By Babajide Komolafe, Economy Editor

The International Monetary Fund, in its 2021 Article IV Consultation with Nigeria, has reported that the country’s  consolidated government revenue-to-Gross Domestic Product, GDP ratio at 7.5 percent is among the lowest in the world. 

On the other hand, the IMF noted that the country can achieve cumulative net savings of 5.1 per cent of GDP by 2026, keep public debt-to-GDP ratio below 40 percent, reduce interest payments-to-revenue ratios subject to implementation of some reform measures which includes tax policy and administration. 

The above, among other things, Vanguard Public Finance learnt, prompted the key changes to the nation’s tax laws contained in the Finance Act 2021.

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The Federal Government, through the Finance Act 2021, aims to increase revenue and thus reduce its fiscal deficit which rose by 50 per cent to N7.05 trillion as at November last year. 

According to experts, the provisions of the Act have the potential to increase government revenue by N60 billion. 

In addition to reinforcing  the Federal Inland Revenue Services (FIRS) as the principal tax collection agency in the country, the tax changes  in the Finance Act 2021 include the introduction of 10 per cent rate for capital gains tax on gains from disposal of shares in any Nigerian company when the gross proceeds from such sales in any 12 consecutive months exceed N100 million (except when the proceeds are reinvested in shares of the same or other Nigerian company within the same year of assessment).

Also, in its renewed drive to boost domestic resource mobilisation, the Federal Government restricted companies involved in the trade or business of gas utilisation in downstream operations in the country to a, “once in a lifetime” tax-free regime, according to the latest changes effected in the Finance Act, 2021.

The new law states that additional investment, re-organisation or other forms of corporate restructuring shall not qualify for a further tax incentive under the gas investment programme.

Such companies are further barred from similar incentive under any other sections of the Companies Income Tax Act (CITA) or other law.

Moreover, companies engaged in upstream petroleum operations would continue to have obligation to withhold VAT, even when they have not commenced commercial operations or have not reached N25 million turnover.

However, profits of companies engaged in educational activities in the country are now liable to tax due to the removal of educational activities from the exempt provisions of Section 23(1)(c) of CITA.

Also, the rate of tertiary education tax has been increased from two per cent of assessable profits to 2.5 per cent.

According to the FIRS, profits of companies from the exports of goods produced in upstream, midstream and downstream petroleum operations are also liable to tax as clarified in section 23(1)(q) of CITA.

Additionally, it stipulates that non-resident companies liable to tax on profits arising from providing digital goods or services to Nigerian customers under the Significant Economic Presence (SEP) Rule may be assessed on fair and reasonable percentage of their turnover in the event that there is no assessable profit, the assessable profit is less than what is to be expected from that type of trade or business, or the assessable profit cannot be ascertained.

Furthermore, the new amendments to the Finance Act states that capital allowance on qualifying capital expenditure incurred in generating tax-exempt income was not deductible from the assessable profits arising from income not exempt from tax under CITA.

In addition, it stated that capital allowances accruing in respect of QCE employed for both taxable and tax-exempt income shall be pro-rated where the tax-exempt income constitutes more than 20 per cent of the total income of the company.

Furthermore, capital allowance on qualifying capital expenditure incurred by small companies are deemed utilised during the periods such companies are tax-exempt in accordance with Section 31(1C) of CITA.

However, minimum tax rate was reduced from 0.5 per cent to 0.25 per cent for any two consecutive accounting periods falling on 1 January 2019 to 31 December 2021, as may be elected by the taxpayer.

The Finance Act also states that any company that claims the reduced 0.25 per cent rate under the minimum tax rule in section 33 of CITA but filed its tax returns late would be liable to penalty equal to the benefits or reduction claimed.

The FIRS also stipulates that taxpayers may pay tax due in instalments provided that the final instalment shall be paid on or before the due date of payment.

Under the current regime, Withholding Tax (WHT) deducted from payments to a Unit Trust shall be the final tax on such income provided the said deduction is fully remitted to FIRS.

