FINANCE ACT 2020: An X-ray of Major Innovations in Nigeria Tax System

April 21, 20210

On December 31, 2020, President Muhammadu Buhari signed the Finance Act 2020 into law. The new legislation came on the heels of the Finance Act 2019 which amended several tax statutes. The Act was enacted in furtherance of the Federal Government’s progressive reform of the business climate in Nigeria, and the need to constantly restructure the tax system to align and conform to international best practices, and make it respond effectively to the changing socio-economic landscape.

Specifically, the Act amended 14 principal tax and tax-related legislation. The thrust of the legislation includes boosting government revenue, preventing base erosion, streamlining areas of regulatory conflict and clarifying ambiguities in extant laws and regulations, as well as providing fiscal reliefs to small and medium enterprises and entities involved in key or priority areas of the economy, among others.

Whilst the Finance Act 2020 amended some provisions of the Finance Act 2019, it is important to note that it did not expressly repeal the statute. The Act provides tax incentives for businesses that make donations in support of policy measures put in place by the Government against any pandemic or natural disaster. The new legislation establishes a Crisis Intervention Fund and Unclaimed Funds Trust Fund.

From the commencement of the Act, the following developments shall take effect and shall become applicable to affected income and asset accruing or received in, brought into, or derived from Nigeria. Establishment of Crisis Intervention Fund The Act provides for a fund to be known as the Crisis Intervention Fund, CIF, which shall be established, with an initial capital of N500 billion or such other sums as may be approved by the National Assembly.

The sum shall be provided mainly out of the Consolidated Revenue Fund, and shall be utilized in meeting any crisis-related expenditure (as may be provided in an Appropriation Act) or such other exigencies that may arise pursuant to the Fiscal Responsibility Act and the Constitution of the Federal Republic of Nigeria, 1999.
Establishment of an Unclaimed Funds Trust Fund
The Act stipulates that there shall also be established, by way of trust, a sub-fund of the CIF to be known as the Unclaimed Funds Trust Fund, UFTF, which shall be governed by a Governing Council to be chaired by the Minister of Finance and co-shared by someone to be appointed from the private sector.
According to the Act, the Debt Management Office, DMO, shall supervise and house the Secretariat of the UFTF, and shall as well operate the UFTF in collaboration with the Central Bank of Nigeria, CBN and the Securities and Exchange Commission, SEC.
From the commencement of the Act, any dividend of a public limited liability company quoted on the Nigerian Stock Exchange, NSE, which has remained unclaimed for a period not less than six years, and any amounts in a dormant bank account which has remained unutilized for the same period; is required to be transferred into the UFTF by the concerned public limited liability company, Registrar or deposit money bank.
Companies and Allied Matters Act
Further to the establishment of the UFTF, the Finance Act 2020 amends section 432 of the CAMA. Accordingly, unclaimed dividends declared by public limited liability companies quoted on the NSE are required to be immediately transferred into the UFTF.
Unclaimed dividends transferred into the UFTF is now designated as a Special Debt owed by FG to the shareholders and shall be available for the claim at any time pursuant to the perpetual trust in place. Under section 432 of the CAMA, shareholders have a right to recover unclaimed dividends within 12 years of the declaration of such dividends, failing which the dividends shall be added to the profits of the concerned company(s) and redistributed to all shareholders.
The thrust of this new amendment is that FG will be able to borrow and utilize unclaimed dividends transferred into the UFTF for budgetary/developmental purposes for a maximum period of six years.
Capital Gains Tax Act

In the new Act, sums received as compensation for loss of office up to N10million are not chargeable to Capital Gains Tax, CGT. Where any sum received is above this threshold, the amount received in excess thereof shall be construed and deemed to be chargeable gain and subject to CGT.

Companies Income Tax Act

Under the Act, enterprises involved in primary agricultural production (PAP) are eligible for the grant of pioneer status. PAP shall not cover activities related to the intermediate or final processing of produce or any associated manufactured or derivative agricultural products.

The Withholding Tax (WHT) applicable to income derived from Nigeria by a non-resident recipient shall be the final tax payable on such income. Income from leasing, containers, non-freight operations and any incidental income taxable under the CITA, is exempted from the tax imposed on companies engaged in shipping or air transport. Donations made by companies to any fund set up by either the federal or any state government or any FGN-designated MDA, in respect of any pandemic, natural disaster or any other exigency, shall be deemed allowable deductions against the tax payable by such companies, subject to a maximum of 10% of assessable profit for the year.
Customs and Excise Tariff, Etc. (Consolidation) Act


Goods liable to excise duty in Nigeria now include goods imported into Nigeria (not locally produced in Nigeria). Prior to the enactment of the Finance Act 2020, only goods manufactured in Nigeria were chargeable with excise duty. The importation of purchased or leased aircraft, engines, spare parts and components by airlines registered in Nigeria, and which provide commercial air transport services, shall now be duty-free.
Federal Inland Revenue Service (Establishment) Act


FIRS now has powers under its enabling Act to provide assistance to the government of another country or any other persons or body under an agreement/arrangement made between the FGN and the other country/body/person, regarding revenue claims and tax matters. For tax refund purposes, the Accountant-General of the Federation is now required to open dedicated accounts for each tax-type into which money for settling tax refunds shall be paid. The amendments to the FIRS Act now codify most of the extant international tax instruments (especially OECD documents) and existing FIRS’ Public Notices. With this development, it appears that the usual constitutional requirement of domestication usually impeding the implementation of most international tax treaties in Nigeria has to a considerable extent been satisfied.

Fiscal Responsibility Act
The conditions under which the President may exceed in a financial year, the aggregate expenditure ceiling imposed by the FRA, has now been expanded to include times when the country or any part thereof is at war or in a state of war, in imminent danger of invasion, is facing an actual breakdown of public order or public safety, or is under the threat of natural disaster or a pandemic.
Personal Income Tax Act
Where a non-resident individual, executor or trustee carries on a trade or business involving the provision of technical, management, consultancy or professional services to a person resident in Nigeria, the profits/gains accruing from such trade or business shall be deemed to be derived from, and taxable in Nigeria, to the extent that the individual, executor or trustee has a significant economic presence (SEP) in Nigeria. Low-income earners earning minimum wage or less are now completely exempted from the payment of personal income tax (including payment of minimum tax).
Stamp Duties Act
The legislation introduces a singular and one-off electronic money transfer levy of Fifty Naira (N50) on an electronic receipt or transfer of the sum of N10,000 or more, in relation to monies held and or deposited in any bank or financial institution.
Tertiary Education Trust Fund Act

A major amendment made by the Finance Act 2020 to the TETFUND Act, is the exemption of small companies from the application or scope of the Act. A small company for tax exemption purposes under the TETFUND Act is as defined in the CITA By the Act, the definition of a small company under section 23 of the CITA (as amended under section 14(b) of the Finance Act, 2019) shall apply in determining a company that qualifies for tax-exemption under the TETFUND Act. Thus, it is only companies whose gross turnover in any year of assessment is N25 million or less that shall be eligible to benefit under this dispensation.

It is now the duty of the person who pays compensation for loss of office, to deduct CGT payable on such chargeable gain at source and remit same to the appropriate tax authority, within the time prescribed under the Pay-As-You-Earn, PAYE, Regulations. The main thrust of this amendment is the grant of more tax relief on payments received as compensation for loss of office/employment; as such relief under the principal Act is limited to ten thousand naira only.

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