FINANCE ACT 2020
AN OVERVIEW OF THE FINANCE ACT
The Finance Act 2020 established a crisis intervention fund and the unclaimed funds trust fund regarding funds in dormant bank accounts which was set up for national crisis related expenditure.
The Act provides for the establishment of the fund from the consolidated revenue fund and special accounts in sums of N500 Billion or any other sum as may be approved by the National Assembly. The Finance Act was passed by the National Assembly and signed into law by the President on the 31st December, 2020 with certain key amendments and took effect from the 1st January, 2021. In essence the Finance Act came into effect on the 1st April 2020. The Act further introduced over 80 amendments to the existing tax laws in Nigeria.
The Promulgation of the Finance Act came as a result of the ongoing COVID -19 pandemic hence trust funds were setup in response with the aim at addressing all crisis related expenditure. It is on that basis that the Act came into existence seeking to cushion the effects the Pandemic had on the economy although measures were taken to cushion the impact of the economic challenges triggered by the COVID-19 Pandemic.
The Amendments were also aimed at addressing ambiguities and providing clarity to certain provisions in the laws and to further provide certain tax incentives to companies. There are various amendments to the bill and we shall be talking about them in brief. Some of the legislations amended by the Finance Act are the:
1. Companies Income Tax Act (CITA)
2. Capital Gains Tax Act (CGTA)
3. Personal Income Tax Act (PITA)
4. Value Added Tax Act (VATA)
5. Nigerian Export Processing Zone Act (NEPZA)
6. Oil and Gas Export Free Zone Act
7. Federal Inland Revenue Service (Establishment) Act
8. Custom and Excise Duties Act, etc.
We shall consider some of these amendments.
Companies Income Tax Act (CITA)
By virtue of Section 11 (2) of the CITA, the term “Primary agricultural production” meant a company’s primary agricultural production but excluded production at intermediate or derivative levels. The amendment introduced tax exemption on bank loans granted for the purpose of “primary agricultural production.” Sections 13(2) (e), 14, 16(12), 23(1), 23(1) (c), 25, 27(k), 33, 39, 53, 55, 63, 68, 77(2) and 105 are apposite on this issue. For insurance companies, the previous position in the Finance Act 2019 regarding tax on premiums received by insurance companies is now clarified in the 2020 Act which has introduced a new base for determining tax on premiums and incomes.
Furthermore based on the timeframe for the payment of a reduced minimum tax, affected companies can now file amended returns for the period already passed. The amendment also introduces penalties and interest for deliberate filing of incorrect tax returns.
Capital Gains Tax Act (CGTA)
By virtue of Section 2 of the CGTA, a new filing period has been introduced by the Finance Act 2020. Before now, the due date for the filing of CGT returns was aligned to the provisions of the CITA.
However, by the amended section now stipulates that CGT returns are now required to be filed not later than 30 June & 31 December of the year the chargeable asset(s) was disposed. Other sections in the CGTA amended by the Finance Act 2020 are sections 24 (f), and 36 (2), (3), and (4). Briefly, these sections provide for charging tax on the compensation paid to a tax subject over their loss of office where the compensation is above N 10,000,000 (Ten Million Naira only) and the time for remitting of the CGT is now tied to the provisions of the Pay-As-You-Earn (PAYE).
Personal Income Tax Act (PITA)
By virtue of Sections 6 of PITA, persons who are not resident in Nigeria, and executors or trustees of estates who provide professional services are subject to tax in Nigeria insofar they possess or maintain significant economic presence in Nigeria. The Minister of Finance is yet to provide a guide on what amounts to significant economic presence.
<>h4Value Added Tax Act (VATA)Section 2 of the amended Act provides for the inclusion of incorporeal right as taxable supply of service. Furthermore, the Act has also clarified the issue of time of supply of service in relation to when VAT is due and payable. Further amendments were made to Sections 10 and 46 of the Act. Also, a foreigner who resides outside Nigeria but who provides taxable supply of service must comply with the law on VAT.
