Table of Contents

Circumstances When the Nigeria Revenue Service Can Assess a Company Based on Its Turnover Under the Nigeria Tax Act (2025)

The Nigeria Revenue Service (NRS) — which replaced the Federal Inland Revenue Service (FIRS) under the Nigeria Revenue Service (Establishment) Act, 2025 — has broad powers to assess and collect taxes under the Nigeria Tax Act 2025 (NTA) and the Nigeria Tax Administration Act 2025 (NTAA). While the general rule is that companies are taxed on their profits, there are specific circumstances where the NRS may assess a company based on its turnover rather than its actual profits.

This guide examines the various circumstances under which the NRS can assess a company based on its turnover under the NTA 2025, the legal basis for such assessments, and the practical implications for businesses.

The Pain Points: What Businesses Are Facing

Let’s be honest. For many Nigerian businesses, the prospect of a turnover-based tax assessment is a source of significant anxiety. Here are the specific frustrations many companies experience.

“We Keep Proper Books, But the Tax Authority Doesn’t Trust Our Numbers”

You have invested in proper accounting systems. You maintain accurate records. You file your returns on time. Yet the NRS may still question your numbers if they appear lower than expected for your industry or business type.

This is deeply frustrating. You’ve done everything right, but you still face the possibility of being assessed on turnover rather than actual profits. The burden of proof falls on you to demonstrate that your reported profits are accurate and reasonable.

“We Made a Loss, but We Still Have to Pay Tax on Turnover”

Your business had a difficult year. You made a loss. You filed your returns showing no assessable profit. But under the NTA 2025, the NRS may still assess you on a percentage of your turnover if they believe your profits are less than expected for your type of business.

This feels like adding insult to injury. You’re already struggling, and now you face a tax bill based on revenue rather than actual earnings.

“We Don’t Know What a ‘Fair and Reasonable Percentage’ Means”

The NTA 2025 empowers the NRS to assess a company on a “fair and reasonable percentage” of turnover. But what does that mean in practice? How is the percentage determined? What factors are considered?

The lack of clarity is a major concern. In practice, the NRS has been known to apply a flat rate — historically 20% of turnover treated as deemed profit, taxed at the corporate tax rate. But the legal framework does not specify the basis for assessment, leaving significant discretion in the hands of the tax authority.

“We Didn’t File on Time, and Now We Face a Best of Judgment Assessment”

You missed a filing deadline. Perhaps it was an oversight. Perhaps you were dealing with other business pressures. Now the NRS has issued a Best of Judgment (BOJ) assessment based on what they consider to be your turnover.

These assessments can be punitive. The NRS may estimate your turnover based on industry benchmarks, lifestyle indicators, or other proxies. The resulting tax bill can be far higher than what you would have paid if you had filed on time.

“We’re a Small Business, but the Rules Keep Changing”

You’re a small business trying to comply. But the rules keep changing. The turnover threshold for small company exemption was raised to ₦100 million in some versions of the Act, but the gazetted version set it at ₦50 million. The confusion is overwhelming.

“We Don’t Keep Perfect Records, and Now We’re Being Penalised”

Many small businesses in Nigeria operate informally. They don’t keep perfect records. They may not have audited accounts. They may not file returns regularly.

The NTA 2025 addresses this through a presumptive tax regime under Section 29. If you cannot provide reliable records, the tax authority will assess you using benchmarks. This can result in a 1% turnover-based tax.

Part 1: The Legal Framework — General Rule vs. Exception

The General Rule: Taxation on Profits

As a general rule, income tax is payable on the profits of any company accruing in, derived from, brought into, or received in Nigeria. Companies are expected to file their tax returns and compute their tax on a self-assessment basis.

The NTA 2025 classifies businesses by turnover and asset size:

Small companies — businesses with annual turnover not exceeding ₦100 million (in some versions) or ₦50 million (in the gazetted version) and fixed assets below ₦250 million — are exempt from Companies Income Tax (CIT)

Larger companies — businesses with annual turnover exceeding ₦100 million and fixed assets above ₦250 million — are subject to CIT, Capital Gains Tax (CGT), and the Development Levy

The Exception: Turnover-Based Assessment

The NRS may depart from the general rule and assess a company based on its turnover in specific circumstances. This power is now provided for under Section 29 of the Nigeria Tax Act (NTA).

