26 August 2021

The Finance Act 2020-The Nigerian Guide On Major Changes To The Nigerian Tax Regime

S.P.A. Ajibade & Co.


S. P. A. Ajibade & Co. is a leading corporate and commercial law firm established in 1967. The firm provides cutting-edge services to both its local and multinational clients in the areas of Dispute Resolution, Corporate Finance & Capital Markets, Real Estate & Succession, Energy & Natural Resources, Intellectual Property, and Telecommunications.
On 31st December 2020, President Muhammadu Buhari signed the 2021 Appropriation Bill and the 2020 Finance Bill into law.
Nigeria Tax
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On 31st December 2020, President Muhammadu Buhari signed the 2021 Appropriation Bill and the 2020 Finance Bill into law.2 The Finance Act 2020 took effect from 1st January 2021.

The Finance Act 2020 amends some important provisions of a few federal tax laws such as the Companies Income Tax Act (CITA), the Personal Income Tax Act (PITA), the Value-Added Tax VAT) Act, the Capital-Gains Tax Act (CGTA), Industrial Development (Income Tax Relief) Act, Customs and Excise Tariff (Consolidation) Act, Tertiary Education Trust Fund Act, Federal Inland Revenue Service (Establishment) Act, Fiscal Responsibility Act, Public Procurement Act, the Companies and Allied Matters Act, Nigerian Export Processing Zone Act and Oil and the Gas Export Processing Free Zone Act.

One of the policy objectives of the Finance Act 2020 is to introduce counter-cyclical fiscal measures and policies aimed at counteracting the unpredictable impact of economic cycles. An example of such measures includes the increase of expenditure or cutting of taxes to help stimulate economic recovery during a recession.3 Other policy objectives include the funding of COVID-19 responses and financial efficiencies on the part of Government Ministries, Departments and Agencies (MDAs) as well as the leveraging of modern digital technologies to achieve fiscal and economic efficiency.

This guide considers the major changes introduced by the Finance Act 2020 to the tax regime in Nigeria, and their likely implications.

Personal Income Tax (PIT)

  1. Previously, only individuals who earned a meagre N2,500.00 (two thousand, five hundred Naira) were exempted from Pay-As-You-Earn (PAYE) deductions under the Personal Income Tax Act. By the provisions of the Finance Act 2020,4 persons earning the national minimum wage of N30,000.00 (thirty thousand Naira) or lesser monthly are now exempted from personal income tax and are therefore not liable to any PAYE deductions.
  2. For an individual earner, "gross income" for the purpose of enjoying tax relief has been redefined as income from all sources less non-taxable income, items exempted from tax and income on which no further tax is payable. For an enterprise (Business Names), gross income equals income from all sources less all allowable business expenses and capital allowance.5

Capital-Gains Tax (CGT)

  1. Under the Finance Act 2020, compensation received for loss of office/job not exceeding N10,000,000.00 (ten million Naira) is exempt from Capital Gains Tax (CGT). Where an individual obtains compensation in excess of N10,000,000.00 (ten million Naira), the CGT due is required to be deducted and remitted to the State Internal Revenue Service (SIRS) in line with the time frame stipulated in the Pay As You Earn (PAYE) Regulations.6
  2. Filing of self-assessment returns and payment of CGT on disposal of chargeable assets must be made not later than 30th June and 31st December of the year of disposal.7

Companies Income Tax (CIT)

  1. By Section 13 of the Finance Act 2020, the minimum tax rate payable by companies in respect of tax returns falling due and filed between 1st January 2020 and 31st December 2021 is now 0.25% (formerly 0.5%) of gross turnover less franked investment income (FII).8
  2. Donations made in cash or kind to any fund established by the government regarding any pandemic or natural disaster not exceeding 10% of the assessable profits of the company in the year of assessment are tax deductible expenses in the calculation of the company's profits.9
  3. Notices of Assessment and Objections to assessment to CIT may now be done via courier service, email, or other electronic means as may be stipulated by the FIRS from time to time.10
  4. The definition of "public character" in context of entities enjoying tax exemption under Section 105 of the Companies Income Tax Act has been included. To enjoy tax exemption as an entity of a public character, such organization must be registered in line with extant Nigerian laws and must not distribute or share its profits in any manner to its members.11
  5. Where a company deliberately and dishonestly files a return, which fails to declare the correct amount of profit or tax payable, it becomes immediately liable to pay any outstanding tax identified and assessed. Additionally, the outstanding tax shall be subject to penalty and interest.12
  6. Except where the only tax chargeable on their profit is withholding tax, foreign companies deriving profits from Nigeria are bound to duly file tax returns in Nigeria for each year of assessment.13
  7. Every company in Nigeria (including companies exempted from incorporation and tax deduction) is required to maintain books or records of accounts, detailing all transactions carried out by the company for at least six years. Such records should be maintained in the English language and be consistent with the format approved by the FIRS.14

