On December 31, 2020, President Muhammadu Buhari assented to the Finance Act 2020 ("the Act"). The Act introduces sweeping changes to virtually all the major legislations governing taxation in Nigeria. These legislations include: Capital Gains Tax Act, Companies Income Tax Act, Industrial Development (Income Tax Relief Act), Personal Income Tax Act, Tertiary Education Trust Fund Act, Customs & Excise Tariff (Consolidation) Act, Value Added Tax Act and Federal Inland Revenue Service (Establishment) Act. Some of these changes may be aptly described as a legislative response to new realities brought about by the covid - 19 pandemic and technological advancements. In this piece, it is shown that the Finance Act, 2020 has practically changed the tax landscape in Nigeria.

The Act improves on the tax innovations introduced by the Finance Act, 2019 and further resolve a few controversies therein by further amending certain provisions which will be discussed below. This Newsletter attempts to highlight some of the salient provisions of the Act that shape the tax regime in the country.

Expansion of List of Excisable Items And Services under the Customs & Excise Duties

Before now, excisable items were limited to beer, manufactured spirit, methylated spirit, tobacco and hydrocarbon. Under the new Act, the expanded list of excise items now includes- telecommunication services in which telecoms service providers has a tax obligation to remit as may be prescribed by law.

Reduction on Tariffs and Custom duties Payable on Imported Vehicle

The provision of the Custom & Excise Management Act is amended to drastically reduce the high rate of the custom duties for importation of vehicle which was originally 35%. The Act has reduced the custom duties payable on tractors, passengers vehicle and trucks as follows:

  • Tractor is reduced from 35% to 5%
  • Mass transit vehicle from 35% to 5%
  • Truck from 35% to 10%
  • Cars from 35% to 5%

Introduction of a Levy on Electronic Money Transfers

The Actintroduces the Electronic Money Transfer Levyto be imposed on electronic receipts or transfer of money deposited in any deposit money bank or financial institution. This levy is a one-off charge of N50 on electronic receipts or transfers of money in the sum of N10,000 or more. This is paradigm shift from the Finance Act 2019 which exclusively empowered the State Government to collect stamp duties on money transfer involving individuals; and Federal Government to collect stamp duties on money transfer between individuals and corporations/companies. All revenue accrued from this levy now goes into federation account and to be shared amongst the federating states. The derivation formula of the revenue accruing from this levy is as follows:

  • 15%  to the Federal Government and the Federal Capital Territory, Abuja: and
  • 85%  to the State Governments.

Exemption of Persons Earning the Minimum Wage Or Less from the Payment of Personal Income Tax

Under the Act, the "minimum tax" will not apply to any person in any year of assessment where such person earns the National Minimum Wage or less from employment. Thus, exempting low-income earners for the payment of Personal Income Tax.

Exemption of Certain Services from the Payment of Value-Added Tax

To cushion the effect of the current situation of the economy on certain essential sectors, the Act now exempts certain services from the Payment of Value Added Tax. Essentially theAct amends the Value-Added Tax Act  by amending its schedule to include additional items exempt from VAT Payments. These items include: Airline transportation tickets issued and sold by commercial airlines registered in Nigeria, hire, rental or lease of tractors, ploughs and other agricultural equipment for agricultural purposes.

Expansion of the Scope of Significant Economic Presence

The Finance Act, 2019 introduced the concept of "Significant Economic Presence" (SEP) to the Companies Income Tax. The Finance Act, 2020 now expands the tax liabilities of those with significant presence in Nigeria by providing that personal income tax is to be paid based on gains or profits of any trade or business involving the provision of technical, management, consultancy or professional servicesby a non-resident individual, executor and trustee to a person resident in Nigeria where the former has"significant economic presence in Nigeria."

Withholding tax applicable to income under the Personal Income Tax shall serve as the final tax on the income of a non-resident recipient at the rate of 10%.

The Minister of Finance is also vested with the power by Order to determine what constitutes "the significant economic presence of a non-resident individual, executor or trustee".

The Crisis Intervention Funds And The Unclaimed Funds Trust Fund

The Act establishes a Crisis Intervention Funds ("the CIF") and the Unclaimed Funds Trust Fund ("the Trust Fund"). The CIF may be utilised to meet the expenditure as provided in the Annual Appropriation Act to meet crisis-related expenditure or other such exigencies that may arise under the Fiscal Responsibility Act or any other statute. The Act identifies the Trust Fund such as unclaimed dividends, credits balances in dormant accounts not operated for a period of six years as source of revenue to fund the CIF. The Act allows verified owners of the unclaimed dividends, dormant accounts to seek repayment.

Virtual Hearings by the Tax Appeal Tribunal

To reflect the current realities of the global pandemic, and in the exploration of the technological advancements of the world today, the Act now permits the Tax Appeal Tribunal to conduct its hearing remotely via virtual means, using such technology or application as may be necessary to ensure fair hearing.

Allowance of Deduction of Covid-19 Donations

In addition to the amendment of the extant tax statutes in Nigeria, the new Act also amended certain non - tax legislations such as the Companies and Allied Matters Act. One of such amendments provides that donations made by in cash or kind by companies to any fund set up by the Federal Government, any State Government, or any agency designated by the Federal Government or to any similar fund or purpose in consultation with any Ministry, Department or Agency of the Federal Government, in respect of any pandemic, natural disaster or other exigency shall be allowed as deductions. However, such deduction is limited to 10% of assessable profits following the deduction of other allowable donations.

Introduction of New Modes of Service of Notice of Assessment and Objections

Sections 18 and 19 of the Finance Act 2020provide that Notices of Assessment and taxes may now be transmitted to persons subject to tax either electronically or by courier. To this end, an email containing objection to a tax assessment is recognized. This is an innovation that time and resource saving and seamless effort for the enforcement of taxpayer's right to fair hearing when the need arises.

Requirements for Companies Operating in Free Trade Zones

Presently under the Act, the exemption from taxes of companies that operate within the free trade zones is subject to their compliance with the obligations of tax filing and returns stipulated under the Companies Income Tax Act.

Reduction of Minimum Tax for 2020

The Act now reduces the minimum tax for companies with regard to return for years of assessment that fall due on any date between 1st January 2020  and 31st December 2021, from 0.5%  to 0.25%.

Exemption of Small Companies from Education Tax

The Act also amends the Tertiary Education Trust Fund (Establishment, etc.) Act  by providing that Small companies will now be exempted from the payment of 2% Education Tax.


We believe that the passing of the Finance Act 2020 is a welcome development for the Nigerian tax system creating enabling environment for the private and public sector engagement. The Finance Act would stimulate economic activities and bolster investor confidence, provide the long overdue clarity on hitherto controversial tax issues and create an opportunity for raising the much-needed tax revenue for infrastructural development in a more efficient and equitable manner that encourages economic growth and development. Tax authorities, individuals and corporate organizations may however require updating and/or upgrading their technologies and processes in the course of tax planning to ensure tax compliance.

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.