Highlights of 2019 Finance Act.

The 2019 Finance Bill was signed into law on January 13, 2020 to become the Finance Act 2019.

 

The enactment of the Finance Act introduced changes to the Companies Income Tax Act, Value Added Tax Act, Petroleum Profits Tax Act, Personal Income Tax Act, Capital Gains Tax Act and the Customs and Excise Tariff etc. (Consolidated) Act. The Tax Provisions in these Laws were reviewed to ensure that they were more responsive to tax reforms which are necessitated by the dynamic and ever changing economic and business environment.

 

These amendments were made with the intention to, among other things, achieve the following strategic objectives:

 

  • Raise revenue for the Government through the use of various fiscal measures;
  • Promote fiscal equity by providing palliative measures against instance of regressive taxation;
  • Reform domestic tax laws to align with global best practice by adoption or incorporation of recommendations of OECD into the Nigerian tax system;
  • Introduce tax incentives for investments in infrastructure and capital markets; and
  • Support Medium and Small businesses by ensuring that its provisions are in line with the ease of doing business reforms with a view of reducing their tax burden.

 

The Finance Act 2019 introduced amendments to seven major tax laws in Nigeria as summarised below.

 

  1. CAPITAL GAINS TAX ACT

-Compensation for loss of office in the sum of N10 million and below will now be exempted from Capital gains tax of 10%;

-Chargeable gains on sale or transfer of assets in a related-party business/group reorganisation, is now exempted from Capital gains tax.

  1. COMPANIES AND INCOME TAX ACT
  • Rules governing deductibility of expenses in arriving at the Assessable profit for a company now amended;
  • Commencement and Cessation rules now modified to eliminate the double taxation risk associated with the commencement rule and tax loss associated with the cessation rule;
  • Exemption available to companies Foreign Loans with respect to Income Tax reduced;
  • Minimum tax computation has now shifted from capital-based approach to a revenue-based approach at a flat rate of 0.5% of the company’s turnover with the exemption of
  • Companies carrying on agricultural trade or business;
  • Companies with gross turnover of less than N25million in the relevant year of assessment;
  • Any company for the first four calendar years of its commencement of business;

-     Company Income Tax rate now made progressive and based on Turnover, with Companies having Turnover of N25,000,000 and below totally exempted from tax;

-     Companies to now pay company income tax in one lump sum on or before the due date for filing; or in installments, with the final Installments paid on or before the due date of filing;

-     Bonus on amount of tax paid now available as credit against future taxes to Companies that pay their tax 90 days before the due date;

-     The 15% investment tax credit to any company that incurs expenditure to replace an obsolete plant and machinery now abolished;

-     Profits exempted from Companies income tax have been reviewed;

-     Some income now Exempted from Deduction of Tax at Source i.e. Withholding Tax;

-     Companies involved in gas utilization operation no longer require Finance Minister’s approval to claim interest expense on loan obtained as a deductible expense;

-     Restriction has been placed on incentives enjoyed on qualifying capital incentives by Companies involved in gas utilization;

-     Non-resident companies now subject to taxation both on the basis of Provision of Digital and Permanent Establishment;

-     Dividend paid out of exempted incomes/profits, in a year of assessment when the company has nil or low taxable profit will no longer be considered as taxable profit and subjected to tax in the hands of the company in that year of assessment. This eliminates the incidence of double taxation risk embedded in the abolished excess dividend rule;

-     Payment of advance tax on interim dividend paid by Nigerian companies has been repealed;

-     Amendment to the taxation framework of the Insurance Sector in the Act includes:

  • Insurance company can now carry forward its tax losses indefinitely;
  • Life assurance business now to be taxed only on Investment income, and which is now limited to Income derived from Investment of Shareholders fund;
  • General Insurance business claim for reserve for unexpired risks is no longer restricted;
  • The restriction of tax deduction for claims and outgoings for general and life businesses has now been removed.
  • Minimum tax of 0.5% of gross premium and 0.5% of gross income has been introduced for general and life insurance business respectively.
  • The provisions of the Finance Act as they pertain to Companies Income Tax become effective with effect from the 2020 Assessment year which has its basis as financial year ending in 2019.

