The Finance bill 2019 was presented by President Mohammed Buhari alongside the 2020 Appropriation Bill to the joint sitting of National assembly on the 8th of October 2019 and passed by both houses on 21st November 2019 and 27th November 2019 respectively.
Subsequently on the 13th of January 2020, the Finance bill which would later on be referred to as “Finance Act 2019” was finally signed into Law by President Mohammed Buhari . The Finance Act is designed to support the implementation of the 2020 National budget and to provide a supervisory instrument in creating an enabling environment for businesses.
The Finance Act provides the following five strategic objectives:
- To promote fiscal equity by mitigating instances of regressive taxation.
- Reformation of domestic tax law to align with global best practice.
- Introduce tax incentives for investment in infrastructure and capital markets.
- To support small businesses in line with the ease of doing business reforms
- Raising revenue for government, by various fiscal measures, including, for instance, increase in the VAT rate from 5% to 7.5%.
The Finance Act made major amendments to some of the Nigerian existing Tax Laws;
Companies Income Tax ( Company Income Tax Act)
Mandatory Acquisition of Tax Identification Number: Section 10 of CITA was amended, The Finance Act 2019 assert that bank officers shall request for tax identification number from corporate organizations as a prerequisite for opening or continuing banking operations where the account was opened before 30th September 2019. This new development seeks to restrict the issues with tax evasion and promote tax compliance.
Elimination of Double taxation: Section 23 of CITA was amended, it eliminates the double taxation policy on dividend under CITA, dividend paid out of retained earnings of a company will no longer be subjected to a further tax provided such earning has already been taxed. Taxation will also not apply to dividend paid out of earnings exempted from Tax.
Franked investment income will be tax free under the above tax law. The exemption further extends to rental income and dividend income made by Real Estate Companies to its shareholders only within 12 months from the end of financial year in which it was earned.
Small business profit is exempted from tax in the relevant year of assessment.
Dividend received from small companies in the first five years of their operations is tax free.
Investment companies: The new section 4(12) CITA provides that Non-life insurance companies tax for any year of assessment is deemed not to be less than 0.5% of gross premium while life assurance companies tax for any year of assessment is deemed not less than 0.5% of gross income thus no longer liable to special minimum tax.
Under the new provision, Insurance companies can carry forward losses indefinitely. Prior to the amendment, the time frame was up to 4 years under section 4 of CITA.
It further clarifies that Real Estate Investment company shall be taxed on management fee, profits or other income earned on its account.
Gas utilization company will be qualified for incentives provided no incentive has been claimed from industrial development (income tax relief)
This new provision extends Tax exemption to exported good from Nigeria subject to the proceeds used for the purchase of raw, plant equipment and spare parts. A way of boosting the Nigerian economy, encouraging citizens to invest in the country.
Company Tax Rate: The Finance Act amended section 40 of CITA, Small company earning gross turnover of N25,000,000 or less are exempted from Company Income Tax.
Small companies below the tax paying threshold are further exempted from taxation provided it comply with tax registration and filing stipulations of the Companies Income Tax Act.
Medium company earning gross turnover of N25,000,000 but less than N100,000,000 will be liable to pay 20% company income tax.
Large companies with gross turnover of N100,000,000 or more are entitled to pay 30% of company income tax.
|Companies||Gross turnover||Tax levied|
|Small Company||N25,000,000 or less||NIL|
|Large Company||Over N100,000,000||30%|
Foreign Company: Section 13(2) of CITA was amended, it seeks to attribute profit to foreign resident companies with “significant economic presence” and non-resident companies engaged in trade, consultancy, furnishing of technical, management providing services to residents in Nigeria with a “significant economic presence” will only pay withholding tax.
What constitutes significant economic presence? There is not provision defining SEP, although the Act stated that the Minister of Finance may by executive order determine what constitute SEP. Does this apply to online foreign businesses with SEP? What are the measure to regulate this provision?
Tax Incentives: section 77(5A) of CITA was amended to provide that Medium scale companies are entitled to 2% bonus of tax and large companies are entitled to 1% bonus of tax paid 90 days before expiration date respectively.
Penalties: Late filing of annual returns attract fine.
