Finance Guest Columnist Taxation




On 8th October, 2020 President Muhammadu Buhari presented the 2021 budget to the joint Session of the National Assembly. Subsequently, the Federal Executive Council approved the Finance Bill 2020 on the 18th day of November, 2020. The Federal Ministry of Finance, Budget and National Planning had released the draft version of the 2020 Finance Bill (the Bill) to the public and stakeholders for consultation. On 1st December 2020 the President transmitted the Bill to the senate for consideration and passage into law in support of the 2021 Budget which was recently passed by the National Assembly on 21st December,2020. This affirms the Federal Government of Nigeria’s commitment to enact Finance Acts annually, alongside the passage of the budget into law (Appropriation Act). Furthermore, this strategy aligns with global best practices, especially as tax is a significant contributor to the Government’s revenue. Following the adoption of the report of Senate joint committee on Finance, Customs & Excise Tariff, Trade & Investment And Public Procurement at the committee of the whole on 15th December, 2020 the senate passed The Bill and transmitted same to the President for his assent. This article will highlight the objectives of the Finance Bill 2021 as well as examine the key provisions of the Bill that will affect taxes and tax legislations in Nigeria and the recommendations of the committee.

Objectives of the Finance Bill 2020

The Bill is set to amend the provisions of the Capital Gains Tax Act, Companies Income Tax Act (CITA), Industrial Development (Income Tax Relief) Act (IIDITRA), Personal Income Tax Act (PITA), Tertiary Education Trust Fund Act, Customs & Excise Tariff (Consolidation) Act, Value Added Tax Act (VATA), Federal Inland Revenue Service (Establishment) Act, the Fiscal Responsibility Act and the Public Procurement Act. The Finance Bill, 2020 seeks to support the implementation of the 2021 budget by proposing key reforms to specific taxation, customs, excise, fiscal and other laws and has the following strategic objectives as follows:

  • Adopt appropriate counter-cyclical fiscal policies to respond to the economic and revenue challenges precipitated by the decline in international oil prices, as well as the impact of the COVID-19 Pandemic on the Nigerian economy;
  • Reform extant fiscal policies to prioritize job creation, economic growth, socio-economic development, domestic revenue mobilization, as well as to foster closer coordination with Monetary and Trade Policies;
  • Provide fiscal relief for taxpayers by reducing the applicable minimum tax rate for two years consecutive years of assessment, as well as reforming the commencement and cessation rules for small businesses;
  • Propose measures to fund the Federal Government’s COVID-19 pandemic response and introduce provisions to enhance the recovery of corporate donations towards responses to the COVID-19 pandemic, as well as any similar crisis in the future;
  • Amend certain aspects of the Fiscal Responsibility Act, to align this Act with the 1999 Constitution (as amended), as well as to enhance fiscal efficiencies by controlling the cost-to-cost revenue ratios of key state and Government-owned Enterprises; and
  • Amend the Public Procurement Act to implement key procurement reforms previously proposed by the National Assembly, in 2019, to extend the scope of the Act to the Federal Judiciary and Legislature, accelerate procurement processes, increase mobilization fee thresholds and provide for essential e-procurement reforms.