Under the previous regime (CITA), this power was found in Sections 30 and 65. The NTA 2025 has consolidated and updated these provisions.

Part 2: Circumstances for Turnover-Based Assessment

1. Where There Is No Assessable Profit

Where a company has no assessable profit, the NRS may charge a “fair and reasonable percentage” of the company’s turnover to tax.

Why this matters:

A company may have made a loss or broken even

The company may have high expenses that offset revenue

The NRS may question whether the reported profit is reasonable for the type of business

Practical example:
A trading company reports revenue of ₦500 million but shows no profit due to high cost of sales and operating expenses. The NRS may assess the company on a percentage of the ₦500 million turnover if they believe the reported profit is less than expected for such a business.

2. Where Profit Is Less Than Expected

Where the profit of a company is less than might be expected from such a business, the NRS may assess and charge that company on a fair and reasonable percentage of its turnover.

Why this matters:

The NRS may have industry benchmarks for profitability

If your profit margin is significantly below industry averages, you may be assessed on turnover

The NRS has discretion to determine what constitutes “expected” profit

What the courts have said:
The Supreme Court has reaffirmed the power granted to tax authorities under the repealed CITA, and this power is now provided for under Section 29 of the NTA. Where the tax authority deems that the reported profits of a company are unclear or appear lower than expected, or that the taxpayer’s accounts are unreliable or incomplete, the authority is empowered to assess the company’s tax liability based on a “fair and reasonable percentage of turnover”.

3. Where Accounts Are Unreliable or Incomplete

Where the tax authority deems that the taxpayer’s accounts are unreliable or incomplete, the NRS may assess the company based on turnover.

Why this matters:

Poor record-keeping can trigger a turnover-based assessment

Unaudited accounts may be deemed unreliable

Incomplete financial records may be rejected

Practical example:
In a case reviewed by the Supreme Court, the taxpayer did not file audited accounts and relied solely on self-assessment. This made it impossible for the true profit position to be readily ascertained, and as a result, the normal profit-based method could not apply, paving the way for turnover to be used as the basis for taxation.

The lesson:
As one tax expert noted: “Once the RTA loses confidence (of course empirically rather than whimsically) in your numbers, they stop working with your reality and start constructing their own”. Strong record-keeping is not just compliance but protection.

4. Failure to File Returns (Best of Judgment Assessment)

Where a company fails to file a return, the NRS may use its “Best of Judgment” to assess tax.

Why this matters:

Failure to file returns triggers an assessment

The NRS may estimate turnover based on available information

The resulting assessment may be higher than what would have been paid if returns were filed

What the courts have said:
The Court of Appeal has held that the tax authority has the authority to issue a Best of Judgment assessment based on what it reasonably considers to be a company’s total profits for a given tax year.

Best of Judgment vs. Presumptive Tax:
The NTA 2025 has introduced a presumptive tax regime under Section 29. This replaces the older practice of vague or arbitrary “best of judgment” assessments. However, where returns are not filed, the NRS may still determine liability to the best of its judgment.

5. Presumptive Tax Regime (Informal Sector)

Under Section 29 of the NTA 2025, the tax authority is empowered to make assessments using parameters which include business type and location, estimated daily or monthly turnover, and asset ownership.

Key features of the presumptive tax regime:

The regulations introduce a 1% turnover-based tax system

Specific exemptions apply for nano businesses with annual turnover below N12 million

Tax authorities may determine turnover using business activity, transaction volumes, and lifestyle indicators

Where only average daily turnover is known, annual turnover will be calculated based on the number of operating days, up to a maximum of 300 days per year

Who is affected:

Businesses that do not keep proper accounts

Informal businesses without reliable records

Micro and small enterprises with turnover below certain thresholds

Exemptions:
Nano businesses with an annual turnover not exceeding ₦12 million, no fixed premises, and no employees are exempt from the presumptive tax regime.

6. Non-Resident Companies with a Taxable Presence

Where a non-resident company has a taxable presence in Nigeria (Permanent Establishment or Significant Economic Presence), the NRS may assess tax on a turnover basis.

