There was need to build a fiscal framework that supports the national budget; improve internally generated revenue, block tax leakages, create new tax sources, and promote effective tax collection. The President Muhammadu Buhari-led administration and indeed Nigeria was in dire needed of a realizable economic instrument to help government generate more funds, especially non-oil revenue to deliver on its mandate to the people.
That drive birthed the Finance Bill 2019 that was later approved by the National Assembly and signed into law by the president. The law was meant to support the implementation of the federal budget. Since then, the Finance Act has been an annual legal framework for fiscal operation.
Beyond serving as a budget support instrument, the Act strengthens Nigeria’s domestic capital market, and ultimately ensure sustained and inclusive growth and development.
The Act has strategic objectives that recognise the crucial relationship between fiscal policy, the regulatory environment and the strong capital market we all seek to effect in Nigeria. From 2019 when the federal government (re)introduced the finance bill, the plan is to always ensure that the annual budget is always accompanied by finance bills to enable the realisation of revenue projections; this supports a stronger implementation process.
As rightly noted by KPMG in Nigeria, the Act reinforces the federal government’s commitment to making incremental changes to Nigeria’s fiscal framework, such that Nigeria has a fiscal framework that enables the achievement of the country’s economic growth and development imperatives.
The Finance Act is a piece of legislation that warehouses various laws for quick and focused amendments, in order to facilitate an effective and efficient operation of the national budget. The Finance Act model legislation was birthed during the military era and the last of it was the Finance (Miscellaneous Provisions) Act No.30 of 1999, passed by the government of General Abdulsalam Abubakar, to revise certain provisions of the Nigerian tax laws.
The rebirth of the Finance Act came as a provision of the revised national tax policy in 2017 which prescribes that “The Ministry of Finance shall work with the Legislature to ensure that the requisite changes to tax laws are enacted together with the Appropriation Act of the same year.” Consequently, President Muhammadu Buhari presented the Finance Bill 2019 along with the Appropriation Bill 2020 to the joint sitting of the National Assembly in October 2019, the bill was later signed into law by the president on the 13th of February 2020. It heralded a new dispensation that has remained in the fiscal landscape with the subsequent enactment of the 2020 and 2021 version.
The Finance Bill, 2021 (now Finance Act, 2021) was signed into law along with the 2022 Appropriation Bill, on the 31 December, 2021. The Act introduces significant changes to a 13 tax and regulatory laws in Nigeria in line with government thematic policy. The Act, amends key provisions of Capital Gains Tax Act, Companies Income Tax Act, Federal Inland Revenue (Establishment) Act, Personal Income Tax Act, Stamp
Duties Act, Tertiary Education Trust Fund (Establishment) Act, Customs, Excise, Tariffs etc. (Consolidation) Act, Value Added Tax Act, Insurance Act, Nigerian Police Trust Fund (Establishment) Act, National Agency for Science and Engineering Infrastructure Act, Finance Control and Management Act, and Fiscal Responsibility Act. Below are 20 synopsis of the Finance Act 2021 for easy understanding.
- Capital gains from disposal of shares and stocks in Nigerian companies, for aggregate proceed amounting to N100 million or more in any 12 consecutive months periods, is now subject to CGT at 10 per cent, provided that the proceed is not reinvested within 12 months.
- Profits of companies engaged in educational activities are no longer exempted from tax under Section 23(1)(c) of CITA.
- The profits of companies from the exports of goods produced in Upstream, Midstream and Downstream Petroleum operations are no longer exempt from tax under section 23(1) (q) of CITA
- Companies providing digital goods and services to Nigerian customers and liable to tax under the Significant Economic Presence (SEP) Rule may now be assessed on fair and reasonable percentage of their turnover, where there is no assessable profit, or the assessable profit is less than what is to be expected from that type of trade or business or the assessable profit cannot be ascertained.
- Capital allowance on qualifying capital expenditure incurred in generating tax exempt income is no longer deductible from the assessable profit of non-exempt income under CITA, provided that joint QCE shall be pro-rated where the tax exempt income constitute more than 20% of the total income of the company.
- Capital allowance on qualifying capital expenditure incurred by small companies shall now be regarded to have been fully utilised.
