His Excellency, President Muhammadu Buhari signed the Finance Bill 2020 (now Finance Act 2020) into law on 31 December 2020. The Finance Act 2020 was signed alongside the 2021 National Budget. The Finance Act 2020 introduces amendments to various tax and fiscal legislations such as the Capital Gains Tax Act; Companies Income Tax Act; Industrial Development (Income Tax Relief) Act; Personal Income Tax Act; Tertiary Education Trust Fund (Establishment, Etc.) Act; Customs and Excise Tariff, Etc. (Consolidation) Act; Value Added Tax Act; Stamp Duties Act, Etc.
Highlights of the Finance Act 2020
The amendments introduced by the Finance Act 2020 further reiterate the government’s commitment to improving the ease of doing business in Nigeria. Some of the major amendments include;
- Reduction of minimum tax from 0.5% to 0.25% of gross turnover for tax returns prepared and filed for years of assessment falling due between 1 January 2020 and 31 December 2021.
- Clarification on the use of courier service, email, or any other electronic means as a valid means of communication between Companies and the Federal Inland Revenue Service.
- All companies, whether exempt from incorporation or payment of taxes, are required to maintain books of records of accounts and file such records with the Federal Inland Revenue Service in the manner prescribed. Failure to file attracts a penalty of N100,000 in the first month and N50,000 for subsequent months.
- Exemption from minimum tax to individuals that earn a monthly income of N30,000 or below from employment.
- The introduction of the concept of significant economic presence for individuals under the Personal Income Tax Act.
- Deductibility of donations made in cash and kind to the government in respect of any pandemic or natural disaster.
- Reduction of import duty on Tractors from 35% to 5%; Mass transit vehicles for transportation of more than 10 persons and Trucks from 35% to 10%, and reduction of import levy on cars from 30% to 5%.
- A new definition of goods and services clarifies the exemption of land and building as well as interest in land and building from Value Added Tax (VAT).
- Exemption of airline transportation tickets issued and sold by commercial airlines registered in Nigeria from VAT.
- Telecommunication services provided in Nigeria have now been included in the items liable to excise duty. The applicable rates will be prescribed by an Order issued by the President.
- Clarification on the exemption of small companies from the payment of Tertiary Education Tax.
- Companies operating in the Free Trade Zones are now required to file tax returns to the Federal Inland Revenue Service.
- The Levy on electronic receipt or electronic transfer in the sum of N10,000 or more is now referred to as Electronic Money Transfer Levy. This revenue derived from this Levy will be distributed among the three tiers of government as follows; 15% to the Federal Government and the Federal Capital Territory and 85% to the State Governments.
With an effective date of 1 January 2021, the Finance Act 2020 has the force of law and is binding on taxpayers from 1 January 2021. Considering the various incentives and reliefs provided in the Finance Act 2020, it is therefore important that taxpayers review the various amendments in the Finance Act 2020 and evaluate the impact of these amendments on their processes and business operations.
Please watch this space for a detailed analysis of the various provisions of the Finance Act 2020. Should you require further clarifications with regards to the provisions of the Finance Act 2020, please contact us at Mazars Nigeria.