On 31 December, 2021, President Muhammadu Buhari signed the Finance Bill 2021 into law. The Finance Act 2021 is a budget support document with a major focus on the budget financing. The Finance Act was introduced to serve as a support mechanism to mitigate fiscal deficit in the budget and it effect on the economy.
Among key other major interventions, the 2021 Finance Act granted incentives to ease doing business and eliminated ambiguity in tax laws to a large extent.
The Finance Act 2021 amended some key provisions of 13 statutes such as: the 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.
For economic and tax experts, introduction of the Finance Act was a demonstration of the federal government’s resolve to raise revenue for the implementation of the 2022 Budget, eliminate ambiguity in tax laws and the ease of doing business in Nigeria.
However, there was a call from industry watchers and taxpayers for a deliberate and sustained efforts by the government to address the challenges and impediments facing companies which include the multiplicity of taxes and complex regulations.
The Act has been criticised by a few industry watchers. Prominent among those who have reviewed the draft Act is the Nigerian Pricewaterhousecoopers. To them, the amendment to the Act seems to be targeted at institutional and high net worth investors given the threshold.
However, taken with other recent changes such as the expiration of the 10-year corporate income tax exemption order on government and corporate bonds, and the previously expired VAT exemption Order on commissions on stock market transactions, “the government seems to be rolling back some of the incentives available in the capital market.”
In their further review of the document, PwC said that “could increase the cost of raising capital especially for the private sector.” The reduction of the minimum tax rate from 0.5 percent to 0.25 percent of turnover (less franked investment income) will apply to any two consecutive accounting periods between 1 January 2019 and 31 December 2021 as may be chosen by the taxpayer.
They believe that such a step will address previous ambiguities relating to the period covered by this incentive. However, the exemption will only be granted where the relevant returns are filed before the filing due dates.
To prove that it is listening and was ready to take advise from stakeholders, the federal government came up with the draft 2022 Finance Act with much amendments to major aspects of the budget support process. The draft Finance Act is currently before the National Assembly.
Exclusion of Losses
In the computation of chargeable gains under the draft Act, the amount of any loss which accrues to a person on a disposal of any asset shall not be deductible from gains accruing to any persons on a disposal of such asset.
Cable Undertakings, Lottery and Gaming Business
Where a company other than a Nigerian company carries on the business of transmission of messages by cable or by any form of wireless apparatus, it shall be assessable to tax as though it operates ships or aircraft, and the provisions of the preceding section shall apply mutatis mutandis to the computation of its profits deemed to be derived from Nigeria as though the transmission of messages to places outside Nigeria were equivalent to the shipping or loading of passengers, mails, livestock or goods in Nigeria.
Rates of Tax
The 2022 Finance Bill provides that there will be levied and paid for each year of assessment in respect of total profits of every company.
In giving effect to the provisions of sub-paragraph (2) of the paragraph, the amount of capital allowances to be deducted from assessable profits in any year of assessment will not exceed 66 and two thirds of a percent of such assessable profits of a company, but any company in the agro-allied industry or which is engaged in the trade or business of manufacturing, shall not be affected by the restriction under this sub-paragraph.
Goods liable to Excise Duty
In the new amendment to 2021 Finance Act, telecommunication services provided in Nigeria will now be charged with duties of excise at the rates specified under the duty column in the schedule as the President may by Order prescribe pursuant to section 13 of the 2022 Act.
Penalty for offences
The Act proposes a substitute for section 51. In the new draft amendment, the Act states that a person who fails to comply with the provisions of this Act or any Regulations made under this Act for which no other penalty is specifically provided, shall be liable to an administrative penalty of N10,000,000, and where the default continues beyond a period stipulated by this Act or Regulations, the person shall be liable to a further administrative penalty of N2,000,000 for each day the default continues or such other sum as may, by Order, be prescribed by the Minister of Finance.
Stamp Duties
To foster tax equity by ensuring that local governments are allocated their 35 percent share of electronic money transfer levy receipts. The policy is anchored on tax equity, revenue generation and tax administration.
In the new amendment, the federal government through amendment of section 89A(4) of the stamp duty Act intends to ensure that notwithstanding any formula that may be prescribed by any other law, the revenue accruing by virtue of the operation of the Act, will on the basis of derivation, be distributed as follows: 15 percent to the federal government and the Federal Capital Territory, Abuja; 50 percent to the state governments; and 35 percent to local governments.
Value Added Tax Act (VATA)
Section 7 of the VAT Act is amended by including new subsections (3), (4), (5) and (6). The proposed amendment provides that in line with ongoing fiscal policies to introduce global best practices into Nigerian tax laws to combat aggressive transfer pricing, base erosion, profit shifting and tax evasion, a general anti-avoidance rule is introduced into the Value Added Tax Act to bring it in line with similar reforms already implemented in the personal and corporate income tax Acts.
There is a proposed amendment to section 23 of the Act on additional chargeable tax payable in certain circumstances. The proposed amendment says where, for any accounting period of a company, the amount of the chargeable tax for that period, calculated in accordance with the provisions of this Act other than this section, is less than the amount mentioned in subsection (2) of the section, the company shall be liable to pay an additional amount of chargeable tax for that period, equal to the difference between those two amounts.
The Act also seeks to amend subsection (1) of the proposal to wit: for any accounting period of a company, the amount which the chargeable tax for that period, calculated in accordance with the provisions of this Act, would come to, if the reference in section 9(1)(a) and (b) of this Act to the proceeds of sale were a reference to the amount obtained by multiplying the number of barrels of that crude oil determined at the measurement point by the fiscal oil price per barrel.
False statements and returns
Section 53 of the Act is amended in subsection (1)(a), by inserting after the word “forges or” the words “fraudulently alters or uses”; and in subsection (1)(b) (iii) by replacing, after the word “tax”, the phrase: “shall be guilty of an offence and shall be liable to a fine of ₦1,000 and treble the amount of tax for which the person assessable is liable under this Act for the accounting period in respect of or during which the offence was committed, or to imprisonment for six months or to both such fine and imprisonment”
The amendments are essential to appropriately align the PPTA with relevant provisions of the Petroleum Industry Act, 2021.
Rural Investment Allowance
Where a company incurs capital expenditure on the provisions of facilities such as electricity, water or tarred road for the purpose of a trade or business which is located at least 20 kilometres away from such facilities provided by the government, there shall be allowed to the company in addition to an initial allowance under the second schedule to this Act an allowance (in this Act called “rural investment allowance”) at the appropriate percent certain as set out in subsection (2) of the section of the amount of such expenditure
Incomes in Convertible Currencies to be Exempt
Twenty-five percent of incomes in convertible currencies derived from tourists by a hotel shall be exempt from tax, provided that such income is put in a reserved fund to be utilised within five years for the building expansion of new hotels, conference centres and new facilities for the purpose of tourism development.
While the proposed 2022 Finance Act also deals with other issues beyond the ones highlighted above, many expect that when passed into law, the 2022 Finance Act will improve on the tax system in Nigerian.