 

  1. VALUE ADDED TAX ACT
  • VAT rate has been increased by 50% from 5% to 7.5%;
  • VAT compliance Threshold now turnover of over N25million;

Taxable person is now required to register for VAT ‘upon commencement of business’;

  • For purpose of VAT, a business in Nigeria that is ceasing operation is required to notify the FIRS of its intention to deregister for tax purpose within 90days of ceasing operation of trade or business;
  • Penalties for Non-compliance under the Value Added Tax Act now increased;
  • The transfer value of the assets from a related-party business/group reorganisation is now exempted from Value added tax provided the sale meets the stipulated conditions;
  • Non-resident companies with physical presence or significant economic presence in Nigeria, must register with the FIRS for VAT and issue VAT invoices to its Nigeria customers;
  • The recipient of the service, in Nigeria, from non-resident companies is now charged with the responsibility of deducting and remitting the VAT on the service to the FIRS;
  • Nigerian companies to now ‘self-account’ or ‘self-charge’ for VAT and remit if the Non-resident company does not include VAT on its invoice;
  • VAT to now be accounted for on cash basis;
  • Scope covered by the VAT Act has been broadened to include incorporeal property such as rights, patents, trademarks, royalty;
  • The definition of ‘Basic food items’ includes ‘agro and aqua staple foods while ‘Service’ is defined to mean ‘anything other than goods, money or securities supplied but excludes services provided under a contract of employment;
  • Locally manufactured sanitary towels, pads and tampons are now included as goods exempted from VAT;
  • Basic food items now broadly categorised to include Milk; Natural water and table water excluding sparkling or flavoured water; salt and herbs of various kinds; bread; cereal inclusive of sorghum, maize, rice, wheat, barley, maize; flour and starch meal; fish of all kinds except for ornamental fish; fruits, nuts, pulses and vegetables; meat and poultry products inclusive of eggs; and roots inclusive of yam, cocoyam, sweet and Irish potatoes  are now goods exempted from VAT;
  • Services rendered by microfinance banks are now specifically included in the services exempted from VAT list to replace services rendered by ‘community banks;
  • Tuition relating to nursery, primary, secondary and tertiary education is now specifically exempted from VAT; and
  • The provisions of the Finance Act as they pertain to VAT become effective with effect from 1 February, 2020.

 

  1. STAMP DUTIES ACT

-     Receipt given by any person in a Regulated securities lending transaction; Shares, stocks and securities returned to a lender or its approved agent by a borrower pursuant to a Regulated Securities Lending Transaction; and all documents relating to a regulated securities lending transaction carried out under regulations issued by the Securities and Exchange Commission are now exempted from stamp duty charges.

-     Stamp duties on electronic receipts now legalised;

 

  • The minimum threshold for applying the stamp duty charge of N50 on electronic transactions now increased from N1,000 to N10,000;

 

  • NIPOST no longer responsible for collecting stamp duties;

 

  • Federal Inland Revenue Service and State Internal Revenue service now responsible for collecting stamp duty on behalf of the Federal and the State Governments respectively.

 

  1. PETROLEUM PROFIT TAX ACT
  • Income or dividend paid out of after-tax petroleum profit by upstream operators will now be subject to a final tax of 10% Withholding Tax.

 

  1. PERSONAL INCOME TAX ACT

-     Pension Contribution, Provident fund etc. now tax deductible without Joint Tax Board /FIRS approval;

-     Tax Identification Number now prerequisite for an individual to open or run bank accounts;

-     Email now approved as channel for communication of objection to tax authority;

  • Penalty for Failure to deduct tax of 10% plus interest at prevailing monetary policy rate of the Central Bank of Nigeria now applicable to appointed agents;

.

  • Gratuity now unconditionally exempted from tax under Personal Income Tax Act.

 

  1. CUSTOMS AND EXCISE TARIFF. ETC (CONSOLIDATED) ACT

-           Imported excisable products made liable to Excise duty.

 

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