Finance Act 2020: Returns Based on the Provisions of Personal Income Tax Act (PITA) and Companies Income Tax Act (CITA), Key Changes and As the Case May Be

Analysis of changes and implications

The amendments introduced by the Act are in connection with the FGN’s tax policy reforms, financial management and public revenue goals. The Act also recognized the challenges experienced by the country during the first wave of COVID-19 pandemic and attempted to create a structure that ameliorates some of the effects.

Major amendments created by the Act are as follows:

Capital Gains Tax Act (CGTA) Companies Income Tax Act (CITA)

Broad Area Description Commentary Broad Area Description Commentary

Due date for The filing of capital gains This provision is ambiguous, as it Agricultural Agricultural trade or FA20 did not amend other filing and tax (CGT) returns and the provides two due dates for the filing production business’ has been aspects of CITA that payment payment of CGT arising and payment of CGT. The logical replaced with ‘Primary referenced ‘agricultural from the disposal of interpretation is that CGT returns agricultural produc- trade or business’ to now chargeable assets in a and payment of CGT, relating to tion’. reflect ‘primary agricultural particular year is due on or disposals that occur before 30 June, production’. For example, before 30 June and 31 should be made by 30 June, while The definition of companies involved in December of the same CGT returns and payment of CGT ‘primary agricultural agricultural trade or year. relating to disposals that occur after production’ clearly business are exempt from 30 June should be made by 31 excludes the process- the minimum tax. The December. ing and manufactur- definition of agricultural ing of all forms of trade or business no longer agricultural products. exists, and there may be no This provision creates confusion as basis to exempt companies there is an existing CGTA provision involved in primary (i.e. Section 43 and the Schedule) agricultural production that requires the filing of CGT from the minimum tax. Finance Act 2020: returns based on the provisions of Personal Income Tax Act (PITA) and Companies Income Tax Act (CITA), Key changes and as the case may be. Based on PITA Broad Area Description and CITA, due dates of filing returns are 3 months and 6 Interest on The moratorium for granting an exemption of tax implications months, respectively, after the foreign and for foreign and agricultural loans has been relevant accounting year-end. agricultural revised from ‘not less than 18 months’ to ‘not less Comparing the existing and new than 12 months’. provision, there may be conflicting loans President Muhammed Buhari, on 31 December 2020, signed due date of filing in many cases. the Finance Act 2020 (“the Act” or “FA20”) alongside the 2021 Appropriation Act into law. This reaffirms the Federal Government of Nigeria’s (FGN) commitment to enact fiscal policy annually, alongside the passage of the annual budget into law (i.e. enactment of Appropriation Act) and aligns with global best practice.

The Act, which took effect on 1 January 2021, amended the provisions of 14 tax and fiscal related legislation, namely: Broad Area Description Commentary Broad Area Description Commentary Location of ship Ship and aircraft used in The amendment introduced the Incentive for FA20 deletes the The removal of this • Capital Gains Tax Act (CGTA) and aircraft international traffic, and phrase ‘used in international traffic’. agricultural provision that grants incentive may not impact • Companies Income Tax Act (CITA) owned by a Nigerian The amendment suggests that ship production companies involved companies that have • Industrial Development (Income Tax Relief) Act (IDITRA) resident, are deemed and aircraft used solely for local in agricultural already earned the right to production a 5-year it. The right to the 5 years • Personal Income Tax Act (PITA) situated in Nigeria for CGT traffic need not be owned by a purposes. Nigerian resident to be deemed tax holiday, which incentive has already • Tertiary Education Trust Fund (Establishment etc.) Act situated in Nigeria. was subject to a accrued to companies • Customs and Excise Tariff, etc. [Consolidation] Act (CETA) 3-year renewal. involved in agricultural • Value Added Tax Act (VATA) production under the • Stamp Duties Act (SDA) existing CITA. • Federal Inland Revenue Service (Establishment) Act (FIRSEA) • Nigeria Export Processing Zones Act (NEPZA) Broad Area Description Commentary • Oil and Gas Export Free Zone Act (OGEFZA) Broad Area Description Commentary Compensation CGT on compensation for Employers now have an obligation • Companies and Allied Matters Act (CAMA) Software Qualifying for loss of office loss of office is limited to an to deduct CGT when they make FA20 did not prescribe • Fiscal Responsibility Act (FRA) amount in excess of N10 redundancy payments, and other expenditure has capital allowances rate and • Public Procurement Act (PPA) million. The person paying similar payments, to exiting been redefined to whether or not investment such compensation for loss employees. include capital allowance is applicable. expenditure incurred In addition to the above, the Finance Act 2020 created a Crisis of office is required to The default expectation is on the development to apply rates applicable to Intervention Fund (CIF) and its sub-fund, Unclaimed Funds Trust deduct the CGT due and remit to the relevant tax and acquisition of qualifying capital expendi- Fund (UFTF). authority under the Pay As software or ture on plant and/or You Earn (PAYE) regulations. electronic equipment. applications.

