The amended Finance Act was signed into law on 31st December 2020 and came into effect on 1st January 2021. The new law, among other objectives, seeks to increase government revenue while supporting struggling small businesses in Africa’s largest economy. The new Law introduces over 80 changes to 14 different laws that will affect all stakeholders – business owners and individuals alike. Few of these changes include:
1. The new law states that small companies with a turnover of less than N25 million are to be exempted from Companies Income Tax, while it lowers the tax rate for companies making up to N100 million from 30 percent to 20 percent. This is expected to come as a relief to Small and Medium Enterprises (SMEs) in Nigeria, most of which already struggle to stay afloat in a hostile business environment.
2. Federal Inland Revenue Service (FIRS) may prescribe the form of accounts other than audited financial statements for small and medium companies as defined under the Companies Income Tax Act (CITA). What this means is that eligible small and medium companies may no longer need to go through the rigors and financial implications of submit audited accounts.
3. Land and building are not taxable goods for Value Added Tax (VAT) purposes. Impliedly, it also means VAT is no longer payable on house rent on lease of real property whether residential or commercial.
4. Goods liable to excise duties have been expanded to include telecommunication services provided in Nigeria as may be prescribed in the law or an order issued by the President.
5. Huge reduction of import duty on Tractors from 35% to 5%, Mass transit vehicles for transport of more than 10 persons and Trucks from 35% to 10% and reduction of import levy on cars from 30% to 5%.
6. For companies operating in the free trade zone, exemption from taxes is subject to compliance with tax filing and returns obligation to the Federal Inland Revenue Service (FIRS) under the Companies Income Tax Act (CITA).
7. Exemption of commercial airline ticket from Value Added Tax (VAT).
8. Establishment of a Crisis Intervention Fund of N500 billion or other sums as may be approved by the National Assembly and by way of trust, as a sub-fund of the Crisis Intervention Fund, an Unclaimed Funds Trust Fund.
9. Unclaimed dividends in a listed company and unutilized amounts in a dormant bank account outstanding for 6 years or more will be transferred to the Unclaimed Funds Trust fund as a special debt to the Federal Government to be managed by the Debt Management Office and shall be available to the shareholder account holder at any time together with its yield.
10. A small or medium company engaged in primary agricultural production may be granted pioneer status for an initial period of four (4) years and an additional two (2) years (totaling 6 years).
11. Accountant General for the Federation to open dedicated accounts for each tax type for the payment of tax refunds to be administered by the FIRS and funded based on annual budgets for tax refund for each tax-type as may be approved by the National Assembly.
12. Gross income for personal relief purposes has been redefined as income from all sources less non-taxable income, exempt items and income on which no further tax is payable. In the case of an enterprise, less all allowable business expenses and capital allowance.
13. Low income earners on #30,000 per month or less are exempted from Personal Income Tax (PIT).
14. A company that is not resident in Nigeria which makes a taxable supply to Nigeria is required to register for tax and obtain TIN, include VAT on its invoice, and may appoint a representative in Nigeria for the purpose of its tax obligations. The FIRS may issue guidelines on this from time to time.
15. Electronic bank transfer is no longer transaction liable to stamp duty, instead electronic money transfer levy of N50 on electronic transfer of money deposited in any bank or financial institution on any account on sums of N10k or more is introduced. Revenue will be shared based on derivation as in, 15% to FG & FCT and 85% to states.
16. Increase of VAT from 5% to 7.5%
ALUKO ADEYEMI AND ASSOCIATES 