The newly signed Finance Act 2020 ensures a balance between broader macro economic strategies to attract investments, grow the economy and fiscal plan for domestic revenue mobilisation in response to COVID-19 pandemic, domestic and global economic downturn.
President Muhammadu Buhari signed the 2020 finance act on December 31, 2020.
The Act, which takes effect from January 1, 2021 amends the provisions of the capital gains tax act; companies income tax act; industrial development (income tax relief) act; personal income tax act; tertiary education trust fund (establishment) act, customs & excise tariff (consolidation) act and value added tax act.
Others include federal inland revenue service (establishment) act; fiscal responsibility act; public procurement act; stamp duties act; Nigeria export processing zones act; oil and gas export free zone act and company and allied matters act.
Here are some highlights of the amendments introduced by the Finance Act 2020.
1. Car importation has gotten cheaper: Section 38 provides that levy to be paid on imported cars has been reduced from 35% to 5%. Import duty of tractors has been slashed from 35% to 5%; motor vehicles for goods transport and transport of more than 10 persons from 35% to 10%.
2. Individuals earning minimum wage or less will no longer pay personal income tax.
3. No more stamp duty on bank transfers: It however imposed an electronic money transfer levy of N50 on electronic receipts or transfer of money in the sum of N10,000 and above deposited in any bank or financial institution. The levy is to be paid by the receiver.
4. Small companies (businesses with gross turnover of N25 million or less) exempted from payment of tertiary education tax. This is according to Section 34 of the finance act which amended Section 1 of the tertiary education trust fund act.
5. Unclaimed dividends and bank account balances unattended to for at least six years will be available as special credit to the federal government through the Unclaimed Funds Trust Fund to be managed by the Debt Management Office. It added that the original owners of the money can claim it at any time.
6. VAT- exempt items have been expanded to include animal feed, “commercial aircrafts, commercial aircraft engines, commercial aircraft spare parts”, “airline transportation tickets issued and sold by commercial airlines registered in Nigeria” and “hire, rental or lease of tractors, ploughs and other agricultural equipment for agricultural purposes.”
7. Land, building, money and securities are not taxable goods for VAT purposes. This means VAT is not applicable on transfer of land, house rent and purchase, lease of residential/commercial property.
8. Donation made in cash or kind to any fund set up by government in respect of any pandemic or natural disaster or other exigency to be tax deductible subject to 10% of assessable profits after deduction of other allowable donations made by the company.
9. Compensation for loss of office up to N10m to be exempted from capital gains tax: Section 4 of the finance act provides that for amounts above N10m, any person who pays compensation for loss of office to an individual shall be required to, at the point of payment, deduct and remit the tax due to the relevant tax authority within the time specified under the pay-as-you-earn regulations.
10. Minimum tax for companies reduced from 0.5% to 0.25% of gross turnover for financial years ending between January 1, 2021 and December 31, 2021.
11. Introduction of software acquisition as qualifying capital expenditure to improve ease of doing business.
12. Non- resident companies that make a taxable supply to Nigeria are required to obtain tax identification number (TIN) and remit tax regularly to the country.
13. Excise duties will now be paid on services provided by telecommunication companies at a rate to be prescribed by the law.
14. Tax holiday for small and medium sized companies engaged in primary agricultural production (crop, livestock, forestry and fisheries): Section 23 of the finance act amended Section 1 of the industrial development (income tax relief) act.
It states that “Any small or medium sized company engaged in primary agricultural production shall be granted, pursuant to an application to the President, through the Minister, an initial tax- free period of four years which may be extended, subject to the satisfactory performance of such primary agricultural production, for an additional maximum period of two years, and such company cannot be granted similar tax holiday incentive under any other Act in force in Nigeria.”
15. Tax relief for companies operating in the free trade zones hinged on compliance to filing returns with the Federal Inland Revenue Service (FIRS).
16. Accountant general of 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.
17. Balance of operating surplus of a corporation shall be paid to the Consolidated Revenue Fund of the federation on a quarterly basis. The finance minister may effect a direct deduction from the treasury single account (TSA) or other relevant accounts of such corporation to enforce compliance.
18. Introduction of the concept of significant economic presence (SEP) to personal income tax.
19. Empowerment of the tax appeal tribunal to “conduct its hearing remotely via virtual means, using such technology or application as may be necessary to ensure fair hearing.”
20. Corporations that claim the gas utilization incentive under the companies income tax act would not be entitled to similar incentives under the petroleum profits tax act or industrial development (income tax relief) act