Moreover, companies engaged in the business of banking, mobile telecommunication, ICT, aviation, maritime and oil and gas with turnover of N100 million and above, are liable to pay NASENI Levy at 0.25 per cent of their profits before tax and the tax is to be administered by FIRS.

The Finance Act also vested the FIRS with the duty to assess, collect, account and enforce the payment of the Nigeria Police Trust Fund Levy.

The levy is 0.005 per cent of the net profit of companies operating business in Nigeria as provided under Section 4 of the Nigeria Police Trust Fund (Establishment) Act.

While also strengthening the service, the Act stipulated that any person who fails to grant FIRS access to its information processing systems to deploy its automated tax administration technology after a 30 days’ notice, or such extension granted by the service, is liable to a penalty of N25, 000 for each day it continues to fail to grant the access.

Also, any bank that fails to prepare and submit quarterly returns of new accounts or any information requested by the relevant tax authority, or submit incorrect returns or information, under section 28 of FIRSEA or sections 47 and 49 of PITA, is liable to a penalty of N1 million for each quarterly return or information not provided or incorrect returns or information provided.

The law further provided that, “Any person employed in the service or otherwise that has access to taxpayer information is under a strict legal obligation to keep such information confidential.

“Leakages of taxpayer information by such person is liable to fine, imprisonment or both fine and imprisonment.”

Elaborating on the some of the new provisions in the Finance Act 2021,  Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, said that the tax on digital services included apps, high frequency trading, electronic data storage and online advertising, adding that, “this is introducing turnover tax on a fair and reasonable basis.”

The policy is contained in Section 30 of the Finance Act which amended the provisions of Section 10, 31 and 14 on VAT obligations for non-resident digital companies.

Ahmed said, “Section 30 of the Finance Act designed to amend section 10, 31 and 14 of VAT is in relations to VAT obligations for non-resident digital companies and the mechanism that will be used is to restrict VAT obligations mainly to digital non-resident companies who supply individuals in Nigeria who can’t themselves self-account for VAT.

“So, if you visit Amazon, we are expecting Amazon to add VAT charge to whatever transaction you are paying for. I am using Amazon as an example.

“We are going to be working with Amazon to be registered as a tax agent for the FIRS. So, Amazon will now collect this payment and remit to FIRS and this is in line with global best practices, we have been missing out on this stream of revenue.”

According to her, the new law applies to foreign companies that provide digital services such as apps, high-frequency trading, electronic data storage, online and advertising, among others.

She noted that in line with Section 4 of the Finance Act, non-resident companies are expected to pay tax at six per cent per cent on their turnover.

The minister who stated that the government was desirous of modernising taxes for its digital economy and to improve compliance, noted that digital non-resident companies do not need to be registered locally but would have an arrangement with the Federal Inland Revenue Services(FIRS) to collect and remit taxes in a bid to reduce the compliance burden.

To the Fiscal Policy Partner and Africa Tax Leader, PwC Nigeria, Taiwo Oyedele, the Finance Act 2021 is expected to generate an estimate of N60 billion in revenue yearly for the federal government.

He, however, warned that the development would have impact on tuition fees and further degenerate human capital in Nigeria in the long run, based on the amendment to the tax on Tertiary Education Trust Fund from two per cent to 2.5 per cent.

However, the Special Adviser to the President on Finance and Economy, Sarah Alade, noted that the government was committed to ensuring growth across all sectors.

She said: “We want to see prioritisation and implementation of critical infrastructure, physical, digital, financial infrastructure. We are deficient in infrastructures and we give priority to this.

“There must be measures to diversify our revenue base, we are hoping in this plan that by 2025, the present revenue to GDP which is about a less than eight per cent, we would be able to grow it to 15 per cent of GDP and then there must be continuous support and interventions for manufacturing, for agriculture and for MSMEs.”

It is expected these tax reforms would help boost government revenue, improve the ease of doing business and stimulate economic growth this year.

Vanguard News