By Bolanle Oniyangi

INTRODUCTION

The Finance Act 2019 (the ‘Act’) signifies a return to an era of active fiscal supervision, motivating regular review of the macro environment and stimulation of the economy on an annual or at least regular basis with global best practices and increase revenue generation for the Nation[i].

The Finance Act, made changes to the following tax legislations i.e. Companies Income Tax Act, The Value Added Tax Act, The Customs and Exercise Tariff Etc. (Consolidation Act), Personal Income Tax Act, Capital Gains Tax Act, Stamp Duties Act, and Petroleum Profit Tax Act.

Other recent developments preceding the Finance Act include the Implementation of the Automatic Exchange of Financial Account Information (AEOI), Common Reporting Standard (CRS) and other measures related to the Organization for Economic Co-operation and Development’s (“OECD”) recommendations on Base Erosion and Profit Shifting (“BEPS”).  Nigeria has also moved forward with the ratification of the Multilateral Instrument (the “MLI”).

Below are some of the highlights:

A. COMPANIES INCOME TAX ACT

All companies are required to display Tax Identification Numbers (‘TIN’) in transactions with other companies including in all documents, statements, audited account, filed returns and correspondence with revenue authorities and government Ministries, Departments and Agencies.

Non-Resident Companies to pay Companies Income Tax on income derived from operating within the digital economy and income derived from providing technical, management, consultancy or professional services to a person resident in Nigeria, provided the non-resident company has significant economic presence in Nigeria.

Furthermore, Companies are now divided into three:

i. Small companies with less than N25 million-naira annual gross turnover are completely exempted from paying CIT that year provided the CIT returns is not filed late.

ii. Medium companies whose annual gross turnover is more than N25 million but less than N100 million will now be subject to a Companies Income Tax (CIT) of 20% as opposed to the initial 30% prior to the passage of the Act.

iii. Large companies with annual gross turnover of N100 million and above will continue to be subject to the 30% CIT rate.

This relief does not exempt company returns from Desk Examinations and Tax Audits.

Excess dividends tax to apply to only untaxed distribution other than profits specifically exempted from tax and franked investment income under the provision of Section 19 of CITA.

Minimum tax computation will now be based on 0.5 per cent of gross turnover alone. Companies with imported share capital of 25% are no longer exempted from minimum tax.

E-mail communications with the tax authority is now accepted as a valid means of communication.

Fees on Technical services payable to a non- Nigerian company without a fixed base in Nigeria is now chargeable to WHT at 10% which shall be a final tax.

Interest on loan from a connected or related party shall be allowed-up to 30% of Earnings before Interest (EBIT).

If company income tax is paid early (90 days before the due date for the company to pay tax or 3 months after the end of an accounting year of the company), the company gets a bonus:

I. 2% of the tax payable for a medium size company. A medium size company is any company with annual turnover of N25m -N100m

II. 1% for any other company (big company or foreign company). The company will pay 29%.

B. VALUE ADDED TAX ACT

VAT rate increased by 50% from 5% to 7.5%[ii]. The items exempted from VAT are basically essential items and others listed in the VAT exemption list. The definition of goods and services have been expanded to cover all forms of supplies, tangible or intangible except money or securities The Finance Law has introduced a “Self-Charge Provision” to ensure payment of VAT on all supplies even when invoiced for taxable persons set at N25 million. VAT Returns are to be rendered on cash basis instead of accrual basis.

C. STAMP DUTIES

For the purposes of charging Stamp Duties, receipts subject to stamp duties have been expanded to include electronic transfers of money more than N10,000.00 from one bank account to another. Thus, a bank transfer of N10,000.00 or more shall now attract a singular N50,00.00 stamp duty[iii]. However, this will not apply if the transfer is between accounts held by the same owner in the same bank.

Stamp duty to be paid on rent is as follows:

Tenancy less than seven years – 0.78%

Tenancy greater than seven years but less than twenty one years – 3%

Tenancy exceeding twenty one years – 6%

D. PETROLEUM PROFIT TAX ACT

Section 60 of PPT Act has been repealed. Hence dividend paid out of PPT to individuals or corporate entities (under the PIT regime) is now subject to WHT.