Broad Area Description Commentary Broad Area Description Act (IDITRA) Definition Gross premium is defined The introduction of these Minimum tax The minimum tax rate is reduced to 0.25% of gross turnover of gross as the total premiums definitions removes the less franked investment income. This reduction, which is a written, received and existing ambiguities and COVID-19 incentive, is applicable to tax returns filed in respect Broad Area Description Commentary premium and receivable excluding eliminates the risk of not of any year of assessment that is due on any date between 1 Primary Introducing “primary Companies involved in gross income unearned premium and paying the right amount of January 2020 and 31 December 2021. agricultural agricultural (i.e. crop, these activities are only of insurance premiums reinsured to the livestock, forestry and allowed to apply for taxes. It also removes the production business insured. need for uncertain tax For non-life and life insurance businesses, the base of the fisheries) production” as incentives under IDITRA minimum tax is gross premium and gross income, respectively pioneer industries. and not CITA. Gross income is defined as disclosures in financial statements. total income earned by a Small or medium-sized life insurance business Broad Area Description companies involved in these including all investment activities are eligible to apply income (excluding franked Gas utilization Gas utilization incentives are only applicable to the trade or for pioneer status incentive. investment income), fees, incentives business of gas utilization of a company. commission and income from other assets but Companies that claim the gas utilization incentives under CITA excluding premiums will not be entitled to similar incentives under the Petroleum Personal Income Tax Act (PITA) received and claims paid by Profits Tax Act or IDITRA. re-insurers. Broad Area Description Commentary

