President Muhammadu Buhari on 31st December 2020, signed the Finance Bill, 2020 (now Finance Act) into law. The Finance Act, 2020 (the Act), which has a commencement date of 1st January 2021, was signed into law alongside the 2021 Appropriation Bill (now Appropriation Act). The Act introduces significant changes to a number of tax and regulatory laws in Nigeria including the introduction of COVID-19 incentives alongside other changes.
President Muhammadu Buhari in December 2020, transmitted the Finance Bill, 2020 to the National Assembly for consideration and passage into law in support of the 2021 Appropriation Bill. Subsequently, the National Assembly passed the Finance Bill and transmitted it to the President for his approval, in line with the provisions of Section 58 of the Constitution of the Federal Republic of Nigeria, 1999 (as amended). The President thereafter assented to the Finance Bill and the 2021 Appropriation Bill on 31st December 2020. 1
Below are some of the key changes introduced by the Finance Act 2020.
- Compensation for loss of office up to N10m exempted from capital gains tax. Tax due on excess above N10m is to be deducted by the payer and remitted within the time specified under the PAYE Regulations.
- The minimum tax for companies in respect of returns for years of assessments due between 1stJan 2020 and 31st Dec 2021 has been reduced from 0.5% to 0.25% of gross turnover less franked investment income.
- Cost of donation made in cash or kind to any fund set up by the government in respect of any pandemic or natural disaster to be tax-deductible subject to a maximum of 10% of assessable profit after other allowable donations.
- FIRS may prescribe the form of accounts other than audited financial statements for small and medium companies as defined under CITA.
- Service of notice of assessment and objections under CITA may be done via courier service, email, or other electronic means as may be directed by FIRS in a notice. Tax Appeal Tribunal may conduct its hearing remotely via virtual means, using such technology or application as may be necessary to ensure a fair hearing.
- Public character for the purpose of tax exemption requires an organization or institution to be registered in accordance with relevant laws in Nigeria and does not distribute or share its profits in any manner to members or promoters.
- A small or medium company engaged in primary agricultural production may be granted pioneer status for an initial period of 4 years and an additional 2 years (making a total of 6 years).
- Gross income for personal relief purposes has been redefined as income from all sources less non-taxable income, exempt items, and income on which no further tax is payable. In the case of an enterprise, less all allowable business expenses and capital allowance.
- Exemption of low-income earners earning minimum wage or less from personal income tax.
- Goods liable to excise duties have been expanded to include telecommunication services provided in Nigeria as may be prescribed in the law or an Order issued by the President.
- Reduction of import duty on Tractors from 35% to 5%; Mass transit vehicles for the transport of more than 10 persons and Trucks from 35% to 10%, and reduction of import levy on Cars from 30% to 5%.
- Taxable supply with respect to goods is defined to include where the beneficial owner of the right in or over goods is a taxable person in Nigeria or the goods or right is situated, registered, or exercisable in Nigeria. Services include those consumed by a person in Nigeria whether rendered within or outside Nigeria excluding employment; and in respect of incorporeal, includes exploitation of a right, acquisition of or assignment of rights by a person in Nigeria and incorporeal connected with tangible or immovable asset located in Nigeria. Goods exclude land and building, money, or securities.
- A non-resident person that makes a taxable supply to Nigeria is required to register for tax and obtain TIN, include VAT on its invoice, and may appoint a representative in Nigeria for the purpose of its tax obligations. The FIRS may issue guidelines for this purpose.
- Exemption of commercial airline ticket from VAT, and hire or lease of agricultural equipment for agricultural purposes.
- Deletion of electronic bank transfer as transaction liable to stamp duty and introduction of electronic money transfer levy of N50 on electronic transfer of money deposited in any bank or financial institution on any account on sums of N10k or more. Revenue is to be shared based on derivation 15% to FG & FCT and 85% to states.
- Accountant General for the Federation to open dedicated accounts for each tax type for the payment of tax refunds to be administered by the FIRS and funded based on annual budgets for a tax refund for each tax type as may be approved by the National Assembly.
- For companies operating in the free trade zones, exemption from taxes is subject to compliance with tax filing and returns obligation to the FIRS under section 55(1) of CITA.
- Establishment of a Crisis Intervention Fund of N500b or other sums as may be approved by the National Assembly; and by way of trust, as a sub-fund of the Crisis Intervention Fund, an Unclaimed Funds Trust Fund.
- Unclaimed dividends in a listed company and unutilized amounts in a dormant bank account outstanding for 6 years or more to be transferred to the Unclaimed Funds Trust Fund as a special debt to the Federal Government to be managed by the Debt Management Office and shall be available to the shareholder or account holder at any time together with the yield thereon.
- Balance of an operating surplus of a corporation shall be paid to the CRF of the Federation on a quarterly basis. Finance Minister may effect a direct deduction from TSA or other accounts of a corporation to enforce compliance. Also, it is prohibited to reduce contract values or splitting of procurement to evade the use of the appropriate procurement method.2