Nigeria: Regulatory Update: Key Provisions Of The Nigeria Finance Act 2023

Introduction

In our previous article, we highlighted some key provisions of the Nigeria Finance Bill 2022 (the "Bill"). In a final move by former President Mohammadu Buhari, the Bill, now the Finance Act 2023 (the "Act") was signed into law on May 28, 2023, just before his last day in office.

The Act amends the relevant tax, excises, and duty statutes in line with the macroeconomic policy reforms of the Federal Government. It also includes additional provisions in specific legislation in connection with the public financial management of the country¹.

The Act, which came into effect on the day it was signed, brings forth significant tax changes which will impact various sectors of the Nigerian economy.

In this article, we have highlighted some of the key provisions of the Act.

1. Taxation of gains on the disposal of digital assets: Disposal of digital assets such as cryptocurrency will now be subject to a Capital Gains Tax ("CGT") rate of 10%. This move aims to capture the growing digital asset market and ensure that taxes are appropriately levied on gains derived from these transactions. It is expected that further directives and guidelines on compliance by individuals and companies will be issued by the relevant authorities.

2. Set-off of losses: Losses incurred on assets subject to CGT can now be carried forward for a maximum of 5 years. This provision allows individuals and businesses to offset future gains against their previous losses on the same type of asset(s), providing some relief in taxable income.

3. Removal of investment allowance: The investment allowance on plant and equipment under the Companies Income Tax Act has now been removed. This change implies that businesses will no longer enjoy a specific allowance for investments made in plant and equipment, potentially impacting the decision-making process for capital expenditures.

4. Import levy: A new levy of 0.5% has been imposed on goods imported into Nigeria from outside Africa. This is in addition to existing customs duties and other applicable charges. It is stated that this duty will be used to finance capital contributions subscriptions, and other financial obligations to multilateral institutions like the African Union, African Development Bank e.t.c.

5. Payment of excise tax: All services, including telecommunication services, are now liable to excise tax at rates to be prescribed by the President. This expansion of the excise tax base brings more services under the tax net and is expected to generate additional revenue for the government.
6. Distribution of the Electronic Money Transfer ("EMT") levy: A one-off levy of ?50 (≈$0.11) which is imposed on the account which receives a transfer of ?10,000 (≈$21.64) or above will now be shared between the various tiers of government at the rate of- Federal Government (15%), State Governments (35%).

7. Transfer pricing: Transfer pricing rules will now apply to Value Added Tax ("VAT") on transactions between connected persons that are deemed artificial or fictitious. This measure seeks to prevent the manipulation of prices and transfer of profits between related entities to minimize tax obligations. For a better understanding of transfer pricing rules, please see our article here.

8. Remittance of VAT: Persons or companies appointed by the Federal Inland Revenue Service ("FIRS") to withhold or collect tax must now remit the VAT to the FIRS on or before the 14th day of the following month. This provision enhances the efficiency of VAT collection and helps ensure timely remittance to the tax authorities.

9. Goods purchased via digital platforms: Taxable goods purchased online from non-resident suppliers that have been appointed as agents of the FIRS will not be further subjected to VAT, where the importer provides proof of appointment and registration with the FIRS, before clearing by the Nigerian Customs Service. This change helps address the challenges of taxing digital transactions and ensures that VAT is properly collected.

10. Permanently fixed structures: The definition of a building for VAT purposes has been redefined to exclude any structure not permanently affixed to land for all or most of its useful life. Radio and television masts, transmission lines, towers, and vehicles have been excluded. This clarification prevents the unwarranted application of VAT to temporary structures or assets that do not meet the specified criteria.

11. Increase of Tertiary Education Tax ("EDT"): The EDT rate has been increased from 2.5% to 3% of assessable profits. This change aims to generate additional funding for the country's tertiary education institutions and support the development of the education sector.

12. Penalties under the Petroleum Profit Tax ("PPT"): Companies that do not comply with the provisions of the PPT Act will now face an increased penalty. In the absence of any specific penalty, such companies will be required to pay a penalty of N10,000,000 (≈$21,645) and an additional N2,000,000 (≈$4,329) for each day the non-compliance continues. Furthermore, a company (or persons) found guilty of an offence under the PPT Act, will be subject to a fine of N20,000,000 (≈$43,290) and/or a prison term of six months. In cases where the company has submitted inaccurate account statements or information that impacts its tax liability, it will be liable to pay a fine of N15,000,000 (≈ $32,467) and 1% of the amount of tax that was undercharged.

13. Establishment of Governing and Administrative Bodies: The Finance Act 2023 provides for the establishment of a Governing Council, Executive Board, and Management Team for the Ministry of Finance Incorporated- a corporation sole established by the Ministry of Finance Incorporated Act. They and the Minister of Finance are responsible for the administration, strategic direction and day-to-day management of the Ministry of Finance Incorporated.

Conclusion

Overall, the Finance Act 2023 introduces significant amendments to Nigeria's tax landscape. It is therefore crucial for individuals, businesses, and professionals to familiarize themselves with the new provisions and seek appropriate guidance to comply with the updated tax regulations.

Footnote

1. Capital Gain Tax Act, Companies Income Tax Act, Customs and Excise Tariffs Etc. (Consolidated) Act, Personal Income Tax Act, Petroleum Profit Tax, Stamp Duties Act, Value Added Tax Act, Corrupt Practices and other related Offences Act, Tertiary Education Trust Fund (Establishment) Act, Public Procurement Act, and Ministry of Finance (Incorporated) Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.