Companies Operating in Free Trade Zones

Companies operating under the Export Processing Zones Act and the Oil and Gas Export Free Zone are to note that qualification for tax exemption does not obviate their obligations to duly file tax returns. Exemption from taxes is subject to compliance with their respective tax filing obligations.15

Value-Added Tax (VAT)

  1. Commercial airline tickets are now exempt from VAT.16
  2. The hire, rent or lease of agricultural equipment or machinery for agricultural purposes is also exempt from VAT.17
  3. A non-resident person (NRP) that makes a taxable supply18 to Nigeria is required to register for tax at the FIRS by obtaining a Tax Identification Number (TIN) and including VAT on its invoice for all taxable goods and services.19 The NRP may appoint an agent in Nigeria for the purpose of its tax obligations in this regard.

Duration of Pioneer Status

A small or medium company engaged in primary agricultural production20 may upon application to the President, be granted an initial tax-free period of four (4) years, extendable for an additional maximum period of two (2) years. This extension is subject to the satisfactory performance of such primary agricultural production.21 Thus, the duration of pioneer status is now a total of six (6) years as against the previous regime of five (5) years.

Replacement of Stamp Duty on Electronic Transactions

  1. The Finance Act 2020 has introduced an electronic money transfer levy of N50 on electronic money transfers of up to N10,000.00 (ten thousand Naira) or more deposited in any account in a bank or financial institution. This replaces the N00 (fifty Naira) Stamp Duty previously charged on electronic bank transfers.
  2. Revenue accruing from the electronic money levy shall on the basis of derivation, be distributed according to a fixed formula in which 15% accrues to the Federal Government and the Federal Capital Territory (FCT) and 85% accrues to the State Governments. This formula supersedes any other formula that may be prescribed by any other law.

Import and Excise Duty

  1. A clear utilitarian introduction is the reduction of import duty on tractors from 35% to 5%; trucks generally and mass transit vehicles conveying more than 10 persons from 35% to 10%; and cars from 30% to 5%.
  2. Commercial airlines in Nigeria are now entitled to duty-free importation of their aircraft, engines, spare parts and components, whether purchased or leased.

Introduction of Unclaimed Funds Trust Fund

The Finance Act 2020 establishes an Unclaimed Funds Trust Fund (UFTF) as a sub-fund of the Crisis Intervention Fund of N500,000,000,000 (five hundred billion Naira). The UFTF will be comprised of:

  1. Unclaimed Dividends of companies listed on the floor of the Nigerian Stock Exchange (NSE), and
  2. Unutilised monies contained in a dormant bank account for a period of six (6) years or more.

These monies will be treated as special debts owed by the Federal Government to be managed by the Debt Management Office and will be available to the shareholder or account holder at any time in which a claim is properly made, in addition to the interest accruing thereon.22


  1. The Tax Appeal Tribunal (TAT) may conduct its proceedings virtually, using relevant technology necessary and sufficient to guarantee fair hearing.
  2. Supply of Goods and Services has been defined for tax purposes. For goods, it has been defined to exclude land and buildings, money, or securities, but include:
  • Where the beneficial owner of the right in or over goods is a taxable person in Nigeria; or
  • The goods or right is localised, registered or exercisable in Nigeria.

