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 this publication, we have highlighted some key amendments to tax legislation introduced by the Act and also analysed the position of the FIRS in the Public Notice.
Key amendments to tax legislation
1. The Capital Gains Tax Act (CGTA)
i. Digital Assets as Chargeable Assets: The CGTA has been amended to expressly specify “digital assets” as “chargeable assets” in respect of which capital gains tax can arise upon disposal. It appears that the intention of this amendment is to avoid any doubt regarding the taxation of digital assets. This is because prior to the Act, any capital gain arising from the disposal of any form of property (which would include digital assets) was liable to capital gains tax.
ii. Relief for capital losses: Prior to the Act, there was no relief for capital losses. With the amendment introduced by the Act, capital losses on the disposal of chargeable assets can be deducted from chargeable gains arising from the disposal of assets of the same class, and any unutilised capital loss can be carried forward for a maximum of 5 years. This relief complements the existing rollover relief.
2. The Companies Income Tax Act (CITA)
i. Deletion of reconstruction investment allowance: Prior to the Act, a 10% reconstruction investment allowance was available for expenditure on plant and equipment. With the passage of the Act, the allowance is no longer available for any expenditure on plant and equipment incurred after the effective date of the Act. However, for expenditure on plant and equipment incurred before the Act’s effective date, companies can continue to claim any unutilised allowances until they are fully utilised.
ii. Deletion of rural investment allowance: Prior to the Act, a rural investment allowance varying between 15-100% was available to companies that provided electricity, water, or tarred road to a rural area for the purpose of trade or business. With the passage of the Act, this allowance is no longer available. However, companies with any unutilised allowances can continue to claim the allowances until they are fully utilised.
iii. Deletion of the 25% exemption of FX earnings by hotels: Prior to the Act, a 25% tax exemption was available to hotels in respect of foreign currency income earned from guests if the income is placed in a reserve fund for expansion purposes and utilised within 5 years. The Act has deleted this exemption. However, a hotel that has set aside 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.
iv. Deletion of investment allowance on lease arrangements: Prior to the Act, investment allowance was available on plant and equipment acquired under a finance lease arrangement and on agricultural plant and equipment acquired either under a finance or operating lease arrangments. This allowance is no longer available with the passage of the Act.
The Finance Act 2023 (the “Act”) was signed into law on 28 May 2023 by former President Buhari and provides that the amendments therein come into force on 1 May 2023
v. Unlimited claiming of capital allowance by companies engaged in upstream and midstream gas operations: The unlimited claiming of capital allowances hitherto enjoyed only by agro-allied and manufacturing companies has now been extended to companies engaged in upstream and midstream gas operations as defined in the Petroleum Industry Act or the Petroleum Profits Tax Act. The capital allowance claimable per annum by all other companies is limited to 662/3 per cent of profits.
vi. Tax returns by non-resident shipping and air transport companies: Non-resident shipping and air transport companies that do not provide financial statements of their Nigerian operations are now required to submit a detailed gross revenue statement of their Nigerian operations showing the full sums earned and supported by all invoices issued to their customers. The statement must be certified by the company’s external auditor and one of its directors.
vii. Evidence of tax returns filings and tax clearance certificates required for shipping and air transport approvals and permits: Regulators in the shipping and air transport sectors are mandated to require companies to provide evidence of income tax returns filings and tax clearance certificates before relevant approvals and permits are processed.
3. The Customs, Excise, Tariff Etc. (Consolidation) Act (CETA)
i. Import Levy to Finance External Obligations: An import levy of 0.5% is payable on all eligible goods imported into Nigeria from outside Africa to finance Nigeria’s capital contributions, subscriptions, and other financial obligations to the:
a. African Union, African Development Bank;
b. African Export-Import Bank;
c. ECOWAS Bank for Investment and Development;
d. Islamic Development Bank;
e. United Nations; and
f. other multilateral institutions as may be designated by the Minister of Finance.
ii. Excise Duty on Services: Excise duty is payable on all services provided in Nigeria, including telecommunication services, at rates to be specified via a Presidential Order. It is noteworthy that “services” are not defined by the Act. As such, it appears that the excise duty would be payable on the supply of any service.
4. The Personal Income Tax Act
Deduction of Premium on Deferred Annuity: Any amount paid as a premium by an individual in relation to a contract for a deferred annuity is tax-deductible. However, any portion of a deferred annuity withdrawn within five years of paying the premium will be taxed at the point of withdrawal.
5. The Petroleum Profits Tax Act (PPTA)
The Act makes the following amendments to the PPTA in order to align it with the PIA:
i. Under the PIA, contributions to a decommissioning and abandonment fund are tax-deductible. It was, however, unclear whether it was deductible under the PPTA. With the amendment introduced by the Act, it is now clear that such contributions are deductible, provided a statement of account of the fund is provided. Any surplus fund after decommissioning and abandonment of the field would be subject to petroleum profits tax.
ii. The Nigerian Upstream Regulatory Commission has been empowered to determine the fiscal price of crude oil for tax purposes. Previously, pricing was to be agreed upon by the Federal Government of Nigeria and taxpayers.
iii. Petroleum profits tax returns must include a duly completed self-assessment form attested to by a principal officer.
In part 2 of this article, we will review the changes to tax law under The Stamp Duties Act, The Value-Added Tax Act, the Tertiary Education Trust Fund and the position of the FIRS via its Public Notice.