By Deloitte


President Muhammed Buhari, on 31 December 2020, signed the Finance Act 2020 (FA20) alongside the 2021 Appropriation Act into law. This reaffirms the Federal Government of Nigeria’s (FGN) commitment to enact fiscal policy annually, alongside the passage of the annual budget into law and aligns with global best practice.

The Act, which took effect on January 01, 2021, amended the provisions of 14 tax and fiscal related legislation, namely:

  • Capital Gains Tax Act (CGTA)  Companies Income Tax Act (CITA) Industrial Development (Income Tax Relief) Act (IDITRA) Personal Income Tax Act (PITA) Tertiary Education Trust Fund (Establishment etc.) Act Customs and Excise Tariff, etc. [Consolidation] Act (CETA) Value Added Tax Act (VATA) Stamp Duties Act (SDA) Federal Inland Revenue Service (Establishment) Act (FIRSEA) Nigeria Export Processing Zones Act (NEPZA) Oil and Gas Export Free Zone Act (OGEFZA)
  • Companies and Allied Matters Act (CAMA) Fiscal Responsibility Act (FRA) Public Procurement Act (PPA)

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In addition to the above, the Finance Act 2020 created a Crisis Intervention Fund (CIF) and its sub-fund, Unclaimed Funds Trust Fund (UFTF).


Analysis of changes and implications:

The amendments introduced by the Act are in connection with the FGN’s tax policy reforms, financial management and public revenue goals. The Act also recognized the challenges experienced by the country during the first wave of COVID-19 pandemic and attempted to create a structure that ameliorates some of the effects.

Following this fiscal policy developments experts at the world’s leading accounting and audit firm, Deloitte & Touche, have given a detailed insight into the major amendments created by the Act as well as the implications as follows:


Capital Gains Tax Act (CGTA)

Specifically, the major amendment is in the due date for filing tax returns and making the payment.

The filing of capital gains tax (CGT) returns and the payment of CGT arising from the disposal of chargeable assets in a particular year is due on or before June 30 and December 31 of the same year.


According to Deloitte, this provision is ambiguous, as it provides two due dates for the filing and payment of CGT.

Deloitte stated further: ‘‘The logical interpretation is that CGT returns and payment of CGT, relating to disposals that occur before June 30, should be made by June 30, while CGT returns and payment of CGT relating to disposals that occur after June 30 should be made by December 31.

‘‘This provision creates confusion as there is an existing CGTA provision (i.e. Section 43 and the Schedule) that requires the filing of CGT returns based on the provisions of Personal Income Tax Act (PITA) and Companies Income Tax Act (CITA), as the case may be. ‘‘Based on PITA and CITA, due dates of filing returns are three months and six months, respectively, after the relevant accounting year-end. Comparing the existing and new provision, there may be conflicting due dates of filing in many cases.’’

Another area of change is in the provision for ‘location of ship and aircraft’ for taxing purposes.

According to the Act, ship and aircraft used in international traffic, and owned by a Nigerian resident, are deemed situated in Nigeria for CGT purposes.

Commenting on this, Deloitte said, ‘‘The amendment introduced the phrase, ‘used in international traffic’. The amendment suggests that ship and aircraft used solely for local traffic need not be owned by a Nigerian resident to be deemed situated in Nigeria.’’

Also in relation to the CGY, the Act mentioned ‘Compensation for loss of office’. It provided that CGT on compensation for loss of office is limited to an amount in excess of N10 million. The person paying such compensation for loss of office is required to deduct the CGT due and remit to the relevant tax authority under the Pay As You Earn (PAYE) regulations.

Commenting, Deloitte said, ‘‘Employers now have an obligation to deduct CGT when they make redundancy payments, and other similar payments, to exiting employees.’’

Companies Income Tax Act (CITA)

The Act made major changes in the CITA regarding agricultural production, where agricultural ‘trade or business’ has been replaced with ‘Primary agricultural production’.

According to Deloitte, the definition of ‘primary agricultural production’ clearly excludes the processing and manufacturing of all forms of agricultural products.

The firm noted: ‘‘FA20 did not amend other aspects of CITA that referenced ‘agricultural trade or business’ to now reflect ‘primary agricultural production’. For example, companies involved in agricultural trade or business are exempt from the minimum tax.

‘‘The definition of agricultural trade or business no longer exists, and there may be no basis to exempt companies involved in primary agricultural production from the minimum tax.’’

Further on agric sector, the Act made some provisions in interest on foreign and agricultural loans. The moratorium for granting an exemption of tax for foreign and agricultural loans has been revised from ‘not less than 18 months’ to ‘not less than 12 months’. Deloitte did see any major effect of this adjustment but it is clear that it implies less incentive for access to foreign funding to this critical segment of the economy.