How it works:

Once nexus is established, the NRS may apply a profit margin aligned with the global parent, or 4% of turnover, or withholding tax incurred (5% to 20%), which acts as a final minimum tax

The NRS may assess non-resident companies on a “fair and reasonable percentage” of their turnover where it appears that the company either has no assessable profits or assessable profits that are less than expected

Non-resident digital service providers meeting the prescribed N25 million turnover and activity thresholds are liable to register with the NRS, file annual CIT returns, and pay tax

The “Force of Attraction” rule:
Once a Permanent Establishment exists, the NTA expands the scope of taxable profits beyond those directly generated by that PE. This rule permits the taxation of Nigerian-facing activities of a non-resident company or its connected persons.

7. Minimum Effective Tax Rate (ETR)

The NTA 2025 introduces a minimum effective tax rate (ETR) of 15% for certain companies.

Who is affected:

Nigerian companies that are members of a multinational group with aggregate group turnover of €750 million and above

Companies with annual turnover of at least ₦50 billion

In the gazetted version, any Nigerian company that has a turnover of at least N20 billion in any year of assessment will be liable to the minimum ETR of 15%

This includes export processing zone entities that export more than 25% of their sales into the customs territory

How it works:
The minimum ETR applies where the domestic tax paid in Nigeria falls below 15% of net income.

8. Assessment of Approved Entities in Free Trade Zones

The NTA 2025 removes, from the list of exempt companies, any entity whose sales to the customs territory are made to persons involved in upstream, midstream, or downstream petroleum or gas operations.

What this means:

Free Trade Zone entities that sell to the petroleum sector may now be subject to tax

The exemption previously enjoyed by FTZ entities may no longer apply in certain circumstances

The NRS may assess these entities based on turnover where applicable

Part 3: The “Fair and Reasonable Percentage” — What Does It Mean?

The Legal Standard

The NTA 2025 empowers the NRS to assess a company on a “fair and reasonable percentage” of turnover. However, the Act does not specify the basis for assessment where profit figures are unclear or unreliable.

The law empowers the relevant authorities to prescribe the terms and conditions to be applied, which may include but will certainly not be limited to turnover.

Practice in Practice

In practice, the NRS (and previously the FIRS) has applied certain percentages:

For non-resident companies:

The FIRS used to apply a profit ratio of 20% of turnover generated in Nigeria (implying a cost ratio of 80%)

This profit was then taxed at the corporate tax rate

For resident companies:

The NRS may apply a percentage based on industry benchmarks

The percentage may vary depending on the type of business and the circumstances

Judicial Oversight

The Federal High Court has ruled that tax laws do not require the tax authority to justify the imposition of any particular percentage of turnover in taxing companies. However, the tax authority should still provide taxpayers with some assurance by explaining how it arrives at a “fair and reasonable” percentage of turnover as profit.

Part 4: Practical Implications for Businesses

1. The Importance of Good Record-Keeping

Once the NRS loses confidence in your numbers, they stop working with your reality and start constructing their own. If you want your reported profits to be respected, they must be verifiable beyond doubt.

Best practices:

Maintain proper accounting records

File audited accounts where required

File returns on time

Keep supporting documentation for all transactions

Engage professional tax advisors

2. The Cost of Unreliable Records

Turnover-based taxation often leads to higher effective tax exposure for the business, limited recognition of allowable deductions, and wider discretion in the hands of the tax authority. The less reliable your records, the less control you have over your ultimate tax outcome.

3. Know Your Classification

The NTA 2025 classifies businesses by turnover and asset size. Understanding your classification is essential for knowing your tax obligations:

Small companies (turnover ≤ ₦100 million or ₦50 million, fixed assets ≤ ₦250 million) are exempt from CIT

Larger companies (turnover > ₦100 million, fixed assets > ₦250 million) are subject to CIT, CGT, and Development Levy

Note: Professional service providers are excluded from the small company classification regardless of turnover.

4. The Presumptive Tax Alternative

For businesses that cannot provide reliable records, the presumptive tax regime under Section 29 of the NTA may be an alternative. This regime imposes a 1% turnover-based tax.

