Tax & Business Matters - Nigeria

Nigeria's Finance Act 2021 - Insights Series and Sectoral Analysis

Our interactive insights series highlight the key changes to 13 different laws through the recently enacted Finance Act 2021. 

Our analysis covers the following sectors:

1. Overview and general implications
2. Banks, Insurance, Other Financial Institutions and Capital Markets
3. Non-Residents and the Digital Economy
4. Energy and Utilities Sector
5. Micro, Small and Medium-Sized Enterprises
6. Public Sector

A copy of the publication is available here:  Download Finance Act 2021_PwC insight series and sector analysis (interactive)

Download Finance Act 2021 Gazette

FIRS reinstates local filing of Country-by-Country Reports in Nigeria

In May 2021, the Federal Inland Revenue Services (FIRS) suspended the local filing of Country-by-Country (CbC) reports by Nigerian subsidiaries and permanent establishments whose headquarters are not in Nigeria. In January 2022, the FIRS issued a public notice reinstating the local filing of CbC reports by such entities.

The public notice has an effective date 1 January 2022, and therefore all constituent entities of foreign multinational groups that meet the relevant conditions are expected to comply going forward. Taxpayers must ensure they prepare well in advance to avoid the penalties for non-compliance.

Please read more in our Tax Alert below:

Download FIRS reinstates local filing of Country-by-Country Reports in Nigeria

TAT says WHT applies on commissions deducted upfront by betting agents

In December 2021, the Tax Appeal Tribunal (TAT) issued a ruling to the effect that a principal is responsible for accounting for WHT in respect of commissions earned by its agent, notwithstanding that the agent deducts the commission upfront. The ruling suggests that agents should deduct their commissions net of the applicable WHT.

The judgment raises interesting questions especially relating to other trust, fiduciary and/or agency arrangements (such as banking and insurance brokerage). For example, for certain banking transactions, banks hold deposits on behalf of their customers and deduct bank charges or interest, at source. Would the bank customers be responsible for deducting and accounting for WHT (considering that there is no opportunity to do so)? There are also concerns regarding whether the ruling aligns with the literal reading of the law.

Betting companies (and other companies with similar arrangements with agents) in Nigeria are advised to review their operating structures and contractual agreements with their agents in this regard.

Please see PwC's Tax Alert on this judgment, below:

Download TAT rules Withholding Tax is applicable on commission deducted upfront by betting agents

Finance Act 2021: Key changes and expectations for 2022

In this interview with "ICAN on Air', Taiwo Oyedele, Fiscal Policy Partner and Africa Tax Leader discussed the key changes in the newly enacted law, the effective date, compliance requirements and implications for businesses, individuals and the economy in general.

Watch! 

 

UPDATE: Nigeria’s Finance Act 2021 – Top 10 Changes

The 2021 Finance Bill was signed into law by the Nigerian President on 31 December 2021 and takes effect from 1 January 2022. Below are the top 10 changes:

Top 10 Changes:

1. Capital gains tax at 10% is chargeable on the disposal of shares worth N100m or above in any 12 consecutive months except to the extent that such proceed is reinvested in the shares of any Nigerian company.
2. The education tax payable by Nigerian companies has been increased from 2% to 2.5% of assessable profits.
3. Companies engaged in educational activities are now subject to corporate income tax regardless of whether such activities are of a public character.
4. A science and engineering levy of 0.25% of profit before tax is payable by companies engaged in banking, mobile telecommunication, ICT, aviation, maritime, and oil & gas with turnover of N100m and above.
5. FIRS to assess, collect and enforce the payment of Nigerian Police Trust Fund levy. The tax was introduced in 2019 at the rate of 0.005% on the net profit of companies operating in Nigeria.
6. Imposition of excise duty at N10 per litre on non-alcoholic, carbonated and sweetened beverages. This could translate to an increase in the retail price of products by up to 5% with lower end products bearing higher burden.
7. The reduction of minimum tax rate from 0.5% to 0.25% of turnover (less franked investment income) will apply to any two accounting periods between 1 Jan 2019 and 31 Dec 2021 as may be chosen by the taxpayer.
8. FIRS may assess tax 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. Such companies are also obliged to charge, collect and remit VAT to FIRS.
9. Only FIRS is to be 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.
10. All tiers of government are now empowered to borrow for “critical reforms of significant national impact” in addition to capital expenditure and human development.

