The Finance Act 2021 was signed into law on December 31, 2021 by President Muhammadu Buhari, alongside the Appropriation Act 2022. The Federal Government since 2019, has submitted Finance Bills alongside the yearly Appropriation Bills, to support the implementation of annual national budgets. These finance bills amend several provisions of taxation, customs, excise, fiscal and other relevant laws. The Finance Act 2021 introduced several amendments to thirteen laws. Some of these amendments are discussed below.
The Finance Act has amended the Fiscal Responsibility Act 2007, to expand the government’s borrowing powers and debt management. It provides that government at all tiers can borrow to “undertake critical reforms of significant national impact” in addition to borrowing for capital expenditure and human development. In addition, the Act previously provided that the government should borrow on concessional terms with low interest rate and with a reasonable long amortisation period. This has now been amended to allow for the government to borrow on “concessional terms or at relatively low interest rates and with a reasonably long amortisation period.”
The Finance Act amends the Companies Income Tax Act (CITA), Laws of the Federation of Nigeria (LFN) 2004 by empowering the Federal Inland Revenue Service (FIRS) to administer the taxation of non-resident companies with significant economic presence in Nigeria, engaged in digital services and provision of technical, management, consultancy or professional services to Nigerian customers. The income tax payable by such entities will be based on a fair and reasonable percentage of the turnover attributable to their presence. The Finance Act further amends the Companies Income Tax Act to introduce income tax on the profits of lottery and gaming companies, among several other amendments to the CITA.
One of the amendments introduced by the 2021 Finance Act is an excise duty on non-alcoholic, carbonated and sweetened beverages at the rate of N10 per litre, in the Customs and Excise Tariffs Act LFN 2004. Furthermore, the Finance Act has increased the rate of Tertiary Education tax payable by companies in Nigeria from 2% to 2.5% of their assessable profit by amending the relevant provision of the Tertiary Education Trust Fund Act 2011. In addition, the timeline of 60 days within which companies are expected to pay this tax has been reduced to 30 days of receipt of a notice of assessment from FIRS. Small companies (with an annual turnover below N25 million) are still exempt from paying this tax.
The Finance Act’s amendment to the Capital Gains Tax Act LFN 2004 now provides that gains accruing from the disposal of stocks and shares in a Nigerian company shall be taxed at the rate of 10% except in certain circumstances stipulated in the amendment. Also, the Nigerian Police Trust Fund Act 2019 is amended to empower the FIRS to assess, collect, account and enforce the payment of the stipulated 0.005% of the net profit of companies in Nigeria, into the Police Trust Fund.
The Federal Inland Revenue Service (Establishment) Act 2007 has also been amended by the Finance Act 2021, to expand the data protection obligation on officials of FIRS who have access to taxpayer information, to regard and deal with such information as secret and confidential. The penalty for failure to do so includes payment of fine, imprisonment or both. A further amendment to the Act provides that the FIRS may deploy technology to automate the tax administration process for assessment and information gathering, provided that it gives 30 days’ notice to the taxpayer. It further stipulates an administrative penalty for any person who fails to grant access to the FIRS after this period and any period of extension granted by the Service.
It is expected that the application of all the amendments introduced by the Finance Act will foster the implementation of the Federal Government’s 2022 Budget of Economic Growth and Sustainability. However, tax experts have noted that the practice of amending taxation laws on a yearly basis as introduced by the Buhari administration, is capable of complicating the taxation system and posing a challenge to the tax administration authorities, as well as individual and corporate taxpayers.