Category: Finance Act 2021

The Finance Act 2021 has now bestowed on the Minister of Finance, the power and responsibility to make regulations (subject to the approval of the National Assembly) for imposition, administration, collection and remittance of Electronic Money Transfer Levy (EMTL) including regulations relating to the auditing, accounting, allocation and distribution of arrears of the relevant stamp duties and Electronic Money Transfer Levies  collected between 2015 and 2019 fiscal years.

The Minister is to perform this responsibility not later than 30th January 2022

Effective from 2020 fiscal year, EMTL collections are to be distributed within 30 days following the month of collection.

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.

Prior the Finance Act 2021, the profits of any Nigerian company in respect of goods exported from Nigeria was exempted from companies income tax, if the proceeds of such exports are used for the purchase of raw materials, plant equipment and spare parts. 

Under the Finance Act 2021, this exemption no longer covers companies engaged in the Upstream, Midstream or Downstream Petroleum operations. 

This is expected, given that the bulk of the industries’ produce – crude oil, is majorly exported. And, the Petroleum Industry Act imposes companies income tax (rather than the hitherto applicable Petroleum Profits Tax) on profits of companies engaged in petroleum operations. Therefore, sustaining this exemption from companies income tax would only nullify the new income tax provision of the Petroleum Industry Act. 

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.

Prior the Finance Act 2021, before any taxpayer could make payments of companies’ income tax in instalments, the taxpayer was required to first write to the Federal Inland Revenue Service (FIRS) for approval to pay in desired number of instalments. Such letter was also expected to be accompanied by evidence of payment of the first instalment.

Under the Finance Act 2021, taxpayers can now pay CIT in instalments without prior approval by the FIRS as long as the final instalment is compulsorily paid on or before the due date of filing.

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.

Prior the Finance Act 2021, stakeholders had clamoured for the simplification and rewording of the income tax laws pertaining to insurance companies, in order to reduce the ambiguities and resultant controversies in the application of the law. 

Under the Finance Act 2021, the provisions of the income tax laws pertaining to life and non-life insurance companies have how been better crafted to reduce the ambiguities by which it had hitherto been characterised.

Secondly, the provisions pertaining to minimum tax for all other non-insurance companies (including the waiver of 0.25% for two of the returns filed within the periods covered January 2019 to December 2021, and the penalty associated with any late filing of such returns) will now apply also to insurance companies. However, the ‘gross turnover’ for the purpose of the minimum tax application has been redefined under the Finance Act 2021 for non-life insurance businesses. ‘Gross turnover’ for non-life insurance businesses will now be defined as gross premium plus ‘other income’.

‘Other income’, for the purposes of non-life insurance 
businesses means all the income of the non-life insurance 
business other than gross premium (excluding franked 
investment income).

Lastly, the Finance Act 2021 also amends the Insurance Act by replacing the term “Paid up share capital” with “Capital requirement”.

For existing companies, ‘capital requirement’ includes 
the following:

– the excess of admissible assets over liabilities, less 
the amount of own shares held by the company,
– subordinated liabilities subject to approval by the 
Commission, and
– any other financial instrument as prescribed by the 
Commission.

(Admissible assets are defined as share capital, share premium, retained earnings, contingency reserves, and any other admissible assets subject to the approval of the National Insurance Commission).

For new companies, Capital requirement includes the 
following:
– Government bonds and Treasury bills
– Cash and Bank balances and
– Cash and cash equivalent.

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.

A company engaged in a trade or business of gas utilisation in downstream operations in Nigeria is entitled to a tax-free period (for 3 years at first, then for another 2 years if it performs satisfactorily), with respect of that trade or business, only once in its lifetime; additional investment, reorganisation or other forms of corporate restructuring shall not qualify it for further incentive. The company will also not be entitled to similar incentive under any other sections of CITA or other law.

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.

Where a company has both taxable and non-taxable (tax-exempt) income streams, capital allowance computations / claims will be segregated or classified along the two income streams. Capital allowance from assets used in generating tax-exempt incomes (or other non-income yielding activities the assets may be used for), cannot be claimed (for tax offset) against the company’s assessable profits (or incomes subject to tax). 

Where an asset (or a set of assets) is used by the company to jointly generate both taxable and non-taxable incomes, and the percentage of the tax-exempt incomes of the company is more than 20% of the total incomes, then the claim of capital allowance on those assets will be prorated and restricted to only the percentage relating to the taxable incomes of the company.

The law is silent as to what will happen when the percentage of tax-exempt incomes to total incomes of the company, is less than 20%. But our interpretation. (Until the tax authority issues further clarifications) is that the Law has deemed such percentages of tax-exempt income of 20% or less, too insignificant or immaterial to warrant any restriction or proration of capital allowance claim. 

These provisions of the Finance Act 2021 do not apply to companies enjoying Pioneer Status Incentive. 

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.

Prior the Finance Act 2021, there was a waiver/ reduction in rate of minimum tax (from 0.5% to 0.25% of gross turnover), necessitated by the Covid 19, for incorporated companies’ income tax returns falling due within tax years 1 Jan 2020 to 31 Dec 2021.

* Please note that ‘tax year’ is different from ‘accounting year’. Accounting year is always the preceding year to the tax year, meaning that the first of such tax returns falling due within tax year 2020, could be based on accounting year ending within 2019.

The Finance Act 2021 has now clarified that only TWO (2) companies’ income tax returns falling due within those years (1 Jan 2019 to 31 Dec 2021, either by accounting year or by tax year consideration) can / could qualify for the waiver or reduction in minimum tax rate to 0.25%, where minimum tax was applicable. The taxpayer is to choose any 2 income tax returns within those 3 years.

This may imply that some companies that had taken advantage of this reduction in minimum tax for more than 2 accounting years ending within those years, will have to pay the minimum tax shortfall accrued in the extra year(s).  

The Finance Act 2021, also clarifies that any company that did or does not file any of the TWO returns on or before the stipulated due dates for filing, will have to pay a late returns penalty that is equivalent to the 0.25% minimum tax paid, for each such tax return that was filed late. 

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.

Under the Finance Act 2021, the withholding tax deducted from any interest payment to Unit Trusts and paid to the tax authority (the tax must be paid as a condition for this provision to apply) will now become the final tax on such income. In other words, interest payments to Unit Trusts will now the taxable at a maximum rate of 10% withholding tax, as long as the withholding tax thus deducted, has been paid to the tax authority.

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.

The Finance Act 2021, has clarified that the exemption from VAT compliance obligations granted by the Finance Act 2019, does not apply to companies engaged in Upstream Petroleum operations as described under both the Petroleum Industry Act and the Petroleum Profits Tax Act regimes.

This also implies that companies engaged in Upstream Petroleum operations will continue to have obligation to withhold VAT, even when they have not commenced commercial operations or have turnover less than N25 million.

For further enquiries, discussion, advisory or help around complying with these new laws, please send us an email via clients@vi-m.com. You will be able to access all our explanatory write-ups on each of the major changes to the laws, brought about by the Finance Act 2021 and the practical ways in which they will affect taxpayers going forward, under our website group link – https://www.vi-m/category/Finance-Act-2021.