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The 2019 Finance Bill (“FB”) and the 2020 Appropriation Bill (“AB”)  were  presented to the National Assembly in November 2019. The AB proposed an expenditure bill of N10.33 trillion which was later increased to N10.59 trillion while income is estimated at N8.15 trillion with an estimated deficit of N2.44 trillion. The question that immediately comes to mind is how will the Federal Government (“FGN”) plug this gap? The answer is simple. The FGN needs to get generate more revenue through TAXES. Therefore the FB includes proposed amendments to our fiscal laws to enable the FGN generate extra revenue. Revenue generation is obviously an objective of the FGN if not one of the main one.  The President in his supporting speech state the underlisted as other objectives.

  • Promoting fiscal equity by mitigating instances of regressive taxation;
  • Reforming domestic tax laws to align with global best practices;
  • Introducing tax incentives for investments in infrastructure and capital markets;
  • Supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms.

Amendments will be made  to the provisions of the following statutes:

  1. Value Added Tax  Act
  2. Companies Income Tax Act
  3. Personal Income Tax
  4. Petroleum Profit Tax
  5. Capital Gains Tax
  6. Stamp Duties Act
  7. Custom and Exercise

The proposed amendments have been highlighted below and they highlight some of the effects of the amendments  on corporations and individuals.

A. Value Added Tax 

The FB amends sections 2, 4, 10, 15, 46, and the First Schedule of the VAT Act, and proposes the following: 

i. the definition of goods and services has been expanded to cover intangible items that a person has ownership interest in, or derives benefit from, and which can be transferred to               another  person, other than land; for example, intellectual property rights. Section 2

ii. Increase in the VAT rate from 5% to 7.5%. Section 4

iii. Where the recipient of services is in Nigeria, it is immaterial that the services were rendered within or outside Nigeria. Services will be deemed to have been provided in Nigeria and      therefore subject to VAT. 

Example A: Company A provides  conference services to clients in Nigeria. Company B based in Nigeria uses the service of Company A and receives the services of Company A here in Nigeria.                            The service is provided in Nigeria, therefore Company A must pay VAT  by including it in its invoice to Company B.

However, where the recipient of a service is outside Nigeria, such service shall be deemed "exported service" and hence not chargeable to VAT. Section 10.

Example B: Company C is based in Canada and uses the services of Company A to reserve conferencing space in Nigeria. That transaction is not subject to VAT because Company C who is the                            recipient is not based in Nigeria.

iv. The proposed definition of "exported service" in the FB suggests that the service provided must flow directly from the Nigerian resident to the person resident outside Nigeria[1].  This means that exported service, as contemplated by FB, does not include a transaction where the service in question flows from a Nigerian resident to another Nigerian resident third party on behalf of or for the benefit of non-resident persons in Nigeria.  

v. The FB clarifies that services rendered to the fixed base or permanent establishments of non-resident persons do not qualify as exported service and are therefore subject to VAT.  

vi. The FB introduces Reverse Charge Principle (RCP), which charges the VAT due on imported supplies in Nigeria in the hands of the recipients of such taxable supplies.

vii. The FB  removes the requirement for foreign entities carrying on business in Nigeria to register for VAT in Nigeria and include VAT charges in their invoices.

viii. Companies with annual turnover of less than Twenty-Five Million Naira (N25,000,000) are exempted from the requirement of filing VAT returns.

ix. Specific description of what constitutes basic food items, within the meaning of the VAT Act, for VAT exemption purposes. 

x. Exemption of locally manufactured sanitary pads, tampons, and towels from VAT; and

xi. Exemption of nursery, primary, secondary, and tertiary education tuition levies from VAT.  Section 46

B. Companies Income Tax Act (CITA)

The FB amends sections 9, 10, 13, 16, 19, 20, 23, 24, 27, 29, 31, 33, 39, 40, 41, 43, 53, 55, 77, 78, 80, 81, 105, and the Third and Seventh Schedules of the Act ("CITA").

i. Identification of Companies – Proposed Section 10

The FB introduces a requirement for companies to produce their Tax Identification Number (TIN) before they can operate new or existing banking accounts in Nigeria. 

ii. Cross-Boarder and Digital Transactions - Proposed Section 13

The Nigerian digital economy will be subjected to tax, including prevention of artificial avoidance of tax by foreign entities which have significant economic presence in Nigeria without maintaining any identifiable physical presence in the country.  

 iii. Insurance Sector - Proposed Section 16

The FB proposes to create a more favourable tax regime for insurance companies in Nigeria by allowing the companies to carry their losses forward indefinitely. 

The FB seeks to achieve this by deleting the existing four-year limitation on carry forward of losses by insurance companies in Nigeria. Other provisions in the FB impacting insurance companies include: 

a. deletion of the section that restricts deductions allowed for insurance companies on unexpired risks and other deductible gains and outgoings, and 

b. deletion of the requirement for insurance companies to have no less than twenty percent (20%) of their gross incomes as their total profits for tax purposes in any relevant accounting year. 

iv. Double Taxation (Exemption from Excess Dividend Tax ("EDT")[2]  – Proposed Section 19

a. dividends paid out of exempted profits such as pioneer profits, 

b. dividends paid out of retained earnings previously subjected to Petroleum Profit Tax, PIT, Capital Gains Tax,

c. distributions made by real estate investment companies to their shareholders and dividend incomes received on behalf of those shareholders, and 

d. franked investment incomes (FII)[3].

v. Commencement and Cessation Rules - Proposed Section 20

Amend the existing commencement and cessation of business rules in order to  eliminate incidences of double taxation.  

