On 31st December 2021, President Muhammadu Buhari signed the Finance Bill, 2021 (now referred to as ''Finance Act, 2021'' or FA, 2021) into law. The FA, 2021 introduced some landmark provisions, and in most instances, consolidated, clarified, and modified some existing provisions of fourteen (14) different legislations. Again, the passage of the FA 2021 demonstrates the commitment of the Federal Government of Nigeria (FG) to annually align its fiscal laws with global best practices, and establish a fiscal framework to fund the annual budget.

This article focuses on some of the salient tax provisions in the FA, 2021 and their potential implications on businesses for indigenous and non-resident companies.

Key amendments and potential implications

1. Increase in Tertiary Education Tax (TET) Rate

Section 1(2) of the Tertiary Education Trust (TET) Fund Act has been amended to increase the TET rate payable on assessable profits by Nigerian companies (other than small companies) from 2% to 2.5%. In essence, companies with tax returns due effective 1 January 2022 will be required to compute and remit TET at 2.5% of assessable profits.

This amendment seems not to align with one of the implementation strategies of the National Tax Policy (NTP) which aims to reduce direct tax rates and shift towards indirect taxes, in order to minimize tax evasion, ease tax administration and ultimately encourage increased investment and job creation.

2. Introduction of Excise Duty (ED) on Beverages

The FA, 2021 amended Section 21 of the Customs, Excise Tariffs, Etc. (Consolidation) Act (CETA) by introducing ED of ₦10 per litre on non-alcoholic, carbonated and sweetened beverages. The amendment does not specify if the duty will apply ''ex-factory'' or on ''sales price'' as this would have varying implications on production and/or selling prices of these beverages. It may be necessary to provide further clarification in this regard, in order to encourage seamless implementation and ensure effective planning by affected producers.

The introduction of excise duty on such commodities is a popular practice in advanced economies as it aims to discourage increased consumption of such targeted commodities. It is unclear if such initiatives really lead to reduced consumption of the targeted products and thus minimize the adverse health issues that may be associated with their consumption.

3. FIRS to Assess Non-Resident Companies (NRC) to Tax on Turnover

Section 30 of the Companies Income Tax Act (CITA) has been amended to assess NRCs to income tax, where they provide digital services and /or derive income via digital and related means from Nigeria, in respect of e-commerce and related activities. These activities include online adverts, participative network platform and online payments etc., to the extent that the NRCs have significant economic presence (SEP) in Nigeria. Based on the FA, 2021, NRCs will be assessed and charged on such fair and reasonable percentage of their turnover attributable to their presence in Nigeria. The Minister of Finance, Budget and National Planning has set the rate of such income tax at 6%.

Notably, several non-resident taxpayers have adjudged this amendment as necessary and a welcome development, as it clarifies the basis for taxing NRCs in Nigeria. This amendment appears to be the FG's preferred substitute to the OECD's Two-Pillar solution that will ensure Multinational Enterprises (MNEs) pay a fair share of tax in jurisdictions where they derive income, without necessarily having a physical presence.

However, there may be practical difficulties with verifying the income attributable to the operations of an MNE in Nigeria, especially where the global financial statements of the MNE do not report turnover per jurisdiction. Consequently, there is need for further engagement with the MNEs to determine the nature of the documentation that will enable the FIRS verify the income derived from Nigeria.

Given that CITA provides an option for NRCs to prepare and file their income tax returns, based on actual profit, an NRC may need to evaluate whether it will be favourable to pay income tax (at 30%) on actual profit or on deemed basis (6% of turnover).

4. Capital Allowance of Small or Medium Companies to be Deemed as Utilized

Based on the amendment of Section 31(1c) of CITA, any capital allowance computed by a small or medium company (not enjoying pioneer status incentive), together with any unabsorbed allowances brought forward from prior years, shall be deemed to have been utilized by such company. This provision may have far reaching implications, given that these categories of companies are still in their growth phases and usually loss making. Therefore, deeming capital allowances of these companies as utilized would translate to higher CIT payable when they eventually become profitable companies. This is especially so where their unabsorbed capital allowance as small or medium companies would have been lost and cannot be utilized to reduce future profits

Further, medium-sized companies would not be able to compute and utilize deferred tax asset that would have resulted from unutilized/unabsorbed capital allowances. A reduction in deferred tax asset may also negatively impact their profitability as a business. Therefore, there is need for the FG to review this provision vis-a-vis the concessions introduced by the FA, 2019 and evaluate whether its intended growth objective for these companies would be realized.

5. Educational Institutions to be Liable to Income Tax

Section 23(1) of CITA exempts certain profits from income taxes. These included profits of educational institutions of public character. The new FA, 2021 amendment has now withdrawn this exemption, therefore, all educational institutions, including those of public character, will be required to pay income taxes.

