On December 31, 2020, the President signed the 2020 Finance Act
(now Finance Act, 2020) into the Act, along with the 2021 budget allocation
Action. In fact, the introduction of the Finance Act 2020 (FA 2020) is at
The start of the 2021 financial year is a step in the right direction.
It can be concluded that the Nigerian government is doing this
conscious efforts to align its local laws with the global best
Practices, promoting tax equity, improving usability
Companies that provide small business support and maintain a
suitable environment for investments in infrastructure. The effort
the Nigerian government to make sure the finance law is in place
and that it must be accompanied by the Appropriation Act annually
be praised. It's a forward-looking initiative and we believe
that with this annual review of tax laws all superfluous and
Ambiguous sections of our tax laws will soon be eliminated.
The FA 2020 introduced significant changes to a number of taxes
and regulatory laws in Nigeria. This includes changes to the key
Provisions of approximately fourteen (14) laws, including but not limited to
according to the Income Tax Act, the Income Tax Act, Petroleum
Income Tax Act, Higher Education Trust Fund Act, Value Added Tax
Law, capital gains tax law, industrial development (income tax
Facilitation Act, Customs and Excise Tax Act and Stamp Tax Act.
The aim of this article is to review the main changes to the IA
2020, with a special focus on its manufacturing impact
Sector.
What has changed – direct taxes
Reduction of the minimum tax rate
To ease the burden on businesses in the face of the negative
Impact of Covid-19 on Businesses, FA 2020 changed the provisions of
Section 33 of the Companies Income Tax Act (CITA) to reduce the minimum amount
Tax rate from originally 0.5% to 0.25%. This 50% reduction in
The minimum tax rate applies to tax returns that have been prepared and submitted
for each valuation year due on any date between January 1, 2020
and December 31, 2021. As Nigerians, this is quite commendable
Government has taken into account the plight of businesses
considering the consequences of the pandemic. It's pretty
possible that some qualified companies whose registration deadline
was due before the signing of the FA 2020 and has already been submitted and
remitted their taxes. Such companies should consider re-filing
their returns and adjustment of their taxes payable accordingly. Since
The law also changed the section on tax refunds, it should be easy
for companies to request a refund of the excess minimum tax, e.g.
Returns submitted between January 1, 2020 and December 31, 2020.
Companies with a turnover of less than 25 million euros,
Companies within the first four years of starting business
and companies engaged in agricultural trade or business
still exempt from the minimum tax.
Small businesses are exempted from university tax
(TET)
The FA 2020 clarifies the uncertainty in the FA 2019 through changes
Section 1 of the Tertiary Education Trust Fund Act expressly authorizes it
exempt small businesses from TET. This confirms that companies are using
Sales of less than 25 million euros that were exempt from CIT are also
not liable to TET. Though some qualified taxpayers have already taken
this position and are currently not judging themselves at TET, the FA
2020 has created the legal basis necessary to support this
work out.
Acceptance of Covid-19 donations or contributions as
Allowable deduction
The Covid-19 pandemic has seen governments around the world
Make socio-economic changes to alleviate the effects of the pandemic
on its people and the economy. In Nigeria the government took
deliberate steps through its agencies, regulators and its various
Guns to both businesses and citizens during the
Pandemic. It is common knowledge that some manufacturing companies
made contributions through monetary and material donations to support
the palliative care provided by the government.
The FA 2020 taking into account the efforts of this
Company amended Section 25 by adding a new subsection that
extends the permissible tax-deductible donations to include donations
made by companies to the Covid-19 Crisis Intervention Fund or another
similar fund set up by the federal government or a state
Government.
It is important to note that the amount is allowable for the deduction
of companies is then limited to 10% of the assessable profit
Deduction of other permitted donations. Businesses are also required
submit the necessary documents from which the donations to the
the competent tax authority together with the full costs incurred
reasonably, exclusively and necessarily for that purpose. It is
Therefore, it is appropriate for companies to remain reasonable and sufficient
Records to justify your claims with the competent tax authority as
and if necessary.
Manufacturing companies that source or manufacture items
Donations in kind are advised to check their records and ensure this is the case
You meet the necessary requirements to enjoy taxes
Deductibility in relation to the donations made.
Right to capital permit for software
FA 2020 amends CITA's second schedule to include the
Definition of Qualifying Capital Expenditures (QCE)
Investing in the development and acquisition of software
or other electronic applications. The implication is this capital
Software approval claims are now permissible. This is consistent with
the government's desire to encourage investment in technology,
This is an important tool for production in the manufacturing industry.
especially with increasing automation in production processes.
Notwithstanding the above, the FA 2020 does not state that
applicable capital grant rates for software, either
Clarify whether or not there is an investment grant for qualifying assets
Entitlement to software-related costs. Taxpayers would usually
Expect further clarifications in the future. By doing
In the meantime, it may be advisable for taxpayers to use the electricity
Capital grant rates for the associated hardware
Component / equipment to a corresponding software
Effort.
