Tax & Business Matters - Nigeria

Update on Nigeria’s 2022 Finance Bill

The Senate and the House of Representatives have passed the 2022 Finance Bill on Wednesday 28 December 2022.

Both chambers of the National Assembly had published the 2022 Finance Bill on Wednesday 21 December with the Senate inviting stakeholders to a public hearing within 24 hours on Thursday 22 December 2022 while the HoR slated its public hearing for Friday 13^th January 2023. With the passing of the Bill, it is unclear if the public hearing would still go ahead or indeed be necessary.

As a next step, it is expected that both chambers will harmonise the Bill and send it to the President for assent which is likely to happen not later than 31 December 2022.

The key changes in the version of the Bill as passed by the lawmakers include:

1. Increase in Tertiary Education Tax (TET) rate from 2.5% to 3%. It is instructive that the rate was only recently increased from 2% to 2.5% via the 2021 Finance Act. This effectively increases Nigeria’s corporate income tax rate to about 36% which is one of the highest rates in the world (i.e. 30% CIT, and 3% TET equivalent to 6% CIT given the larger tax base for TET)
2. Amendments to change the name of the FIRS to Nigeria Revenue Service and separate the Board from the Service with the latter to be headed by a Commissioner General.
3. Deletion of the proposed taxation of Gaming and Lottery businesses under the CITA
4. Capital losses deductible for CGT purposes may be carried forward for a maximum of 5 years
5. The proposed 50% Investment Tax Credit for investment in gas utilisation has been changed to investment allowance of 10% and 5% per annum for non-associated and associated gas respectively subject to attaining a cumulative production of 300 billion cubic feet.
6. Exemption of companies engaged in upstream and midstream gas operations (along with Agro Allied businesses and manufacturing companies) from the annual restriction of capital allowance utilisation to 2/3^rd of assessable profits.
7. Commencement date of the Bill changed from 1^st January 2022 to 1^st January 2023

Read our earlier summary of the 2022 Finance Bill here and watch the Senate’s Plenary on the Finance Bill here.

Nigeria’s Finance Bill 2022: Critical Changes You Need to Know

The 2022 Finance Bill is currently undergoing legislative consideration. The Bill seeks to amend the following laws:

1. Capital Gains Tax Act (CGTA)
2. Companies Income Tax Act (CITA)
3. Customs, Excise Tariff, Etc (Consolidation) Act
4. Personal Income Tax Act (PITA)
5. Petroleum Profits Tax Act (PPTA)
6. Stamp Duties Act (SDA)
7. Value Added Tax Act (VATA)
8. Corrupt Practices and Other Related Offences Act
9. Public Procurement Act

Summary of the Key Changes

1. Gains on digital assets including cryptocurrency to be specifically chargeable to tax under the capital gains tax act at the rate of 10%.
2. Capital losses on chargeable assets (including shares) to be tax deductible against chargeable gains on the same class of asset. Currently, losses incurred on the disposal of any asset are not deductible for capital gains tax purposes.
3. Income derived by a company from gaming, gambling, betting, or lottery business to be taxable under the Companies Income Tax Act.
4. A company engaged in the commercial winning, capture, production and utilisation of gas will be entitled to a single 50% investment tax credit on its qualifying expenditure for that purpose.
5. Investment allowance of 10% applicable on qualifying expenditure incurred on plant and equipment is to be repealed. This will however not affect such assets acquired on or before 31 December 2022.
6. The rural investment allowance ranging from 15% to 100% of cost incurred by a company to provide facilities such as electricity, water and tarred road where such facilities have not been provided by the government within 20kms of the location is to be repealed.
7. The partial tax exemption from CIT granted on income in convertible currencies derived from tourists by a hotel is to be repealed.
8. The CIT rate for a gas-flaring company (defined as a company that vents or flares associated or non-associated natural gas unless in the case of an emergency) is to be increased from the standard 30% to 50%.
9. An import levy of 0.5% to be imposed on all eligible goods imported into Nigeria from outside Africa to finance Nigeria’s capital contributions, subscriptions and other financial obligations to various multilateral institutions such as the AU, UN etc.
10. All services, including but not limited to telecommunication services, provided in Nigeria to be liable to excise duty at rates to be specified via a Presidential Order.
11. Amendment of the Customs & Excise Tariff Act to clarify the responsibility and powers of the finance minister to review customs and excise tariffs through the Tariff Review Board.
12. Any amount paid as premium by an individual during the preceding year of assessment in respect of own life or the life of a spouse, or contract for a deferred annuity will be tax deductible provided that any portion of a deferred annuity withdrawn within 5 years of paying the premium will be taxed at the point of withdrawal.
13. Various amendments to the PPTA to align with the Petroleum Industry Act including penalties for making incorrect or late returns, recognition of the Nigerian Upstream Petroleum Regulatory Commission, tax deductibility of contributions to approved decommissioning and abandonment fund, etc.
14. Proposed amendment to the sharing formula for revenue from Electronic Money Transfer from the current 15% for FG and 85% for States to 15% for FG, 50% for States and 35% for LGs.
15. Introduction of general anti-avoidance transfer pricing rules to counteract any artificial arrangement in respect of transactions between connected persons for VAT purposes.
16. Persons appointed to deduct VAT at source on invoices received from their vendors are now to remit such VAT to the FIRS on or before the 14^th day of the following month (currently 21^st day of the following month).
17. An importer of goods purchased online, from a non-resident supplier who has been appointed by the FIRS to charge and collect VAT, is required to provide proof of such appointment and VAT charged on the invoice as a condition for clearing the goods without further VAT.
18. Redefinition of building for VAT purposes to exclude any fixtures or structures that can be easily removed from land such as radio and television masts, transmission lines, cell towers, mobile homes etc. This implies that such assets are not eligible for the VAT exemption on building.
19. A public officer is required to seek administrative approvals and ensure there is an approve procurement plan in addition to existing requirements for the award or signing of contracts. Failure to comply is liable to 3 years imprisonment and a fine of N100,000 on conviction
20. The Bill indicates a commencement date of 1^st January 2022 (which is either an error or intentional retrospective application), or such other date as may be specified by the National Assembly or the President by assent or order.

