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It is no longer a news that President Muhammadu Buhari has signed the Finance Act, 2020 on the 13th Of January, 2020. The Act was initially planned to take effect along side the budget on the 1st January, 2020 since the normal budget cycle of January to December has been restored by the current administration, but due to the fact that review and review after review of the bill made the signing of the bill before the initially set date to be impossible, another date has to be looked at for the commencement of its implementation. 

few days after the signing, the Accountant General Mr Ahmed Idris has first made an announcement that implementation would begin immediately but the Minister of finance Mrs Zainob Muhammed later came out to say that the implementation would rather start on the 1st of February, 2020 

The Federal Government has reverted to the practice of submitting fiscal regulations with its Appropriations Bill. The fiscal regulations, which were collated and passed as a Bill by the National Assembly were recently given assent to by the President, Muhammadu Buhari, as the Finance Act 2020. The Finance Act is a wholesale amendment of seven (7) different tax laws, to wit: Companies Income Tax Act, Petroleum Profit Tax Act, Personal Income Tax Act, Value Added Tax Act, Customs and Excise Tariff, ETC (Consolidation) Act, Capital Gains Tax Act and Stamp Duties Act.

Shorn of technicality and legalese, the primary reasons for the wholesale amendments to the various tax laws are for the government to raise revenue by increment of some tax rates, blockage of avenues where tax avoidance could be legally deployed to refrain from payment of taxes, clarification of ambiguous tax provisions by clearly defining and bringing the desired economic activities within the tax nets and expanding in some instances the bases of activities that are taxable.

The good news is that small and medium-sized companies are major beneficiaries of the amendments. Companies are categorized for the purpose of corporate tax liability under the Finance Act 2020 by annual gross turnover. A small company is defined as a company which has an annual gross turnover of N25, 000, 000.00 (Twenty Five Million Naira) and below. Such a company does not pay Company Income Tax. A medium-sized company is defined as a company having an annual gross turnover of over N25, 000,000.00 (Twenty Five Million Naira) per annum but below N100, 000, 000.00 (One Hundred Million Naira). Such an entity pays Companies Income Tax at the rate of 20% while a large company is defined as a company that is neither a small company nor a medium-sized company and it pays Companies Income Tax at the extant rate of 30%. Gross turnover is defined as the gross inflow of economic benefits (cash, revenues, receivables, other assets) arising from the operating activities of a company, including sales of goods, supply of services, receipt of interest, rents, royalties or dividends.

It is however not inconceivable for the purpose of tax planning or tax avoidance, for promoters of business to incorporate multiple small companies in the same or similar line of business with the aim of taking advantage of the zero percent tax rate for small companies by tweaking the businesses of such companies to ensure that their gross turnovers per annum do not exceed the N25, 000, 000.00 (Twenty Five Million Naira) threshold so as to avoid payment of Companies Income Tax and this would be perfectly legitimate unless regulations are made by the supervising Minister to criminalise or prohibit such otherwise perfectly legitimate act of tax planning or tax avoidance.

On the issue of Value Added Tax (VAT), the loudest noise is the amendment of the Value Added Tax Act by the Finance Act which raised the VAT rate from 5% to 7.5%, an increment of 50%. Section 38 of the Finance Act however substitutes and provides a new Section 15 of the Value Added Tax which provides, “Section 15 (1). A taxable person who, in the course of business has made taxable supplies or expects to make taxable supplies, the value of which, either singularly or cumulatively in any calendar year is N25, 000, 000 or more shall render to the Service , on or before the 21st day of every month in which this threshold is achieved and on or before the same day in successive months thereafter, a return of the input tax paid and output tax collected by him in the preceding month in such a manner as the Service may prescribe”. The implication of this is that small businesses, individuals, entities and other taxable persons whose taxable supplies or projected taxable supplies fall without this threshold are not caught by this provision. Despite the widely held view that anyone who does not fall within the threshold above is exempted from registering, remitting, issuing tax invoice and collecting VAT, the correct position is that such individuals and entities are still to register and file their returns monthly. “Taxable supplies” is defined under the Finance Act as “any transaction for sale of goods or the performance of a service, for a consideration in money or money’s worth”.

The amendments to the Value Added Tax eliminated any ambiguity as to the definition of goods and service as well as what constitute exported service, basic food items and taxable supplies. While there has been a lot of commentary on the fact, for instance, that sanitary towels, pads and tampons are not liable to Value Added Tax, the correct position is that this is qualified. The Act provides, as it relates to such product- category, that only “locally manufactured sanitary towels, pads or tampons” enjoy such non-taxable status. While a 50% increment in VAT for those in the threshold is huge and since it is a multi-level, consumption tax which is ultimately passed down to the final consumer, the fact that the list of exempted goods and services is expanded is a commendable act.

In the case of Personal Income Tax Act, a community reading of the Personal Income Tax, Chapter P8, LFN, Personal Income Tax (Amendment Act) 2011 and Finance Act 2020 shows that dependent relative allowances have been abolished. The implication is that the base of a tax payer personal income tax is expanded.
As it relates to the Companies Income Tax, the inclusion of nonresident companies with “significant economic presence” that profits can be attributable to into the tax net is of significant importance in the Government’s quest to increase tax revenue. The expansion of taxable activities of these nonresident companies would no doubt serve the end of the objective of increased tax revenue. The implementation of this provision will no doubt raise conflicts which may be unintended. The first one is that the failure to define what constitutes “significant economic presence” in the Finance Act leaves room for ambiguity and vests so much latitude to the supervising Minister in her discretion of determining what constitutes significant economic presence and such discretion is open to abuse. Secondly, is this provision really a thinly disguised “digital tax” targeted at the global tech companies operating in Nigeria and deriving significant revenue in Nigeria without necessarily having a fixed base in Nigeria? Given the opposition of the present American Government to the digital taxation of the big tech companies which are majorly American Government by foreign governments, does the Nigerian Government possess the capacity to engage in the political storm that may arise from the imposition of digital tax or would the brunt of this digital tax be borne by small players in the online world hoisting their bases in tax havens? Has the Nigerian Government made enough provisions for double taxation jeopardy these nonresident companies may face as a result of this provision of the law?

The innovations relating to the Excess Dividend Tax, thin capitalization rules, capacity of insurance to carry forward losses, clarity relating to “taxable investment income” and the likes are all laudable provisions.

The Finance Act 2020 with its strength and weaknesses is a laudable idea. The idea of having fiscal regulation annually along with the Appropriations Bill can only provide clarity to people impacted by taxes, which is practically everyone and if the practice is maintained, it makes for easy tax planning by everyone affected by it. Every taxpayer looks forward to the commencement of the Finance Act.

The expectation grows as we enter enter the month of February tomorrow and again still await the regulation that is to be released in respect of same by the honourable Minister of Finance in the next couple of days.


‘Wale Folorunsho

Tax, Audit and Business expert



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