Legislation Review - The Finance Act, 2023
Introduction
On 28th May 2023, the President of the Federal Republic of Nigeria signed the Finance Bill, 2023 into law. Thus, the new Finance Act, 2023 amends several tax, excise, and duty statutes in line with the macroeconomic policy reforms of the Federal Government and makes further provisions in specific laws in connection with the public financial management of the Federation.
Specifically, the Finance Act, 2023 introduces changes to the following pieces of Nigerian tax statutes – Capital Gain Tax Act, Companies Income Tax Act, Customs, Excise Tariff, Etc. (Consolidation) Act, Personal Income Tax Act, Petroleum Profit Tax Act, Value Added Tax (VAT) Act, Stamp Duties Act, Corrupt Practices and Other Related Offences Act, Ministry of Finance Incorporated Act and Public Procurement Act. The Nigerian Finance Act, 2023 continues the tax reform measures introduced by previous Finance Acts i.e., the Finance Act, 2020 and Finance Act 2021.
This Business Legislation Review identifies and highlights the salient and innovative provisions of the Finance Act, 2023 and when relevant compares the new provision with the provision under the old law.
Amended Prior or Existing Legislations
1. The Capital Gain Tax Act
a) Digital Assets – Section 2 of the Finance Act, 2023 amends Section 3(a) of the Capital Gains Act to include ‘digital assets’ in the list of chargeable assets that will be subject to CapitalGain Tax upon disposal. The implication of this is that such digital assets will be subjected to a Capital Gain Tax of 10%.
b) Amendment of Section 5 of the CGTA - Section 3 of the Finance Act, 2023 provides for a new Section 5 of the CGTA that requires that - (1) in the computation of chargeable gains under the Act, the amount of any loss which accrues to a person on the disposal of any asset shall be deductible from gains accruing to the person disposing of that asset, provided that such loss shall only be deductible against the sum type of asset. (2) where the aggregate capital losses by any taxable person in a tax year exceeds the aggregate chargeable gains, such loss may be carried forward for deduction from chargeable gains arising from the disposal of the same type of asset in the following year and so on, provided that such losses shall only be carried forward for a maximum of five years immediately succeeding the year in which the loss was incurred.
c) Section 31(6) of the CGTA amended to include Shares and Stocks – Section 31(6) is amended to insert a new Class 5 – Shares and Stocks immediately after the expression, “Goodwill – Class 4”,
Section 4 of the Finance Act, 2023 further states that for the application of roll-over relief for shares pursuant to Sections 30 and 31 of the Act, the proceeds from qualifying disposal must be reinvested within the same year of assessment in the acquisition of eligible shares in the same or other Nigerian companies.
2. Companies Income Tax Act (CITA)
a) Amendment of Section 14 of the CITA (taxation of shipping and airline businesses) – Section 5 of the Finance Act, 2023 amends Section 14 of the CITA by inserting after subsection (4) a new subsection (4A).
Section 4(a) essentially seeks to ensure that shipping and airline businesses that fail to provide audited financial statements when filing their CIT submit detailed gross revenue statements of their Nigerian operations, showing the amount of full sums earned during the period, certified by one of the company’s directors as well as their company’s external auditor and supported with all invoices issued to the relevant customers.
Further, a new subsection (6) is inserted after subsection (5) and it states that “(6) Regulatory agencies in the shipping and air transport and other relevant sectors shall mandate all companies taxable under the provisions of subsection (1) of this section to present (i) evidence of income tax filing for the preceding tax year; and (b) Tax Clearance Certificate, showing income taxes paid for the three preceding tax years, in order to continue to carry on business in Nigeria or obtain any relevant approvals and permits.
b) Deletion of Sections 32, 34, 37 of CITA.
i) Section 6 of the Finance Act, 2023 deletes Section 32 of the CITA. However, there is a proviso to the effect that any expenditure on plant and equipment on or before the effective date of this repeal shall continue to enjoy the allowance under this section until it is fully utilised.
ii) Section 34 of the CITA is deleted by Section 7 of the Finance Act,2023 provided that a company that has incurred qualifying capital expenditure on or before the effective date of the repeal shall continue to enjoy the allowance under this section until it is fully utilised.
iii) By Section 8 of the Finance Act 2023, Section 37 of the CITA is deleted. Thus, repealing the tax incentive on investment through reserved funds in tourism by hotels. However, a company that has set aside reserved funds shall continue to enjoy the exemption until the funds are fully utilised or the five years limit has elapsed, whichever occurs first.
