THE FINANCE ACT 2019 OF THE FEDERAL REPUBLIC OF NIGERIA: ALL YOU NEED TO KNOW: BABABODE ADESOJI

 

On the 13^th day of January 2020, the president of the Federal Republic of Nigeria signed into law the Finance Bill 2019 (now Finance Act 2019). The Act, a brain work of the Presidency, which prior to being signed into law had been the subject of debates at the National Assembly, is actually the first of its kind in the last two decades.

This Article summarily identifies the key provisions of the Finance Act 2019 and the specific innovations contained in the identified key provisions.

It is considered apposite to state at this preliminary phase of the Article that the Finance Act 2019 is not an independent Act, rather it is an Act which seeks to amend the provisions of existing Acts specifically regulating Taxation in the Federal Republic of Nigeria. And this fact can be gleaned not just from the sectional provisions of the Act, but also from the Long Title of the Act which provides as follows:

“An Act to amend the Companies Income Tax Act, Cap C21, Value Added Tax Act, Cap. V1, Customs and Excise Tariff, Etc. (Consolidation) Act, Cap. C49, Personal Income Tax Act, Cap. P13, Laws of the Federation of Nigeria, 2004 to provide for the review of tax provisions and make them more responsive to tax reform, and for related matters.”

The Act consists of 57 Sections which are categorized into VII Parts, each consisting of provisions amending one specific Act. An examination shall be carried-out on each part in the order in which they appear in the Act.

 

PART I (Deals with the Companies Income Tax Act Cap C21 LFN 2004 hereinafter referred to as C.I.T.A).

The key provisions under this part are as follows:

• Section 2 of the Finance Act – this provision amended the provision of Section 9 of C.I.T.A providing for ‘charge of tax’. The major innovation of the Finance Act by this amendment is that tax shall not be payable upon profits of a company that are subject to tax under the Capital Gains Tax Act, Petroleum Profit Tax Act and the Personal Income Tax
• Section 3 of the Finance Act – this provision substituted Section 10 of C.I.T.A with a new Section The Major innovation of the Finance Act by this

 

amendment is that all companies must have Tax Identification Numbers which is to be displayed on all its business transactions, documents and correspondence with revenue authorities including the Federal Inland Revenue Service and Government Ministries and Agencies. Also all Banking and Financial Service Providers in Nigeria are to require a Tax Identification Number from companies as a precondition for opening or for the continued operation of bank accounts.

• Section 4 of the Finance Act – this provision amended Section13 of C.I.T.A providing for ‘profits of a company other than a Nigerian Company’. The major innovation of the Finance Act by this amendment is that profits of a company other than a Nigerian Company from any trade or business shall be deemed to be derived from Nigeria (and thus subject to taxation) if:

 

“It transmits, emits or receives signals, sounds, messages, images or data of any kind by cable radio, electromagnetic systems or by any other electronic or wireless apparatus to Nigeria in respect of any activity including electronic commerce, application store, high frequency trading, electronic data storage, online adverts, participative network platform, online payments and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributed to such activity; Or

Where the trade or business comprises furnishing technical, Management, Consultancy or Professional service outside Nigeria to a person in Nigeria to the extent that the company has significant economic presence in Nigeria.”

 

As regards what constitutes ‘Significant Economic Presence’, the Minister of Finance may by Order define it.

• Section 6 of the Finance Act – this provision amended Section 16 of C.I.T.A containing provisions concerning insurance companies. The major innovation of the Finance Act by this amendment is that the tax payable by an insurance company for any year of assessment shall not be less than 0.5% of the gross premium for non-life insurance business, or 0.5% of the gross income for life assurance
• Section 9 of the Finance Act–this provision amended Section 23 of C.I.T.A providing for ‘profits exempted’ from tax under the Act. The Innovation of the Finance Act in this respect is simply that the profits of a Small Company (a company with Gross Turn-Over not exceeding N25,000,000.00), dividend and rental income received by a real estate investment company on behalf of its shareholders (provided 75% of the dividend and rental income is shared within 12 months of the end of the financial year in which the dividend or rental income was earned), are exempted from tax under I.T.A.

 

Another innovation by this amendment is the granting of an initial tax free period of 5 Years with an additional renewable maximum period of 3 years for any company engaged in agricultural production.