For services, it has been defined to include:

  • Services rendered to and/or utilised by a person in Nigeria, whether rendered from within or outside Nigeria, excluding employment; and
  • Exploitation of a right, acquisition of or assignment of rights by a person in Nigeria and incorporeal connected with a tangible or immovable asset located in Nigeria.
  1. Over the years, there have been agitations about the possibility of getting tax refunds from the tax authorities in Nigeria. Despite the various statutory provisions23 guaranteeing the right of taxpayers to refund of excess tax, implementation of these provisions has been very slow-paced. Section 23 of the Federal Inland Revenue Services Establishment Act, which provides for the Accountant-General's responsibility of opening a single dedicated account into which monies for settling the refunds shall be paid, has now been amended by the Finance Act,24 to reflect the Accountant-General's renewed responsibility to open separate accounts dedicated to each type of tax. Additionally, these separate dedicated accounts will be funded from the respective government accounts into which revenue of each tax-type is remitted. All dedicated accounts shall be administered by the FIRS. It is hoped that with the new categorization of refund accounts by tax-type, tax refunds will be granted to deserving taxpayers in a more expeditious manner.
  2. The Federal Inland Revenue Service (FIRS) is now tasked with the additional function of aiding in the collection of revenue claims and any other administrative assistance required in tax matters involving agreements between the Nigerian Government and the Government of any other country.25


The amendment of the Finance Act twice within the past two years is a novel and very commendable development. Since taxation is a key driver of the economy, tax legislations ought to be annual or periodic reflections of the focus of the government in view of constantly changing variables in the fiscal and monetary systems. While the changes brought about by the Finance Act are quite laudable, they are not a catch-all solution to the country's economic woes, given the fiscal constraints the Nigerian economy is currently facing. There is still room for improvement, and it is hoped that more amendments are made in the near future.


1 Olukolade Ehinmosan and Miracle Eme, Associates, SPA Ajibade & Co, Lagos, Nigeria.

2 Olalekan Adetayo,"President Buhari signs Appropriation Bill into law", The Punch (Lagos: 31st December 2020), available at, accessed 12th August 2021.

3 See, Taiwo Oyedele, West African Tax Leader and Fiscal Policy Partner, PricewaterhouseCoopers - Channels TV Interview (Sunrise) of 9th January 2021, available at, accessed 14th January 2021. See also, Eurostat Statistics Explained definition of Counter-Cyclical Fiscal Measures at,to%20help%20stimulate%20economic%20recovery, accessed 14th January 2021.

4 See, Sections 30 and 33, Finance Act 2020, FGN Official Gazette No.4, Vol.108, Govt. Notice 1.

5 Section 29, Finance Act 2020.

6 Section 4, Finance Act 2020.

7 Section 2, Finance Act 2020.

8 Section 80(3) of the Companies Income Tax Act defines FII as "Dividend received after deduction of tax prescribed in this section (Withholding Tax [WHT] of 10%) shall be regarded as franked investment income of the company receiving the dividend (details on WHT supplied by authors).

9 Section 11, Finance Act 2020.

10 Section 19, Finance Act 2020.

11 Section 21, Finance Act 2020.

12 Section 15, Finance Act 2020.

13 Section 16, Finance Act 2020.

14 Section 17, Finance Act 2020.

15 Sections 58 and 59, Finance Act 2020

16 Section 45, Finance Act 2020.

17 Ibid.

18 See item 2 under the Miscellaneous Column below.

19 Section 43, Finance Act 2020.

20 Primary Production encompasses agricultural activities resulting in the production of raw food materials. Such activities include fishery, forestry, etc. See, Commission for Environmental Cooperation (CEC), "Primary Production", available at,resulting%20in%20raw%20food%20materials.&text=Examples%20of%20primary%20production%20activities,rearing%20and%20other%20production%20methods, accessed on 8th February 2021.

21 Section 23, Finance Act 2020.

22 See, Uche Matthew, "Finance Act 2020: What You Need To Know About The Unclaimed Funds Trust Fund", available at, accessed 12th August 2021.

23 Section 23, Federal Inland Revenue Services Establishment Act; Sections 49(1) and 50(1) of Petroleum Profit Tax Act; Section 90 of Companies Income Tax Act; and Section 16(1) (b) of Value Added Tax Act.

24 Section 50, Finance Act 2020.

25 Section 8(1), Finance Act 2020.

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.

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