Authors:

Ifeanyi Ujah– Associate, Punuka Attorneys & Solicitors

Rosemary Nne Bernard– Associate, Punuka Attorneys & Solicitors

Introduction:

The fiscal measures by the administration of the Former President Muhammed Buhari culminated in the New Finance Act 2023, which was enacted by the National Assembly and Assented by the President on the 28th of May 2023; just a day to the end of his tenure, with a stated effective date of 1 May 2023.

The New Finance Act is the latest of the series or successive Finance Acts enacted in Nigeria[1], which have amongst other things introduced several changes into the Nigeria’s tax laws and supplemented the revenue generation drives of the government.

The New Finance Act amended the provisions of Eleven (11) Statutes which are: Capital Gains Tax (CGT) Act, Companies Income Tax (CIT) Act, Customs, Excise Tariff, Etc. (Consolidation) (CET) Act, Personal Income Tax (PIT) Act, Petroleum Profits Tax (PPT) Act, Stamp Duties (SD) Act, Value Added Tax (VAT) Act, Tertiary Education Trust Fund (Establishment, etc) Act, Corrupt Practices and Other Related Offences Act, Public Procurement Act and the Ministry of Finance Incorporated Act

The New Finance Act is generally targeted at reviewing the existing incentives in the tax laws, generating more revenue to the government by creating additional forms of taxes and increasing tax rates, while tightening penalty regime in order to drive tax compliance.

Below are highlights of some of the key amendments introduced by the Act.

Capital Gains Tax Act- Sections 2 to 4 of the Finance Act

1. Addition of digital assets to the list of chargeable assets for capital gains calculations.  The Capital Gains Tax Act already stipulates that all forms of property are assets for the purposes of the Act. The New Finance Act 2023 now specifies that digital assets as chargeable assets.  As a result, 10% CGT will apply to any chargeable gains from the sale of digital assets such as cryptocurrencies, non-fungible tokens (NFTs), and other tokenized assets.

1. Incorporates the idea of “tax-loss harvesting” by allowing capital losses from the sale of chargeable assets to be offset against capital gains from the sale of similar-class assets.  Additionally, unabsorbed capital losses may be carried forward for a maximum of five years and offset by any future capital gains attributable to the sale of a chargeable asset belonging to the same asset type.

1. Inclusion of shares and stocks to the list of qualified assets for rollover relief. Nevertheless, the money must be reinvested in the same year as the assessment.

Companies Income Tax Act – Sections 5 to 9 of the Finance Act

1. Introduction of the requirement that a comprehensive gross revenue statement of the Nigerian operations for the specified period, endorsed by a director of the company and an external auditor, must be submitted by international shipping and air transport companies that fail to include audited financial statements when filing their CIT returns. The statement must be supported by all invoices issued to pertinent customers.

1. Mandates regulatory agencies to ask shipping and air transport businesses for proof of their tax filing and tax clearance certificates before processing and granting their business licenses and permits.Removal of incentives like the Reconstruction and Rural Investment Allowance has now been deleted except incurred on or before May 1st, 2023.

1. The removal of the incentives on the 25% of the income in convertible currency derived from tourists by a hotel company. However, a company that has set aside reserve fund will continue to enjoy the exemption until the fund is entirely utilized or the 5 years limit has passed, whichever comes first.

Customs, Excise Tariff, Etc (Consolidation) (CET) Act – Section 10 to 12 of the Finance Act

1. Introduction of a 0.5% import levy on goods brought into Nigeria from outside of Africa.

1. Introduction of excise taxes at rates the President may specify through an order on all services (including telecommunication services) rendered in Nigeria.

Personal Income Tax Act – Section 13 of the Finance Act.

1. The reinstatement of the tax-deductible nature of any premium paid by an individual for oneself or one’s spouse under personal income tax act, including a deferred annuity payment except unless withdrawal is made before the end of 5 years.

Petroleum Profits Tax Act – Sections 14 to 20 of the Finance Act.

1. Decommission and abandonment contributions made by upstream companies to funds, schemes, or other arrangements that have been approved by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) are treated as allowable deductions for PPT purposes, provided that a Statement of Account for the fund is provided, and any residue of the fund is taxable.

1. Revision of the PPT Act’s chargeable crude oil price calculation methodology to use the fiscal oil price per barrel.  When a crude stream has no fiscal price, the NUPRC shall establish a fiscal price based on a fair and reasonable relationship to the established fiscal oil price of Nigerian crude oil streams of comparable quality and specific gravity, or, in the absence of Nigerian crude oil streams of comparable quality and specific gravity, a fair and reasonable relationship to the official selling prices at major international trading centres for crude oil of comparable quality.

1. Introduces an administrative fine of NGN10,000,000 in the first month of default for failure to comply with the PPT Act’s provisions where no specific fine is specified, and a further NGN2,000,000, or any other amount the Minister of Finance may agree, for each day the default persists.

Stamp Duties Act – Section 21 to 25 of the Finance Act.

Modification of the electronic money transfers (EMT) levy-sharing formula to a 15% federal share, a 50% state share, and a 35% local government.

Value-Added Tax Act – Sections 22 to 25 of the Finance Act.

1. Change in the filing deadline for VAT withheld at source by designated VAT collection agents to the 14th day of the month after the transaction.

1. Redefinition of term “building” for VAT purposes to exclude any structure not permanently affixed to land for all or most of its useful life.

1. The application of transfer pricing rules to VAT on transactions between connected persons considered to be artificial or fictitious.

1. Importers must now show proof of the non-resident supplier’s (NRS) registration or appointment as well as evidence that VAT was charged on the sales invoice of the goods to clear the goods at the port of entry into Nigeria without paying VAT. This requirement applies to importers who purchase taxable goods on an online electronic or digital platform run by an NRS appointed by the Federal Inland Revenue Service to charge and collect VAT.

Tertiary Education Tax Act – Section 26 of the Finance Act

1. The increase of TET rate from 2.5% to 3%.

Corruption Practices and Other Related Offences Act – Section 27 of the Finance Act

1. Introduction of three years imprisonment or a NGN10,000,000 fine punishment for a public officer who in the discharge of his official duties awards or signs any contract without budget provision, administrative approvals and procurements plans.

Public Procurement Act – Section 28 of the Finance Act

1. The requirement of procurement plans in addition to prior budgetary appropriations before the formalization of procurement proceedings as well as the mandatory obtainment of certificate of No objection to contract award from the bureau.

Ministry Of Finance Incorporated Act – Section 29 of the Finance Act

1. Establishment for the corporation the following bodies; the governing council, an executive board and a management team or as may be appointed by the president on the recommendation of the minister of finance for the purpose of proper good governance and daily administration of the corporation.

1. The Corporation shall develop from time to time the internal guidelines of the corporation which shall be in tandem with the Finance Act. 

1. The Minister of Finance is empowered to make initial and subsequent adoption of the corporations’ regulations and internal guidelines. 

Conclusion:

The Finance Act of 2023 is poised to bring significant changes to Nigeria’s financial landscape. With its implementation, the government aims to promote economic growth, and enhance revenue generation. The stringent penalties and administrative requirements introduced by the Act will promote compliance and deter tax evasion.

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[1] There have been passed 2019, 2020, and 2021 Finance Acts.