under the 2025 tax reform framework, responsible for federal tax administration.

Non-Resident Tax — Tax obligations applicable to individuals or companies earning income in Nigeria without being resident for tax purposes.

Objection — A formal challenge filed by a taxpayer against a tax assessment they consider incorrect, within the statutory time limit.

Output VAT — VAT charged on goods and services sold by a VAT-registered business, collected on behalf of the tax authority.

PAYE (Pay-As-You-Earn) — A system where employers deduct income tax from employees' salaries at source and remit to the relevant state tax authority.

Penalty — A financial charge imposed for non-compliance with tax obligations, such as late filing, late payment, or under-reporting of income.

Personal Income Tax (PIT) — A tax on the income of individuals, sole proprietors, and partners, governed by the Personal Income Tax Act (PITA).

Pioneer Status — A tax incentive granting qualifying industries a tax holiday of up to five years on profits from pioneer activities.

Profit and Loss Statement — A financial statement summarizing revenues, costs, and expenses to show net profit or loss over a specific period.

Qualifying Capital Expenditure — Capital spending on assets that qualifies for capital allowance deductions under Nigerian tax law.

Reconciliation — The process of comparing two sets of records (e.g., bank statements and ledger entries) to ensure they agree.

Relief — A deduction or allowance that reduces the amount of income subject to tax, such as CRA or pension contribution relief.

Resident Company — A company incorporated in Nigeria, or having its management and control in Nigeria, making it liable to tax on worldwide income.

Retained Earnings — Cumulative net income of a company that has been kept for reinvestment rather than distributed as dividends.

Self-Assessment — A tax filing method where the taxpayer calculates their own tax liability and submits it to the tax authority for review.

Stamp Duty — A tax levied on legal documents and instruments, including agreements, receipts, and share transfers in Nigeria.

Statutory Audit — A legally required examination of a company's financial statements by an independent auditor to verify accuracy.

Tax Clearance Certificate (TCC) — An official document issued by the FIRS or state tax authority confirming that a taxpayer has paid all assessed taxes for a given period.

Tax Identification Number (TIN) — A unique number assigned to individuals and entities for tax identification and filing purposes in Nigeria.

Transfer Pricing — Rules governing the pricing of transactions between related parties to ensure they reflect arm's length values for tax purposes.

Trial Balance — A summary of all ledger account balances used to verify that total debits equal total credits.

Turnover — The total revenue generated by a business from its normal operations within a specific period.

Unrelieved Loss — A tax loss that has not yet been offset against taxable profits, which may be carried forward to future years.

Value Added Tax (VAT) — A consumption tax of 7.5% levied on the supply of goods and services in Nigeria, collected at each stage of the supply chain.

VAT Return — A periodic filing submitted to the FIRS showing output VAT collected, input VAT paid, and the net amount due or refundable.

Withholding Tax (WHT) — A tax deducted at source from payments for specified transactions such as contracts, rent, dividends, and professional fees.

Working Capital — The difference between current assets and current liabilities, representing the short-term financial health of a business.

Year of Assessment — The calendar year in which income is assessed for tax purposes in Nigeria.

Zero-Rated Supply — Goods or services that are taxable for VAT purposes but at a rate of 0%, allowing the supplier to claim input VAT credits.