This article covers the new Finance bill 2022 as proposed by the executive arm of the government of Nigeria which is before the national assembly.
A source at the Presidency on Sunday said the new Finance Bill 2022, places a fine of N10m or 5 years imprisonment or both on relevant officers who violate the rule to be liable to a penalty of N10m and/or 5 years imprisonment on conviction for failing to expose a person or agency of the Federal Government requiring tax investigation, enforcement, and compliance to the FIRS.
Also in the new finance bill 2022 for Nigeria, is capital gain tax at the rate of 5 percent which is to apply on disposal of shares in a Nigerian company worth N500m or more in any 12 consecutive months except where the proceed is reinvested in the shares of any Nigerian company within the same year of assessment.
Partial re-investment will attract tax proportionately. Transfer of shares under the regulated Security Lending Transaction is exempted.
Provisions were also made in the proposed bill that the Lottery and Gaming business will be specifically taxable under the company income tax act (CITA) including betting, a game of chance, promotional competition, gambling, wagering, video poker, roulette, craps, bingo, slot or gaming machines, and the likes.
According to a Businessday report, Companies engaged in petroleum operations including Midstream and Downstream operations will not be eligible for exemption on profits in respect of goods exported from Nigeria. Downstream companies were previously eligible under the old Upstream and Downstream classification.
The Federal Inland Revenue Service (FIRS) will be empowered by the new bill to assess CIT on the turnover of a foreign digital company involved in transmitting, emitting, or receiving signals, sounds, messages, images, or data of any kind including e-commerce, app stores, and online adverts.
Under the proposed Bill, the capital allowance claimable on an asset is limited to the portion used for generating taxable profits. Assets partially used to generate taxable income will be eligible for pro-rata capital allowance except where the proportion of non-taxable income does not exceed 20% of the total income of the company.
BusinessDay’s source revealed that under the new Bill, the capital allowance or unabsorbed allowances brought forward by a small or medium company, other than a company under pioneer status, will be treated as having been claimed and consumed in each such year of assessment.
Others include the reduction of the minimum tax rate from 0.5 percent to 0.25 percent of turnover (the less franked investment income) is to be applicable to any two accounting periods between 1 Jan 2019 and 31 Dec 2021 as may be chosen by the taxpayer.
Disputed tax assessment to be in abeyance until determination while undisputed tax assessment is to be paid within 30 days after service of the notice of assessment on the company except otherwise extended by the FIRS. Reference to provisional tax has been deleted in recognition of the well-established self-assessment tax regime, under the Bill currently before the lawmakers.
Withholding tax on interest earned from a unit trust will henceforth be treated as final tax. Only WHT on dividends is currently treated as a final tax for local companies if the Bill is passed into law.
The Bill also made provisions for the deployment of technology to automate tax administration including assessment and information gathering by FIRS to now include third party technology (previously only proprietary technology may be deployed). A penalty of N50,000 to be applicable where a company fails to grant access to FIRS in addition to N25,000 for each day the failure continues.
The Bill also provided for the FIRS to be the primary agency of the Federal Government responsible for the administration, assessment, collection, accounting, and enforcement of taxes and levies due to the Federation, the Federal Government and any of its agencies except otherwise authorized by the Finance Minister, unlike the current situation that has made the collection of such levies, especially, the Value added tax contentious
Deductible life assurance premium for personal income tax purposes to exclude a contract for a deferred annuity, under the new Bill.
The Finance Minister, subject to the approval of the National Assembly, shall also make regulations for the imposition, administration, collection, remittance, including distribution of arrears of stamp duty and Electronic Money Transfer levies collected between 2015 and 2019 fiscal years.
The new Bill, also requires that the Tertiary Education Tax will be payable within 30 days of service of assessment (currently 60 days), while Non-residents making taxable supplies to recipients in Nigeria have the primary obligation to charge, collect and remit VAT to FIRS. The VAT withholding obligation of Nigerian recipients is now limited to where the non-resident or its appointed agent fails to collect the VAT.
The exemption from VAT registration and compliance obligation is now applicable to small companies with annual turnover less than N25m to exclude companies engaged in upstream petroleum operations regardless of turnover.
The Bill also makes appointments of the FIRS to assess, collect and enforce the payment of the Nigerian Police Trust Fund levy. The Act enacted in 2019 imposed a tax of 0.005 percent on the net profit of companies operating in Nigeria.
The Bill also seeks an amendment of the National Agency for Science and Engineering Infrastructure Act to remove the requirement for commercial companies to pay a levy of 0.25% of turnover annually to the Fund. Primary sources of funds are to be limited to 1 percent of the Federation Account.
Others include mandatory payment of gross revenue collected by federal ministries, departments or agencies to the federation account or consolidated revenue fund as the case may be except otherwise authorized by law. Any officer who violates this requirement may be liable on conviction to imprisonment of up to 5 years or a fine of N5m or both.
The Finance Bill 2022 of Nigeria, if passed into law, will amend the Fiscal Responsibility Act to enable the government to borrow for “critical reforms of significant national impact”.
Currently, governments at all tiers are only empowered to borrow for capital expenditure and human development. Capital expenditure is defined as spending on an asset that lasts for more than one financial year. Human development and critical reforms are not defined.