A COMPREHENSIVE REVIEW OF INNOVATIONS IN THE 2020 FINANCE ACT

On the 31st of December 2020, the President of Nigeria signed the then 2020 Finance Bill (now 2020 Finance Act) to commence on the 1st of January 2021.

This Act introduces sweeping changes to the tax regime in the country, amending 14 different statutes such as the Capital Gains Act, Cap. 1, the Companies and Allied Matters Act No 3, 2020, the Companies Income Tax Act Cap. C21, the Personal Income Tax Act, P8 and the Public Procurement Act No 14, 2007.

Some of the relevant changes initiated by the Act include:

1. Persons earning the minimum wage (which is N30,000 as at the date of writing this publication) are now exempted from personal income tax.
2. The import duty on cars has been reduced from 30% to 5%. For tractors, the reduction is from 35% to 5%, while mass transit vehicles and trucks now enjoy an import tax of 10% down from 35%.
3. Air travellers are no longer required to pay Value Added Tax (VAT) on their airline ticket purchases.
4. For tax returns filed concerning the accounting periods which ended within the 1st of January 2020 and 31st December 2020, the minimum tax rate as provided by the new Finance Act is 0.25% (rather than the usual 0.5%) of gross revenue (excluding franked investment income).
5. The new Act grants the Federal Inland Revenue Service (FIRS) the prerogative to prescribe the form of accounts (other than audited financial statements) for small and medium-sized enterprises as defined by the Companies Income Tax Act.
6. The leasing or hiring of agricultural equipment for use in an agricultural setting is now excluded from VAT-able transactions. Lands, buildings, securities and money are also excluded from VAT-able items under the new Act.
7. Companies which operate in Free Trade Zones are now required to file returns with the FIRS, to enjoy tax exemption.
8. Small and medium-sized companies engaged in primary agriculture can now enjoy pioneer status tax incentives for up to 6 years (4 years at first, then an additional 2 years).
9. The Tax Appeal tribunal is now statutorily empowered to conduct virtual hearings.
10. Stamp duty charges no longer apply to electronic bank transfers. What applies now is a N50 electronic bank transfer levy for electronic transfer deposits of N10,000 or more in an account with any bank or applicable financial institution. Revenue from this levy is to be shared based on derivation, with the Federal Government receiving 15% while the state government gets 85%.
11. The new Act establishes a Crisis Intervention Fund (CIF) of N500bn (or an amount approved by the National Assembly) as well as an Unclaimed Funds Trust Fund which is to serve as a sub-fund of the CIF.
12. Cost of donation in cash or kind to a fund created by the government concerning any disaster or pandemic is now tax-deductible. Such tax deduction can, however, not exceed 10% of assessable profit after other allowable deductions have been made.
13. The Accountant General of the Federation is required to open dedicated accounts for the different types of taxes, for payment of tax refunds to be administered by the FIRS and funded based on the annual budgets for tax refunds for each type of tax as approved by the National Assembly.
14. Assessments and objections may now be done using emails or other electronic mediums and courier services.
15. Amounts in dormant accounts and unclaimed dividends (in listed companies) which have been outstanding for 6 or more years are to be transferred to the Unclaimed Dividends Trust Fund as special debt to the Federal Government and managed by the Debt Management Office (DMO). This amount along with its yield is to nonetheless be available to the account owner or shareholder on-demand at any time
16. When a non-resident person makes a taxable supply to Nigeria, such a person is now required to secure TIN, collect VAT on the supply and optionally appoint a Nigerian representative to carry out its obligations.

CONCLUSION

It is evident that the 2020 Finance Act is indeed an innovative piece of legislation with a plethora of tax incentives which individuals and corporate bodies can benefit from, particularly to ease the effect of the economic downturns which the country has faced in recent years.

That said, the Act fails to adequately provide for a tax sector built around the new normal of mostly virtual or remote activities. The provisions on virtual proceedings and tax assessment procedure are some right steps in the right direction, but more can and need to be done. Tax records, for instance, can benefit more from being online/cloud-based and automated than staying offline and manual-driven, especially in the new normal of a digitalised world ushered in by the COVID-19 pandemic.

This author thus recommends that stakeholders form a roundtable again, but to, this time, focus more on taking advantage of the unique opportunities in the digital space using the instrumentality of the law/legislation for the advancement of Nigeria’s tax sector.