• Section 14 of the Finance Act – this provision amends Section 33 of C.I.T.A providing for the ‘minimum tax’ to be paid by a The major innovation of the Finance Act in this respect is that 0.5% of the gross turnover of a company is the minimum amount to be paid as tax. However in calculating the 0.5%, all investment incomes in respect of which tax has already been paid are excluded. Also, this provision shall not apply to a company with a gross turnover which is less than N25,000,000.00 (Twenty Five Million Naira).
• Section 15 of the Finance Act – this provision amends Section 39 of C.I.T.A providing for incentives for companies engaged in ‘gas utilization’. The innovation of the Finance Act in this respect is that, claiming the incentives provided by Section 39 of C.I.T.A precludes a company from claiming the incentives contained in the Industrial Development (Income Tax Relief) Act on the same qualifying expenditure. Thus the provision of Section 39 C.I.T.A and the Industrial Development (Income Tax Relief) Act are mutually
• Section 16 of the Finance Act – this provision substitutes Section 40 of

C.I.T.A providing for the ‘rates of tax’, with a new Section 40. The major innovation of the Finance Act in this respect is that the rate of tax shall now be as follows:

For Small Companies (a company with a gross turnover not exceeding N25,000,000.00) their profits are exempted from tax.

For Medium Companies (a company with a gross turnover exceeding N25,000,000.00 but less than N100,000,000.00) tax shall be at the rate of 20 Kobo for every Naira.

For Large Companies (a company which is neither a small or a medium company) tax shall be at the rate of 30 Kobo for every Naira.

• Section 17 of the Finance Act – this provision deleted Sections 41 and 43 of

C.I.T.A. The innovation of the Finance Act in this respect is that Investment Tax credit for the replacement of obsolete plant and machinery no longer exists under C.I.T.A.

• Section 18 of the Finance Act – this provision amended Section 77 of C.I.T.A providing for ‘the time within which tax is to be paid’. The major innovation of the Finance Act in this respect is that the payment of tax at least 90 days before the due date attracts a bonus of 2% in the case of a medium company, and 1% for any other company on the amount of tax Also failure to pay

 

tax (including balance for tax allowed to be paid in installment) as at the due date attracts interest and penalties.

• Section 20 of the Finance Act – this provision amended Section 80 of C.I.T.A providing for the ‘deduction of tax from dividend’. The major innovation of the Finance Act in this respect is that the provision on deduction of tax from dividend shall not apply to dividend paid to a Real Estate Investment Company, dividend being paid by a borrower to a lender, and dividends received by a lender as compensating payments from an approved
• Section 21 of the Finance Act – this provision amends Section 81 of C.I.T.A providing for ‘deduction of tax at source’. The major innovation of the Finance Act in this respect is that where the Federal Inland Revenue Service directs that income tax be recovered from payments made by a company or person to the taxable company, the rate shall not exceed 2.5% where the payment is in respect of road, bridges, building and power-plant construction
• Section 23 of the Finance Act – this provision amended Schedule 3 of C.I.T.A providing for ‘tax exemption on interest on foreign loans’. The major innovation of the Finance Act in this respect is the downward review of the tax exemption rates in respect of interest on foreign

Another innovation was the insertion of a Schedule 7 which provides for deductible interests.

 

 

PART II (Deals with the Petroleum Profit Tax Act Cap P13 LFN 2004 hereinafter referred to as P.P.T.A).

The key provisions under this part are as follows:

• Section 24 of the Finance Act – this provision deleted Section 60 of the

P.P.T.A which (in acting as a check on double taxation) provided that no tax shall be imposed by any other tax act in respect of any income or dividend paid out of a profit which is taken into consideration in calculating the amount upon which tax is charged, assessed and paid under the P.P.T.A.

 

 

PART III (Deals with the Personal Income Tax Act Cap P8 LFN 2004 hereinafter referred to as P.I.T.A).

The key provisions under this part are as follows:

• Section 27 of the Finance Act – this provision deleted Subsections (4), (5) and (6) of Section 33 of I.T.A which restricted how and by whom the

 

Personal Relief, Relief for Children and Dependents granted under P.I.T.A may be claimed.