Broad Area Description Commentary Significant Introduction of Significant Non-residents subject to Broad Area Description Commentary Economic Economic Presence (SEP) tax in Nigeria under this The specialized approach of Demurrage income, which Incidental Penalty and interest are Presence rules to the taxation of provision may have to pay calculating income tax for is incidental to the primary Incorrect This puts to bed the notion income for chargeable where a certain categories of tax twice on the same international shipping/air shipping income of returns that penalty and interest international company pays less tax than non-resident individuals, income – firstly in Nigeria transport companies, under international shipping apply even where a it should have because it executors or trustees. The and secondly in their shipping/air Section 14 of CITA, would companies on their taxpayer calculated and deliberately and dishonestly Minister of Finance will issue country(ies) of residence. transport apply only to cargoes within Nigeria may paid less tax in good faith. declared a wrong profit or rules to define SEP from a shipping/transport/freight now be subject to income companies tax payable. PITA perspective. Persons subject to juridical income. Non-freight tax. This creates a logical double taxation by virtue of income, leasing, containers basis for charterers to this provision may be able and other incidental income claim demurrage expense to seek relief under the will be taxed under Section as tax-deductible, as the Broad Area Description Mutual Agreement Proce- 9 of CITA, as non–special- shipowner would have dure, where a double tax ized income. accounted for income tax Non-resident FA20 clarified that the income tax returns of non-resident avoidance treaty exists on the demurrage income. companies companies include full audited financial statements of the between Nigeria and the filing companies and financial statements of the Nigerian operations person’s home country. certified by independent auditors in Nigeria. This requirement is not applicable to non-resident companies whose tax Broad Area Description Commentary exposure in Nigeria is limited to Withholding Tax. Broad Area Description Deductibility Tax deductibility of Companies limited by Commence- Revised commencement and cessation rules to prevent double COVID-19 crisis intervention of donations guarantee would typically ment and tax. This is to align with the prior amendment to CITA in this and definition fund donations. This fall under the organisation regard. Tax will be applied on the basis of the individual’s deductibility is restricted to cessation rules of public or institution of public accounting year. 10% of the assessable character, as long as their Broad Area Description Commentary character profit. objects ties to the scope of public character Books of Companies exempted from FIRS may be able to impose FA20 defines ‘public organisation, as defined account incorporation and those not these penalties where a character’ with respect to by CITA. liable to pay tax under CITA taxpayer does not provide organization or institution, are now required to maintain requested information by a which is exempt from tax books of account in a format specified date. prescribed by FIRS. These and whose receipt of Broad Area Description Commentary donation is deductible for accounts are required to be in the donors, to mean any English language and must Gross Introduction of a definition This reduces the organization or institution kept for a minimum of 6 of gross income, which is the consolidated relief years. income that is registered according definition basis for calculating allowance claimable by to the relevant Nigerian law consolidated relief allowance. taxpayers and does not permit the Where a taxpayer fails to Gross income is defined as distribution of profits, in any produce any prescribed book income from all sources, manner, to its promoters or or record, it is liable to a excluding non-taxable income, members. penalty of N100,000 in the tax-exempt income, income first month of failure and on which no further tax is N50,000 every month the payable, allowable business failure continues. Broad Area Description expenses and capital Commentary allowances. Non- Penalties and fines that Until this amendment was deductibility are non-deductible for introduced, only penalties Broad Area Description Broad Area Description Broad Area Description of penalty income tax purposes now and fines imposed by an Notice of Services of notice Payment of The payment of Exempt and fine specifically includes those Act of the National Assem- Minimum tax no longer applies to persons who earn National imposed by laws of any bly were specifically assessment of assessment can assessed tax any tax charged by income tax Minimum Wage or less under Section 37 of PITA. This category State House of Assembly. non-deductible. be done by any assessment of employment income earners are also exempt from PIT courier, email or with no objection under the Third Schedule to PITA. National Minimum Wage is any other has been revised currently N30,000 per month. electronic means. to 30 days from 2 months. PITA (cont'd) CETA (cont'd) VATA (cont'd)

Broad Area Description Broad Area Description Broad Area Description Reinstating Life Annual premium paid during the year preceding the year of Excise duty: Telecommunication services provided in Nigeria will now be The effective Confirmation that the application of 7.5% VAT rate commenced on 1 February 2020. assurance as a assessment to an insurance company in respect of insurance New item liable liable to excise duties at rates to be specified by the President. date of VAT deduction on the individuals’ life or the life of his spouse shall be allowed rate increase as a deduction to excise duty

Broad Area Description Tertiary Education Trust Fund Act (TETFA) Broad Area Description Registration by Trigger for an obligation to register for the tax Import duty and Reduction in import duties and levies on tractors and motor purposes has changed from ‘carrying on business Broad Area Description Commentary non-resident levy: Reduction vehicles. in Nigeria’ to ‘makes a taxable supply of goods or companies services to Nigeria’. Exemption Small companies are This gives legal backing to in rates for duty for small exempt from paying Tertiary the current practice of and levy companies Education Tax (TET) exempting small companies from TET.

Broad Area Description Invoicing by Non-resident companies to include tax in invoices non-resident for supply of taxable goods and services. Nigeria Export Processing Zones Act (NEPZA) Broad Area Description companies Import duty: Import duty-free importation of purchased or leased aircraft, & Oil and Gas Export Free Zone Act (OGEFZA) New item engines spare parts and components by Nigerian registered exempt from airlines providing commercial air transport services. Broad Area Description Commentary import duty Incentives Approved enterprises It is, however, unclear, and related operating within export what the exception to matters processing or free zone (the BOFIA 2020 seeks to Broad Area Description Zone) will continue to enjoy achieve, as BOFIA 2020 is Non-resident companies may appoint tax exemption from taxes, silent on export process- Appointment of representatives for the purpose of complying levies, duties and foreign ing/free zone matters. representatives exchange regulations, by non-resident with tax obligations. except that these exemp- companies tions are now subject to the Banks and Other Financial Institutions Act, 2020 (BOFIA Value Added Tax Act (VATA) 2020).

