Finance Bill 2023 Receives Presidential Assent
June 9, 2023
On 28 May 2023, the highly anticipated Finance Act, 2023 (“the Act”) was signed into law by former President Muhammadu Buhari. The Act, which has an effective date of 1 May 2023, introduces significant changes to a number of tax and regulatory laws in Nigeria. Specifically, the Act amends the Capital Gains Tax Act, Companies Income Tax Act, Customs and Excise Tariffs etc, (Consolidation) Act, Personal Income Tax Act, Petroleum Profit Tax Act, Stamp Duties Act, Value Added Tax Act, Corrupt Practices and other related Offences Act, Tertiary Education Trust Fund (Establishment) Act, Public Procurement Act, Ministry of Finance (Incorporated) Act.
Some of the key amendments introduced by the Act include the following:
Capitals Gains Tax Act
- Recognition of digital assets as a form of chargeable asset subject to capital gains tax at the rate of 10% on gains accruing from the disposal of such digital assets.
- Provision for the carry forward of capital losses from chargeable gains for a period of up to 5 years.
- Provision for roll-over reliefs to be granted on sale of stock and shares subject to reinvestment of the proceeds of such sale in the acquisition of shares in a Nigerian company within the same year of assessment.
Companies Income Tax Act
- Removal of Investment Allowance of 10% applicable on capital expenditure incurred on plant and equipment. However, this will not apply to expenditure on plant and equipment incurred on or before the effective date of the Act (1 May 2023).
- Removal of Rural Investment Allowance ranging from 15% to 100% applicable on capital expenditure incurred for the provision of facilities such as electricity, water or tarred road which was previously contained in Section 34 of the Companies Income Tax Act. This will also not apply to such expenditures incurred on or before the effective date of the Act (1 May 2023).
- Removal of the income tax exemption on 25% of incomes in convertible currencies derived from tourists by companies engaged as hoteliers. This exemption was previously granted with the proviso that such companies put such income in a reserved fund to be utilised within 5 years for the building or expansion of new hotels, conference centres and new facilities for the purpose of tourism development. The Finance Act amendment will however not apply to companies that have currently set aside such reserved funds. Such companies are allowed to continue to enjoy the exemption until the funds set aside are fully utilised or until the five-year limitation period has elapsed, whichever is earlier.
- Companies engaged in upstream and midstream gas operations are now clearly exempted from the 662/3% restriction on claim of capital allowance on assessable profits under the Companies Income Tax Act.
Customs, Excise, Tariff, etc. (Consolidation Act)
- Imposition of a levy of 0.5% on all eligible goods imported into Nigeria from outside Africa to finance capital contributions, subscriptions and other financial obligations to the Africa Union, African Development Bank, Africa Export-Import Bank, ECOWAS Bank for Investment and Development, Islamic Development Bank, United Nations and other multilateral institutions as may be designated by regulation issued by the Minister responsible for Finance.
- The scope of services liable to excise duty under the Customs, Excise Tariff, etc.. (Consolidation) Act has been expanded to include all services including telecommunications services.
Personal Income Tax (PIT) Act
- Premium paid to an insurance company in respect of a life insurance or contract for deferred annuity for the life of an individual or his/her spouse shall be treated as an allowable deduction under the PIT Act subject to a minimum holding period of 5 years. The implication of this provision is that PIT will apply to any portion of the deferred annuity withdrawn within the 5 years minimum holding period.
Petroleum Profit Tax Act (PPTA)
- Contributions made to a fund, scheme or arrangement approved by the Nigerian Upstream Petroleum Regulatory Commission (“the Commission”) for the purpose of decommissioning and abandonment are now specifically to be treated as allowable tax deductions under the PPTA.
- The provisions relating to the determination of additional tax payable by petroleum companies have been amended to allow for reference to fiscal oil price established by the Commission in determining such additional tax payable.
- For the purpose of determining Petroleum Profits Tax, petroleum companies are to file with the Federal Inland Revenue Service (FIRS), among other things, a statement of account of their profits and losses, computations of actual adjusted profits or loss and actual assessable profits, duly completed self-assessment form attested to by the principal officer of the company and evidence of payment of final instalment.
- Every company yet to commence the bulk sale or disposal of chargeable oil is required to file its audited accounts and returns within 18 months from the date of its incorporation (where newly incorporated) and within five months after 31 December for subsequent years.
- Failure to comply with the provisions for filing returns or any other provisions of the PPTA or its subsidiary regulations attracts a penalty of ₦10million on the first day of default and ₦2million for every other day the default continues. The Minister of Finance is also empowered to prescribe penalties in this regard.
