20 Key Changes to the 2021 Finance Act (Effective 1 January 2022)
The Bill for the amendment of the Nigerian Finance Act 2021 was transmitted to the National Assembly on the 7th of December 2021 by President Muhammadu Buhari. The Bill was subsequently passed into law two weeks after and its application is effective from 1 January 2022.
Among other objectives, the bill seeks to support the implementation of the 2022 Federal Budget of Economic Growth and Sustainability by amending specific taxation, customs, excise, fiscal and other relevant laws go drive this strategic objective.
It is therefore important to note that the new Finance Act 2021 amended a total of twelve laws in Nigeria as listed below:
- Capital Gains Tax Act (CGTA)
- Companies Income Tax Act (CITA)
- Federal Inland Revenue Service (Establishment) Act [FIRSEA]
- Personal Income Tax Act (PITA)
- Stamp Duties Act (SDA)
- Tertiary Education Trust Fund (Establishment) Act [TETFEA]
- Value Added Tax Act (VATA)
- Insurance Act
- Nigerian Police Trust Fund (Establishment) Act [NPTFEA]
- National Agency for Science and Engineering Infrastructure Act (NASENI Act)
- Finance (Control and Management) Act [FCMA], and
- Fiscal Responsibility Act (FRA)
20 Key Changes to the 2021 Finance Act (Effective 1 January 2022)
1. 5% Capital Gain Tax on Disposal of Shares in Nigerian Company
Capital gains tax at the rate of 5% is now applicable on disposal of shares in a Nigerian company worth N500m and above in any 12 successive months except where the proceed is reinvested in the shares of any Nigerian company within the same year of assessment. Partial re-investment will be taxed proportionately. However, transfer of shares under the regulated Security Lending Transaction is exempted.
2. Taxation of Lottery Business Under CITA
The Act requires Lottery and Gaming business to be specifically taxable under CITA including betting, game of chance, promotional competition, gambling, wagering, video poker, roulette, craps, bingo, slot or gaming machines and others.
3. Ineligibility for Exemption on Profits of Companies engaged in Petroleum Operations
Recall that under the old upstream and downstream classification, downstream operators were previously eligible for exemption on profit arising from goods exported from Nigeria. With the new Act, Companies engaged in petroleum operations including midstream and downstream operations will not be eligible for exemption on profits in respect of goods exported from Nigeria.
4. FIRS to Assess CIT on the Revenue of Foreign Digital Companies
The 2021 Finance Act has empowered FIRS to assess CIT on the turnover of a foreign digital company involved in transmitting, emitting, or receiving signals, sounds, messages, images or data of any kind including e-commerce, app stores, and online adverts.
5. Limitation of Capital Allowance Claimable
Capital allowance claimable on an asset is limited to the portion used for generating taxable profits. Assets partially used to generate taxable income will be eligible for pro-rata capital allowance except where the proportion of non-taxable income does not exceed 20% of the total income of the company.
6. Eradication of Carried Forward Unutilized Capital Allowance by Small or Medium Company
Any capital allowance or unabsorbed allowances brought forward by a small or medium company, other than a company under pioneer status, is now to be treated as having been claimed and consumed in each such year of assessment.
7. Reduction in Minimum Tax Rate
The Act reduced minimum tax rate from 0.5% to 0.25% of turnover (less franked investment income). This new rate is to be applicable to any two accounting periods between 1 Jan 2019 and 31 Dec 2021 as may be chosen by the taxpayer.
8. Management of Disputed Tax Assessment
The Act provided that disputed tax assessment is to be kept in abeyance pending determination while undisputed tax assessment is to be paid within 30 days after service of the notice of assessment on the company except otherwise extended by the FIRS.
9. Withholding Tax on Interest Earned from a Unit Trust to be Treated as Final Tax.
Recall that before the advent of the new Finance Act, only WHT on dividend is treated as final tax for local companies. By the provision of the new Finance Act, withholding tax on interest earned from a unit trust is now to be treated as final tax.
10. Inclusion of Third-party Technology in Auto tax Administration
Recall that previously, only proprietary technology may be deployed in the administration of tax in Nigeria. With the new Finance Act, the deployment of technology to automate tax administration including assessment and information gathering by FIRS is to now include third party technology. A penalty of N50,000 is applicable where a company fails to grant access to FIRS in addition to N25,000 for each day the failure persists.
11. FIRS to be the Primary Tax Agency of the Federal Government
The Act provided that FIRS is the primary agency of the Federal Government responsible for the administration, assessment, collection, accounting, and enforcement of taxes and levies due to the Federation, the Federal Government and any of its agencies except otherwise authorized by the finance minister. In view of this, any person or agency of the Federal Government must refer matters requiring tax investigation, enforcement, and compliance to the FIRS. Relevant officers who violate the rule will be liable to a penalty of N10m and/or 5 years imprisonment on conviction.
12. Exclusion of Contract for Deferred Annuity from Deductible Life Assurance Premium
Deductible life assurance premium for personal income tax purposes is to exclude a contract for deferred annuity.
13. The Power of Finance Minister to Make Regulations for Arrears of Stamp Duties
The Finance Minister, subject to the approval of the National Assembly, shall make regulations for the imposition, administration, collection, remittance, including distribution of arrears of stamp duty and Electronic Money Transfer levies collected between 2015 and 2019 fiscal years.
14. Deadline for Payment of Tertiary Education Tax
As against “within 60 days of service of assessment,” Tertiary Education Tax is now payable within 30 days of service of assessment.
15. VAT collection and Remittance Obligation of Non-residents
Non-residents making taxable supplies to recipients in Nigeria now have the primary obligation to charge, collect and remit VAT to FIRS. The VAT withholding obligation of Nigerian recipients now limited to where the non-resident or its appointed agent fails to collect the VAT.
16. Exclusion of Upstream Operations from VAT Registration and Compliance Obligations Applicable to Small Companies Regardless of Turnover
The exemption from VAT registration and compliance obligation applicable to small companies with annual turnover less than N25m excludes companies engaged in upstream petroleum operations regardless of turnover.
17. FIRS to Administer Payment of Nigerian Police Trust Fund Levy
FIRS has been appointed under the Act to assess, collect and enforce the payment of Nigerian Police Trust Fund levy. The Act as enacted in 2019 imposed a tax of 0.005% on the net profit of companies operating in Nigeria.
18. Amendment of the National Agency for Science and Engineering Infrastructure Act
The National Agency for Science and Engineering Infrastructure Act has been amended specifically to remove the requirement for commercial companies to pay a levy of 0.25% of turnover annually to the Fund. Primary sources of fund to be limited to 1% of the Federation Account.
19. Mandatory Payment of Gross Revenue Collected by MDAs to the Federation Account or CRF
The Act has made it mandatory for all federal ministries, departments or agencies to pay revenue collected by them into the federation account or consolidated revenue fund as the case may be except otherwise authorized by law. Any officer who violates this requirement may be liable on conviction to imprisonment of up to 5 years or a fine of N5m or both.
20. Amendment of the Fiscal Responsibility Act
The Fiscal Responsibility Act was amended to enable government borrow for “critical reforms of significant national impact”. Currently, government at all tiers are only empowered to borrow for capital expenditure and human development. Capital expenditure is defined as spending on an asset that lasts for more than one financial year. Human development and critical reforms are not defined.