Some Things You Should Know About The Finance Act 2020

Some Things You Should Know About The Finance Act 2020
Share this article

The House of Senate and House of Representatives passed the Finance Bill on 15th and 17th December, 2020 respectively.

On the 31st of December, 2020 the President of the Federal Republic of Nigeria gave his presidential assent and the Act took effect from 1st January, 2021. Below are some important things you should know about the new law:

  • Any person who earns the national minimum wage or less is exempted from personal income tax. The current national minimum wage is 30,000 naira that means that anyone earning 30k or less is exempted from paying personal income tax. Your employers may keep deducting the tax under the PAYE system if you don’t inform them.
  • Interest on loan granted to companies involved in ‘Primary Agricultural Production’ is exempted from tax. ‘Primary Agricultural Production’ was defined to mean Primary crop production, Primary livestock production, Primary forestry production and Primary fishing production. This new definition clearly excludes processing and manufacturing of all forms of agricultural products.
  • Cost of donations made by companies in cash or kind to any fund set up by the Federal, state government or their agencies in respect of any pandemic, natural disaster or other exigency  will be tax deductible subject to a maximum of 10% of assessable profit after other allowable donations.
  • As a Covid 19 incentive, minimum tax for companies in respect of returns for years of assessments due between 1st Jan 2020 and 31st Dec 2021 has been reduced from 0.5% to 0.25%.
  • The penalty for deliberate misstatement on self assessment forms is that the company becomes immediately liable to pay any outstanding tax identified and assessed and the penalty and interest shall accrue from the date the incorrect return was filed.
  • Service of notice of assessment, revised assessment and objections under Companies Income Tax Act may be done via courier service, email or other electronic means.
  • Capital expenditure incurred on the development and acquisition of software or electronic applications now qualify for capital allowance. Many businesses spend huge sums of money to acquire software and/or engage the services of IT firms to set up different kinds of software for their business operations. This provision will come as a huge relief to such businesses.
  • A small or medium company engaged in primary agricultural production may be granted an initial tax-free period of 4 years which may be extended for an additional maximum of 2 years. A small company is a company that earns gross turnover of 25 million naira or less per annum while a medium sized company is a company that earns gross turnover greater than 25 million naira but less than 100 million naira per annum..
  • Small companies are exempted from payment of 2% of their assessable profit as tax under the TET fund.
  • Goods liable to excise duties have been expanded to include telecommunication services provided in Nigeria. Consumers may incur higher costs on airtime purchase and data subscription etc.
  • Reduction on import duty on Tractors from 35% to 5%; vehicles for transport of more than 10 persons(mass transit) and vehicles for transport of goods (Trucks) from 35% to 10%, and Cars from 30% to 5%.
  • Exemption of animal feed and hire or lease of agricultural equipment for agricultural purposes from VAT.
  • Commercial aircrafts, engines, spare parts as well as Commercial airline tickets are exempted from VAT. Additionally, airlines registered in Nigeria are entitled to duty-free importation of their aircrafts, engines, spare parts and components whether purchased or leased. It is expected that Airline operators in Nigeria will charge less for flight tickets.
  • Goods subject to VAT exclude land and building, money or securities and Services subject to VAT exclude interest in land and building, money or security. It is now settled that lease of commercial buildings are not VATable in Nigeria.
  • Electronic bank transfer was has been removed as a transaction liable to stamp duty but there is now an introduction of electronic money transfer levy of N50 on electronic transfer of money deposited in any bank or financial institution on any account on sums of N10k or more. Basically, nothing changed.
  • For companies operating in the free trade zones, exemption from taxes is subject to compliance with tax filing and returns obligation to the FIRS under section 55(1) of CITA.
  • Unclaimed dividends in a company quoted on the Nigerian Stock Exchange((6 years or more after being declared) are to be transferred to the Unclaimed Funds Trust Fund as a special debt owed to the shareholders by the Federal Government and shall be available to the shareholder for at any time.
  • Any person who disposes an asset chargeable under the capital gains act shall not later than 30th June and 31st December compute, file self assessment capital gain tax returns and pay the capital gains tax in respect of asset disposed in the periods.
  • Capital gain tax on compensation for loss of office would be limited to an amount in excess of the NGN 10 million threshold and any person who pays compensation for loss of office to an individual shall be required at the point of payment to deduct and remit the tax due to the relevant tax authority.
  • Tax Appeal Tribunal may conduct its hearing remotely via virtual means, using such technology or application as may be necessary to ensure fair hearing.

Credit: Ebube Godwin Onyejekwulum


Was this post helpful?

Share this article

Cameroonian startup launches to digitise business cards

Previous article

Vietnamese HDBank To Issue Letters of Credit on the Blockchain

Next article

You may also like


Comments are closed.

More in Opinions