c) Amendment to the Second Schedule of CITA by Section 9 of the Finance Act, 2023
i) In paragraph 18 subparagraphs (3) and (7) are deleted.
ii) In paragraph 24 subparagraph(7) is substituted with a new paragraph “(7) In giving effect to the provisions of subparagraph(2) of this paragraph, the amount of capital allowance to be deducted from assessable profit in the year of assessment shall not exceed sixty-six and two third of a percent of such assessable profit of a company, but any company engaged in upstream and midstream gas operations as described in the Petroleum Industry Act, No.6 2021 or the Petroleum Profit Tax Act, Cap P13, Laws of the Federation of Nigeria or the agro-allied industry or which is engaged in the trade or business of manufacturing shall not be affected by the restriction under this subparagraph.
Provided that the value of any asset on which capital allowance is to be claimed under this Second Schedule shall be reduced by the amount of any investment allowance claimable by such company.”
3. Customs, Excise, Tariff etc (Consolidation) Act
a) A levy of 0.5% on all eligible goods imported into Nigeria from outside Africa to finance Capital Contributions etc.
Amendment of Section 13 by Section 10 of the Finance Act, 2023 - by inserting after subsection (3) a new subsection “(4)” – In addition to extant customs duties and other approved charges, a levy of 0.5% is imposed on all goods imported into Nigeria from outside Africa to finance capital contributions, subscriptions and other financial obligations to the Africa Union, African Development Bank, African Export-Import Bank, ECOWAS Bank for Investment and Development, Islamic Development Bank, United Nations and other multilateral institutions as may be designated by regulation issued by the Minister responsible for Finance.”
b) Excise Duty to be paid on all services in Nigeria
Section 12 of the Finance Act, 2023 amends Section 21 of the Principal Act by substituting for subsection (2), a new subsection “(2)” –
“(2) All services, including telecommunication services, provided in Nigeria shall be charged with duties of excise at the rates specified under the duty column in the Schedule as the President may by order prescribe pursuant to section 13 of the Act”
4. Personal Income Tax Act
Insurance Premium on Deferred Annuity and Life Coverage
Section 13 of the Finance Act 2023 amends Section 33 of the Principal Act is amended by substituting for subsection (3), a new subsection “(3)” – Subject to section 17(1) of this Act, there shall be allowed a deduction of the annual amount of any premium paid by the individual during the year preceding the year of assessment to an insurance company in respect of -
(a) Insurance on his life o the life of his spouse; or
(b) Contract for a deferred annuity on his life or the life of his spouse;
Provided that any portion of the deferred annuity that is withdrawn before the end of five year from the date the premium was paid, shall be subject to the tax point of withdrawal”.
5. Petroleum Profit Tax Act
a) Section 15 of the Finance Act, 2023 amends Section 10 of the Principal Act by inserting after paragraph (1) a new paragraph “(1a)” any amount contributed to a fund, scheme or arrangement approved by the Commission for the purpose of decommissioning and abandonment, subject to the production of the Statement of Account of the decommissioning and abandonment fund:
Provided that the surplus or residue of the fund after decommissioning and abandonment of the field shall be subject to tax under the Act”
b) Section 16 of the Finance Act, 2023 amends Section 23 of the Principal Act by providing for additional chargeable tax payable in certain instances.
“(23) (1) Where, for any accounting period of a company, the amount of the chargeable tax for that period, calculated in accordance with the provisions of this Act other than this section, is less than the amount mentioned in subsection (2) of this section, the company shall be liable to pay an additional amount of chargeable tax for that period, equal to the difference between those two amounts.
(2) The amount referred to in subsection (1) of this section is, for any accounting period of a company, the amount which the chargeable tax for that period, calculated in accordance with the provisions of this Act, would come to, if the reference in section 9(1) (a) and (b) of this Act to the proceeds of the sale were a reference to the amount obtained by multiplying the number of barrels of that crude oil determined at the measurement point by the fiscal oil price per barrel.
(3) For the purpose of this section, the total value of the chargeable oil for a company shall be the sum of the multiplications of volume and fiscal oil price as established by the Commission at the measurement point.
(4) The whole of any additional chargeable tax for crude oil payable by a company by virtue of this section for any accounting period shall be payable concurrently with the final instalment of the chargeable tax payable for that period.
(5) Where there is no fiscal oil price established for a crude oil stream, the Commission shall establish a fiscal oil price for such stream and every fiscal oil price per barrel established shall bear a fair and reasonable relationship-
(a) to the established fiscal oil price of Nigerian crude oil streams of comparable quality and specific gravity; or
(b) Where there are no such Nigerian crude oil streams of comparable quality and specific gravity, it shall bear a fair and reasonable relationship to the official selling prices at main international trading centers for crude oil of comparable quality and gravity, due regard being had in either case to freight differentials and other relevant factors.
