Nigeria’s 2020 Finance Act became effective on January 1, 2021. We have set out below, 30 key tax policy, administration and legal changes introduced by the new law:
- Minimum Companies Income Tax (CIT), also known as Minimum Tax, will be 0.25% for the year of assessments that fall within 1st January 2020 and 31st December 2021.
- The Import Duty on tractors, motor vehicles for the transportation of more than ten persons, and motor vehicles for the transportation of goods has been reduced from 35% to 5%, 10% and 10% respectively. The Levy on cars is also reduced from 30% to 5%.
- The fares of Nigeria-registered commercial airlines are now Value Added Tax (VAT) exempt.
- Nigeria-registered commercial airlines can also now import their aircrafts, engines, spare parts and components Import Duty and VAT free.
- The hire or lease of tractors, ploughs and other agricultural equipment for agricultural purposes is now VAT-exempt.
- Small companies are now exempt from the payment of Tertiary Education Tax.
- Employees whose gross income equals the national minimum wage and below are exempt from Personal Income Tax (PIT). Significantly, what constitutes ‘gross income’ for PIT purposes now allows relevant statutory deductibles and exemptions to be deducted from income to arrive at ‘gross income’.
- Tax-exempt compensation for loss of office is set at N10million threshold. Excess amount shall attract Capital Gains Tax (CGT) at 10%. The obligation to deduct and remit the applicable CGT under the Pay as you earn (PAYE) Scheme is placed on employers.
- Companies can now claim capital allowances on the costs of software or applications development or acquisitions.
- Companies that enjoy the Gas Utilization Incentive under the Companies Income Tax Act (CITA) cannot enjoy the Pioneer Status Incentive under the Industrial Development (Income Tax Relief) Act or any other gas utilization incentive under the Petroleum Profit Tax Act.
- Interests payable on loans given to primary production agricultural companies are now CIT-exempt. To qualify, the loans must have a 12 months moratorium and the applicable interest rate should not be less than the base lending rate.
- The potential 8-years CIT-exemption granted to primary production agricultural companies under the Finance Act 2019 has now been removed. A potential 6-years Pioneer Status Incentive has now been provided for small and medium sized primary production agricultural companies.
- Corporate donations to any fund set up by Federal or States Governments to support the fight against pandemics, natural disasters or other exigencies are now deductible for CIT purposes. The deductible donation is however capped at 10% of the company’s assessable profit after the deduction of other allowable donations.
- There is now an Electronic Money Transfer (EMT) Levy of N50 on the transfers of N10,000 or above with any financial institution. The rule that exempted transfers between accounts of same owner in same bank from stamp duty has been deleted. The proceeds of the EMT Levy will be shared on the basis of derivation: 15% to the Federal Government and Federal Capital Territory; and 85% to the State Government.
- Telecommunication services will suffer Excise Duty as the President of Nigeria may order.
- Businesses or enterprises in the Nigeria Export Processing Zones and Oil & Gas Export Zones (both known as Free Trade Zones) now have an obligation to file their CIT Returns with the FIRS, failing which penalties will apply.
- Similar to Nigerian companies, non-resident companies with significant economic presence in Nigeria are required to file their CIT Returns with FIRS.
- Non-resident companies and individuals who earn income on which withholding tax is the final tax are exempted from filing CIT and PIT Returns, respectively.
- The CIT Returns of non-resident companies is to comprise of the following, the company’s: (a) complete audited financial statements; (b) financial statement of its Nigerian operations attested by a qualified accountant in Nigeria; (c) computation of the tax on the profits from its operations in Nigeria; and (d) duly completed CIT self-assessment forms.
- Non-resident individuals who provide technical, management, consultancy or professional services to Nigeria residents will, subject to a Significant Economic Presence Order to be issued by the Minister of Finance, have the resulting income taxable in Nigeria.
- A non-resident company or person that supplies VAT-liable goods or services to Nigeria must, either by itself or through its appointed representative, register for VAT and obtain its Tax Identification Number from FIRS.
- Intangibles or incorporeal rights are now, for VAT purposes, classified as ‘services’ and no longer ‘goods’.
- Capital Gains Tax is now due and payable twice annually; on or before June 30 and December 31. Accordingly, all CGT liable transactions should go through the process of filed returns and the making of relevant payments on or before the said dates.
- FIRS may, in the case of small and medium companies, dispense with the requirement of audited financial statements accompanying their CIT Returns. FIRS may by notice, specify the form of information to be included in the CIT Returns.
- FIRS is now empowered to assist any foreign government or other organisation with which Nigeria has an agreement to collect their revenue claims. FIRS may also enlist the assistance of any such foreign government or other organisation for FIRS’ own revenue collection purpose.
- FIRS is empowered to deploy proprietary technologies for the automation of tax administration (assessment, returns filing and payment), including for the collection of taxes from online international supply of services to Nigeria.
- All corporate organisations are required to maintain books or records of accounts with sufficient information on their transactions. Failure to submit these records to the FIRS upon request will attract a CITA penalty of N100,000 in the first month and N50,000 in subsequent months of default.
- Business that are taxable under the Personal Income Tax Act (PITA) will now be subject to the anti-double tax commencement and cessation rules that apply to companies that are taxable under CITA.
- Tax Appeal Tribunals can now hear and determine tax disputes on virtual platforms.
- The importance of the confidentiality of taxpayer information and the express applicability of data privacy and protection laws to them is underscored by the increase (from N200,000 to N1million) in the fine for the breach of the confidentiality of taxpayer information.
For further enquiries on any of the foregoing, please contact any of: Emenike Ugwuanyi (e.ugwuanyi@localhost); Oyeyemi Oke (o.oke@localhost); or Bidemi Olumide (b.olumide@localhost); or call us on +234 700 TAXAIDE; +234 1 631 0971-2; +234 810 701 7274.