The VAT rate increment from 5% to 7.5% on good and services is the wildly known amendment to the Value Added Tax Act. This is justified by FGN need and pursuit to increasing government revenue through taxation.
Furthermore, small companies outside N25,000,000 revenue threshold are exempted from remitting, registering or collection of Value Added Tax.
Taxable persons with N25,000,000 or more revenue threshold is required to render and file returns before 21st day of every month in which the threshold was achieved under Value Added Profit,
Non- Resident: Non resident doing business in Nigeria shall register for VAT with the board using a co-contractors address in Nigeria for purpose of correspondence.
This seeks to ensure taxation of foreign companies with economic base in Nigeria
Penalties: The amended section 28 of VATA provides that upon commencement of business, a tax payer must register with VATA, failure of which such individual would be liable to penalty of #50,000 for the first month, #25,000 for each subsequent month where the failure persists.
Non existing business in Nigeria, is deemed to notify Federal Inland Revenue Service of its intention to deregister for tax purposes with 90 days of cessation, failure attracts fine of N50,000 in the first month and 25,000 in subsequent months where it persist under amended section 8 of VATA.
Amended section 19(1) of VATA addresses the issue of Non remittance of tax which attracts 10% of tax not remitted and the prevailing Central Bank of Nigeria minimum re-discounted rate.
Personal Income Tax Act
The old position in Section 49 of PITA required individuals engaged in Banking to prepare a return with details of new customers to be delivered not later than seven days of the next month to the tax authority. However, this section was amended, it currently requires persons engaged in banking to request for tax identification number from person intending to open or continue a banking operation with the bank for business purposes.
The Finance Act included in section 58(1) of PITA other means to object to an assessment for review which extended to be delivered in person, by courier or via electronic mail.
Stamp Duties Act
Section 89(3) of this Act provides that only N50 stamp duties rate will be applicable to electronic bank transactions of N10,000 and above between banks but no charges for transactions between same bank. Prior to this amendment, the threshold for such transaction was N1000 under Stamp Duties Act.
Under the new provision, receipt as defined in section 89(1) includes any note, memorandum, writing or electronic inscription whereby any money, or any bill of exchange or promissory note for money is acknowledged or expressed to have been received, deposited or paid or whereby such debt is settled, satisfied or discharged or which signifies the same is or not signed with the name of the person.
The Finance Act seeks to generate more revenue from duties on electronic stamps.
Capital Gains Tax
The new section 32 of the Capital Gains Tax Act seeks to curb companies that exploit lacuna and discrepancies in tax regulations for tax evasion by inserting that trade or assets transferred to a Nigerian company for proper reorganization will be exempted from Capital Gains Tax with a policy that if disposal of the asset within 365 days occurs, the concession stipulated shall be rescinded.
The Finance Act amended section 36(2) of the Capital Gains Tax Act, it provides that Individuals compensated for loss of job, approximately in the sum of N10,000,000 will be exempted from Capital Gains Tax as opposed sum of N10,000 prior to this amendment.
The approval of the Board is not longer needed for deduction of pension, provident and other retirement funds, society and schemes borne by that individual.
Custom and Excise Management Act
Part III section 21 of the Custom and Excise Management Act was amended to include that all imported good and those manufactured in Nigeria shall be subjected to be charged with duties of excise rates as specified in the 5th schedule to this Act, excluding goods and raw materials not locally produced or available in Nigeria.
Petroleum profit Tax Act
The Petroleum Profit Tax Act restricted payment of withholding tax on income and dividend paid out of profits in relation to petroleum operations. However, the Finance Act 2019 rescinded such provision, clearly demonstrated that dividend and income paid out of profit in the petroleum sector will be subjected to 10% withholding tax. In action to curb tax avoidance for due checks and balances.
In conclusion, The Finance Act is a highly commendable instrument in boosting Nigeria’s economy by aiding tax compliance and administrative guidelines. The incentives and exemption of taxes will encourage growth of startups and MSMEs in Nigeria as well as increase their cash flow. These Strict measures adopted in the Finance Act if judiciously implemented will achieve its objectives without been detrimental to the masses/taxpayers. The Act has taken effect on 1st February, 2020 with hopes of fiscal economy turn around as envisaged by the Act.