The Finance Bill 2022 was signed into law by former President Muhammadu Buhari on the 28th of May 2023 as the Finance Act 2023. Effective from September 1, 2023, per the Finance Act (Effective Date Variation) Order 2023 by President Bola Ahmed Tinubu, the Act introduces crucial amendments in 11 key statutes.
• Capital Gains Tax Act
• Digital Assets: Section 3(a) of the Act now recognises digital assets as taxable property, subjecting its disposal to a Capital Gains Tax rate of 10%.
• Capital Losses: Section 5 has been amended to permit the offset of losses against gains from the disposal of similar assets when calculating chargeable gain. Where losses surpass chargeable gains, they can be carried forward for up to five years for deduction from presumable future gains of the same asset class.
• Roll-over Reliefs on the disposition of shares and stock: Section 31(6) of the CGTA is amended to grant roll-over reliefs on the disposition of shares and stock. Proceeds from the disposal must, however, be reinvested in purchasing shares of a Nigerian company within the same assessment year.
• Companies Income Tax Act (CITA)
• Shipping and Air Transportation: Section 5 of the Finance Act 2023 adds subsection (a) to section 14(4) of CITA, requiring shipping and air transport firms to submit tax returns without separate financial statements for Nigerian operations. They must provide a certified gross revenue statement and invoices endorsed by a director and external auditor. A new 14(6) is inserted, demanding regulatory agencies to ensure proof of prior-year tax filing and clearance certificates for Nigerian-taxable shipping and air transport companies to continue operations or secure approvals.
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• Repeal of Reconstruction Investment Allowance: The Act in Section 6 repeals Section 32 of CITA, which provides for the right of a company to enjoy a 10% allowance of the actual expenditure incurred on plants and equipment. However, companies can continue to claim any unutilised allowances incurred before the commencement date of the Act until they are fully utilised.
• Repeal of Rural Investment Allowance: The Act repeals Section 34 of CITA, which granted a rural investment allowance (15% to 100%) to companies enhancing rural areas with amenities such as electricity, water, or roads. Nevertheless, a company can keep using this allowance until fully utilised if it incurred qualifying expenses before the Act’s effective date.
• Taxation of foreign currency earned by hotels from tourists and reserved for tourism: Section 8 of the Act expunges section 37 of CITA, which grants a tax exemption of 25% for income received in convertible currencies from tourists and reserved for hotels, conference centres, and tourism facility development within five years. However, companies with reserved funds can still enjoy the exemption until funds are fully used, or the five-year limit expires.
Read also: The Finance Act 2023: Changes to tax legislation and the FIRS’ stance (Part II)
• Capital Allowance claim by companies in the Oil and Gas sector: Through Section 9, the Act amends paragraph 24 (7) of CITA’s 2nd Schedule to include the Petroleum Industry Act (PIA) 2021’s provisions. Now, businesses in upstream and midstream gas operations can offset their total capital allowances against their assessable profits, in line with PIA 2021.
• Customs, Excise Tariffs, etc (Consolidation) Act
• Imposition of Import Levy: Under the new section 13(4), a 0.5% levy is applied to eligible goods imported into Nigeria from outside Africa. This levy supports capital contributions, subscriptions, and financial commitments to organisations like the African Union, African Development Bank, and others as may be designated by the Minister of Finance.
• Enlargement of the scope of excise duty: Section 11 of the act broadens the list of services subject to excise taxes to include all services, including telecommunication services offered in Nigeria.
• Responsibility of the Minister of Finance in relation to the Tariff Review Board: The Act specifies the duties of the Minister of Finance as the leader and overseer of the Tariff Review Board, responsible for reviewing customs and excise tariffs.
• Personal Income Tax Act (PITA)
Premiums on life insurance: The Act allows for a deduction of any premium made by an individual to an insurance company for their life, their spouse’s, or for a deferred annuity based on the same. However, any segment of the deferred annuity withdrawn within five years from the initial premium payment day will incur taxation.
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• Petroleum Profits Tax Act
• Deductible contributions: The Act permits money given to a scheme, fund, or arrangement approved for decommissioning and abandonment to be deducted from taxes when calculating adjusted profit. After completing the decommissioning and abandonment, the excess will be subject to tax.