E. DEEP OFFSHORE AND INLAND BASIN PRODUCTION SHARING CONTRACTS ACT (DOIBPSCA)

The Amendment Act introduces a combined production and price-based royalty system to replace the existing production-based royalty system, which varies according to areas of operations. The new royalty regime specifies a baseline royalty of 10% for crude oil and condensates produced in the deep offshore (greater than 200-meter water depth) and 7.5% for the Frontier and Inland Basin. In addition to the baseline royalty, a royalty based on the applicable price of crude oil, condensate and natural gas will apply, but only when the price exceeds $20 per barrel. A fine of at least ₦500 million for non-compliance with any obligation imposed by the provision of the Act, or imprisonment for a period not less than five years, or both, upon conviction[iv].

F.  COMMON REPORTING STANDARDS (CRS)

Nigeria signed a declaration on joining the Multilateral Competent Authority Agreement (MCAA) on Automatic Exchange of Financial Account Information (AEOI) on the 17th August, 2017. Further to this, Nigeria also submitted a commitment letter to begin the first exchanges under the standard in September, 2019, which was however postponed to September 2020. The implemented OECD/G20 Common Reporting Standards require certain financial institutions to report their tax administration and financial accounts held by certain non-resident individuals or entities, and certain entities controlled by non-residents.

G. BEPS Measures

Nigeria formally became a member of the Inclusive Framework of BEPS at inaugural meeting held in Kyoto, Japan on 30th June, 2016 has continued working to implement the BEPS Action Plans recommendations and move forward with the MLI ratification procedure.  These measures include the following:

I. Country-by-Country Reporting (CbC): Mindful that all members of the OECD, G20 countries and all countries within the inclusive framework have committed to implement the outcome of the Base Erosion and Profit Shifting (BEPS) project, Nigeria issued the Income Tax (Country by Country) Regulations in 2018 and also entered into the Competent Authority Agreements for the international exchange of CbC reports. Clear guidelines were also issued to enable easy compliance with the CbC Regulations and provided guides and template for reporting Multinational Enterprises (MNEs). Large multinational enterprises with total consolidated group revenue of €750 million or more in Nigeria and elsewhere.

II. Multilateral Instrument (MLI): Nigeria has been involved in the negotiation and development of the MLI. The MLI is intended to streamline the implementation of certain tax-treaty related BEPS recommendations by allowing specific changes to be automatically made to bi-lateral tax treaties where both parties to the bi-lateral treaty have signed onto the MLI.

III. Preventing Treaty Abuse: Nigeria has updated its Tax Treaty Model and included all the anti-treaty abuse provisions. These updates include provisions that would be adopted under the MLI and those that would be adopted while negotiating new tax treaties.

H. COVID-19: Nigeria extend CIT, VAT and WHT filing deadlines

Finally, in order to cushion the effects of the COVID-19 pandemic which is affecting the entire world, a notice to taxpayers on extension of deadline for filing of Value Added Tax and Withholding Tax to the last working date of the month, following the month of deduction as opposed to the statutory period of 21 days after the month of deduction while the due date for filing of Companies Income Tax has also been extended by one month i.e. seven months after the end of the financial year end. For instance, July 2020 for companies with a 31st December, 2019 year end.

Governors of the 36 states of the Federation have introduced tax relief programmes to mitigate the negative impact of the COVID-19 pandemic on businesses and individual taxpayers as well as ensure the speedy recovery of State economies.

The relief programmes which were initiated in states across board focused on five main tax activities, including extension of filing and payment dates, tax moratoriums, waivers or reduction of penalties and interests over the extension period.

While some states are also offering rebates or discounts on taxes paid within a specific period, others are allowing the payment of taxes, fees and levies among others in instalments[v].

[i].  Finance Act, 2019-Impact Analysis. Retrieved on 5th July, 2020 from https//: www.assets.kpmg

[ii]. Finance Act, 2019

[iii].FIRS Clarifies amendments to the stamp duties Act. Retrieved on 5th July, 2020 from https//:

www.andersentax.ng

[iv].Deep offshore and inland basin PSC (amendment) Act, 2019. Retrieved on 5th July, 2020 from https//:

www.assets.kpmg

[v]. https://leadership.ng/2020/08/17/states-grant-tax-relief-to-businesses-individuals/

Leadership, August 17, 2020. Page 4 &8

Written By Bolanle Oniyangi (LL.B, B.L, LL.M, FCTI, CMC) [email protected]