- Where the PPTA fails to prescribe a penalty for an offence, any person found guilty of such offence shall, upon conviction, be liable to a fine of ₦20million or such other fine prescribed by the Minister of Finance or to a 6-month imprisonment term or to both fine and imprisonment.
- Where a person makes incorrect accounts, such a person is liable to an administrative penalty of either the sum of ₦15million or 1% of the amount of tax which has been undercharged as a result of the incorrect account, whichever is higher, in addition to the appropriate tax which should have been charged. In addition to the above, persons who fraudulently make false returns will also be liable to the aforementioned penalty or to a 6-month imprisonment term or to both fine and imprisonment.
Stamp Duties Act
- The sharing formula for the statutory allocation of revenue generated from the collection of Electronic Money Transfer Levy under the Stamp Duties Act has been amended with Local Governments now entitled to receive 35% of proceeds of such revenue while the Federal and various State Governments will receive 15% and 50% respectively.
Value Added Tax (VAT) Act
- The FIRS is empowered to raise VAT assessment on related party transactions, which it deems to be artificial or fictitious in nature or not in compliance with the arm’s length principle of transfer pricing.
- Any company appointed to withhold or collect VAT on behalf of the FIRS is required to remit the VAT withheld or collected to the FIRS in the currency of the transaction on or before the 14th day of the following month after the transaction.
- Importation of taxable goods purchased through an online electronic or digital platform operated by a Non-Resident Supplier (appointed as a VAT collecting agent of FIRS) into Nigeria are not subject to VAT at the point of clearance with the Nigerian Customs Service where the importer furnishes evidence of registration or appointment of such collecting agent with the FIRS and VAT charged on the sales invoices of the goods. This is to eliminate the risk of double imposition of VAT on taxable goods purchased through an online digital platform and the subsequent importation of such taxable goods into Nigeria.
- The definition of “building” has been reviewed to mean any structure permanently affixed to land for the useful life of that structure excluding fixtures or structures that can easily be removed from such land such as radio and television masts, transmission lines, cell towers, vehicles, mobile homes, caravans and trailers.
Tertiary Education Trust Fund (Establishment etc) Act
- Tertiary Education Tax (TET) has been increased from 2.5% to 3%. Based on the Federal High Court Ruling in the case of Accugas Limited vs FIRS, where the Court held the that provisions of the Finance Act could not apply to periods, transactions, activities and income prior to its assent, it is expected that the 3% should not apply to trading activities of companies prior to the commencement date of the Act irrespective of the time of filling tax returns.
Corrupt Practices and Other Related Offences Act
- Public officers who sign any contract relating to the discharge of their duties without budget provision, administrative approvals and procurement plan shall be guilty of an offence and on conviction, be liable to three years imprisonment or a fine of 10 million naira.
Public Procurement Act
- All public procurement carried out by any procuring entity under the Public Procurement Act shall be conducted based on approved procurement plans supported by prior budgetary appropriations subject to other existing regulatory requirements.
Ministry of Finance (Incorporated) Act
- The amendments provide for the establishment of a Governing Council, an Executive Board and Management Team for the Ministry of Finance Incorporated (“Corporation”) whose members will be appointed by the President on the recommendation of the Minister of Finance.
- The Corporation is empowered to develop, adopt, amend, revoke or supplement appropriate regulations, codes, guidelines, policies and procedures in line with its objective under its Principal Act. These documents may however only be adopted after consultation with the Minister of Finance.
With the Presidential assent, the Finance Act, 2023 now has the force of law. Thus, companies can begin to analyse the provisions of the Act and its potential impact on their business and tax obligations going forward. Companies should also identify the relevant tax and compliance obligations such as the new rate of 3% for Tertiary Education Tax, the timeline for collecting agents to remit VAT collected or withheld to the FIRS (i.e on or before the 14th day following the month of the transaction) and the removal of investment allowance on plant and equipment as well as rural investment allowance and how these may impact their business operations. Importers of goods into Nigeria, should be aware of the Imposition of the 0.5% on all eligible goods imported into Nigeria from outside Africa, while companies in the telecommunications sector should keep abreast of the requirements to pay excise on their services and how this obligation would be discharged.
Like every new law, the Finance Act, 2023 is likely to come with its challenges and opportunities for businesses and individuals. Therefore, taxpayers are advised to seek professional guidance in order to understand the practical implications of the Finance Act on their tax obligations going forward as well as any new compliance obligations to be discharged or benefits to be enjoyed.
As always, Andersen will stay at the front of the discourse regarding the Finance Act and we will provide additional details and detailed analysis on the implications of the various provisions of the Act in our subsequent publications.