• Filing of Accounts and Returns: Section 17 of the Act creates a new section 30 in PITA, which mandates every company not yet involved in bulk oil sales to submit audited accounts and returns. For newly incorporated companies, this should be done within 18 months of incorporation, and for existing businesses, within five months from the fiscal year-end. Non-compliance incurs NGN10,000,000 on the first default, followed by NGN2,000,000 per day thereafter, or a sum set by the Finance Minister.
• Penalty: The Act amends sections 51 and 52, introducing a NGN10,000,000 penalty and an extra daily NGN2,000,000 penalty for ongoing breaches. Moreover, for any Act or Regulations offence, the guilty party may be fined NGN20,000,000, imprisoned for six months, or both, unless the Finance Minister sets a different penalty.
• Stamp Duties Act (SDA)
• The formula for distribution of Electronic Money Transfer Levy: Section 89A (4) of the SDA has been amended to make a provision for the sharing formula for Electronic Money Transfer levy as follows: 15% for the Federal Government and Federal Capital Territory, Abuja; 50% to the State Governments; and a 35% share to the Local Governments.
Read also: Nigeria’s Finance Act of 2020 and 2021 are apt for SME growth – Olufon
• Value-Added Tax
• Anti-avoidance transfer pricing rules: Section 7 of the VAT Act now authorises the Federal Inland Revenue Service (FIRS) to evaluate transactions to establish their authenticity and market value for taxation. This introduces anti-avoidance transfer pricing regulations and gives the FIRS authority to scrutinise contrived or fictitious dealings among related entities.
• Appointment of VAT Withholding/Collection agents by FIRS: Section 14 of the VAT Act was amended to empower the FIRS to appoint any person to withhold or collect VAT, and such designated individuals are obligated to remit the VAT withheld or collected in the currency of the transaction, to the FIRS, on or before the 14th day of the subsequent month.
• VAT deduction by foreign suppliers: Section 16 of the VAT now provides that Nigerian importers purchasing items via a non-resident supplier’s online platform have VAT charged and collected by that supplier, who must be an appointed VAT collection agent. To avoid double taxation, importers must present customs documentation proving the supplier charged VAT.
• Redefinition of the term “building”: Section 46 of the VAT Act was amended to provide a new definition of the term “building” to bring structures under the ambit of VAT.
• Tertiary Education Trust Fund (Establishment, etc) Act
• Increase in TET rate: Section 1(2) of the TETFA was amended by increasing the rate of TET from 2.5% to 3%. It’s important to highlight that the tertiary education tax rate recently rose from 2% to 2.5% with the passage of the Finance Act in 2021.
Read also: Finance Act 2021 and personal income tax & Sparing a thought for the sick geese
• Corrupt Practices and Other Related Offences Act (CPORO ACT)- Increase of fine upon conviction: The Act amended Section 22 (4), increasing the fine to be imposed on public officers who sign contracts without budget provision, administrative approvals, or procurement plans in the course of their official duties from NGN 100,000 to NGN 10 million.
• Public Procurement Act (PPA)
• New public procurement proceedings: The Act modifies section 16(1)(b) of the PPA, subjecting procurement actions to an approved plan, adherence to Bureau regulations thresholds, and the Finance Minister’s guidelines.
• Ministry of Finance (Incorporated) Act
• Establishment of a Governing Council, an Executive Board and a Management team: This Act amends section 3 of the Principal Act to establish a Governing Council, an Executive Board, and Management team for the Ministry of Finance incorporation. Appointed by the President upon the Finance Minister’s recommendation, these bodies ensure governance, administration, and strategic management.
Conclusion
The amendments of the Finance Act 2023 are a testament to the government’s concerted efforts to strengthen the Nigerian Taxation ecosystem. Taxpayers and businesses must stay abreast with these amendments to ensure compliance. As with any legislation update, these revisions’ full impact will become apparent over time.
Marvis Oduogu is a Team Lead at Stren & Blan Partners and supervises the Firm’s Taxation, Immigration, Labour and Employment Practice Groups. Ifeanyi Ezechukwu and Favour Etagbemukwe are Associates in the Firm’s Commercial Dispute Resolution, Taxation, Immigration, Labour and Employment Practice Groups.
Stren & Blan Partners is a full-service commercial Law Firm that provides legal services to diverse local and international Clientele. The Business Counsel is a weekly column by Stren & Blan Partners that provides thought leadership insight on business and legal matters.
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