Nigerian Export Processing Zone Act (NEPZA) Sections 18 (1) of both the Nigerian Export Processing Zone Act and Oil and Gas Export Free Zone Act provides that companies within the free trade zones should file their returns based on the newly amended Section 55 of CITA. The penalties for non-compliance has also been stipulated in this section.
Stamp Duty Act (SDA)
The FIRS is now empowered by virtue of the amended Section 2 of the SDA to administer the SDA and for the purpose of generating revenue for NIPOST. Further amendments to this Act include the applicability of stamp duty on the electronic receipt and transfer of funds which has been replaced by the Electronic Money Transfer Levy, and also contains a distribution formula in the amended section, to wit, 15% to the Federal Government and 85% to the State Government.
Oil and Gas Export Free Zone Act
By virtue of Section 55 of the amended CITA, companies registered and operating within the prescribed zone are now to file their income tax returns and are liable to suffer the penalties for default prescribed therein.
Federal Inland Revenue Service (Establishment) Act By virtue of Sections 8 (1), 23, 25, 26, 28, 30 of the amended FIRS Act, the functions of the FIRS was expanded to include revenue collection from foreign governments and persons. Also, dedicated accounts for settlement of tax funds were created to improve tax administration in Nigeria. Furthermore, the use of technology for tax administration purposes has been given legislative backing by the Finance Act 2020 thus helping to reduce tax administrative burdens. The FIRS Act has also been amended to provide for exchange of information between financial institutions and the FIRS.
Custom and Excise Duties Act
By virtue of Section 21 of the amended Customs and Excise Duties Act, there is now an excise tax exemption on imported goods whose raw materials are not sourced in Nigeria. However, the goods slated in the fifth schedule of the Customs and Excise Tariff, e.t.c. (Consolidation) Act are now subject to excise duties just as locally manufactured goods. The Second Schedule of the Act was also amended to exempt import duty on engines of airlines in Nigeria. The Amended First Schedule of the Act provides that import duties payable on motor vehicles are as well as duty on tractors is now 5% and 10% respectively. On the other hand, levy on motor vehicles for the transport of persons is now 5% while the import duty on motor vehicles for the transport of good is now 10%. In other words, the amendment has gone a long way in reducing tax burden on the airlines business.
Companies and Allied Matters Act (CAMA) amendments The new Section 432 of CAMA provides for a new approach to the law on unclaimed dividends in Nigeria. Unclaimed dividends of with a life of twelve years or more are now to be added to the company’s profit for onward distribution to shareholders. However, for unclaimed dividends of companies listed on the Nigerian Stock Exchange, if they remain unclaimed for a period of six years, they would be transferred to the Unclaimed Funds Trust Fund of the Federal Government and same is to be used by the Government in financing its budget.
Industrial Development (Income Tax Relief) Act (IDITRA) The amended Sections 1 and 25 of the Act now includes small or medium sized companies and the definition of same is clearly stated under CITA. The amendment clarifies which agricultural companies are eligible for tax holiday incentive.
Crisis Intervention Fund and Unclaimed Funds Trust Fund Act amendments
The Finance Act 2020 established a Crisis Intervention Act and Unclaimed Funds Act. The amendment also provides for the establishment of the Fund distinct from the Consolidated Revenue Fund. The Crisis Intervention Fund has a take-off fund of N 500,000,000,000 (Five Hundred Billion Naira) or such other sum as may be approved by the National Assembly from time to time. The fund is set-up to cater for moments of national crisis related expenditure or exigencies. The Debt Management office would manage the Trust Fund which is indeed, as the Act stipulates, a trust for the shareholders or account holders whose funds have or shall be paid into the Fund.
Conclusion
It appears that the Finance Act 2020 will have long lasting effects on companies by way of enhancing compliance regarding tax obligations. However, it also introduces hitherto non-existent incentives to entities covered by its provisions as well.
Notes Akinbiyi Abudu, Audrey Obidike & Adesope Okoh, Highlights of Finance Act, 2020, 5 Feb 2021. Ernst & Young. Boms Resources Consulting, Finance Act, 2020, Nigeria; An Overview, January 7, 2021.