Key changes to the tax laws introduced by the Finance Act, 2021 indicated diverse impacts on different sectors of the economy. The reviewed tax laws showed that companies engaged in the business of banking, mobile telecommunication, ICT and aviation with turnover of N100 million and above, are liable to pay National Agency for Science and Engineering Infrastructure (NASENI) Levy.
Likewise, profits of companies engaged in educational activities are liable to tax due to the removal of educational activities from the exempt provisions of Companies Income Tax Act. However, companies involved in the trade or business of gas utilisation in downstream operations now enjoy tax-free regime among other recommendations.
The implementation of the Finance Act, 2021 is one of the several avenues deployed by the Federal Government to deepen its revenue base for sustainable economic development.
A review of the tax laws introduced by the Finance Act, 2021 was was to affirm government’s commitment to raising tax to Gross Domestic Product (GDP) ratio to higher levels needed to provide more social amenities for the people.
The reviews showed that while the Finance Act, 2021 gives gas utilisation companies tax-free regime, their counterparts in the educational sector will now pay more taxes.
According to the latest changes effected in the Finance Act, 2021, the Federal Government has limited 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.
The new tax 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.
While such companies are further barred from similar incentive under any other sections of the Companies Income Tax Act (CITA) or other law, those engaged in upstream petroleum operations would continue to have obligation to withhold Value Added Tax (VAT), even when they have not commenced commercial operations or have not reached N25 million turnover.
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. The rate of tertiary education tax has been increased from two per cent of assessable profits to 2.5 per cent.
Capital allowance on qualifying capital expenditure incurred in generating tax-exempt income is not deductible from the assessable profits arising from income not exempt from tax under CITA.
According to the Federal Inland Revenue Service (FIRS), the new tax law further stipulates that capital gains from the disposal of stocks and shares in Nigerian companies, for aggregate proceed amounting to N100 million or more in any period of 12 consecutive months, is liable to Capital Gains Tax (CGT) at 10 per cent where the proceeds have not been reinvested within the same year of assessment in the acquisition of shares in the same or other Nigerian companies.
Also, 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.
The FIRS reiterated 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.
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.
It stated that capital allowances accruing in respect of qualifying capital expenditure 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.
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 stated that taxpayers may pay tax due in installments provided that the final installment 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 National Agency for Science and Engineering Infrastructure (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.”
The FIRS said, “It is an offence, punishable by a fine of N10 million imprisonment or both, for any agency of the federal government (other than FIRS) or any of their staff or consultant, to demand for books or returns for the purposes of tax, or carry out the function of assessment, collection or enforcement of tax, or pay any portion of tax revenue to any person or into any account, other than the relevant accounts designated by the constitution or relevant laws of the National Assembly.”
Meanwhile, other agencies of the Federal Government are under statutory obligation to report cases requiring tax investigation, enforcement or compliance, encountered in the course of performing their function, to the service for necessary action; they are forbidden from carrying out tax monitoring, audit or investigation.
Fiscal Policy Partner and Africa Tax Leader, PwC Nigeria, Taiwo Oyedele noted that the Finance Act 2021, which has commenced is expected to generate an estimate of N60 billion in revenue yearly for the federal government warning however, that the development will have impact on tuition fees and further degenerate human capital in Nigeria in the long run.
He spoke at the Nigerian Economic Outlook 2022 webinar organised by the Redeemed Christian Church of God’s The Kings Court parish.
The Finance Act 2021 amended tax on Tertiary Education Trust Fund from two per cent to 2.5 per cent, which the tax expert noted that with human capital being a major deficit to Nigeria, tax increase towards education shouldn’t have occurred.
He said: “I struggle to understand why we are trying to tax educational institution, I don’t understand why when every plan that we have speaks to the fact that we need more education not just in terms of the quantity, but the quality and depth of education for us to lead in this new age.
“So, the implications would be that you have increased funds and my estimation is that educational tax will go up by about N60 billion in a year, so that we agree is significant, but it means that higher burden for companies that have to pay this. Tuitions are likely to go up because if I have a school and I have to pay tax now I have to do my calculations, I need to still pay salaries of staff, I need to do so many other things like infrastructure that you need to maintain, so I’ll just adjust my tuition.”
On the implication it would have for Nigeria in the long-term, he said: “We may have long-term impacts on human development if we don’t find other safeguards to ensure that these does not create a bigger problem than the solution we are hoping to address.”
Also, Special Adviser to the President on Finance and Economy, Sarah Alade also at the webinar noted that the federal 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.”
She added: “We are also looking at a market-driven economy movement to a unified liberalised foreign exchange market, to guide what we do in the next four years. We want to enhance non-oil forex earnings and promote institutional reforms in public sector, law enforcement, judiciary, secure property rights, and many other things which we also have in the in human development as we are prioritising quality education, health research and skills generally for our people.
“Then the philosophy of government for this plan, national development is the highest priority of government and we’re hoping government will unlock all constraints to ensure that economic growth is enhanced, inclusive, sustainable over the plan period and beyond to generate employment and reduce poverty.”
“So, government will go beyond the normal provision of an enabling environment to also participate in vital sectors of the economy for instance, transports, we expect that government will be able to do some of these things to encourage the private sector to be able to come in and you know, invest in these areas, ”she added.