Major Tax Law Amendments

  1. Capital Gains Tax Act(CGTA):
  2. Compensation for loss of office – In order to clarify the amendments earlier made by the Finance Act 2019 (FA 2019) and improve the administration of CGT on compensation for loss of office, Section 1 of the Finance Bill 2020 substituted section 36(2) of CGTA with a new section 36(2). Thus, Capital gain tax on compensation for loss of office would be limited to an amount in excess of the NGN 10 million threshold provided under the FA 2019. The Bill also added a new section 36(3) which provides that any person who pays compensation for loss of office to an individual shall be required to, at the point of payment, deduct and remit the tax due to the relevant tax authority within the time specified under the Pay-as-you-earn Regulations.
  3. Companies Income Tax Act (CITA):
  4. Agricultural Production– Section 2 of the Bill amended Section 11 of the CITA which provides for charge of tax on interest relating to foreign and agricultural loans and certain reliefs. Interest on loan granted to an agricultural trade or business was exempted from tax under the section. However, “Agricultural trade or business” has now been renamed as ‘Primary Agricultural Production’. ‘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. This amendment is to align the incentives in respect of interest on loan with the general policy direction of the Federal government targeted to encourage primary agricultural production.
  5. Incidental Income for international shipping/air transport companies– Section 4 of the Bill inserted a new Section 14(5) of CITA. The provision clarifies that specific tax regime for shipping and air transport companies under section 14 of CITA will apply strictly to income from the carriage of passengers, mails, livestock or goods shipped or loaded into an aircraft in Nigeria while leasing, containers, Non-freight income, and other incidental income will be taxed under Section 9 of CITA.
  6. COVID-19 Incentives- It is proposed pursuant to Section 5 of the Bill that the applicable minimum tax rate be reduced to 0.25% for tax returns prepared and filed with respect to tax returns filed in respect of financial years ending between 1st January 2020 and 31st December 2021. This reduction is an incentive meant to alleviate the burden of minimum tax on companies considering the economic challenges of Covid-19 pandemic. Furthermore, Section 7 of the Bill amended Section 25 of CITA to allow deduction of donations made by companies to the Covid-19 Crisis Intervention Fund or other similar fund by the Federal, state government or their agencies in respect of any future pandemics, natural disasters or other exigency. Deductibility is restricted to 25% of the assessable profits after deduction of other allowable donations. Allowable donations which have not been deducted may be carried forward for a maximum of two years.
  7. Profits Exempted-Section 6 of the Bill amended Section 23 of CITA which provides for profits exempted from company income tax. Firstly, paragraph c of subsection 1B was substituted with a new a paragraph c to clarify any perceived ambiguity in the tax applicable to Real Estate Investment Companies. Thus a real estate investment company is certainly not exempted from tax on dividend and rental income if it fails to distribute at least 75% of the dividends or rental income within 12 months from the end of the financial year that the dividend or rental income was earned. Secondly, the incentives under section 23(1) c of CITA were deleted and transferred to the Industrial Development (Income Tax Relief) Act for ease of administration and better management. The said provision contained certain incentives for companies engaged in agricultural production.
  8. Gas Utilization-Section 8 of the Bill amended Section 39 of CITA with the effect that Companies that claim the gas utilization incentive under CITA would not be entitled to similar incentives under the Petroleum Profits Tax Act or Industrial Development (Income Tax Relief) Act. The purpose of the amendment is to close the loophole which permits the abuse of the incentive by Petroleum companies in Nigeria.
  9. Penalty for deliberate misstatement on self assessment forms– Section 9 of the Bill amended Section 53 of CITA. Thus where a tax payer deliberately and dishonestly fails to declare the true amount of profits or tax payable the company shall immediately become liable to pay any outstanding tax identified or assessment which shall be liable to the penalties and interest for default/late payment under the Act and shall accrue from the date the incorrect return was filed. This section is clearly meant to discourage deliberate misstatement of profits and taxes.
  10. Non-resident companies filing- Section 10 of the Bill amended Section 55 of CITA. This clarifies the components of the income tax returns of non-resident companies who derive income from an activity attributable to their operations in Nigeria. The components  includes; an audited financial statement for Nigerian operations, tax computation schedules, statement of profits from every source in Nigeria and duly completed companies income tax self- assessment form. The obligation to file tax returns will not apply to non-resident companies whose tax exposure in Nigeria is limited to withholding tax.
  11. Service of notice of assessment/revised assessment- Section 11 and 12 of the Bill amended Sections 68 and 69 of CITA respectively.  The effect is that service of notice of assessment and revised assessment in the case of an objection can be done by courier, email or other electronic means such as Whatsapp, Telegram etc. This provision is to promote ease of business and efficient tax administration. See Earth Moving International Ltd v. FIRS (Unreported Judgment delivered on September 17, 2019 in appeal no TAT/C2/CIT/030/2018) where TAT Lagos zone held that electronic service of taxpayer’s objection against a notice of assessment issued by the FIRS was valid.