Also in a related development in the same in the sector which has to do with incentive for agricultural production, the FA20 deletes the provision that grants companies involved in agricultural production a 5-year tax holiday, which was subject to a 3-year renewal

Commenting on this development, Deloitte stated: ‘‘The removal of this incentive may not impact companies that have already earned the right to it. The right to the 5 years incentive has already accrued to companies involved in agricultural production under the existing CITA.’’

However, it is likely to discourage new companies going into this all important economic segment.

The Act introduced a major change in the provisions for companies’ software acquisitions where it said qualifying expenditure has been redefined to include capital expenditure incurred on the development and acquisition of software or electronic applications.

Commenting, Deloitte said, ‘‘FA20 did not prescribe capital allowances rate and whether or not investment allowance is applicable. The default expectation is to apply rates applicable to qualifying capital expenditure on plant and/or equipment.’’

The Act also made significant change in the definition of gross premium and gross income of insurance business where it provided that gross premium is defined as the total premiums written, received and receivable excluding unearned premium and premiums reinsured to the insured.

Gross income is defined as total income earned by a life insurance business including all investment income (excluding franked investment income), fees, commission and income from other assets but excluding premiums received and claims paid by re-insurers.

Deloitte is of the view that the introduction of these definitions removes the existing ambiguities and eliminates the risk of not paying the right amount of taxes. It also removes the need for uncertain tax disclosures in financial statements.

The changes in the CITA also affected the incidental income for international shipping/air transport companies where the specialized approach of calculating income tax for international shipping/air transport companies, under Section 14 of CITA, would now apply only to shipping/transport/freight income. Non-freight income, leasing, containers and other incidental income will be taxed under Section 9 of CITA, as non–specialized income.

Commenting on this change, Deloitte said, ‘‘Demurrage income, which is incidental to the primary shipping income of international shipping companies on their cargoes within Nigeria may now be subject to income tax. This creates a logical basis for charterers to claim demurrage expense as tax-deductible, as the shipowner would have accounted for income tax on the demurrage income.’’

CITA touched on deductibility of donations and definition of public character in respect of tax deductibility of COVID-19 crisis intervention fund donations. The deductibility is restricted to 10% of the assessable profit.

FA20 defines ‘public character’ with respect to organization or institution, which is exempt from tax and whose receipt of donation is deductible for the donors, to mean any organization or institution that is registered according to the relevant Nigerian law and does not permit the distribution of profits, in any manner, to its promoters or members.

Commenting on this provision, Deloitte stated: ‘‘Companies limited by guarantee would typically fall under the organisation or institution of public character, as long as their objects ties to the scope of public character organisation, as defined by CITA.’’

Also the CITA provisions delved into non-deductibility of penalty and fine, where it said penalties and fines that are non-deductible for income tax purposes now specifically includes those imposed by laws of any State House of Assembly.

Commenting on this, Deloitte said, until this amendment was introduced, only penalties and fines imposed by an Act of the National Assembly were specifically non-deductible.

CITA also touched on minimum tax, providing that the minimum tax rate is reduced to 0.25% of gross turnover less franked investment income. This reduction, which is a COVID-19 incentive, is applicable to tax returns filed in respect of any year of assessment that is due on any date between January 01 2020 and December 31 2021.

For non-life and life insurance businesses, the base of the minimum tax is gross premium and gross income, respectively

It also touched on incorrect returns providing that penalty and interest are chargeable where a company pays less tax than it should have because it deliberately and dishonestly declared a wrong profit or tax payable.

Commenting on this provision, Deloitte stated: ‘‘This puts to bed the notion that penalty and interest apply even where a taxpayer calculated and paid less tax in good faith.’’

CITA made significant change in ‘Books of Account’ providing that companies exempted from incorporation and those not liable to pay tax under CITA are now required to maintain books of account in a format prescribed by FIRS. These accounts are required to be in English language and must kept for a minimum of six years.

Further the change says where a taxpayer fails to produce any prescribed book or record, it is liable to a penalty of N100,000 in the first month of failure and N50,000 every month the failure continues.

Commenting on these introductions, Deloitte said, ‘‘FIRS may be able to impose these penalties where a taxpayer does not provide requested information by a specified date.’’

Industrial Development (Income Tax Relief) Act (IDITRA)

The major change in the IDITRA is in the area of Primary Agricultural Production, where the FA20, introduced “primary agricultural (i.e. crop, livestock, forestry and fisheries) production” as pioneer industries. Small or medium-sized companies involved in these activities are eligible to apply for pioneer status incentive.

Commenting Deloitte said companies involved in these activities are only allowed to apply for incentives under IDITRA and not CITA.