Below is a copy of the signed Finance Act 2021 

Download Finance Act 2021 Gazette

You may be liable to tax on your previously exempted investment income effective from 2 January 2022

There are various tax changes affecting government securities, corporate bonds, and equity investment that you should be aware of. 

• On 2 January 2012, the federal government issued the Companies Income Tax (Exemption of Bonds and Short-Term Government Securities) Order, 2011. The Order granted corporate income tax waiver on all bonds and debt instruments issued by all tiers of government and corporate entities effective from 2 January 2012 for a period of 10 years. Due to the sunset clause, the exemption is no longer applicable effective from 2 January 2022.

• The Capital Gains Tax (CGT) Act provides exemption from capital gains tax on the disposal of Nigerian Government securities including Federal, State and Local government bonds, stocks and shares. However, an amendment via the Finance Act 2021 is seeking to impose CGT on the disposal of shares subject to a specified threshold and other conditions for roll over relief.
• Exemption from capital gains does not cover gains which are considered to be of revenue nature or trading profit depending on frequency, holding period and nature of investor’s trade, among others (generally referred to as badges of trade principles).
• Para 31A of the Third Schedule of the Personal Income Tax (Amendment) Act [PITA] 2011 which was published in the gazette on 24 June 2011 with a commencement date of 14 June 2011, grants tax waiver to persons taxable under PITA in respect of income earned from bonds and short-term securities issued by Federal, State and Local Governments and their agencies; corporates and supra-nationals. The exemption provision does not have a sunset clause. Consequently, the exemption subsists.
• The Value Added Tax (Exemption of Proceeds of the Disposal of Government and Corporate Securities) Order 2011 dated 9 January 2012 was issued with an effective date of 2 January 2012 valid for 10 years to exempts disposal of government and corporate securities from VAT. However, by virtue of the Finance Act 2019, the VAT Act has been amended to specifically define goods as excluding securities. Note that commissions on stock market transactions was previously exempted from VAT via the Value Added Tax (Exemption of Commissions on Stock Exchange Transactions) Order 2014 published in the gazette dated 30 July 2014 with a commencement date of 25 July 2014 for a period of 5 years which expired on 24 July 2019.

Implications:

1. Corporate investors are now liable to income tax on their income from corporate bonds and government securities. This means WHT at 10% will be applicable as advance payment against CIT of 30% in addition to Education Tax of 2% for resident companies while WHT at 10% or 7.5% will be the final tax for non-resident investors. This will raise the cost of borrowing for issuers.
2. Based on the Local Loans (Registered Stock and Securities) Act of 1946 (as amended), the Minister of Finance may issue registered stocks, Government promissory notes or bearer bonds specifying, among others, the exemption from all or any of the taxes and duties payable under any other enactment in force in Nigeria. The exemption under the Local Loans Act has not historically been used to cover Treasury Bills and state government bonds
3. Individuals will continue to enjoy tax exemptions on income from both government and corporate securities. This means WHT should also not apply.
4. Capital gains tax will not apply on government securities while corporate bonds will be subject to capital gains tax (where applicable). Gains on shares as specified in the Finance Act 2021 will also be subject to CGT.
5. VAT will not apply on the disposal proceed of government and corporate securities. However, VAT will apply on fees and commissions on such transactions.

While it is not stated whether the exemption sunset should only affect securities issued after the expiration date or all income accruing after the expiration regardless of when the instrument was issued, the latter is the more appropriate interpretation.

What to do

You need to be aware in order to take necessary steps to ensure compliance and tax optimisation. You may need to track the income on various securities and segregate taxable from exempt income for tax purposes. Any expense incurred in generating taxable income will be tax deductible.

Read our 2012 alert on the subject here and see the relevant legal instruments below:

Download CIT bond-exemption-gazette 2011(Published 2012)

Download VAT exemption Order on Securities 2011

Download VAT exemption Order 2014 on capital market commission

Download PITA_Personal Income Tax (Amendment) Act 2011