Advantages:

Simpler compliance

Lower administrative burden

Exemption for nano businesses with turnover below N12 million

Disadvantages:

May result in higher tax than profit-based assessment

Limited recognition of allowable deductions

May not be suitable for all businesses

How Qeeva Advisory Steps In

At Qeeva Advisory, we understand that navigating Nigeria’s tax assessment system can be complex. Many businesses are uncertain about their obligations and worried about the possibility of turnover-based assessments.

Our Advisory Services help you understand your tax obligations under the NTA 2025, maintain proper records, and ensure compliance. With professionals who have over 12 years of experience in taxation, financial management, and advisory, we help you structure your affairs to minimise tax exposure.

Our Bookkeeping Services ensure your financial records are accurate and complete — the foundation for defending against turnover-based assessments. Strong record-keeping is not just compliance but protection.

For businesses facing tax disputes, our Tax Disputes Support provides expert representation. We help you navigate assessments, objections, and appeals, ensuring your rights are protected.

Our Regulatory Compliance services ensure your business meets all filing requirements and maintains good standing with tax authorities.

And because tax compliance is fundamentally about strategic planning, our Tax Strategies and Planning services help you structure your business to minimise tax exposure while staying compliant.

Our Service Methodology

We don’t do generic. We do thorough, transparent, and actionable.

Step 1: Tax Compliance Review
We review your current tax practices, financial records, and filing history. We identify gaps and areas of exposure that could trigger a turnover-based assessment.

This step draws on our Advisory Services expertise and our Bookkeeping Services to ensure your records are accurate and complete.

Step 2: Record-Keeping Enhancement
We help you strengthen your record-keeping practices to ensure your reported profits can withstand scrutiny.

Our Bookkeeping Services ensure your financial data is accurate, verifiable, and audit-ready.

Step 3: Compliance Strategy Development
We develop a comprehensive compliance strategy that minimises your exposure to turnover-based assessments.

For this, we lean on our Tax Strategies and Planning expertise to ensure your compliance strategy is grounded in business reality.

Step 4: Representation & Advocacy
If you receive a turnover-based assessment, we represent you before the NRS, the Tax Appeal Tribunal, and appellate courts.

Our Tax Disputes Support team ensures your rights are protected throughout the dispute resolution process.

Step 5: Ongoing Monitoring & Support
Tax compliance isn’t a one-time exercise. We help you monitor compliance and stay current with regulatory changes.

We provide ongoing support through our Advisory Services and ensure your business remains compliant.

Key Takeaways

The NRS can assess a company based on turnover in specific circumstances under the NTA 2025.

The key circumstances include:

Where there is no assessable profit

Where profit is less than expected for the type of business

Where accounts are unreliable or incomplete

Where the company fails to file returns (Best of Judgment)

Under the presumptive tax regime (1% of turnover)

For non-resident companies with a taxable presence

For companies subject to the minimum effective tax rate (15%)

For FTZ entities selling to the petroleum sector

The legal basis:

Section 29 of the NTA 2025 provides the power for turnover-based assessment

The NRS may charge a “fair and reasonable percentage” of turnover

The practical implications:

Turnover-based assessments often lead to higher tax exposure

The less reliable your records, the less control you have over your tax outcome

Strong record-keeping is not just compliance but protection

The bottom line: The NTA 2025 has consolidated and expanded the NRS’s power to assess companies based on turnover. Businesses that maintain proper records, file returns on time, and engage professional advisors are best positioned to avoid or successfully challenge turnover-based assessments.

Let’s Talk About Your Tax Compliance

Navigating Nigeria’s tax assessment system can be complex. At Qeeva Advisory, we understand the challenges businesses face under the NTA 2025 — from maintaining proper records to defending against turnover-based assessments.

Whether you need help with:

Understanding your tax obligations under the NTA 2025

Maintaining proper records to defend against turnover-based assessments

Filing returns on time to avoid Best of Judgment assessments

Challenging a turnover-based assessment through objection and appeal

Structuring your business to minimise tax exposure

We’re here to support you every step of the way.

📞 Call us: (+234) 802 320 0801, (+234) 807 576 5799

📧 Email: info@qeeva.com

📍 Visit us: 5, Ishola Bello Close, Off Iyalla Street, Alausa, Ikeja, Lagos, Nigeria

Contact us today to schedule a consultation. Let us help you navigate Nigeria’s tax landscape with confidence.