Key Highlights in the Finance Act, 2021 | Dentons

On December 31, 2021, President Muhammadu Buhari signed the Finance Bill, 2021 (now the Finance Act, 2021) into law. The Finance Act 2021, which went into effect on January 1, 2022, amended various provisions in 13 Acts of the National Assembly. Below we highlight 7 major changes introduced by the Finance Act, 2021:

  1. Introducing Capital Gains Tax (CGT) on Stock Trades: CGT is now payable at a rate of 10% on gains from disposal of shares in any Nigerian company, except where the proceeds are used to acquire shares in the same entity or other Nigerian companies during the same valuation year or the proceeds are less than 100 million naira in any 12 consecutive months. With the introduction of CGT on equity trades, it is important for transaction parties to analyze the impact of the CGT payable (if any) on the pricing terms and tax provisions of the sale and purchase agreement. Parties may have to explore alternative transaction structures.
  2. Exemption of companies engaged in petroleum operations from the exemption on profits in respect of commodities exported from Nigeria: Under the Finance Act 2019, the profits of any Nigerian company derived from goods exported from Nigeria are exempt from Corporate Income Tax (CIT) if the export proceeds are used to acquire raw materials, plant, equipment and spare parts. However, portions of export earnings that have not been used to acquire raw materials, plants, equipment or spare parts will be subject to the Communications and Information Technology Act. The 2021 Finance Act has now excluded companies involved in downstream operations from this tax incentive. Companies engaged in petroleum exploration and production are also excluded.
  3. Introducing the sweetened beverage tax in Nigeria: Excise tax is now paid at the rate of NGN10 per liter on non-alcoholic, carbonated and sweetened beverages. More countries are taxing sweetened beverages as a way to encourage healthy eating habits. According to the World Health Organization (WHO), from 2011 to 2030, global losses (direct and indirect costs) in GDP due to diabetes are expected to reach US$1.7 trillion (US$900 billion in high-income countries and 800 US$1 billion in low- and middle-income countries). The World Health Organization has therefore proposed taxing sugary drinks as a way to reduce consumption of sugars on the grounds that evidence shows that a tax on sugary drinks that raises prices by 20% can lead to about 20% of lower consumption. Other benefits include savings in health care costs and the use of revenue and savings earned for health-related projects and activities.
  4. Data protection: The Finance Act of 2021 amended the Federal Internal Revenue Service (FIRS) (Incorporation) Act of 2007 to impose a general obligation on every person acting on an official duty or law administration employee who has access to taxpayer information in connection with and to deal with such information as confidential and confidentiality. Previously, the obligation imposed was related to the information on the earnings or items of earnings of a company. The Finance Act 2021 expanded the data protection obligation imposed on FIRS officials in line with the global movement to ensure data protection, not only because of its primacy as a right but the economic necessity of the same.
  5. Increasing the TET rate and reducing the payment schedule: The previously imposed 2% TET will now be charged at a rate of 2.5% on assessed profit for companies registered in Nigeria, excluding small businesses. The resulting effect has been that companies in Nigeria, with the exception of small businesses, now have an increased tax liability. In addition, any company liable to TET is required to make the payment within 30 days of receipt of the assessment notice from FIRS instead of the 60-day timeline that was previously the case.
  6. National Agency for Science and Engineering Infrastructure (NASENI) Levy: A tax of 0.25% on pre-tax profits is now paid by commercial companies and companies with a turnover of 100 million NN and above operating in the banking, mobile, ICT, aviation, marine, and oil and gas sectors. Although the NASENI tax is not new (introduced in 1992 by the NASENI Act, among other things, to finance research, development and production activities), the Finance Act, 2021 simplifies the application of the tax to specific sectors based on increased sales volume in order to increase efficiency Enforcement and reduce business costs for SMEs in general.
  7. Expanding Government Borrowing Power: The Finance Act 2021 amended the provisions of the Financial Responsibility Act 2007 (FRA) regarding debt management by the government. Prior to the Finance Act, 2021, the debt management rules of the Forest Resources Act stated that government at all levels was allowed to borrow only for “capital spending” and “human development,” and “on concessional terms with a low interest rate and with a long amortization period.” reasonably well.” Under the FRA, “concessional terms” mean that the loan must be at an interest rate not to exceed 3%. The interest rate cap stipulated in the Forest Resources Act has been a major issue in related government finances. The Finance Act 2021 now amends language in FRA. Under the 2021 Finance Act, government at all levels is now able to borrow to initiate “critical reforms of significant national impact” as well as for capital spending and human development. Moreover, borrowing by the government may be on concessional terms or at relatively low interest rates”, creating a distinction between borrowing that is on “concessional terms” and borrowing that, though not on concessional terms, has a “relatively low rate of interest.” Amendments to the Finance Act 2021 expand the borrowing powers of the government

Given that the main objective of the Finance Act 2021 is to ensure alignment between the amended laws and the macroeconomic policy reforms of the Federal Government, it is expected that other laws that need urgent attention to similarly stimulate the growth of the Nigerian economy will be considered and addressed in the near future.

  1. The amended laws are as follows: (1) Capital Gains Tax Act Cap C1 Laws of the Federation of Nigeria (LFN) 2004; (2) Corporate Income Tax Act Cap C21 LFN 2004; (3) Customs and Duties Etc. Act (Consolidated) Cap C49 LFN 2004; (4) Personal Income Tax Act Cap P8 LFN 2004; (5) Cap S8 LFN Stamp Duty Act 2004; (6) Value Added Tax Act Cap V1 LFN 2004; (7) Insurance Act Cap I17 LFN 2004; (8) National Science and Engineering Agency Infrastructure Act Cap N3 LFN 2004; (9) Finance (Control and Administration) Act F26 LFN 2004; (10) The Federal Inland Revenue Service (Establishment) Act 2007; (11) The Financial Responsibility Act 2007. (12) The Higher Education Trust Fund (Establishment) Act 2011; and (13) the Nigerian Police Trust Fund (Establishment) Act of 2019. ↩
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