The Finance Bill, 2019 (the Bill) was presented together with the 2020 Appropriation Bill to the National Assembly by President Muhammadu Buhari and is being considered for passage into law. The Bill, amongst other things, seeks to promote fiscal equity, align local laws with global best practices, introduce tax incentives for investments in infrastructure and the capital market as well as support small businesses in line with the ongoing Ease of Doing Business reforms.
More importantly, the Bill is targeted at raising additional revenue for the Government through several fiscal measures including the proposed increase in the rate of Value Added Tax (VAT) from 5% to 7.5% and expanding the scope of companies' income tax.
In this article, we have highlighted some of the major reforms proposed in the Bill.
Companies Income Tax Act
- Identification of Companies
– Introduction of a requirement for all companies to provide their Tax Identification Numbers as a precondition to holding and maintaining a bank account in Nigeria.
- Cross-Border and Digital Transactions
Section 13 Foreign Companies
Expansion of the Section to:
– Accommodate the digital economy by including electronic commerce activities as well as transmission of electronic signals, storage etc. as activities that could create a taxable presence for a company (i.e. through a significant economic presence clause).
– Subject certain services which are completely rendered offshore to a Nigerian resident to Companies Income Tax by reason of significant economic presence.
– Empower the Minister of Finance to determine significant economic presence of foreign companies in Nigeria.
Section 16 Equalization of Insurance
Companies with Other Companies
– Deletion of the four-year limitation on carry forward of losses such that insurance companies can carry losses forward indefinitely.
– Deletion of the provisions that restrict allowable deductions for insurance companies on unexpired risks and other deductible gains and outgoings.
– Deletion of the provisions which require an insurance company to have no less than an amount equal to 20% of gross incomes as total profit for tax purposes in a year.
- Mitigation of Double Taxation Risks
Section 19 Excess Dividend Tax
Exemption of the following from the risk of double
– Dividends paid out of retained earnings previously subjected to PPT, PIT or CGT
– Franked Investment Income
– Dividends paid out of exempted profits e.g. pioneer profits
– Distributions made by a real estate investment company to its shareholders and dividend income received on behalf of those shareholders.
Section 29 Commencement and Cessation Rules
– Deletion of the current basis for computation of tax
within the commencement and cessation periods of a business.
– Replacement of current basis of computation with actual year basis.
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.