Companies/approved enterprises registered and Broad Area Description operating within the Zone Goods and Goods and services (including incorporeal property registered, shall file a yearly self-assess- Broad Area Description services located to an asset/immovable property, or exploited in Commentary ment return as provided in Nigeria) consumed or otherwise utilized in Nigeria is deemed Section 55(1) of CITA, to the supplied in New New definitions have been This implies that the sale as supplied in Nigeria. provided to clarify the scope FIRS. Failure to comply with Nigeria definitions or transfer of interest in the provisions of Section of ‘animal feeds’, ‘commer- land and building, money 55(1) of CITA will attract all cial aircraft spare parts and and securities are not relevant penalties stipulated components’, ‘goods’ and liable to VAT. in the CITA and FIRSEA. ‘services’. In particular, interest in buildings has been added to money, security and interest in land, as items not classified as Customs and Excise Tariff Act (CETA) goods or services. Broad Area Description Description Broad Area Time of supply Time of supply of goods or service is earlier of; the date of Broad Area Description Previous exemption from excise duty on imported goods that of goods or issuing invoice or receipt, or payment of consideration is due Excise duty: New items Goods exempt from VAT was expanded to include commercial are not locally produced in Nigeria, and raw materials that are services or received by the supplier. More specific rules to clarify how Exemption not locally available in Nigeria, will no longer apply. to determine the date of supply has als been introduced in the exempt from aircraft, engines and spare parts. Services exempt from VAT from excise Act. VAT was expanded to include airline transportation tickets issued duty and sold by commercial airlines registered in Nigeria, and hired, rented or leased agricultural equipment for agricultural purposes Stamp Duties Act (SDA) Public Procurement Act Companies and Allied Matters Act (CAMA)

Broad Area Description Broad Area Description Broad Area Description Commentary Dividends are only actionable This provision was newly New The definition of stamp was amended to admit the utilization Scope of The PPA would specifically apply to all 3 arms of government - Unclaimed of adhesive stamp produced by the Nigeria Postal Service. application of Executive, Legislative And Judiciary – including national dividends when declared and are introduced by CAMA definition of recoverable by shareholders 2020. Where dividends the PPA defence/security agencies, government ministries, parastatals, stamp institutions, departments and agencies. within a 12-year period, after are unclaimed after 12 which it should be included in years, including it in the the profits of the company for profits of the company distribution to other share- means including it holders. This provision is only directly in retained applicable to companies not earnings. listed on the Nigerian Stock Exchange (NSE). Broad Area Description Broad Area Description Commentary Approving The parastatal’s Tender Board and Court’s Tender Board are to authority approve procurements by the National Assembly and the Electronic Introduction of Electronic This replaces stamp duty Judiciary respectively. The Federal Executive Council, National Broad Area Description Commentary Money Money Transfer Levy which on electronic receipts or Assembly Tender’s Board and National Judicial Council applies on electronic receipts electronic transfer for Unclaimed All dividends declared by The company transferring Transfer Levy Tender’s Board for each respective arm of government will Funds Trust public limited companies unclaimed dividend to or electronic transfer for money deposits. approve procurements above the Ministerial Tender’s Board money deposits in any Fund (PLCs) on the NSE that have the UFTF will have to threshold. The PRA also stated the members that will consti- not been claimed for at least derecognize the dividend deposit money bank or The mandate for the tute each Tender’s Board. financial institution. The administration of the Levy six years from the date of payable upon transfer. charge will remain N50 for could be given to another declaration of the dividend receipts or transfers above government agency will be transferred to the N10,000. instead of the Federal Broad Area Description UFTF. Upon transfer, the Inland Revenue Service Invitation to dividend becomes a debt Reduction in time before the deadline for submission from owed by the Federal The Minister of Finance (FIRS). Bid minimum of 6 week to a maximum of 4 weeks. This will help to shall make regulations for Government of Nigeria. ensure that public procurement processes are not The funds transferred to the imposition, administration, unnecessarily delayed. collection and remittance of UFTF may be claimed by the the Levy. shareholder at any time.

