On 31 December, 2021, President Muhammadu Buhari signed the Finance Bill, 2021 (now the Finance Act, 2021) into law. The principal aim of the Finance Act, 2021 ("the FA") is to support the implementation of the 2022 Federal Government Budget in view of the continuing negative impact of the COVID-19 pandemic on the economy and the current recession.
The FA which took effect from 1st January, 2022, amended some key provisions of 13 (Thirteen) statutes such as: the Capital Gains Tax Act, Companies Income Tax Act, Federal Inland Revenue (Establishment) Act, Personal Income Tax Act, Stamp Duties Act, Tertiary Education Trust Fund (Establishment) Act, Customs, Excise, Tariffs etc. (Consolidation) Act, Value Added Tax Act, Insurance Act, Nigerian Police Trust Fund (Establishment) Act, National Agency for Science and Engineering Infrastructure Act, Finance Control and Management Act and Fiscal Responsibility Act.
A) CAPITAL GAINS TAX ACT ("CGTA")
- CGT at the rate of 10% is now payable on gains accruing from
the disposal of shares in any Nigerian company.
- CGT will be applicable to the disposal of shares in any Nigerian company except where the proceeds are utilized to acquire shares in the same entity or other Nigerian companies within the same assessment year or the proceeds are less than N100 million in any 12 consecutive months. (Section 30(2) of CGTA).
B) COMPANIES INCOME TAX ACT ("CITA")
- The profits of companies engaged in educational activities are
no longer exempt from Companies Income Tax (CIT) (Section
23(1)(c) of CITA).
- The profits of companies from the exports of goods produced in
upstream, midstream and down stream petroleum operations are liable
to pay tax. (Section 23(1)(q) of
CITA).
- Foreign companies engaged in provision of digital services in
Nigeria (e-commerce, online adverts, payments, applications etc.)
may be taxed on a turnover basis. (Section 30 (1)(b)(ii)(a)
of CITA).
- Capital allowances incurred on qualifying capital expenditure
in generating tax-exempt income is not deductible from the
accessible profits. (Section 31(1a)-(1b) of
CITA).
- Capital allowance on qualifying capital expenditure incurred by
small companies are deemed utilized during the periods such
companies are tax exempt. (Section 31(1c) of
CITA).
- The minimum tax has been reduced from 0.5% to 0.25% for tax
returns prepared and filed between 1st January, 2019 to 31st
December, 2021. (Section 39(1)(a) of
CITA).
This clarifies the ambiquity posed by the Finance Act, 2020, which failed to provide clarity on whether companies that have computed their minimum tax for the 2020 year of assessment using the 0.5% could recompute and file their rates based on the reduced rate.
- Companies engaged in gas utilization business in the downstream
operations in Nigeria is entitled to a tax free period once in a
lifetime.
Please note that such company shall not be entitled to similar incentive under CITA or other law. (Section 39(1)(a) of CITA)
- Any Company that filed its tax returns late between 1st
January, 2019 to 31st December, 2021, is liable to penalty.
(Section 55 of
CITA).
- Tax due may be payable in instalments provided that the final
instalment is paid on before the due date of payment
(Section 77 of CITA).
- Witholding tax deducted from payment to a Unit Trust shall be
the final tax on such income (Section 78(4) of CITA).
- A new definition has been introduced for Real Estate Investment Companies ("REICs").
C) TERTIARY EDUCATION TRUST FUND ACT(TETFA)
- The tax rate for tertiary education has been reviewed upwards
from 2% of accessible profits to 2.5% of accessible profits
(Section 1 of TETFA).
- The timeline for payment of Tertiary Education Tax ("TET") has been reduced from 60 days to 30 days (Section 2 of TETFA).
D) NATIONAL AGENCY FOR SCIENCE AND ENGINEERING INFRASTRUCTURE (NASENI) ACT
Companies engaged in banking, mobile telecommunication, ICT, Aviation, maritime and oil and gas with a turn over of 100 million and above are liable to pay NASENI levy at 0.25% of their profits before tax (Section 20 of NASENI).
E) NIGERIA POLICE TRUST FUND (ESTABLISHMENT) ACT
A Nigerian Police Trust Fund levy of 0.05% of net profit is payable by companies operating business in Nigeria (Section 4 of the Nigeria Police Trust Find (Establishment) Act).
F) VALUE ADDED TAX ACT ("VATA")
- Non-resident companies suppliers of goods and services have the
statutory obligation to collect and remit tax
(Section 10 of
VATA).
- Exclusion of Upstream petroleum operations under the Petroleum Industry Act and Petroleum Profits Tax Act, from the ?25,000,000 threshold for remittance of VAT (Section 15 of VATA).
G) CUSTOM, EXCISE TARIFFS, ETC (CONSOLIDATION) ACT ("CETA")
Excise duties on non-alcoholic, carbonated and sweetened beverages are charged at a flat rate of N10 per litre (Section 21 of CETA).
H) PERSONAL INCOME TAX("PIT")
Contracts for deferred annuity are excluded as deductible reliefs when computing individual's personal income tax (Section 23 of PIT)
I) FEDERAL INLAND REVENUE SERVICE (ESTABLISHMENT) ACT ("FIRSEA")
- Banks are liable to a penalty of 1m for failure to prepare and
submit quarterly returns of new accounts or incorrect returns or
information provided (Section 28 of
FIRSEA).
- FIRS is empowered to request electronic access to
taxpayers' information. (Section 50 of
FIRSEA).
- Agencies of the Federal Government are statutorily required to report cases requiring tax investigation, enforcement or compliance (Section 68(5) of FIRSEA).
J) FISCAL RESPONSIBILITY ACT ("FRA")
Tiers of government are statutorily mandated to borrow for capital expenditure, human development and to undertake critical reforms of significant national impact. ("Section 41 of the FRA).
CONCLUSION
In conclusion, it is no gainsaying that the Finance Act, 2021, further demonstrates the government's resolve to raise revenue for the implementation of the 2022 Budget, eliminate ambiguity in tax laws and the ease of doing business in Nigeria.
However, beyond granting incentives to ease doing business and elimination of ambiguity in tax laws, there should be deliberate and sustained efforts by the government to address the challenges and impediments facing Companies which include the multiplicity of taxes and complex regulations.
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.