The Federal Ministry of Finance, Budget and National Planning has released the draft version of the 2020 Finance Bill (the Bill) to the public for consultation. This affirms the Federal Government of Nigeria’s commitment to enact Finance Acts annually, alongside the passage of the budget into law (i.e. enactment of Appropriation Act). It also aligns with global best practice, especially as tax is a significant contributor to the Government’s revenue.
The 2021 Bill is set to amend the provisions of the Capital Gains Tax Act, Companies Income Tax Act (CITA), Industrial Development (Income Tax Relief) Act (IIDITRA), Personal Income Tax Act (PITA), Tertiary Education Trust Fund Act, Customs & Excise Tariff (Consolidation) Act, Value Added Tax Act (VATA), Federal Inland Revenue Service (Establishment) Act, the Fiscal Responsibility Act and the Public Procurement Act.
The draft Bill is still being discussed and stakeholders’ engagement ongoing. Therefore, some of the proposed changes may eventually not be passed into law, while new changes may be added. We will continue to monitor the development and provide updates in this regard.
Some of the major/key amendments are as follows:
1.Capital Gains Tax
Compensation for loss of office
Capital gain tax on compensation for loss of office would be limited to an amount in excess of the NGN10 million threshold.
2.Companies Income Tax
Incidental Income for international shipping/ air transport companies
COVID-19 incentives, (minimum tax and deductibility of donations.
Non-resident companies filing
Notice of assessment
“Agricultural trade or business” has been renamed as ‘Primary Agricultural Production’. The new definition clearly excludes processing and manufacturing of all forms of agricultural products.
The specialized approach of calculating income tax for international shipping/air transport companies, under Section 14 of CITA, would apply to shipping/transport/freight income. Non-freight income, leasing, containers and other incidental income will be taxed under Section 9 of CITA, as non-specialized.
Minimum tax rate reduced to 0.25% of gross turnover less franked investment income. This reduction, which is a COVID-19 incentive, applies to tax returns filed in respect of financial years ending between 1 January 2020 and 31 December 2021.
Tax deductibility of COVID-19 crisis intervention fund donations, as well as providing the framework for the deductibility of such donations in the future. Deductibility is restricted to 25% of assessable profit, and any unrelieved balance may be carried forward for up to a maximum of two years.
Companies that claim the gas utilisation incentive under CITA would not be entitled to similar incentives under the Petroleum Profits Tax Act or IDITRA.
Clarification of the components of the income tax returns of non-resident companies. The key component is an audited financial statement for Nigerian operations. This requirement does not apply to non-resident companies whose tax exposure in Nigeria is limited to withholding tax
Services of notice of assessment can be done electronically or by courier.
Qualifying expenditure has been redefined to include capital expenditure incurred on the development and acquisition of software.
3.Pioneer Status Incentive
Primary agricultural Production
Introducing “primary agricultural (i.e. crop, livestock, forestry and fisheries) production” as a pioneer industry. Companies involved in these activities are eligible to apply for pioneer status incentive.
4.Personal Income Tax
Significant economic pressure
Commencement and cessation rules
Gross Income definition
Introduction of Significant Economic Presence rules to the taxation of certain categories of non-resident individuals, executors or trustees. The Minister of Finance will issue rules to define SEP from a PITA perspective
Revised commencement and cessation tax rules to prevent double tax. This is to align with the prior amendment to CITA in this regard. Tax will be applied on the basis of the individual’s accounting year.
Introduction of a definition for gross income, which is the basis for calculating consolidated relief allowance. It is defined to mean income from all sources, excluding non-taxable income, tax-exempt income, income on which no further tax is payable, allowable business expenses and capital allowances.
5.Tertiary Education Tax
Exemption for small companies
Small companies are exempt from paying tertiary education tax
6.Customs and Excise
Non-applicability excise duty exemption
Services are now subject to excise duties
The exemption from excise duties on imported goods and goods manufactured locally would no longer apply
Services are now subject to excise duties based on the applicable rates in the Fifth schedule
7.Value Added Tax
Time of supply of goods or services
The 7.5% increase in VAT commenced 1 February 2020
Time of supply of goods or service is the later of date of supply or date of invoice. More specific rules to clarify how to determine the date of supply introduced in the Bill
The Bill clarifies that the commencement date of the 7.5% increase in VAT as 1 February 2020
Administration of tax laws
The Federal Inland Revenue Service (FIRS) is empowered to use technology to collect taxpayer information and ensure the confidentiality of information collected
FIRS is empowered to conduct hearings virtually
Establishment of a Trust Fund
Creation of an unclaimed dividends trust fund for public companies on any Stock Exchange in Nigeria. The aforementioned trust fund will warehouse all dividends that have not been claimed for at least three years from the date of declaration of the dividend. Where the dividends remains unclaimed for a period of twelve years after transfer to the trust fund, it will be transferred to the Federation Account as Federation Revenue.