Overview:
The Finance Act 2023, enacted on 28th May 2023, introduces significant amendments to Nigeria’s tax laws, reflecting the government’s drive to boost revenue, streamline tax processes, and address emerging economic realities. Below, we summarise the top 20 changes brought about by this legislation, highlighting their potential impact on businesses and individuals across the country.
Increased Taxation and New Levies
One of the most notable changes in the Finance Act 2023 is the increase in the Education Tax from 2.5% to 3%. This hike is aimed at raising more funds for the education sector, ensuring sustainable development. Additionally, the introduction of excise duties on services, including telecommunications, broadens the tax base, reflecting the growing significance of the service industry in Nigeria’s economy.
A 0.5% import levy has also been introduced on all eligible imports from outside Africa, further reinforcing the government’s focus on encouraging intra-African trade and supporting the African Continental Free Trade Area (AfCFTA).
Digital and Capital Assets Taxation
In a move that aligns Nigeria’s tax system with global trends, the Act imposes a 10% Capital Gains Tax (CGT) on digital assets, including cryptocurrencies. This marks a significant shift in the taxation of digital transactions, ensuring that profits from these emerging asset classes are now subject to tax.
Moreover, the Act has abolished the investment allowance of 10% previously claimable on capital expenditure and leases, as well as the rural investment allowance that ranged from 10% to 100% for infrastructure in rural areas. These changes reflect a strategic shift in government policy, with a focus on other areas of economic growth.
Tax Exemptions and Penalties
The tax exemption on income derived from convertible currencies by hotels has been removed, reflecting a broader policy of eliminating certain sector-specific incentives. Additionally, penalties for non-compliance with tax rules by petroleum companies have been dramatically increased by 1,000 times, underscoring the government’s intent to enforce stricter regulatory compliance within this critical sector.
VAT Compliance and Artificial Transactions
VAT withholding agents now face stricter compliance requirements, with returns to be filed on or before the 14th day of the following month. Furthermore, the introduction of artificial transaction rules to VAT empowers tax authorities to disregard transactions that are not at arm’s length, tightening the rules on VAT-related activities and ensuring fairness in the tax system.
Capital Gains and Investment Relief
The Act introduces provisions allowing capital losses incurred on the disposal of chargeable assets to be deductible from capital gains, with the possibility of carrying forward these losses for up to five years. Additionally, roll-over relief is now available for gains on the disposal of shares, provided the proceeds are reinvested within the same year. This encourages the reinvestment of capital within the economy.
Sector-Specific Provisions and New Requirements
Operators in the downstream and midstream petroleum sectors are now entitled to unrestricted capital allowance claims, similar to those enjoyed by agro and manufacturing companies. This change aims to stimulate further investment in these critical industries.
The Act also provides relief for premiums paid on life assurance policies and deferred annuity schemes and allows for the deductibility of decommissioning and abandonment costs by upstream companies, offering significant benefits to these sectors.
Digital Platforms and Non-Resident Entities
Non-resident suppliers selling taxable goods on digital platforms are now required to account for VAT if they have been appointed as tax collection agents. This reflects the government’s intent to ensure that foreign entities engaging in digital transactions within Nigeria contribute to the tax base.
The definition of a building under the VAT law has been amended to exclude movable fixtures, clarifying the scope of VAT on property transactions.
Compliance and Reporting Requirements
The Finance Act 2023 imposes new reporting requirements on non-resident shipping and air transport companies, requiring certified financial reports and tax clearance certificates for applications or permits. Petroleum operators are now subject to pre-operational filing requirements within 18 months of incorporation or five months after the accounting period for other companies.
Electronic Money Transfer Levy
Finally, the Electronic Money Transfer Levy is now shared between the Federal Government (15%), State Governments (50%), and Local Governments (35%), providing a clear framework for revenue distribution among the tiers of government.
Summary:
The Finance Act 2023 introduces a series of comprehensive changes to Nigeria’s tax laws, aimed at boosting revenue, improving compliance, and adapting to new economic realities. From increased education tax to the introduction of excise duties on services, the Act reflects the government’s commitment to strengthening the tax system. Businesses and individuals alike must now navigate these changes, ensuring compliance while adapting to the evolving tax landscape.