(6) Where a particular company's chargeable oil is exported from Nigeria or sold locally by another company, that chargeable oil for the purpose of this section shall be deemed to be exported from Nigeria or sold by that particular company."
c) Preparation and Delivery of Accounts and Particulars.
Section 17 of the Finance Act substitutes Section 30 of the Principal Act for a new Section
“30. (1) Every company engaged in petroleum operations shall for each accounting period of the company make up accounts of its profits or losses and prepare the following particulars for the purpose of determining Petroleum Profits Tax
(a) a statement of accounts of its profits or losses
(b) Computation of its actual adjusted profit or loss and actual assessable profits of that period;
(c)in connection with the Second Schedule to this Act, a schedule showing –
(i) the residues at the end of that period in respect of its assets,
(ii)all qualifying petroleum expenditures incurred by it in that period,
(iii) the values of any of its assets disposed of in that period, and
(iv) the allowance of its actual chargeable profit of that period;
(e)a statement of the amount repaid, refunded, waived or released to it, referred to in section 10(2) of this Act, during the period.
(f) duly completed self-assessment form attested to by the principal officer of the company; and
(g) Evidence of payment of the final instalment.
(2) Every company engaged in petroleum operations shall with respect to any accounting period of the company and within five months after the expiration of that period, deliver to the Service a copy of its accounts, bearing an auditor's certificate, of that period, in accordance with the provisions of subsection (1) of this section and copies of the particulars referred to in subsection (1) of this section relating to that period with the copy of the delivered company Accounts and each copy of those particulars, shall contain a declaration signed by authorized officer of the company or by its liquidator, receiver or the agent of the liquidator or receiver, that the same is true and complete.
(3) Notwithstanding the provisions of this section, every company which is yet to commence bulk sales or disposal of chargeable oil, shall file with the Service its audited accounts and returns
(a) within 18 months from the date of its incorporation, in the case of a newly incorporated company; and
(b) within five months after any period ending on 31st December of the following year, in the case of any other company, provided that where there is an interval between 31st December of the preceding year and the date on which the company commences the bulk sale or disposal of chargeable oil or condensate, the interval shall be deemed to form part of the preceding period.
(4) A company which fails to comply with the provisions of subsection (2) or (3) of this section is liable to pay a penalty for late filing-
(a)N10,000,000 on the first day the failure occurs and N2,000,000 for each and every subsequent day in which the failure continues; Or
(b) Other sums as may be prescribed by the Minister of Finance by order published in the Federal Government Gazette."
d) Penalty for late filings, Offences and for making incorrect accounts
i) Section 18 of the Finance Act, 2023 amends Section 51 of the PPTA by substituting it for a new section that increases the penalty payable by a person who breaches any provisions of the Act.
ii) Section 18 of the Finance Act, 2023 amends Section 52 by substituting it for a new section to provide sanctions and penalties for persons who provide incorrect, false or misleading information in their accounts which then affects his or her tax liabilities.
iii)Section 19 of the Finance Act, 2023 amends Section 53 of the Principal Act on False Statements and Returns.
6. Stamp Duties Act
Section 21 of the Finance Act, 2023 amends Section 89 of the Principal Act by substituting for subsection (4), a new subsection “(4) Notwithstanding any formula that may be prescribed by any other law, the revenue accruing by virtue of the operation of this section, shall on the basis of derivation be distributed as follows –
(a) 15% to the Federal Government and the Federal Capital Territory, Abuja
(b) 50% to the State Governments; and
(c) 35% to the Local Governments”
7. Value Added Tax Act
(a) Section 22 of the Finance Act amends section 7 of the principal Act by inserting after subsection (2), new subsections “(3)- (5)
“(3)Where the service is of the opinion that any disposition is not in fact given effect to or that any transaction which reduces or would reduce the amount of any tax payable is artificial or fictitious, it may disregard any such disposition or direct that such adjustments shall be made as respects. Liability to tax as it considers appropriate so as to counteract the reduction of liability to tax affected, or reduction which would otherwise be affected, by the transaction and any company concerned shall be assessable accordingly.
(4) For the purpose of this section "disposition “includes
(a) Any trust, grant, covenant, scheme, agreement or arrangement; or
(b) Transactions between persons one of whom either has control over the other or, in the case of individuals, who are related to each other or between persons both of whom are controlled by some other person, shall be deemed to be artificial or fictitious if in the opinion of the Service or other relevant tax authority those transactions have not been made on terms which might fairly have been expected to have been made by persons engaged in the same or similar activities dealing with one another at arm's length.
