Nigeria: Key Changes in the Nigerian Finance Act 2021

On the 31st December 2021, President Muhammadu Buhari of Nigeria signed the Finance Bill 2021 (now Finance Act 2021) with an effective date of 1 January 2022 into law.

The Finance Act 2021 made amendments to already existing Nigerian tax laws as well as regulatory legislations. Some of the changes made affected the Capital Gains Act; Stamp Duties Act, Personal Income Tax Act; Companies Income Tax Act; Tertiary Education Trust Fund (Establishment Act).

The Finance Act 2021 also made amendments to some other non-tax legislations such as Fiscal Responsibility Act, Finance (Control and Management) Act, and the National Agency of Science and Engineering Infrastructure Act bringing them in line with prevailing economic realities

  1. Capital Gains Tax:

Capital gains tax at 10% is chargeable on the disposal of shares worth 100 million Naira or above in any 12 consecutive months except to the extent that such proceed is reinvested in the shares of any Nigerian company.

  1. Education Tax:

The education tax payable by Nigerian companies has been increased from 2% to 2.5% of assessable profits.

Companies engaged in educational activities are now subject to corporate income tax regardless of whether such activities are of a public character.

  1.  National Agency for Science and Engineering Infrastructure Levy:

A science and engineering levy of 0.25% of profit before tax is payable by companies engaged in banking, mobile telecommunication, ICT, aviation, maritime, and oil & gas with turnover of 100 million Naira and above.

  1. Police Trust Fund Levy:

The Federal Inland Revenue Service (FIRS) was mandated by the Act to assess, collect and enforce the payment of Nigerian Police Trust Fund levy. The tax was introduced by the 2019 Finance Act at the rate of 0.005% on the net profit of companies operating in Nigeria.

  1.  Excise Duty:

Imposition of excise duty at 10 Naira per litre on non-alcoholic, carbonated and sweetened beverages. It is expected that the imposition of excise duty of 10 Naira will translate to an increase in the retail price of products by up to 5% with the lower end products bearing higher burden.

  1.  Reduction of minimum tax rate:

The reduction of minimum tax rate from 0.5% to 0.25% of turnover (less franked investment income) will apply to any two accounting periods between 1 January 2019 and 31 December 2021 as may be chosen by the taxpayer.

  1. Foreign Digital Company:

The Federal Inland Revenue Service (FIRS) may assess tax 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. Such companies are also obliged to charge, collect and remit (Value Added Tax) VAT to the Federal Inland Revenue Service (FIRS).

The amendments made by the Finance Act 2021 were primarily aimed at addressing ambiguities and providing clarity to certain provisions in the existing tax laws, as they are applicable to business activities in Nigeria.