Tax & Business Matters - Nigeria

Nigeria's National Development Plan 2021 - 2025

A medium-term economic plan, the NDP, has been launched. The Plan succeeds the Vision 20:2020 introduced in 2009 and the Economic Recovery and Growth Plan (ERGP) introduced in 2017 both of which expired in 2020. The NDP is also a bridge for the country’s long-term plan currently being developed, that is, Nigeria Agenda 2050.

The vision as stated in the NDP is “to make Nigeria a country that has unlocked its potential in all sectors of the economy for a sustainable, holistic, and inclusive national development”.

The 6 broad objectives of the Plan are:

1. Economic diversification
2. Investment in infrastructure
3. Security and good governance
4. Educated and healthy population
5. Poverty alleviation, and
6. Economic and social development across states

The Plan is structured around 7 cluster areas:

1. Economic Growth and Development
2. Infrastructure
3. Public Administration
4. Human Capital Development
5. Social Development
6. Regional Development
7. Plan Implementation

Funding: The NDP has a funding target of N348.1 trillion (Government N49.7 trillion; Private sector N298.3 trillion) and is expected to generate 21 million full-time jobs and lift 35 million people out of poverty by 2025.

Fiscal plan: The FGN is expected to run an average budget deficit of -1.68% of GDP over the plan period albeit with a budget surplus of 1.35% of GDP in 2025. An average of 30% of aggregate expenditure will be allocated to capital expenditure while public debt to GDP ratio is expected to decline from about 22% in 2021 to 14% in 2025. It is projected that revenue to GDP ratio will improve progressively from less than 8% in 2021 to about 15% in 2025. FGN's total revenue will be made up of 57% from independent and other sources while only 10% is expected from oil and 33% from non-oil sources by 2025.

Historically Nigeria has under-performed relative to both its aspirations and economic potential. This plan has a structure to drive implementation which should hopefully make a difference.

Download NDP 2021-2025

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8 October 2021: A memorable day for International Taxation

The 8th of October 2021 could be considered a historic day in international taxation as 136 out of 140 member countries of the Inclusive Framework (IF) finalised the Two-Pillar Solution for taxing large multinational enterprises (MNEs) across the world.

Countries that did not sign up to this solution are Kenya, Nigeria, Pakistan, and Sri Lanka. Under the agreed principles countries will be able to tax some profits of MNEs within their market jurisdiction and a minimum tax rate will exist for large MNEs. This article explains the Two-Pillar solution (the Solution) agreed by the IF and why Nigeria was reluctant to sign.

Read our article below for insights on the subject:

Download 8 October 2021-A memorable day for International taxation

TAT says Withholding Tax is applicable on management fees paid to a non-resident company

On 6 December 2021, the Tax Appeal Tribunal (TAT) sitting in Lagos issued a judgment on the applicability of Withholding Tax on management fees paid to a non-resident company.

The judgment suggests that describing an item as a reimbursement in a contract may not be sufficient to exclude it from WHT, and that the FIRS can disregard the wordings of a contract or any arrangement (especially where it is between related parties), if the FIRS takes the view that such arrangement is artificial. The judgment also included some contentious perspectives in assessing whether management fees (prior to the Finance Acts) were subject to WHT.

Please see PwC's Alert on this and a copy of the TAT judgement, below:

Download Tax Alert - TAT rules on the applicability of WHT on Mgt fee to NRCs

Download TAT_NIGERIA LNG V FIRS (JUDGEMENT)

Nigeria’s Finance Bill 2021 - Top 21 Changes (Effective Year 2022)

The 2021 Finance Bill has been transmitted by the President to the National Assembly for consideration. The Bill seeks to amend 12 different laws, being the:

1. Capital Gains Tax Act (CGTA)
2. Companies Income Tax Act (CITA)
3. Federal Inland Revenue Service (Establishment) Act [FIRSEA]
4. Personal Income Tax Act (PITA)
5. Stamp Duties Act (SDA)
6. Tertiary Education Trust Fund (Establishment) Act [TETFEA]
7. Value Added Tax Act (VATA)
8. Insurance Act
9. Nigerian Police Trust Fund (Establishment) Act [NPTFEA]
10. National Agency for Science and Engineering Infrastructure Act (NASENI Act)
11. Finance (Control and Management) Act [FCMA], and
12. Fiscal Responsibility Act (FRA)

Below are the highlights of the key proposed changes:

