Finance Bill 2021 sheds light on Nigeria’s revenue outlook
Given that Nigeria is still struggling with high budget deficits despite the rebound in oil prices to pre-COVID-19 levels, the 2021 Budget Bill, as well as increased efforts by the Federal Inland Revenue Service (FIRS) , are essential to increase the country’s tax revenue. , writes TONY CHUKWUNYEM
As part of its macroeconomic policy reforms, the federal government has, over the past three years, systematically reviewed tax and tax regulations through annual budget laws. Thus, on December 31, 2021, the Finance Act 2021 was enacted by President Muhammadu Buhari alongside the Finance Act 2022. The Finance Act 2021, which aims to boost revenue mobilization for budget execution , modifies 13 different tax and tax laws.
Main changes to tax laws under the Act
Specifically, critical changes to tax laws under the legislation include the Capital Gains Tax Act (CGTA), the Corporations Income Tax Act (CITA), the National Agency for Science and Technology Infrastructure (NASENI), Higher Education Trust Fund Act, Value Added Tax Act, Nigeria Police Trust Fund (Establishment) Act and Federal Inland Revenue Service (Establishment) Act.
The CGTA, for example, states that “the capital gains arising from the disposal of stocks and shares of Nigerian companies, for aggregate proceeds amounting to N100 million or more during a period of 12 consecutive months, are subject to CGT at 10% when the proceeds have not been reinvested during the same valuation year in the acquisition of shares of the same company or other Nigerian companies (article 30 (2) CGTA). In addition, the Corporations Income Tax Act (CITA) stipulates that corporate profits engaged in educational activities are now subject to tax due to the removal of educational activities from the exemption provisions of the Act. Section 23(1)(c) of CITA.
It further states that corporate profits from the export of goods produced in upstream, midstream and downstream petroleum operations are subject to tax. Further, the Act states that “non-resident companies liable to tax on profits arising from the supply of digital goods or services to Nigerian customers under the Significant Economic Presence (SEP) rule may be taxed on a fair and reasonable percentage of their turnover in the event that there is no taxable profit, that the taxable profit is lower than what can be expected from this type of business or business, or the taxable profit cannot be determined.
“The capital allowance on qualifying capital expenditure (QCE) incurred to generate tax-exempt income is not deductible against taxable profits from non-tax-exempt income under the CITA. Capital allowances due for QCE used for both taxable and tax-exempt income are pro-rated when the tax-exempt income represents more than 20 percent of the company’s total income. Other changes include that: “The capital cost allowance on qualifying capital expenditures incurred by small businesses is deemed to be used during periods when such businesses are tax-exempt; the minimum tax rate is reduced from 0.5% to 0.25% for two consecutive accounting periods falling from January 1, 2019 to December 31, 2021, depending on the choice of the taxpayer; a company carrying on a trade or business of using gas in downstream operations in Nigeria is only entitled to a period of tax exemption, in respect of such trade or business, once in its lifetime ; additional investment, reorganization or other forms of corporate restructuring will not entitle it to any additional incentive. Nor shall the company be entitled to any similar inducement under any other sections of CITA or any other law. Another significant change introduced by the new law is the requirement that taxpayers may pay the tax owing in installments, provided that the last installment is paid no later than the payment due date.
The law also provides that the withholding tax (WHT) deducted from payments to a mutual fund will be the final tax on such income provided that said deduction is fully remitted to the FIRS. In addition, the new law stipulates that the tax rate on higher education has increased from 2% of taxable profits to 2.5% of taxable profits, while for companies engaged in banking, mobile telecommunications, ICT, Aviation, Maritime and Oil & Gas with a turnover of N100 million and above, it states that such companies are liable to pay NASENI tax at 0.25% of their pre-tax profits, adding that the tax should be administered by the FIRS. Similarly, the Act states that the FIRS is vested with the duty to assess, collect, account and execute payment of levy from the Nigerian Police Trust Fund.
He explained that the levy is 0.005% of the net profit of companies doing business in Nigeria as per Section 4 of the Nigerian Police Trust Fund (Establishment) Act. Regarding the changes to VAT, the Finance Act 2021 states that “non-resident suppliers of goods or services taxable in Nigeria, or any other person appointed by the Service to collect tax under the VAT Act , have a legal obligation to collect and remit the tax. in the service. “Companies engaged in upstream petroleum operations will continue to have an obligation to withhold VAT, even where they have not commenced business operations or reached a turnover of N25 million. .”
In what analysts describe as a significant improvement in FIRS’ ability to collect taxes, the law states that “anyone who does not grant FIRS access to its information processing systems to deploy its technology automated tax administration after 30 days notice, or such extension granted by the Service, shall be liable to a fine of N25,000 for each day it continues to fail to grant access.”
He added: “Any bank which fails to prepare and submit quarterly statements of new accounts or any information requested by the competent tax authority, or which submits incorrect statements or information, under Article 28 of FIRSEA or Sections 47 and 49 of the PITA, shall be liable to a penalty of N1 million for each quarterly statement or information not provided or incorrect statement or information provided. In addition, the new law states that other federal government agencies are legally required to report cases requiring tax investigation, enforcement, or compliance, encountered in the performance of their duties, to FIRS for necessary action. adding that the agencies do not have the right to carry out control, audit or tax investigation.
Although there was a mixed reaction to the 2021 budget bill changes from different sides, the consensus among financial experts is that the changes would result in more revenue for the federal government.
Boost for the FIRS
For example, commenting on the changes at a recent event, Mr. Taiwo Oyedele, Fiscal Policy Partner and Tax Manager for Africa, PwC Nigeria, said that the school tax hike could generate around N60 billion in revenue per year for the federal government. Moreover, during a recent webinar on the theme: “Finance Act 2021: Tax imperatives and sustainable development”, organized by the Joint Minds International (JMI), the country’s top tax administrators urged stakeholders to collaborate with the federal government to find solutions to the country’s ongoing challenge of low public revenues.
In her remarks at the event, the President of the Institute of Chartered Accountants of Nigeria (ICAN), Ms. years aims to develop strategies to shore up capital (government revenue) for the economy. This is a step that needed to be taken by the government to improve the revenue generation potential of the country. Indeed, analysts predict that with the 2021 finance law, the FIRS should sustain the significant successes it has achieved in recent years in terms of revenue collection. Last week, the Service announced that despite global and economic challenges in 2021, it has met and exceeded its revenue target of 6.405 trillion naira in 2021.
According to a revenue performance of the service released by Media Assistant to FIRS Chairman, Mr. Johannes Wojuola, FIRS raised a total of 6.405 trillion naira last year against a target of 6.401 trillion naira. According to the statement, FIRS President, Mr. Mohammed Nami, said the deployment of technological tools had been a game-changer for the Service, allowing it to achieve “more than one hundred percent of its collection target”.
Nami was quoted as saying “Upon taking office of the current leadership, the Federal Inland Revenue Service (FIRS) began strategic administrative and operational reforms and the implementation of new policies that would improve its ability to fulfill its “The rollout of a new automated tax administration system, the ‘TaxPro Max’ in June 2021, has been a game changer. Thanks to this solution, taxpayers have benefited from ease of recording, reporting, paying and issuing tax clearance certificates, while the Service has experienced greater efficiency in the deployment of resources, which has improved revenue collection. »
As financial analyst Mr Chuks Okolo pointed out in a conversation with New Telegraph, a thorough analysis of the Finance Bill 2021 shows that the drafters of the legislation made sure to introduce measures to enable the FIRS to perform its duties effectively.