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.
Amendments will be made to the provisions of the following statutes:
The proposed amendments have been highlighted below and they highlight some of the effects of the amendments on corporations and individuals.
The FB amends sections 2, 4, 10, 15, 46, and the First Schedule of the VAT Act, and proposes the following:
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.
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.
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”).
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.
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.
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:
Amend the existing commencement and cessation of business rules in order to eliminate incidences of double taxation.
Reduce tax burdens for small and medium companies by
Removal of tax planning and management arbitrage practices which reduces tax liabilities the following expenses are not allowed for tax deduction purposes:
Reduce tax exemption granted in respect of interest on foreign loans, by removing the existing one hundred percent (100%) tax exemption.
Introduce thin capitalization rules on loans issued to Nigerian companies by offshore related entities, by
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
limiting deductible interests paid by Nigerian companies to offshore entities connected to thirty percent (30%) of Earnings Before Interest, Tax, Depreciation, and Amortization (EBITDA).
The FB proposes amendments sections 33, 49, and 58 of the Personal Income Tax Act.
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.
The FB amends sections 32 and 36 of the Capital Gains Tax Act.
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.
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