Capital Gains Tax (CGT)
The amended Section 2 of the CGT Act requires taxpayers to
dispose of taxable assets and generate capital gains each year to
Pay and File CGT returns no later than June 30th and December 31st
this year. It is unclear why there were two due dates
Payment and filing of CGT as this can create unnecessary confusion.
Typically, additional clarifications would be required
Ensure adequate guidance to taxpayers.
Accountability and record keeping by
Companies
The FA 2020 tries to eradicate the culture of the bad balance
Keeping what is prevalent in small and medium businesses. In this
In relation to this, Section 63 of the CITA has been amended to ensure that companies
including companies exempt from incorporation in Nigeria,
Keep a proper record of accounts and adequate information about them
Business operations. The law also includes punitive measures that
Indicate that companies do not provide any of the requested records
the tax authority, such companies are to be paid as a penalty,
100,000 euros in the first month the error occurs and 50,000 euros
for each subsequent month in which the error persists. It
It remains to be seen how this amendment will be implemented by the EU
Tax authorities and hopefully this will not constitute an additional one
Burden on small businesses.
E-mails as valid means of appeal against the evaluation
Hints
Sections 68 and 69 of the CITA have been modified to confirm the courier service
Service, email or other electronic media as a valid means for
Issuing of assessment notices by the FIRS and submission of
Taxpayer Objections. The FA 2020 is intended to reduce the burden of
physical filings and encourage easy tax compliance
Legislation. This is a positive development as it has the potential to do so
Reduce compliance burden. This could also improve positively
Rank of the country in terms of ease of paying taxes and ease of use
Doing business in Nigeria.
Schedule for the payment of taxes from the assessment
Hints
The FA 2020 revised the deadline for submitting taxes
The final reviews (without objection) should be paid for. That was
reduced from two (2) months to thirty (30) days. As
Stricter penalties for deliberate, incorrectly declared returns
Companies
The law provides penalties for companies that
deliberately misrepresent their self-assessment profits or taxes,
in the form of penalty and interest on the incorrectly declared amount that
occurs from the day the faulty returns were submitted. The act
however, remains silent about how the tax authorities will determine the returns
intentionally misrepresented by taxpayers.
What has changed – indirect taxes
Confirmation of the starting period of the new 7.5% VAT
rating
The FA 2020 deals with the ambiguity in the start date of the
VAT rate and gives the Minister of
The position of Finance by amending Section 4 of the VATA for confirmation
that the VAT rate of 7.5% came into effect on February 1, 2020.
Time of delivery of goods and services
The law introduced a new Section 2A which provides for the following
Clarification at the time of delivery of a good / service (for VAT
Purpose). The section confirms that the delivery is deemed to have taken place
at the time an invoice or receipt is issued by the supplier or
Payment is due for this or has been received by the supplier
Supply, whichever comes first. This will fix problems in advance
Billing, billing dates and future agreements.
Change the definition of VAT and
Services
The FA 2020 changes the VAT law and expressly exempted properties.
Buildings, money and securities from the definition of goods. It
also exempts interest in land, buildings, money or security
the definition of services subject to VAT. Hence the controversy
to whether the sale or transfer of shares in land, buildings
Money and security are subject to VAT
Fixed.
Confirmation of WHT as final tax on income from
Non-resident companies (NRCs) from engineering, management,
Advice and professional services for people in
Nigeria
The FA 2020 contains a reservation that clearly states this
Withholding tax (WHT) is the ultimate tax on NRC's income
who make technical, professional, management and advice
(TPMC) Services for Individuals in Nigeria. Manufacturing company that
TPMC services provided by NRCs must subtract WHT
the fees payable to such NRCs, insofar as the NRCs do so
Significant economic presence in Nigeria.
New items are exempt from VAT
The appendix to the Value Added Tax Act extended the scope of the exemption of goods
from VAT to commercial aircraft and commercial aircraft
Engines and spare parts for commercial aircraft. In a similar way,
Excluded services now include renting, renting or leasing tractors,
Plows and other agricultural implements for agriculture
Purposes. Taxpayers should take note of this development and ensure it
Inapplicability of VAT to such goods and services.
Reduction in excise duty rates
To encourage investment in the agricultural sector,
The excise duty on tractors has been reduced from 35% to significantly
5%; Duty on motor vehicles for public transport and the transport of
Goods were reduced from 35% to 10%; and tax on motor vehicles
for personal use has been reduced from 30% to 5%. This is welcome
Development, since the import costs would be reduced and the
Vehicles are becoming cheaper.
Conclusion
The Nigerian government's conscious effort to make changes
existing tax laws and improving the gaps identified in the existing one
Tax laws are very commendable. The FA 2020 decree too
returns the tradition of accompanying the annual appropriation law
with a finance law that provides a platform for the fulfillment of income and
other specific economic goals. It is our hope that it will
Implementation is done in a way that businesses can enjoy
Make the most of the changes and improvements made by the
FA 2020.
The content of this article is intended to provide a general overview
Guide to the subject. Expert advice should be obtained
about your particular circumstances.