vi. Tax Exemptions and Reliefs – Proposed Sections 23 and 40

Reduce tax burdens for small and medium companies by 

a. exempting from tax, dividends and rental income received by real estate companies provided that a minimum of seventy-five percent (75%) of such dividends or rental incomes are distributed within twelve (12) months of the accounting year in which they were earned, and 

b. Introducing  general  corporate tax exemption for small companies with annual turnover of less than Twenty Five Million (N25,000,000.00) and,

c. a lower company income tax rate of twenty-percent (20%) on the income of medium-sized companies with annual turnover of between Twenty Five Million Naira and One Hundred

    Million Naira (N25,000,000.00 and N100,000,000.00).

vii. Profit Shifting – Proposed Section 24

a. Prevent base erosion and profit shifting by restricting (a) deductible dividends and mandatory contributions made by real estate investment companies to their shareholders, to those duly

    approved by the Securities and Exchange Commission, and

b. deductible compensating payments made by lenders to those that qualify as interest and are paid to their approved agents in RSL transactions.

viii. Deductions not permitted - Proposed Section 27

Removal of tax planning and management arbitrage practices which reduces tax liabilities the following expenses are not allowed for tax deduction purposes: 

a. compensating payments which qualify as dividends, made by borrowers to their approved agents or lenders in regulated securities exchange transactions, 

b. federal statutory penalties and taxes or penalties paid by a company on behalf of another, 

c. expenses involving connected entities except such expenses comply with the Income Tax (Transfer Pricing) Regulations,

d. expenses from deriving tax-exempt income and any expenses allowable as a deduction under Capital Gains Tax  Act.

ix. Tax Avoidance (Minimum Tax) – Proposed Section 33

a. Deletion of the current basis for computation of minimum tax,

b. The FB proposes to exempt companies with turnover of less than Twenty-Five Million Naira (N25,000,000.00) from payment of minimum tax,

c. Introduction of minimum tax of 0.5% on the turnover of companies that are subject to minimum tax in Nigeria, and

d. Remove exemption from minimum tax granted to companies with at least twenty-five percent (25%) imported equity capital. 

x. Third Schedule Interest of Foreign Loans

Reduce tax exemption granted in respect of interest on foreign loans, by removing the existing one hundred percent (100%) tax exemption.

xi. Seventh Schedule Thin Capitalisation

 Introduce thin capitalization rules on loans issued to Nigerian companies by offshore related entities, by

  1. restricting deductions of excess interest expenses which are not fully utilized to minimum periods of 5 years from the year in which the excess interest expenditure was first computed, and
  2. limiting deductible interests paid by Nigerian companies to offshore entities connected to thirty percent (30%) of Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA).

C. Personal Income Tax 

The FB proposes amendments sections 33, 49, and 58 of the Personal Income Tax Act. 

a. The FB also seeks to delete personal income tax reliefs, currently being enjoyed by individuals in respect of their children and dependent adults.  Section 33

b. individuals are required to produce their Tax Identification Numbers ("TINs") before they can operate new or existing banking accounts in Nigeria.  Section 49.

c. The FB also recognizes electronic mails and courier services as valid means of transmitting objections against tax assessments, to the relevant tax authorities. Section 58. 

D. Petroleum Profits Tax 

The FB repeals section 60 of the Petroleum Profits Tax Act (PPTA) and introduces Withholding Tax ("WHT") of 10% on dividends paid out of the profits of companies engaged in petroleum operations in Nigeria. 

E. Capital Gains Tax 

The FB amends sections 32 and 36 of the Capital Gains Tax Act. 

a. Asset transfer between related parties during a restructuring exercise is exempted from capital gains tax.

b. capital gains tax  to be applied to employment compensations exceeding Ten Million Naira (N10,000,000). 

F. Stamp Duties 

Sections 2 and 89 of the Stamp Duties Act were amended. 

a. Stamp is defined to include “electronic stamp or electronic acknowledgement”. Section 2

b. Extension of the scope of stamp duties in Nigeria to cover electronic documents and impose a one-off stamp duty of N50 on bank transfers of the sum of Ten Thousand Naira (N10,000) and

    above, not applicable to transfers between banking accounts of the same owner within the same bank.  Section 89.

c. Share transfers and payments made in a Regulated Securities Lending ("RSL") transaction are excluded from stamp duty.  

G. Customs & Excise Tariff 

The FB amends part II section 21 (Fifth Schedule) of the Customs, Excise Tariff, Etc. (Consolidation) Act 1995 to include "goods imported" into Nigeria in the list of goods liable to excise duty. 

It would seem like proposed amendments will have positive effect and it can therefore be stated that it is all win win for all those affected given that the FGN has giving some concessions, however, we are optimistic that the desired result with be achieved.

This publication is only intended for information purpose and does not constitute legal advice. For clarification or guidance or opinion on any aspect of the issue discussed in this publication, please send an email to admin@worrington.com


[1] See Allan Gray Investment Management Limited v Federal Inland Revenue Service (unreported judgment of the TAT delivered on Wednesday, November 13, 2019 in Appeal No. TAT/LZ/VAT/019/2018).

[2] In the case between Actis Africa (Nigeria) Limited  v Federal Inland Revenue Service (FIRS. The  Tax Appeal Tribunal held that where a company pays out dividends that exceed its taxable profits in a given year of assessment, such dividends would be subject to CIT at 30%, irrespective of whether the earnings from which the dividends are paid have been previously taxed.

[3] Franked investment income is a tax-free income distr is a tax-free income distributed by one company to another.

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