• Section 28 of the Finance Act – this Provision amended Section 49 of P.I.T.A providing for ‘information to be delivered by bankers’, by the creation of an additional subsection which is the new Subsection (1). The Innovation of the Finance Act in this respect is that a duty is imposed on all persons engaged in banking to require as a condition precedent a Tax Identification Number from all persons intending to open bank accounts for the purpose of business operations, and also persons who wish to continue operating a bank account for the purpose of
• Section 29 of the Finance Act – this provision amended Subsection (1) of Section 58 of P.I.T.A providing for ‘revision of tax assessment in case of an objection’. The innovation of the Finance Act in this respect is that where a person disputes a tax assessment under the act, he may apply to the relevant Tax Authority by Notice of Objection in writing delivered in person, by Courier Service or via Electronic

 

 

PART IV (Deals with the Value Added Tax Act Cap VI LFN 2004 hereinafter referred to as V.A.T Act).

The key provisions under this part are as follows:

• Section 33 of the Finance Act – this provision substituted Section 2 of the

V.A.T Act with a new Section 2. The innovation of the Finance Act in this respect is that tax shall be charged under the V.A.T Act on all goods and services supplied in Nigeria, except for those exempted under the V.A.T Act. It further provided a definition of when goods and services would be deemed to have been supplied in Nigeria.

In respect of goods: they shall be deemed to have been supplied in Nigeria when they are physically present in Nigeria, or they are imported into Nigeria for use, or they are assembled in Nigeria, or they are installed in Nigeria, or the beneficial owner of rights in/over the goods is a taxable person in Nigeria while the goods or right is situated, registered or exercisable in Nigeria.

In respect of Services: the service must be rendered in Nigeria by a person whom at the time of rendering the service is physically present in Nigeria, or where the person to whom the service is rendered is in Nigeria, then it is immaterial that the person who rendered the service is outside Nigeria or that the service itself was rendered outside or within Nigeria.

 

• Section 34 of the Finance Act – this provision amended Section 4 of the

V.A.T Act providing for ‘V.A.T Rate’. The innovation of the Finance Act in this respect is that the V.A.T Rate has been increased from 5% to 7.5%.

• Section 35 of the Finance Act–this provision substitutes Section 8 of the

V.A.T Act with a new Section 8 providing for ‘Registration with the FIRS’. The innovation of the Finance Act in this respect is as follows:

• The obligation of a taxable person to register with the FIRS is now upon Commencement of
• Non registration with the FIRS upon commencement of business attracts a penalty of N50,000.00 (Fifty Thousand Naira) for the first month of failure, and N25,000 (Twenty Five Thousand Naira) for each subsequent month in which the failure
• There is an obligation on the Taxable person to notify the FIRS within 90 days of permanently ceasing to carryon trade or business in Nigeria, of its intention to deregister for tax
• Section 37 of the Finance Act – this provision amended Section 14 of the

V.A.T Act providing for ‘collection of tax by taxable persons’, by the addition of a new subsection (3) and (4). The innovation of the Finance Act in this respect is that a Non-Resident Company is to include V.A.T in its invoice and the person to whom the goods are supplied in Nigeria is to remit the tax in the currency of the transaction. Also, where a person to whom taxable supplies are made in Nigeria is issued an invoice on which no tax is charged, such person shall personally be liable to pay the tax to the FIRS on or before the 21st day of the Month.

• Section 42 of the Finance Act – this provision substitutes Section 28 of the

V.A.T Act with a new Section 28. The innovation of the Finance Act in this respect is that failure to notify the FIRS of change in address attracts a penalty of N50,000.00 (Fifty Thousand Naira) for the first month of the failure, and N25,000.00 (Twenty Five Thousand Naira) for each subsequent month in which the failure continues.

• Section 45 of the Finance Act – this provision substitutes Section 42 of the

V.A.T Act with a new Section 42. The innovation of the Finance Act in this respect is that where a trade or business carried on by a company is sold or transferred to a Nigerian Company for better organization or for the transfer of Management to Nigeria, and its assets used for the trade or business are also transferred, then no tax shall be imposed under the Act provided one company is controlled by the other, or that the companies are owned by some persons or belong to a recognized group of companies at least 365 days before the reorganization, provided that no subsequent disposal of asset shall

 

occur within 365 days after the first disposal, otherwise all benefits enjoyed under this provision shall be rescinded and the companies shall be treated as if they did not qualify for the benefit stipulated in this subsection as at the date of the initial reorganization.

• Section 46 of the Finance Act – this provision amended Section 46 of the

V.A.T Act. The innovation of the Finance Act in this respect is the provision of a definition of the word ‘basic food items’ used in the Part 1 of the First Schedule to the Act which contains a list of goods exempted from tax.