Federal Inland Revenue Service Broad Area Description Finance Act 2020 (FA20) (Establishment) Act (FIRSEA) Submission Electronic submission of biddings are now permitted. of bids Broad Area Description Commentary Broad Area Description Crisis A N50billion CIF was created out While FA20 was not Intervention of the Consolidated Revenue speciﬁc on the party that International FIRS may now provide/receive assistance to/from the bears the penalty Fund (CIF) Fund and Special Accounts to tax government of another country or any other persons or fund crisis-related expenditures imposed for failure to and its assistance bodies, concerning tax matters and revenue claims. and other exigencies. transfer unclaimed sub-fund, dividend and dormant Unclaimed Similar to unclaimed dividend, bank balance to the UFTF, Broad Area Description Funds Trust any un-utilized amount in a we expect that the dormant bank account main- Fund registrar, in the case of Mobilization Increase in maximum mobilization fee from 15% to 30%. tained in or by a deposit money unclaimed dividends and fee bank (DMB) which have the DMB, in the case of remained unclaimed for a period dormant bank balance of 6 years from the date of are the culpable parties, domiciling the funds in a bank as they hold the funds. Broad Area Description are to be transferred to UFTF.

Tax refunds For the purposes of tax refunds, dedicated accounts for each The UFTF will be managed by the tax-type shall be created by the Accountant-General of the Debt Management Oﬃce. The Federation and shall be funded from the respective accounts funds will be made up of of Government into which revenue from each tax-type is unclaimed dividends and remitted. Fiscal Responsibility Act (FRA) dormant bank balances. The unclaimed dividend and Broad Area Description unutilized bank amounts will be Aggregate transferred by the PLCs, Broad Area Description Expansion of the conditions where the President may registrars or DMBs. expenditure exceed the aggregate expenditure ceiling. The conditions Administration FIRS is empowered to use technology to collect taxpayer ceiling now include wars, breakdown of public order or public Failure to remit the unclaimed of tax laws information and ensure the conﬁdentiality of information safety, pandemic, natural disaster and any other public dividend and unutilized balance collected. danger threatening the existence of Nigeria. would attract a penalty of 5 times of the unremitted amount plus interest at Central Bank of Nigeria’s monetary policy rates. Conclusion

The Act reaffirms the commitment of the FGN to ensure that the tax and fiscal laws are up-to-date and reflect current economic realities. The revision of some tax provisions that were released less than a year ago alludes to the FGN’s determination to ensure that tax laws remain relevant. The Act has the potential to support economic growth and recovery and promote fiscal transparency and accountability.

The changing tax and ﬁscal landscape demands that taxpayers constantly re-evaluate their tax planning and compliance strategies. As a matter of urgency, taxpayers are advised to evaluate how the Act will impact their operations, review their tax compliance requirements and strategize for eﬀective tax planning.

If you require further clariﬁcation or seek to understand how this would impact your business, please reach out to [email protected].

Contacts

Yomi Olugbenro Oluseye Arowolo Funke Oladoke Olumide Esan Partner & West Africa Tax Leader Partner, Tax & Regulatory Services Partner, Tax & Regulatory Services Partner, Tax & Regulatory Services +234 1 904 1724 +234 1 904 1723 +234 1 904 1703 +234 1 904 1736 [email protected] [email protected] [email protected] [email protected] Yomi Olugbenro Oluseye Arowolo Funke Oladoke OlumideEsan @YomiOlugbenro @oluseyeArowolo @Foladoke @olumideEsan

Patrick Nzeh Taiwo Okunade Olukunle Ogunbamowo Partner, Tax & Regulatory Services Partner, Tax & Regulatory Services Partner, Tax & Regulatory Services +234 1 904 1714 +234 1 904 2134 +234 1 904 2133 [email protected] [email protected] [email protected] Patrick Nzeh Taiwo Okunade Olukunle Ogunbamowo @pnzeh @taiwookuns @KunleBamowo

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