Over the past few weeks, analysis of the novel Finance Act of 2020 and its implications has been on the trend. A key reason this government policy has gathered such massive interests especially for business owners and private citizens is due to the touch of reforms it adds to the tax system in alignment with international best practices especially at a time the economy needs to respond effectively to the changing socio-economic landscape.
Recall that the newly signed policy by President Muhammadu Buhari on December 31, 2020, came on the heels of the Finance Act 2019 which amended several tax statutes. The Act according to the presidency was enacted in furtherance of the Federal Government’s reform of the business climate in Nigeria.
You should know that 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.
Taxmobile.Online gathered that while 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.
Also, the new legislation establishes a Crisis Intervention Fund and Unclaimed Funds Trust Fund to be known as the Crisis Intervention Fund, CIF, which shall be established, with an initial capital of ₦500 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 or such other exigencies that may arise under the Fiscal Responsibility Act and the Constitution of the Federal Republic of Nigeria, 1999.
Five key highlights
Taxmobile.Online in a bid to demystify key provisions in the newly enacted law, captures below 5 out of its key make-up and accompanying effects.
- Establishes Unclaimed Funds Trust Fund, UFTF: This fund shall be governed by a Governing Council to be chaired by the Minister of Finance with a co-chair from the private sector.
This clause in the law implies that 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 that have 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
2. Companies and Allied Matters Act, CAMA
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 under the perpetual trust in place.
Going by this, 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.
3. Company Income Tax
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 products 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
4. Personal Income Tax Act, PITA
Low-income earners earning minimum wage or less are now completely exempted from the payment of personal income tax (including payment of minimum tax).
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.
Redefining Gross Income Clause of the PITA
Section 33, subsection 2 redefined Gross Income for personal relief purposes as income from all sources less non-taxable income, exempting items and income on which no further tax is payable. In the case of an enterprise, less all allowable business expenses and capital allowance.
According to the legislation, Consolidated Relief Allowance, CRA is computed in line with the definition of income tax from section 33 as deduced from the document below:
There shall be a consolidation relief allowance of ₦200,000 subject to a minimum of 1 percent of gross income whichever is higher plus 20 percent of gross income and the balance shall be taxable in accordance with the income table in the sixth schedule to this Act.
In clearer terms, what this translates to is that about 20 percent of an employee’s income is shielded from tax while government shares from the balance of 80 percent based on specified tax rate(s).
By implication, government will take away more of a taxpayers’ income as tax by redefining the determinant of income that qualify as gross income for the purpose of applying the CRA rate without necessarily adjusting the ratio.
Stamp Duties Act
The legislation introduces a singular and one-off electronic money transfer levy of Fifty Naira (₦50) on an electronic receipt or transfer of the sum of ₦10,000 or more, concerning monies held and or deposited in any bank or financial institution.