REVIEW OF FINANCE ACT IN NIGERIA
President Muhammadu Buhari on Monday 13, January 2020 signed the Finance bill designed to create an enabling environment for business and investment by those in the private sector. This bill was earlier presented by the president at a joint session of the National Assembly on October 14 2019.
In a statement released by the president, this new Finance Act is to amend existing tax laws, namely Petroleum Profit Tax Act; Customs and Excise Tariff Act; Companies Income Tax Act; Value Added Tax Act, Capital Gains Act; and Stamp Duties Act, bring them in harmony with global best practices. The finance bills have five main objectives. These objectives are;
- Promoting fiscal equity by mitigating instances of regressive taxation.
- Reforming domestic tax laws to align with global best practices.
- Supporting micro, small and medium-sized businesses in line with the ease of doing business reforms.
- Introducing tax incentives for investments in infrastructure and capital markets.
- Raising revenues for the government by various fiscal measures, including the proposed increase in the rate of Value Added Tax from 5% to 7.5%.
The last objective of the new law, that is, raising revenue for the government is no surprise because Nigeria’s budget for the year 2020 is 10.59 trillion naira, with a huge deficiency of over 2 trillion naira. The government is thus, targeting about 2 trillion naira from the increased rate of the VAT.
Some of the amendments made by this bill to existing laws include the followings:
- Value Added Tax
The Act expands VAT coverage addressing critical issues like taxation of the digital economy, VAT thresholds and intangibles.
Section 4 of the Value Added Tax Act has been amended as the tax rate increased from 5% to 7.5%.
The Act introduces group reorganization relief. Value Added Tax exemption on group reorganizations, on some conditions that sale must be to a Nigerian company for the better organization of the trade or business; also the entities involved are part of a recognized group of companies a year before the transaction, and relevant assets are not disposed of earlier than a year after the concluded transaction.
The Act further amends sections 2, 10, 15, and 46 of the Value Added Tax Act. It states that services will be deemed provided in Nigeria and subject to tax if the recipient is in Nigeria, whether or not the services are rendered within or outside the country. A service will be deemed exported and not chargeable, where the recipient of the services is outside Nigeria.
By amending sections 8 and 35 of the Value Added Tax Act, it increases the penalty for late filing of returns to N50,000 for the first month and for subsequent months of default N25,000. The same fee applies for failure to register VAT, and failure to notify the Federal Inland Revenue Services of change in the company’s address or cessation of business.
- Companies Income Tax
The amended Act seeks to widen the triggers for domestic taxation of incomes earned by non-resident companies through dependent agents and online platforms. The Act amends Section 9 and 29 of the Companies Income Tax Act with the aim of promoting fiscal equity in ensuring that companies are not taxed twice on the same income stream.
This Act mandates the requirement that all companies are to produce their tax identification number before operating new or existing bank accounts in Nigeria.
Companies that make a turnover of less than N25, 000,000 (Twenty- Five Million Naira) in a year are totally exempted from paying company income tax according to Section 7 of the amended CITA. Companies earning between N25 Million and N100 Million in a year will now be liable to pay 20% of their profits as company income tax while companies that earn above N100 million yearly continue to pay 30% of their profit as tax. If these companies pay their taxes early (that is, 90 days before the due date or 3 months after an accounting year of the company) they can get a discount of 1% to 2%.
By amending Section 16 of the CITA, it allows insurance companies to carry their losses forward indefinitely, something they were allowed to do for only 4 years. This encourages investment in the sector, stimulating economic growth and potentially increasing revenue from the sector.
The Act further amends sections 10,13, 19,20, 23(1),24, 27(1), 40, 55, 77 and other sections of the Companies Income Tax Act.
- Capital Gain Tax Act
The Act amends sections 32 and 36 of the Capital Gain Tax Act by reviewing the exemption of tax gain granted to business entities arising from the acquisition of a share of a company merged, taken over, or absorbed.
- Petroleum Profit Tax Act
The amended Petroleum Profit Tax Act removes tax exemption on dividends paid from the profit of oil companies, therefore repealing section 60 of the Petroleum Profit Tax Act. It introduces a Withholding Tax of 10% of dividends of profits from oil companies in Nigeria.
- Stamp Duties
The Act amends section 2 and 89 of the Act by expanding the scope of stamp duties to cover electronic documents. The threshold for which stamp duty is charged on online transactions is no longer N1, 000 but N10, 000. There is a little bit of good news as bank transfers below N10, 000 are not subject to tax. It excludes payments and transfer made in a Regulated Securities Lending (RSL) from the payment of stamp duty by amending the Stamp Duties schedule.
- Customs & Excise TariffAct
This Act amends section 21 (Fifth Schedule) of the Customs, Excise Tariff Act by including goods imported into Nigeria as goods liable to excise duty.
- Personal Income Tax Act
It amends some sections of the Personal Income Tax Act to harmonize the provisions of the Act with that of the Federal Inland Revenue Service Establishment Act. From the Act, individuals are to produce their Tax Identification Numbers before operating new or existing banking accounts in Nigeria. It recognizes electronic mails as well as courier services as a valid means of transmitting objections against tax assessments to necessary tax authorities. The Act removes personal income tax reliefs enjoyed by individuals in respect of their children and dependent adults.
In all, although there are mixed reactions in Nigeria in respect of the amendments, which increase the VAT in Nigeria, the advantages of this new Act outweigh the disadvantages.
The revenues generated by the government through these amendments are expected to be used to boost the economy by improved government spending on infrastructures.
The amended CITA will also assist the small businesses to grow faster as any company with or less than N25,000,000 (about 70,000 USD) turnover in a year is completely exempted from the payment of company income tax.
By Tax Law Team at Resolution Law Firm