The Finance Act 2023 (the “Act”) was signed into law on 28 May 2023 by former President, Muhammadu Buhari, GCFR. The Act provides that the amendments therein come into force on “1 May 2023 or such other date that shall be indicated by the National Assembly by law, or the President by assent or order”. Therefore, until the National Assembly or the President specifies a different date, the amendments introduced by the Act take effect from 1 May 2023.
In Part 1, we have highlighted some key amendments to tax legislation including the Capital Gains Tax, The Companies Income Tax Act, and others. In this article, we will finish reviewing the amendments and also analyse the position of the FIRS in the Public Notice.
Key amendments to tax legislation
1. The Stamp Duties Act: Local governments are to now receive a share of the revenue from the Electronic Money Transfer Levy. The new formula is 15%, 50%, and 35% to the Federal Government, state governments, and local governments, respectively.
2. The Value-Added Tax Act:
i. Deadline for filing VAT returns by appointed agents: The deadline for the remittance of VAT withheld by FIRS-appointed agents is now the 14th day of the following month as against the previous deadline of the 21st day of the following month.
ii. VAT Anti-Avoidance Rule: A VAT anti-avoidance rule has been introduced. The FIRS is now empowered to make necessary adjustments to counteract the effect of any artificial or fictitious transaction.
iii. Goods purchased online from a non-resident supplier: An importer of goods purchased online from a non-resident supplier appointed by the FIRS to charge and collect VAT is now required to provide proof of such appointment and registration in order to avoid paying VAT at the port.
iv. Limiting the Definition of “Building”: The definition of “building” (the sale or rental of which is exempt from VAT) has been amended to exclude any fixture or structure that can easily be removed from the land, such as radio and television masts, transmission lines, cell towers, vehicles, mobile homes, caravans, and trailers. As such, VAT is now payable on these fixtures.
3. The Tertiary Education Trust Fund Act: The rate of tertiary education tax has been increased from 2.5% to 3%.
The FIRS’ Position in the Public Notice
In a public notice titled “Enactment of the Finance Act, 2023” (the “Public Notice”), the FIRS has provided its position on the timeline for complying with some of the changes introduced by the Act. The position of the FIRS is examined below:
1. Remittance of VAT by FIRS-Appointed Agents: The FIRS has directed that persons appointed to withhold VAT are to remit VAT withheld in June on or before 14 July.
2. VAT on Items Excluded from the Definition of Building: The FIRS has directed taxpayers to start charging VAT on items excluded from the definition of “building” from 1 July 2023.
3. Rural and Reconstruction Investment Allowances and the 25% Exemption of FX Earnings by Hotels: The FIRS has stated that rural and reconstruction investment allowances and the 25% exemption of FX earnings by hotels will not apply to “tax returns becoming due in respect of accounting period ending on or after 1 July, 2023.”
the Federal High Court held recently that amendments to tax legislation cannot be applied retroactively unless the law expressly provides otherwise.
Given that tax is payable in respect of trading and not on returns reporting the trading, it is unlikely that the FIRS intended that the amendment will not apply to “…tax returns…” Rather, it appears that the FIRS has effectively taken the view that any portion of these allowances that is unutilised before the effective date of the Act cannot be enjoyed by taxpayers whose tax returns are due for filing on or after 1 July 2023. In respect of the 25% exemption of FX earnings, it also appears that the FIRS has taken the view that taxpayers whose tax returns are due for filing on or after 1 July 2023 cannot enjoy the exemption in relation to funds that were reserved prior to the effective date of the Act.
However, the foregoing positions of the FIRS conflict with the amendment introduced by the Act. As mentioned earlier, the Act provides that companies with any unutilised portion of the allowance can continue to claim the allowance until it is fully utilised. Also, the Act provides that a hotel that has set aside reserved funds prior to the effective date of the Act can continue to enjoy the exemption until the earlier of the utilisation of the funds or the expiry of the five-year limit.
4. Rate of Tertiary Education Trust Fund Act: The FIRS has directed that the new TET rate of 3% “shall take effect for TET becoming due in respect of accounting period ending on or after 1 July, 2023.”
If the FIRS’ position were to be adopted, the new rate will apply to transactions that occurred before the effective date of the Act, which would amount to a retroactive application of the new rate. It is worth noting that the FIRS had attempted to retroactively apply an amendment introduced by the Finance Act 2019 to CITA, and Accugas Limited challenged the FIRS’ position at the Federal High Court in Suit No.:FHC/ABJ/CS/1289/2020; Accugas Limited v. FIRS.
The Finance Act 2019, with an effective date of 13 January 2019, deleted section 33(3)(b) of CITA, which exempted from the payment of minimum tax a company with at least 25% imported equity capital. Accugas met this threshold and took the position that it should still enjoy the exemption in respect of any trade activity conducted by it between January and December 2019, before the Finance Act came into force. The FIRS took the view that because Accugas filed its returns in July 2020, after FA 2019 had become law, Accugas had lost its entitlement to the minimum tax exemption.
In a judgment delivered on 27 June 2022, the Federal High Court agreed with Accugas and held that amendments to tax legislation cannot be applied retroactively unless the law expressly provides otherwise.
In reliance on the Accugas judgment, it can be argued that the new rate should not apply to income from trading activity occurring before the effective date of the Act, even if the returns reporting the trading activity were filed after the effective date.
The information contained in this publication is not to be construed as legal or tax advice. Taxpayers are advised to seek professional advice on the implications to their business of the amendments introduced by the Finance Act 2023.
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For additional information on any aspects of this publication, please reach out to the following: Jibrin Dasun ([email protected]), Perpetua Onyeukwu ([email protected]) and Tubosiya Ibama ([email protected]).
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