The immediate past president, Muhammadu Buhari signed Finance Act, 2023 (the Act) into law on 28 May 2023, which took effect from 1 May 2023. It is noteworthy that Nigerians have become acquainted with having annual Finance Acts. It is now customary to have an accompanying Finance Act which gives fiscal support to the Appropriation Act, whenever the Appropriation Act is passed. This particularly gives direction to government on how to raise revenue and for fiscal consolidation.
This article focuses on the amendments earlier proposed by Finance Bill, 2022 (the Bill) that have now transitioned into the Act, other amendments newly introduced by the Act and their collective implications to businesses and individuals in Nigeria.
Summary of the Key Changes
In addition to the annual Appropriation Bill 2023, the 9th National Assembly, on 28 December 2022 also passed the Finance Bill 2022 (the Bill) which has effective date of 1 January 2023. The Bill proposed the introduction of quite a number of changes to the provisions of Capital Gains Tax Act, Companies Income Tax Act, Tertiary Education Tax Act, Value Added Tax Act, Personal Income Tax Act and other relevant legislations.
More importantly, there are additional amendments newly introduced in the Act. Some of these amendments have been summarized below:
- Inclusion of "Digital Assets" as Chargeable
Assets for Capital Gains Tax (CGT) Purposes
The term "Digital Asset" was explicitly included in the definition of chargeable assets for capital gains tax purposes. Digital assets include non-fungible tokens (NFTs), cryptocurrencies and other tokenized assets. This means capital gains derived from the disposal of digital assets will be subject to CGT at the rate of 10%.
- Deduction of Capital Losses for CGT
Before the amendment, capital losses from disposal of chargeable assets were not deductible for the purpose of determining the amount to be subjected to CGT. The Bill amended Section 5 of the CGT Act which now allows as a deduction, capital losses from capital gains, before determining the net proceeds liable to CGT, on the condition that the losses and gains are from disposal of the same class of assets. In addition, any unutilized loss will be carried forward for a maximum period of five (5) years, after which the said losses will be forfeited.
- Increase in Tertiary Education Tax (TET)
Rate
The TET payable by Nigerian companies, other than companies with turnover less than ₦25 million turnover, has been increased from 2.5% to 3% of Assessable Profits. More importantly, this new rate will be applicable to tax returns prepared based on the accounting year ending after 1 July 2023, in line with the Information Circular from the Federal Inland Revenue Service (FIRS), made public on 9 June 2023. This is consistent with the Federal High Court Ruling in the case of Accugas Limited vs FIRS, where the Court held that provisions of the Finance Act should not apply to periods, transactions, activities and income prior to its assent.
- Removal of Investment Allowance Claim
Section 32 of the Companies Income Tax Act allowed taxpayers to take benefit of additional 10% of cost of acquisition in the form of Investment Allowance, in addition to the Capital Allowance on the original cost of plant and equipment at the year of acquisition. However, companies will no longer enjoy Investment Allowance on any investment made on plant and equipment. Meanwhile, taxpayers can still claim Investment Allowance on assets purchased before the commencement date of the Act. In addition, companies that are yet to fully utilize their Investment Allowance from prior years will continue to carry it forward until such is fully utilized.
- Expansion of Scope of Services Liable to Excise
Duties
The scope of services liable to excise duty has been broadened to include telecommunications services provided in Nigeria at rates that may be specified through a Presidential Order. Further, a levy of 0.5% has been introduced in addition to Customs and Export Duties on all eligible goods, imported into Nigeria from outside Africa. The implication of increased importation cost as a result of this amendment is yet to be known as it may make Nigeria less competitive compared to other countries. In our view more creative alternatives should have been explored to take care of the capital contribution to international and multilateral organizations.
- Appointment of Value Added Tax (VAT) Collection
Agents
The FIRS is now empowered to appoint any person to collect VAT on its behalf as it already applies to operators of the Oil and Gas sector as well as Ministries, Departments and Agencies (MDAs) of government. These agents usually withhold VAT from payments made to suppliers and subsequently remit same to the FIRS. In addition, taxpayers that withhold VAT are now required to file and remit such withheld VAT on or before 14th of the following month of the transaction. This is to enable the eligible suppliers deduct the withheld VAT from their output VAT when filing monthly VAT returns (on or before 21st day of the month following the month of the transaction).
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