Finance Act 2022: What to Expect

Introduction:

The Fiscal Policy Reforms Committee (FPRC) while acting under the directive of the Minister of Finance has annually updated the Finance Act to respond to changing realities in the economy in order to actualize a major objective of the National Tax Policy, 2017, which is to cautiously create a flexible and dynamic fiscal atmosphere that perpetually accommodates changing economic circumstances without resulting in a volatile tax system that unsettles economic activities.

The journey to fluidify the Nigerian fiscal regime in order to strengthen economic activities and drive revenue for the Government while also catching up with global best practices started with the enactment of the Finance Act of 2019 which took effect in the 2020 financial year, and ever since a new Finance Act has been enacted yearly, each one taking effect in the following financial year. Currently in incubation is the Finance Act, 2022, which is speculated to take effect in the 2023 financial year.

Typically, the Finance Act may amend core tax enactments as well as non-tax-centric enactments that touch on the subject of taxation in one way or the other. Legislations that have been amended by the Finance Act in the past include the Companies Income Tax Act; Value Added Tax Act; Customs and Excise Tariff etc. (Consolidated)Act; Personal Income Tax Act; Petroleum Profits Tax Act; Capital Gains Tax Act; Stamp Duties Act; Nigeria Export Processing Zones Act; Oil and Gas Export Free Zones Act; Industrial Development (Income Tax Relief) Act; Tertiary Education Trust Fund (Establishment) Act; Federal Inland Revenue Service (Establishment) Act; Fiscal Responsibility Act; Public Procurement Act; and the Companies and Allied Matters Act.

Policy Focus Areas of the Finance Act, 2022 (FA22):

The FPRC in conjunction with the Ministry of Finance has indicated some focus policy areas for the FA22 and has categorized these policy areas into five groups. A priority focus area is healthcare investments. The FA22 would embody fiscal reforms that would drive and support domestic and international investments in healthcare systems and infrastructure in general and specifically for COVID and other priority diseases, as well as embody policies that would complement healthcare insurance. There is the likelihood that the government will retain taxes such as the Sugar Tax in order to tackle health challenges occasioned by the consumption of Sugar.

In addition, the FA22 would be designed to complement non-fiscal reforms to reduce Greenhouse Gas emissions and to facilitate domestic and international investment in climate adaptation and mitigation, as well as Green Growth economies and job creation.

A further and critical area of focus of the FA22 is to reform tax incentives to phase out the outdated pioneer and other tax incentives for the then-infant industries that have now matured, and to gradually transition from expensive and redundant tax incentives. In addition, the FA22 would through economic government reforms reduce tax expenditure and revenue foregone to support the fiscus.

Importantly, the FA22 would spur job creation and economic growth by complementing Ease of Doing Business and other reforms to support SMEs, Youth and women-owned businesses (FinTech, ICT, Entertainment, Fashion, Sports, Arts, etc). In addition, the FA22 would structure, approve, and deploy NYSC Diaspora Scheme to create jobs as well as facilitate inbound capital and IP investments in domestic SMEs by diaspora youth.

Finally, the FA22 would complement Ease of Doing Business and other reforms by enhancing tax administration and introducing targeted fiscal and non-fiscal reforms to amend, address, and cure defects in existing tax and non-tax legislations.

Nexus between the Finance Act, 2022 and The National Developmental Plan

The National Development Plan 2021 -2025 (NDP) is a medium-term blueprint designed to tackle developmental challenges subsisting in the economy such as fragile economic growth, insecurity, weak institutions, insufficient public service delivery, notable infrastructure deficits, climate change, and weak social indicators. Amongst others, the NDP specifically highlighted challenges posed to healthcare, the environment, and women’s integration in economic development, and set out strategies to ameliorate and eventually obliterate these challenges.

As indicated in the NDP, a major healthcare challenge being faced in Nigeria is inadequate healthcare financing with government spending below 5 percent of the total budget on healthcare. One of the ways in which the NDP seeks to optimize healthcare is to address human resource and infrastructure gaps, especially at the primary healthcare level which is responsible for more than 70% of the disease burden, in collaboration with the private sector. This line of action aligns with reforms expected to be introduced under the FA22 to spur investments in healthcare systems and Infrastructure.

In terms of climate change, the NDP emphasizes that the impact of climate change is global in scope and global solutions must be found, with due consideration to regional and national conditions. In Nigeria, climate change challenges have been seen through events such as increased flooding and erratic rainfall. The NDP seeks to address the risks inherent in climate change by achieving reliable net-zero carbon energy systems to power prosperous, inclusive economies. It is envisaged that the provisions of the FA22 would contain innovative policy reforms to reduce Greenhouse Gas emissions and facilitate investment in climate adaptation.

Regarding gender equity, Nigeria ranks low on the issue of gender parity and women-related socio-economic indicators. According to the NDP, there is a need to strengthen the legislative and policy framework by 2025 to promote deeper integration of women into economic and social development. Expectedly, the FA22 will contain fiscal policy reforms to support women-owned businesses.

Conclusion:

In previous years, the Finance Act has made strategic policy reforms that have remarkably promoted fiscal equity and brought local tax legislations to par with global best practices. For instance, the 2019 Finance Act introduced a wide range of reforms including removal of double taxation on companies during commencement and cessation of business, simplification of the calculation of minimum tax, introduction of the 30% EBITDA interest deductibility rule, creation of exemption from Companies Income Tax for small businesses, introduction of legislative backing for banks to charge stamp duty on electronic receipts, and introduction of favorable tax rules for securities lending transactions. Subsequent Finance Acts have followed suit and introduced equally transformative reforms. No less is expected of the 2022 Finance Act.

Please do not treat the foregoing as tax advice as it is only an expression of our Tax Information Service. All enquiries should please be directed to our TaxThursday Desk at resources@taxaide.com.ng; +234 700 TAXAIDE or any of our following personnel:

     Adeola Adefuye Associate a.adefuye@taxaide.com.ng  
           Oyeyemi Oke Partner o.oke@taxaide.com.ng  

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