Going forward, educational institutions will have to comply with the above by preparing and filing their income tax returns as and when due, in order to avoid penalty and interest. This also implies that educational institutions will also be liable to Minimum Tax and other anti-tax avoidance provisions as applicable under CITA.

6. Capital Gains Tax (CGT) on Disposal of Shares

Prior to FA, 2021, the proceeds from the disposal of shares were expressly exempted from CGT. However, the FA, 2021 has amended the CGT Act to now subject proceeds from disposal of shares in any Nigerian company, where the proceed is above ₦100 million in any 12 consecutive months, to CGT at 10%. It however exempts any portion of the proceeds that is reinvested in the shares of the same or other Nigerian companies within the same year of assessment. Although, companies with less than ₦100 million proceeds on disposal of shares are exempted from paying CGT, the Act imposes an obligation on companies to render appropriate returns to the Service on an annual basis.

Investors are therefore encouraged to ensure that their portfolios are properly managed to enjoy exemption from CGT on disposal of shares where applicable and also keep proper records to monitor proceeds from disposal of shares and the applicability of CGT.

7. Amendments to National Agency for Science and Engineering Infrastructure (NASENI) Act

The NASENI Act was enacted in 1992 to impose a levy of 0.25% on companies with turnover of ₦4 million and above. However, since its enactment little or no traction has been achieved in terms of compliance and enforcement. Although, on 24 January 2021, President Muhammadu Buhari, directed the FIRS to ensure compliance and enforcement of the Act, compliance was however still low and may largely be attributable to some controversies in the Act such as; the due date for payment of the levy and penalty for non-compliance.

Unfortunately, the amendments by the FA, 2021 still do not address these controversies, but clarified that the levy will be limited to companies operating in the banking, mobile telecommunications, ICT, aviation, maritime, oil and gas sectors, and will now apply at 0.25% of Profit Before Tax, on such companies with turnover of ₦100 million and above.

"The Government's effort at aligning the Nigerian tax laws with global best practices is quite remarkable. Clearly, it is a demonstration of government's commitment to establishing a fiscal framework that will enable it actualize its annual revenue targets and other budgetary goals."

In order to ensure improved compliance with the Act, further clarity will be required on the due date for payment of the levy and applicable penalty for non-compliance.

8. Amendments to Nigerian Police Trust Fund (NPTF) Act

The NPTF Act imposes a levy of 0.005% on "net profit" of companies 'operating business' in Nigeria. However, prior to the FA, 2021, the NPTF did not clarify the agency to collect the Levy and administer the Act. The FA, 2021 has now clarified that the FIRS will be the relevant authority to assess, collect, account for and enforce payment of the Levy, while CITA and Federal Inland Revenue Service (Establishment) Act (FIRSEA) shall apply to the administration, assessment, collection, accounting, returns and enforcement of the levy. Although, the FA, 2021 does not expressly clarify the due date for payment of the levy and penalty for non-compliance, the references to CITA and FIRSEA may imply that the due date for filing CIT under CITA and general penalty in the FIRSEA will apply in this regard.

9. VAT Obligation for NRCs

Section 10 of the Value Added Tax Act (VATA) has been amended to now require NRCs that make taxable supplies of goods or services to Nigeria, to register for VAT with the FIRS, and include the tax on their invoice.

The implication of this provision is that VAT may no longer be collected at the ports by the Nigerian Customs Service. In order to implement the collection of the VAT, Section 10(3) as amended by the FA, 2021 provides that 'the person to whom a supply is made in Nigeria (interpreted to mean the Nigerian customer) or such other person as may be appointed (interpreted to mean the non-resident supplier) by the Service (FIRS) shall withhold or collect the tax as the case may be, and remit same to the FIRS''.

However, Section 10(4) of the VAT, as amended by the FA, 2021 appears to contradict this requirement, as it states that "where the party appointed in 10(3) makes taxable supply to a taxable person in Nigeria, the taxable person shall not have the obligation to withhold taxes...". Therefore, there is need for more clarity on which party has the primary responsibility to account for the VAT.


The Government's effort at aligning the Nigerian tax laws with global best practices is quite remarkable. Clearly, it is a demonstration of government's commitment to establishing a fiscal framework that will enable it actualize its annual revenue targets and other budgetary goals. However, there is need for further review of some of the ambiguous and overreaching provisions in the FA, considering their potential implications on businesses. While the government needs to ramp up revenue in order to fulfil its budgetary targets, it should consider streamlining the multiplicity of taxes that companies have to pay, for ease of administration and general compliance.

Going forward, the FG should consider aligning its fiscal reforms with the World Bank's recommendations (i.e. trust in tax system, simplification of tax systems, adoption of technology and diversification of tax sources) on ways to boost tax revenue by low income economies. On the other hand, companies should ensure that they carefully review the various amendments, seek professional guidance as may be necessary in identifying the required tax compliance obligations for their businesses and ascertain the overall impact of the recent amendments on their strategic and business imperatives.

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.