Finance Bill 2021; Proposed Changes to the Companies’ Income Tax Act

In this article, we review the significant changes being proposed to the Companies’ Income Tax Act (CITA) and its likely impact on companies.

On Thursday 8 October 2020, His excellency, President Muhammadu Buhari presented the 2021 Budget Proposals to the Joint session of the National Assembly. The 2021 Budget Proposal was themed “Nigeria’s Budget of Economic Recovery & Resilience”. The key budget assumptions are as follows: benchmark oil price set at US$40 per barrel; daily oil production estimate of 1.86 million barrels; exchange rate of N379 to US$1, projected GDP growth of 3% and inflation rate of 11.95%. Based on the proposed budgeted revenue and expenditure, the 2021 budget has a deficit of N5.20 trillion.

While delivering the budget presentation speech, the President also announced that the Finance Bill 2021 would be presented to the National Assembly for consideration and passage into law. It is expected that the Finance Bill will support the realization of the 2021 revenue projections, adopt appropriate counter-cyclical fiscal policies and enhance the efficiency of fiscal incentives.

Exemption of Interest on Agricultural Loan

In line with the Federal Government’s policy direction towards the promotion of primary agricultural production, the existing exemption of interest income on bank loans granted to companies involved in agricultural trade or business under Section 11(2)(a) of CITA is being modified to encourage primary agricultural production. Further, the existing definition of “agricultural trade or business” as provided for in Section 11(4) of CITA will be expunged and replaced with the definition of “primary agricultural production” which covers production of crops, livestock and their direct produce, forestry and fishing but excludes any intermediate or final processing of these produce.

Companies Engaged in Shipping and Air Transport

Section 14 of CITA provided the specific tax regime for shipping and air transport companies. However, there has been controversies on whether this regime applies strictly to income from carriage of passengers, mails, livestock or goods shipped or loaded in Nigeria or if it also applies to other income streams such as leasing, container sales, non-freight income or any other incidental income. The proposed amendments seek to introduce Section 14(5) which will specify that the tax regime does not apply to other income streams, as those are taxable based on Section 9 of CITA.

Modification of Minimum Tax Provisions

Based on the Finance Act 2019, the basis for minimum tax was changed to 0.5% of gross turnover less franked investment income. Considering the current economic realities occasioned by the COVID-19 pandemic, there is a proposal to reduce the applicable minimum tax rate to 0.25%. This reduced minimum tax rate is only applicable to tax returns prepared and filed for financial years ending on any date between 1 January 2020 and 31 December 2021. It is important to state that companies with financial year ending between 1 January 2020 to 18 May 2020 would have filed their tax returns and paid minimum tax at 0.5%. It is expected that such companies would be allowed to utilize any excess payment against future tax liability.

Modification of Tax Holiday for Agricultural Companies

Section 23(1)(C) of CITA had hitherto provided for an initial tax holiday of 5 years for companies engaged in agricultural trade and business which can be renewed for additional 3 years subject to satisfactory performance. This provision will be repealed and transferred to the Industrial Development (Income Tax Relief) Act (IDITRA) for ease of administration and better management. However, it is not clear whether companies engaged in agricultural trade or business will still be able to enjoy tax holiday of up to 8 years considering that the IDITRA limits tax holiday period to 5 years.

Considerations for COVID-19 Donations

Section 25 of CITA on deductible donations is being amended to allow for the deductibility of donations made in cash or kind to the COVID-19 Crisis Intervention Fund or any similar Fund set up by the Federal Government, State Government or Ministries and Departments of Government to cushion the effects of the COVID-19 pandemic in Nigeria and any future occurrence of a pandemic, natural disaster or other exigency.

However, the amount deductible for this purpose in any year of assessment is limited to 25% of the assessable profit of the company. Where a company is unable to deduct the donation made in a particular year of assessment, the company will be allowed to carry this forward to a maximum of two (2) years of assessment immediately succeeding the year of assessment the donation was made.

Gas Utilization (Downstream Operations)

Based on existing legislations, companies engaged in gas utilization in downstream operations are able to take advantage of incentives in the form of tax holidays in respect of the same qualifying capital expenditure under the CITA, Petroleum Profit Tax Act and the IDITRA. Section 39 of CITA is being amended in order to clarify that these companies can only take advantage of this incentive under one of the tax regimes.

Penalties for Inaccurate Self-Assessment Returns

In order to discourage and penalize deliberate misstatement of profit and taxes, any additional outstanding tax liabilities arising due to deliberate and dishonest declaration of the profits or tax payable by companies will now attract penalties and interests as prescribed by CITA. By extension, any additional tax liabilities established by the Federal Inland Revenue Service (FIRS) during desk audits, field audits and investigation exercises will now attract penalties and interests.

Tax Returns by Non-Resident Companies

A new subsection 2 is being added to Section 55 of CITA to provide a framework for the filing of tax returns by nonresident companies. This provides that where any nonresident company derives profit or is taxable in Nigeria, such non-resident company will be required to file a tax return with the FIRS consisting of its full audited financial statements and those relating to its Nigeria operations (attested to by an independent qualified and certified accountant); tax computations based on profit attributable to Nigeria, duly completed self-assessment forms, amongst others.

However, for non-resident companies performing business activities in Nigeria, for whom WHT constitutes final tax, the requirement to file the tax returns (stated above) will not apply.

Tax Returns by Small Companies

In line with the ease of doing business, small companies were exempt from the requirement to appoint auditors by the Companies and Allied Matters Act 2020 (CAMA 2020). Further, the CAMA 2020 threshold for small companies will also cover some companies classified as medium size companies based on CITA. Consequently, the proposed amendment provides a basis for the FIRS to prescribe the form of accounts to be submitted by small and medium sized companies along with their tax returns.

Definition of Gross Turnover

The definition of gross turnover will be amended to clarify the ambiguity in the categories of income that qualify as turnover for minimum tax purposes. The new definition provided is “gross inflow of economic benefits during the period arising in the course of the operating activities of an entity when those inflows result in increases in equity, other than increases relating to contributions from equity participants, including sales of goods, supply of services, receipt of interest, rents, royalties or dividends”.

Software as Qualifying Capital Expenditure

Based on current realities, companies make huge investment in computer software to drive business activities and generate profit. Consequently, it is proposed that software will be included in the second schedule of CITA as qualifying capital expenditure, so that affected companies will be able to claim capital allowance on it.


The proposed Finance Bill 2021 is a welcome development. It is no gainsaying that the Finance Bill 2021 will support the realization of the 2021 revenue projections, adopt appropriate counter-cyclical fiscal policies and enhance the efficiency of fiscal incentives. Further, the proposed changes to CITA are laudable as they demonstrate government’s resolve to improve the ease of doing business, eliminate ambiguity in the tax laws and ease compliance process, while streamlining tax incentives.

It is however recommended that the modification of minimum tax provisions for companies should be extended to insurance companies.


Finance Bill 2021; Proposed Changes to the Companies’ Income Tax Act
Finance Bill 2021; Proposed Changes to the Companies’ Income Tax Act