- Companies may enjoy two years reduction in the rate of minimum tax from 0.5% to 0.25% for either accounting period 1 January 2019 to 31 December 2020 or for accounting period 1 January 2020 to 31 December 2021, as may be elected by the taxpayer.
- Any company that claims the reduced 0 25 per cent rate under the minimum tax rule in section 33 of CITA but filed its tax returns late will be liable to a penalty under section 55, which is equivalent to the benefits or reduction claimed.
- Taxpayers now have absolute discretion, under section 77 of CITA, to pay their taxes in instalment, provided that the final instalment shall be paid on or before the due date.
- WHT deducted from payments to a unit trust shall be the final tax on such income where such amount deducted has been remitted to FIRS.
- The rate of tertiary education tax has been increased from 2 per cent of assessable profits to 2.5% of assessable profits.
- Companies engaged in the business of banking, mobile telecommunication, ICT, aviation, maritime and oil and gas, with turnover of N100 million and above, are now to pay NASENI tax of 0.25 per cent of their profits before tax and the tax is to be administered by FIRS.
- FIRS has now been empowered to assess, collect, account and enforce the payment of the Nigeria Police Trust Fund levy of 0.005 per cent of the net profit of companies operating business in Nigeria as provided under the Nigeria Police Trust Fund (Establishment) Act.
- Companies engaged in Upstream Petroleum operations will continue to have obligation to withhold VAT, even when they have not commenced commercial operations or have turnover less than N25 million.
- Non-Resident Suppliers of taxable goods or services to Nigeria, or any other person as may be appointed by the Service to collect tax under the VAT Act are now obligated to collect the tax and remit to the Service.
- Any person who fails to grant access to its systems for FIRS to deploy its automated tax administration technology after a 30 days’ notice, or such extension granted by the Service, is liable to a penalty of N25,000 for each day it continues to fail to grant the access.
- Any bank that fails to prepare and submit quarterly returns or returns of any information requested, or submit incorrect returns or information to the relevant tax authority, as required by section 28 of FIRSEA or sections 47 and 49 of PITA, is now liable to a penalty of N1m for each quarterly return or information not provided or incorrect returns or information provided.
- It is now an offence, punishable by a fine of N10m, imprisonment or both, for any agency of the Federal Government (other than FIRS) or any of their staff or consultant, to demand for books or returns for the purposes of tax, or carry out the function of assessment, collection or enforcement of tax, or pay any portion of tax revenue to any person or into any account, other than the relevant accounts designated by the constitution or relevant laws of the National Assembly.
- Other agencies of the federal government are now under statutory obligation to report cases requiring tax investigation, enforcement or compliance, encountered in the course of performing their function, to the Service for necessary action.
- Any person employed in the Service or otherwise that has access to taxpayer information is now under a strict legal obligation to keep such information confidential. Leakages of taxpayer information by such person may lead to criminal prosecution. The Minister of Finance, Budget and National Planning, Zainab Ahmed was spot on when she said the Finance Act has also taken care of essential palliatives to support micro, small and medium enterprises (MSMEs) and mitigate the impact of the VAT rate increase on the most vulnerable businesses, communities and citizens in the Nigerian economy.
Beyond the underlined areas, the federal government has also taken measures to achieve its objective. Some of these measures include: Expanding the list of VAT-exempt items (e.g. basic food items, educational materials and medical supplies); Introducing a VAT registration threshold for MSMEs with a turnover of less than N25 million per annum; Reducing the corporate tax rate for MSMEs from 30 percent to 20 percent for Small firms (with turnover of between N25million and N100million per annum.); and exempting micro-firms (with turnover of less than N25million per annum).
The Finance Act introduced over 80 amendments to the existing tax and regulatory legislations in Nigeria, including the Capital Gains Tax Act, Companies Income Tax Act, Personal Income Tax Act, Value Added Tax Act, Nigeria Export Processing Zone Act, Oil and Gas Export Free Zone Act, Federal Inland Revenue Service (Establishment) Act, and Customs and Excise Duties Act, among others.
The aforementioned amendments were primarily aimed at addressing ambiguities and providing clarity to certain provisions in the laws, and also providing certain incentives to companies to mitigate the impact of COVID-19