The Finance Act 2021 (“the Act”) was signed into law on the 31st of December 2021 by the President of the Federal Republic of Nigeria. The Act is effective from 1st January 2022 and amends 13 laws viz Capital Gains Tax Act, Companies Income Tax Act, Federal Inland Revenue Service Establishment Act, Personal Income Tax Act, Stamp Duties Act, Tertiary Education Trust Fund (Establishment) Act, Value Added Tax Act, Customs, Excise Tariffs, etc (Consolidation) Act etc
1. Capital gains tax at the rate of 10% now applicable on the gains accruing to a person upon disposal of shares in a Nigerian company except where;
- the proceeds of the disposal is reinvested in the shares of any Nigerian company within the same year of assessment. Note that, partial re-investment will attract tax proportionately.
- the disposal proceeds is less than N500 million in any 12 consecutive months provided that the person making the disposal shall render appropriate returns to the Service.
2. The profits of any company to be taxed under CITA in respect of Dividends includes compensating payments received by a lender from its approved agent or borrower in a Regulated Securities Lending Transaction.
3. FIRS empowered to assess companies income tax of foreign digital companies such as Netflix, Twitter, Facebook etc on a turnover basis.
4. The capital allowance claimable on an asset and to be deducted in ascertaining the total profits of a company is limited to the portion used for generating the assessable profits. Partial utilization to be pro-rated except where the proportion of non-taxable income is less than 20% of the total income of the company.
5. The reduction of minimum tax rate from 0.5% to 0.25% of gross turnover (less franked investment income) to be applicable for tax returns prepared and filed for any two accounting periods either from 1 January 2019 to 31 December 2020 or from 1 January 2020 to 31 December 2021 as may be chosen by the taxpayer.
6. Companies that failed to file tax returns within the time stipulated by law but opted for the reduced 0.25% minimum tax rate shall be liable to a penalty equal to the 0.25% minimum tax relief/reduction claimed by the company.
7. Companies engaged in gas utilization (downstream operations) to be entitled to an initial tax-free period of three years renewable for an additional period of two years. Note that this incentive shall not be claimable more than once by the same company; any company formed from reorganisation, restructuring, buyback etc out of a company which has already enjoyed this incentive shall not be entitled to it; it does not apply to any company that has claimed an incentive for trade or business of gas utilization under any law in Nigeria, including the Petroleum Profits Tax Act or the incentives under the Industrial Development (Income Tax Relief) Act.
8. Collection of tax in respect of disputed tax assessment to be in abeyance until determination of such objection or appeal while undisputed tax assessment is to be paid within 30 days after service of the notice of assessment on the company except otherwise extended by the FIRS.
9. Withholding tax on interest earned from a unit trust to be treated as final tax.
10. FIRS now authorized to deploy third party technology to automate tax administration process including tax assessment and information gathering provided that it gives 30 days’ notice to the tax payer (this notice maybe withdrawn or extended by the FIRS upon the written request from a tax payer). A penalty of N25,000 attaches for each day the failure continues where a company fails to grant access to FIRS after 30 days of receipt of the above notice.
11. Increase of the penalty payable by a Bank for failure to provide quarterly returns (for individual transactions exceeding N5 million and corporate transactions exceeding N10 million) upon demand by the FIRS to N1,000,000 for each of the quarterly returns or information not provided or incorrect returns or information provided.
12. FIRS to be the primary agency of the Federal Government responsible for the administration, assessment, collection, accounting and enforcement of taxes and levies due to the Federation, the Federal Government and any of its agencies except otherwise authorized by the Finance Minister.
13. Banks to make quarterly returns in respect of its new and existing customers and in default pay penalty of N1,000,000 for each of the quarterly returns or information not provided or incorrect returns or information provided.
14. The Finance Minister, subject to the approval of the National Assembly, shall make regulations for the imposition, administration, collection, remittance of levy, including regulations relating to the auditing, allocation, distribution of arrears of stamp duties and Electronic Money Transfer levies collected between 2015 and 2019 fiscal years.
15. Tertiary Education Tax at 2.5% of the assessable profit to be payable within 30 days of service of assessment. Note that small companies are exempt from payment of same.
16. The exemption from VAT registration and compliance obligations applicable to small companies with annual turnover less than N25m to exclude companies engaged in upstream petroleum operations.
18. Appointment of the FIRS to assess, collect and enforce the payment of Nigerian Police Trust Fund levy. The Act enacted in 2019 imposed a tax of 0.005% on the net profit of companies operating in Nigeria.
19. Introduction of excise duty on carbonated, non-alcoholic and sweetened beverages at N10 per litre.
20. FIRS to collect levy at 0.25% on profit before tax of commercial companies and firms with turn over exceeding N100,000,000 in the banking, mobile telecommunication, ICT, aviation, maritime, oil and gas sectors pursuant to the National Agency for Science and Engineering Infrastructure Act (as amended).
