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.
Establishment of an Unclaimed Funds Trust Fund
Companies and Allied Matters Act
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.
Customs and Excise Tariff, Etc. (Consolidation) Act
Federal Inland Revenue Service (Establishment) Act
Fiscal Responsibility Act
Personal Income Tax Act
Stamp Duties Act
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.