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Major Highlights Of The Finance Act, 2021 – Capital Gains Tax



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On 31 December, 2021, President Muhammadu Buhari signed the
Finance Bill, 2021 (now the Finance Act, 2021) into law. The
principal aim of the Finance Act, 2021 (“the FA”) is to
support the implementation of the 2022 Federal Government Budget in
view of the continuing negative impact of the COVID-19 pandemic on
the economy and the current recession.

The FA which took effect from 1st January, 2022,
amended some key provisions of 13 (Thirteen)
statutes such as: the Capital Gains Tax Act, Companies Income Tax
Act, Federal Inland Revenue (Establishment) Act, Personal Income
Tax Act, Stamp Duties Act, Tertiary Education Trust Fund
(Establishment) Act, Customs, Excise, Tariffs etc. (Consolidation)
Act, Value Added Tax Act, Insurance Act, Nigerian Police Trust Fund
(Establishment) Act, National Agency for Science and Engineering
Infrastructure Act, Finance Control and Management Act and Fiscal
Responsibility Act.

A) CAPITAL GAINS TAX ACT (“CGTA”)

  1. CGT at the rate of 10% is now payable on gains accruing from
    the disposal of shares in any Nigerian company.

  2. CGT will be applicable to the disposal of shares in any
    Nigerian company except where the proceeds are utilized to acquire
    shares in the same entity or other Nigerian companies within the
    same assessment year or the proceeds are less than N100 million in
    any 12 consecutive months. (Section 30(2)
    of CGTA).

B) COMPANIES INCOME TAX ACT (“CITA”)

  1. The profits of companies engaged in educational activities are
    no longer exempt from Companies Income Tax (CIT) (Section
    23(1)(c) of CITA
    ).

  2. The profits of companies from the exports of goods produced in
    upstream, midstream and down stream petroleum operations are liable
    to pay tax. (Section 23(1)(q) of
    CITA
    ).

  3. Foreign companies engaged in provision of digital services in
    Nigeria (e-commerce, online adverts, payments, applications etc.)
    may be taxed on a turnover basis. (Section 30 (1)(b)(ii)(a)
    of CITA).

  4. Capital allowances incurred on qualifying capital expenditure
    in generating tax-exempt income is not deductible from the
    accessible profits. (Section 31(1a)-(1b) of
    CITA)
    .

  5. Capital allowance on qualifying capital expenditure incurred by
    small companies are deemed utilized during the periods such
    companies are tax exempt. (Section 31(1c) of
    CITA)
    .

  6. The minimum tax has been reduced from 0.5% to 0.25% for tax
    returns prepared and filed between 1st January, 2019 to 31st
    December, 2021. (Section 39(1)(a) of
    CITA
    ).This clarifies the ambiquity posed by the Finance Act,
    2020, which failed to provide clarity on whether companies that
    have computed their minimum tax for the 2020 year of assessment
    using the 0.5% could recompute and file their rates based on the
    reduced rate.

  7. Companies engaged in gas utilization business in the downstream
    operations in Nigeria is entitled to a tax free period once in a
    lifetime.

    Please note that such company shall not be entitled to similar
    incentive under CITA or other law.
    (Section 39(1)(a) of
    CITA
    )


  8. Any Company that filed its tax returns late between 1st
    January, 2019 to 31st December, 2021, is liable to penalty.
    (Section 55 of
    CITA
    ).

  9. Tax due may be payable in instalments provided that the final
    instalment is paid on before the due date of payment
    (Section 77 of CITA).

  10. Witholding tax deducted from payment to a Unit Trust shall be
    the final tax on such income (Section 78(4) of CITA).

  11. A new definition has been introduced for Real Estate Investment
    Companies (“REICs”).

C) TERTIARY EDUCATION TRUST FUND ACT(TETFA)

  1. The tax rate for tertiary education has been reviewed upwards
    from 2% of accessible profits to 2.5% of accessible profits
    (Section 1 of TETFA).

  2. The timeline for payment of Tertiary Education Tax
    (“TET”) has been reduced from 60 days to 30 days
    (Section 2 of TETFA).

D) NATIONAL AGENCY FOR SCIENCE AND ENGINEERING INFRASTRUCTURE
(NASENI) ACT

Companies engaged in banking, mobile telecommunication, ICT,
Aviation, maritime and oil and gas with a turn over of 100 million
and above are liable to pay NASENI levy at 0.25% of their profits
before tax (Section 20 of
NASENI)
.

E) NIGERIA POLICE TRUST FUND (ESTABLISHMENT) ACT

A Nigerian Police Trust Fund levy of 0.05% of net profit is
payable by companies operating business in Nigeria
(Section 4 of the Nigeria Police Trust
Find (Establishment)
Act
).

F) VALUE ADDED TAX ACT (“VATA”)

  1. Non-resident companies suppliers of goods and services have the
    statutory obligation to collect and remit tax
    (Section 10 of
    VATA
    ).

  2. Exclusion of Upstream petroleum operations under the Petroleum
    Industry Act and Petroleum Profits Tax Act, from the ?25,000,000
    threshold for remittance of VAT (Section 15 of
    VATA)
    .

G) CUSTOM, EXCISE TARIFFS, ETC (CONSOLIDATION) ACT
(“CETA”)

Excise duties on non-alcoholic, carbonated and sweetened
beverages are charged at a flat rate of N10 per litre
(Section 21 of CETA).

H) PERSONAL INCOME TAX(“PIT”)

Contracts for deferred annuity are excluded as deductible
reliefs when computing individual’s personal income tax
(Section 23 of PIT)

I) FEDERAL INLAND REVENUE SERVICE (ESTABLISHMENT) ACT
(“FIRSEA”)

  1. Banks are liable to a penalty of 1m for failure to prepare and
    submit quarterly returns of new accounts or incorrect returns or
    information provided (Section 28 of
    FIRSEA
    ).

  2. FIRS is empowered to request electronic access to
    taxpayers’ information. (Section 50 of
    FIRSEA
    ).

  3. Agencies of the Federal Government are statutorily required to
    report cases requiring tax investigation, enforcement or compliance
    (Section 68(5) of FIRSEA).

J) FISCAL RESPONSIBILITY ACT (“FRA”)

Tiers of government are statutorily mandated to borrow for
capital expenditure, human development and to undertake critical
reforms of significant national impact. (“Section 41
of the FRA)
.

CONCLUSION

In conclusion, it is no gainsaying that the Finance Act, 2021,
further demonstrates the government’s resolve to raise revenue
for the implementation of the 2022 Budget, eliminate ambiguity in
tax laws and the ease of doing business in Nigeria.

However, beyond granting incentives to ease doing business and
elimination of ambiguity in tax laws, there should be deliberate
and sustained efforts by the government to address the challenges
and impediments facing Companies which include the multiplicity of
taxes and complex regulations.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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