(5) A taxpayer in respect of which any directions is made under this section, shall have a right of appeal in like manner as though such direction were an assessment”.
(b)Section 23 of the Finance Act, 2023 amends section 14 of the Principal Act by substituting for subsection (3), a new subsection (3)”The Service may appoint any person to withhold or collect the tax, and the person so appointed shall, on or before the14th day of the following month, remit the tax so withheld or collected to the Service in the currency of the transaction"
(c)Section 24 of the Finance Act, 2023 amends section 16 of the Principal Act by inserting after subsection (2), a new subsection “(3) Where taxable goods imported into Nigeria were purchased through an online electronic or digital platform, operated by a non-resident supplier that has been appointed as agent of the Service for the collection of the tax, the importer shall at the point of clearing such goods, provide proof of such registration or appointment, and such other document as may be required by the Service, and such goods shall not be further subjected to the tax before clearing by the Nigerian Customs Service, pursuant to the necessary coordination on modalities between the Service and the Nigerian Customs service.”
(d) Section 25 of the Finance Act, 2023 amends section 46 of the Principal Act by substituting for the definition of “building", a new definition of "building"
The new act defines "building" as any structure permanently affixed to land for all or most of the useful life of that structure and shall include, without limiting the generality of the foregoing, a house, garage, dwelling apartment, hospital and institutional building, factory, warehouse, theatre, cinema, store, mill building and similarly fixed structure affording protection and shelter, but excludes any fixtures or structures that can easily be removed from such land, such as radio and television masts, transmission lines, cell towers, vehicles, mobile homes, caravans and trailers.
8. Tertiary Education Trust Fund (Establishment Etc.) Act.
Section 26 of the Finance Act, 2023 amends Section 1(2) of the Principal Act is amended by substituting for the figure “2.5%” the figure “3%”.
9. Corrupt Practices and Other Related Offences Act
Amendment of section 22
Section 27 of the finance act substitutes for subsection (4) of the principal act for a new subsection "(4)"
"(4) Any public officer who, in the discharge of his official duties awards or signs any contract without budget provision, administrative approvals and procurement plan, shall be guilty of an offence under this Act and on conviction be liable to three years imprisonment or a fine of ten million Naira."
10. Public Procurement Act
Amendment of section 16
Section 28 of the finance act substitutes for subsection (1b) of the principal act for a new subsection "(1b)"
"(b) based only on procurement plans supported by prior budgetary appropriations and no procurement proceedings shall be formalized until the procuring entity has ensured that there is an approved procurement plan, subject to the threshold in the regulations made by the Bureau as well as guidelines issued by the Minister of Finance, has obtained a "Certificate of 'No Objection' to Contract Award" from the Bureau.
11. Ministry of Finance (Incorporated) Act
a) Amendment of section 3
Section 29 of the finance act amends section 3 of the principal act by inserting new subsections (3), (4), and (5)
"(3) There shall be established for the corporation, a Governing Council, an Executive Board, and a Management Team, as may be required, which bodies shall be appointed by the President on the recommendation of the Minister responsible for Finance, for the good governance, administration, strategic direction, and day to day management of the corporation.
(4) The corporation shall develop, adopt and, as appropriate from time to time, amend, revoke or supplement appropriate regulations, codes, internal guidelines and procedures consistent with this Act, in furtherance of the corporation's objectives and in connection with the performance of any of the corporation's functions under this Act, including without limitation a manual of policies and procedures.
(5) The corporation's initial regulations, internal guidelines and procedures, and any subsequent material change or supplement thereto shall be adopted only after consultation with the Minister responsible for Finance.
b) Effective Date
The provisions of this Act shall take effect from 1st May, 2023 or such other date that shall be indicated by the National Assembly by law, or by the President of the Federal Republic of Nigeria by presidential assent or order.
Qualifications and Disclaimers: This Publication is prepared strictly for informational purposes. It should not be relied upon or serve as a substitute for proper legal advice. Counsel will not be held liable for any action or inaction that is premised strictly on this Business Legislation Review.
For Further Information, Please Contact –
1. Mr. Ikemefuna Stephen Nwoye – Founder/Managing Counsel - ikemefunaSnwoye@nigerianbar.ng
2. Miss Favour Enam Jideofor – Associate/+2349053050145
3. Miss Anita Ewere Usiagwu - Paralegal/ +2349071698389