Personal Income Tax Act (PITA)

The Act introduced changes in the PITA with the introduction of ‘Significant Economic Presence (SEP)’ rules to the taxation of certain categories of non-resident individuals, executors or trustees. The Minister of Finance will issue rules to define SEP from a PITA perspective.

Commenting Deloitte said, ‘‘Non-residents subject to tax in Nigeria under this provision may have to pay tax twice on the same income – firstly in Nigeria and secondly in their country(ies) of residence.’’

Deloitte, however, added that persons subject to juridical double taxation by virtue of this provision may be able to seek relief under the Mutual Agreement Procedure, where a double tax avoidance treaty exists between Nigeria and the person’s home country.

Another major change in the PITA was in the area of ‘Commencement and cessation rules’ where the Act revised rules to prevent double tax. This is to align with the prior amendment to CITA in this regard. Tax will be applied on the basis of the individual’s accounting year.

Also the Act affected a change in the definition of ‘Gross Income’ with the introduction of a definition of gross income, which is the basis for calculating consolidated relief allowance.

Gross income is defined as income from all sources, excluding non-taxable income, tax-exempt income, income on which no further tax is payable, allowable business expenses and capital allowances.

Commenting on this Deloitte said this reduces the consolidated relief allowance claimable by taxpayers.


Tertiary Education Trust Fund Act (TETFA)

On TETFA the Act provided that small companies are exempt from paying Tertiary Education Tax (TET). Deloitte said this gives legal backing to the current practice of exempting small companies from TET.

Nigeria Export Processing Zones Act (NEPZA) & Oil and Gas Export Free Zone Act (OGEFZA)

The Act effected changes in the area of incentives and the related matters. Approved enterprises operating within export processing or free zone (the Zone) will continue to enjoy exemption from taxes, levies, duties and foreign exchange regulations, except that these exemptions are now subject to the Banks and Other Financial Institutions Act, 2020 (BOFIA 2020).

Companies/approved enterprises registered and operating within the Zone shall file a yearly self-assessment return as provided in Section 55(1) of CITA, to the FIRS. Failure to comply with the provisions of Section 55(1) of CITA will attract all relevant penalties stipulated in the CITA and FIRSEA.

Deloitte said, however, that it is unclear what the exception to BOFIA 2020 seeks to achieve, as BOFIA 2020 is silent on export processing/free zone matters.

Value Added Tax Act (VATA)

A major change in VATA is in the new definition where it is now provided to clarify the scope of ‘animal feeds’, ‘commercial aircraft spare parts and components’, ‘goods’ and ‘services’. In particular, interest in buildings has been added to money, security and interest in land, as items not classified as goods or services.

Commenting, Deloitte said, ‘‘This implies that the sale or transfer of interest in land and building, money and securities are not liable to VAT anymore.’’

In addition the Act also introduced new items exempt from VAT where the goods exempt from VAT was expanded to include commercial aircraft, engines and spare parts. Services exempt from VAT was expanded to include airline transportation tickets issued and sold by commercial airlines registered in Nigeria, and hired, rented or leased agricultural equipment for agricultural purposes

Stamp Duties Act (SDA)

The FA20 effected SDA with the introduction of Electronic Money Transfer Levy which applies on electronic receipts or electronic transfer for money deposits in any deposit money bank or financial institution. The charge will remain N50 for receipts or transfers above N10,000. The Minister of Finance shall make regulations for imposition, administration, collection and remittance of the Levy.

This replaces stamp duty on electronic receipts or electronic transfer for money deposits. But Deloitte is of the opinion that the mandate for the administration of the Levy could be given to another government agency instead of the Federal Inland Revenue Service (FIRS).

Companies and Allied Matters Act (CAMA)

The major change is in the area of Unclaimed Dividend, where it provided that dividends are only actionable when declared and are recoverable by shareholders within a 12-year period, after which it should be included in the profits of the company for distribution to other shareholders. This provision is only applicable to companies not listed on the Nigerian Stock Exchange (NSE).

Commenting, Deloitte said, ‘‘This provision was newly introduced by CAMA 2020. Where dividends are unclaimed after 12 years, including it in the profits of the company means including it directly in retained earnings.

In relation to this the FA20 has set up the Unclaimed Funds Trust Fund. All dividends declared by public limited companies (PLCs) on the NSE that have not been claimed for at least six years from the date of declaration of the dividend will be transferred to the UFTF. Upon transfer, the dividend becomes a debt owed by the Federal Government of Nigeria. The funds transferred to the UFTF may be claimed by the shareholder at any time.

Commenting Deloitte said, ‘‘The company transferring unclaimed dividend to the UFTF will have to derecognize the dividend payable upon transfer.’’



Comments expressed here do not reflect the opinions of vanguard newspapers or any employee thereof.