1. Capital gains tax at the rate of 5% to be applicable on disposal of shares in a Nigerian company worth N500m or more in any 12 consecutive months except where the proceed is reinvested in the shares of any Nigerian company within the same year of assessment. Partial re-investment will attract tax proportionately. Transfer of shares under the regulated Security Lending Transaction is exempted.
2. Lottery and Gaming business to be specifically taxable under CITA including betting, game of chance, promotional competition, gambling, wagering, video poker, roulette, craps, bingo, slot or gaming machines and the likes.
3. Companies engaged in petroleum operations including Midstream and Downstream operations will not be eligible for exemption on profits in respect of goods exported from Nigeria. Downstream companies were previously eligible under the old Upstream and Downstream classification.
4. FIRS to be empowered to assess CIT on the turnover of a foreign digital company involved in transmitting, emitting, or receiving signals, sounds, messages, images or data of any kind including e-commerce, app stores, and online adverts.
5. Capital allowance claimable on an asset is limited to the portion used for generating taxable profits. Assets partially used to generate taxable income will be eligible for pro-rata capital allowance except where the proportion of non-taxable income does not exceed 20% of the total income of the company.
6. Any capital allowance or unabsorbed allowances brought forward by a small or medium company, other than a company under pioneer status, to be treated as having been claimed and consumed in each such year of assessment.
7. The reduction of minimum tax rate from 0.5% to 0.25% of turnover (less franked investment income) is to be applicable to any two accounting periods between 1 Jan 2019 and 31 Dec 2021 as may be chosen by the taxpayer.
8. Disputed tax assessment to be in abeyance until determination while undisputed tax assessment is to be paid within 30 days after service of the notice of assessment on the company except otherwise extended by the FIRS. Reference to provisional tax has been deleted in recognition of the well-established self-assessment tax regime.
9. Withholding tax on interest earned from a unit trust to be treated as final tax. Only WHT on dividend is currently treated as final tax for local companies.
10. The deployment of technology to automate tax administration including assessment and information gathering by FIRS to now include third party technology (previously only proprietary technology may be deployed). A penalty of N50,000 to be applicable where a company fails to grant access to FIRS in addition to N25,000 for each day the failure continues.
11. FIRS to be the primary agency of the Federal Government responsible for the administration, assessment, collection, accounting and enforcement of taxes and levies due to the Federation, the Federal Government and any of its agencies except otherwise authorized by the Finance Minister.
12. Any person or agency of the Federal Government must refer matters requiring tax investigation, enforcement and compliance to the FIRS. Relevant officers who violate the rule to be liable to a penalty of N10m and/or 5 years imprisonment on conviction.
13. Deductible life assurance premium for personal income tax purposes to exclude a contract for deferred annuity.
14. The Finance Minister, subject to the approval of the National Assembly, shall make regulations for the imposition, administration, collection, remittance, including distribution of arrears of stamp duty and Electronic Money Transfer levies collected between 2015 and 2019 fiscal years.
15. Tertiary Education Tax to be payable within 30 days of service of assessment (currently 60 days).
16. Non-residents making taxable supplies to recipients in Nigeria to have the primary obligation to charge, collect and remit VAT to FIRS. The VAT withholding obligation of Nigerian recipients now limited to where the non-resident or its appointed agent fails to collect the VAT.
17. The exemption from VAT registration and compliance obligation applicable to small companies with annual turnover less than N25m to exclude companies engaged in upstream petroleum operations regardless of turnover.
18. Appointment of the FIRS to assess, collect and enforce the payment of Nigerian Police Trust Fund levy. The Act enacted in 2019 imposed a tax of 0.005% on the net profit of companies operating in Nigeria.
19. Amendment of the National Agency for Science and Engineering Infrastructure Act to remove the requirement for commercial companies to pay a levy of 0.25% of turnover annually to the Fund. Primary sources of fund to be limited to 1% of the Federation Account.
20. Mandatory payment of gross revenue collected by federal ministries, departments or agencies to the federation account or consolidated revenue fund as the case may be except otherwise authorized by law. Any officer who violates this requirement may be liable on conviction to imprisonment of up to 5 years or a fine of N5m or both.
21. Amendment of the Fiscal Responsibility Act to enable government borrow for “critical reforms of significant national impact”. Currently, government at all tiers are only empowered to borrow for capital expenditure and human development. Capital expenditure is defined as spending on an asset that lasts for more than one financial year. Human development and critical reforms are not defined.

Download a copy of the Bill here: Download FINANCE BILL 2021