• Section 47 of the Finance Act – this provision amended Part 1 of the First Schedule to the V.A.T Act providing for ‘goods exempted from taxation’, by the addition of a new paragraph 10. The innovation of the Finance Act in this respect is the inclusion of Locally Manufactured Sanitary Towels, Pads or Tampons in the list of exempted

Also, Paragraph 2 of Part II of the First Schedule was substituted with a new paragraph 2 which included services rendered by Micro Finance Banks as service exempt.

Conclusively, Part II of the First Schedule was also amended by the inclusion of a new paragraph 5 which provides that tuition relating to Nursery, Primary, Secondary and Tertiary Education are service exempt.

 

 

PART V (Deals with the Custom and Excise Tariff Etc. (Consolidation) Act Cap C49 LFN 2004 hereinafter referred to as C&E Act).

The key provisions under this part are as follows:

• Section 48 of the Finance Act – this provision amended Section 21 of the C&E Act which provides for ‘goods liable to excise duty’, by substituting Section 21(1) of the C&E Act with a new Section 21(1). The innovation of the Finance Act in this respect is that, except goods that are not locally produced in Nigeria and raw materials that are not manufactured in Nigeria, all goods imported and those manufactured in Nigeria which are specified in the Fifth Schedule to the C&E Act shall be charged with duties of excise at the rates specified in the duty column of the

 

 

PART VI (Deals with the Capital Gains Tax Act Cap C1 LFN 2004 hereinafter referred to as C.G.T.A).

The key provisions under this part are as follows:

 

• Section 49 of the Finance Act – this provision substitutes Section 32 of the

C.G.T.A with a new Section 32. The innovation of the Finance Act in this respect is that where a trade or business carried on by a company is sold or transferred to a Nigerian Company for better organization or for the transfer of Management to Nigeria, and its assets used for the trade or business are also transferred, then no tax shall be imposed under the Act provided one company is controlled by the other, or that the companies are owned by some persons or belong to a recognized group of companies at least 365 days before the reorganization, provided that no subsequent disposal of asset shall occur within 365 days after the first disposal, otherwise all benefits enjoyed under this provision shall be rescinded and the companies shall be treated as if they did not qualify for the benefit stipulated in this subsection as at the date of the initial reorganization.

• Section 50 of the Finance Act – this provision amended Section 36(2) of the Capital Gains Tax Act providing for ‘exemption from tax under the Act of compensation not exceeding N10,000.00 (Ten Thousand Naira) in any year of assessment, received for loss of office’. The innovation of the Finance Act in this respect is the increase of the threshold of the sum exempted from N10,000.00 (Ten Thousand Naira) to N10,000,000.00 (Ten Million Naira), and removing the condition that each year of assessment shall be treated distinctly in calculating whether the sum received as compensation does not exceed the threshold set

 

 

PART VII (Deals with the Stamp Duties Act Cap S8 LFN 2004 hereinafter referred to as S.D.A).

The key provisions under this part are as follows:

• Section 52 of the Finance Act – this provision amended Section 2 of the

S.D.A which is the interpretation Section. The innovation of the Finance Act in this respect is the refining of the definition of the words ‘Stamp’, ‘Stamped’ and ‘Instrument’ as contained in the S.D.A. which now recognizes electronic stamps, electronic acknowledgments and electronic documents.

• Section 53 of the Finance Act – this provision amends Section 4 of the S.D.A providing for the ‘collection of duties’. The innovation of the Act in this respect is that power to collect duties under the S.D.A is now expressly vested in the Federal Inland Revenue Service (no longer the Federal Government) and the relevant Tax Authority in a State (no longer the State Government).

 

• Section 54 of the Finance Act – this provision substitutes Section 89 of the

S.D.A with a new Section 89. The innovation of the Finance Act in this respect is the recognition of electronic receipts, and the imposition of a N50.00 (Fifty Naira) tax on electronic receipts or electronic transfers for N10,000.00 (Ten Thousand Naira) and above deposited in any bank or with any banker, provided that money paid into or transferred electronically between accounts of the same owner by the owner within the same bank is exempted from this duty.

 

About Author: Bababode Adesoji is currently an associate in the Law firm of Akinlawon & Ajomo. His interest spans various areas of law with particular bias for  dispute resolution and finance law.