Below is a copy of the Bill as published by the House of Representatives Download 2022 FINANCE BILL_HoR

TAT clarifies Permanent Establishment rules, and the application of Stamp Duties on certain contracts

New Skies Satellites B.V. (“New Skies” or the “Company”) is a company incorporated and tax resident in the Netherlands. The Company engages in the business of distributing satellite capacity across the globe via its communication satellites.

The Company entered into a contract with the Nigerian Broadcasting Corporation (NBC or the “Customer”) through a related party in Nigeria - SES Nigeria Limited (SNL). Based on the facts presented, this arrangement was in line with a Federal Government Executive Order mandating government Ministries, Departments, and Agencies (MDAs) to include Nigerian companies as parties to contracts with foreign service providers. New Skies also contracted an unrelated local Company (CWG) to provide uplinks and transmission services to the Customer.

The FIRS took the position that SNL and CWG had created a Permanent Establishment (PE) for New Skies in Nigeria. The FIRS also assessed Stamp Duties at 1% on the contract between NBC and New Skies. 

The Tax Appeal Tribunal (TAT) upheld the FIRS' view and ruled that New Skies created a PE in Nigeria. On the other hand, the TAT held that New Skies is not liable to Stamp Duties.

In view of this judgement, Non-Resident Companies (NRCs) should pay a bit more attention to their arrangements with Nigerian companies, in executing contracts with Nigerian customers. The burden of proof is on the NRC to justify that the activities of the Nigerian company would not be deemed as creating a taxable presence in Nigeria for the NRC. 

Please see our Tax Alert and the TAT judgement below:

Download PwC Tax Alert - TAT clarifies Permanent Establishment rules and the application of Stamp Duties on certain contracts

Download NEW SKIES SATELLITES B.V V. FIRS

 

State tax authorities impose fines of N5m per month for failure to verify TCCs

Section 85(2) of PITA requires ministries, agencies and banks to verify the Tax Clearance Certificate (TCC) of individuals on specific transactions. These transactions include application for foreign exchange, government loans, election into public office amongst others, as specified in the Act. PITA imposes a non-compliance fine of N5m or imprisonment for 3 years or both, upon conviction.

Further to this requirement, several state tax authorities have started demanding certain taxpayers (especially banks) to pay the non-compliance fine of N5m from 2005, and within 7 days of receipt of the assessment. Also, the tax authorities take the view that the N5m fine is on a monthly basis.

Please read our Tax Alert on this development, below:

Download PwC Tax Alert - State tax authorities impose fines of N5m per month for failure to verify TCCs

 

Nigeria Startup Act - Positioning the country for the 4th Industrial Revolution

On 19 October 2022, the Nigeria Startup Act was signed into law and took effect immediately. The Startup Act complements and provides a legal framework for the National Digital Economy Policy and Strategy (NDEPS) launched in 2019. The NDEPS is anchored on eight (8) pillars, i.e.

• Developmental Regulation,
• Digital Literacy and Skills,
• Solid Infrastructure,
• Service Infrastructure,
• Digital Services Development and Promotion,
• Soft Infrastructure,
• Digital Society and Emerging Technology and
• Indigenous Content Development and Adoption.

 
We have analysed the key provisions of the Act including the governance and regulatory framework for startups in Nigeria; incentives available to startups and investors including relevant eligibility criteria; and so on. We have also provided insights and areas which need to be addressed in order to achieve the objectives of the Act.

Please see read our Article and the Act below:

Download PwC Publication - Nigeria Startup Act - Positioning the country for the 4th revolution

Download NIGERIA STARTUP ACT 2022 (signed)

1% stamp duty rate on contract agreements - constitutional or otherwise?

Stamp duty is an instrument tax charged on written or electronic documents whether executed in Nigeria or not, except such instruments are specifically exempted under the Stamp Duties Act (“SDA”). The Schedule to the SDA provides a list of dutiable documents and the applicable stamp duty rates, which may be levied at a fixed (flat amount) or ad valorem (percentage of the value of the transaction) rate. Any agreement/contract not specifically provided under the SDA is to be stamped at a nominal rate of 15 Kobo.

On 20 July 2020, the Federal Inland Revenue Service released a Public Notice which summarised categories of dutiable instruments and their corresponding stamp duty rates. This included a charge of 1% stamp duty on contracts, where the contracts do not have specified rates.

In this article, we have examined the legality of the 1% rate. Read our Article below:

Download PwC Article - 1% stamp duty rate on contract agreements - constitutional or otherwise