  12. Software acquisition- Section 15 of the Bill amended the 2nd schedule to CITA.Qualifying expenditure was defined to include capital expenditure incurred on the development and acquisition of software. This means that initial and annual capital allowances can be deducted for expenditure made towards acquisition and development of software. 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.
  13. Industrial Development (Income Tax Relief) Act:
  14. Primary agricultural Production – Section 16 of the Bill amended the Act by introducing “primary agricultural (i.e. crop, livestock, forestry and fisheries) production” as a pioneer industry. This means Companies involved in these activities are eligible for tax holiday incentives.
  15. Personal Income Tax Act:
  16. Significant Economic Presence– Section 17 of the Bill amended Section 6 of PITA to introduce Significant Economic Presence rules to the taxation of certain categories of non-resident individuals, executors or trustees.. The provision is akin to the Significant economic presence rules introduced to the CITA by the FA 2019 for taxation of non-resident persons providing technical, management, professional or consultancy services to a person resident in Nigeria. Such non-resident persons shall be deemed to derive gains or profits from Nigeria and taxable in Nigeria to the extent that they have significant economic presence in Nigeria. The Minister of Finance will issue rules to define SEP under PITA. This provision aligns PITA with the Finance Act 2019 amendments to CITA relating to taxation of non-resident persons. It is also intended to close a loop hole and avoid tax leakages.
  17. Commencement and cessation rules– Sections 19 and 20 of the Bill amended Section 24 and 25 of PITA respectively. The commencement and cessation tax rules were revised to prevent double taxation. Tax will be charged on the basis of the individual’s accounting year. This aligns with the prior amendment to CITA in this regard.
  18. Gross Income definition– Section 21 of the Bill amended Section 33 of PITA by introducing a definition for “gross income”, which is the basis for calculating consolidated relief allowance. “Gross income” is defined to mean income from all sources, excluding non-taxable income, tax-exempt income, income on which no further tax is payable, allowable business expenses and capital allowances.
  19. Tertiary Education Tax(Establishment etc.) Act:
  20. Exemption for small companies– Section 24 of the Bill amended Section 1 of TET Act thereby exempting Small companies from payment of tertiary education tax. This is in line with the Federal Government’s policy to exempt small companies from tax.
  21. Customs and Excise Tariff etc(Consolidation) Act:
  22. Non-applicability of excise duty exemption– Section 27 of the Bill amended section 21 of the CETCA. The exemption from excise duties on imported goods and goods manufactured locally would no longer apply. This is to correct the contradiction observed in the amendments introduced by the Finance Act 2019.
  23. Services are now subject to excise duties– Section 27 of the Bill amended section 21 of the CETCA and included a new subsection 2 with the effect that Services are now subject to excise duties based on the applicable rates in the Fifth schedule.
  24. Value Added Tax Act:
  25. Time of supply of goods or services– Section 28 of the Bill introduced a new section 2A to the VATA. In line with global best practices, time of supply of goods or service is now defined to be the later of date of supply or date of issuance of a tax invoice for supply. The date of supply of goods where goods are to be removed is the date of delivery by the supplier or the date of collection of the goods by the customer or their agents respectively. The date of supply of services is the date the services are performed. More specific rules to clarify how to determine the date of supply were also introduced by the Bill.
  26. The 7.5% increase in VAT commencement date– Section 29 of the Bill further amended section 4 of the VATA. The Bill clarifies that the commencement date of the 7.5% increase in VAT is 1st February 2020.
  27. Expand list of basic food items– Section 30 of the Bill amended Section 46 the interpretation section of VATA to include “Animal Feed” as a basic food item which will be exempted from VAT.
  28. New definition of goods and services– Section 30 of the Bill further amended Section 46 the interpretation section of VATA thereby excluding “any transfer of such interest in land, the assignment of any leasehold interest in land, the transfer of ownership of any interest in a license to produce or explore for solid minerals or petroleum or of a right to use water drawn from a river, dam or aquifer” from the meaning of taxable goods and services under the Act. Experts had recommended that, in order to promote certainty, there should be clarity on the meaning of taxable goods and services through a more detailed amendment of the VAT Act. It is believed that with this current amendment the knotty issue as to whether VAT is applicable to commercial lease transactions will be laid to rest. See Chief J.W. Ellah, Sons & Company Ltd v. Federal Inland Revenue Service (Ellah Case) Unreported Judgment in Appeal No: TAT/SSZ/001/2019, Ess-Ay Holdings Limited v. Federal Inland Revenue Service (Ess-ay case) Unreported judgment in Appeal No: TAT/LZ/VAT/029/2019, Federal Board of Inland Revenue v. Ibile Holdings (All NTC vol. 6 Page 1), CNOOC Exploration and Production Nigeria Limited and South Atlantic Petroleum Limited v Attorney General of the Federation & Ors (2013 1 NRLR 88) (The CNOOC Case)
  • Federal Inland Revenue Service (Establishment) Act:
  • Deployment of Technology for efficient Administration of tax laws– Section 32 of the Bill amended Section 25 of the FIRSEA. The FIRS may appoint a payment processing company, a digital platform or operator of such platform as an agent to collect and remit taxes due on international transactions in the supply of digital services to and from a person in Nigeria, in the case of transactions carried out through remote, digital, electronic or other such platform. The legislation also empowers The Federal Inland Revenue Service (FIRS) to deploy technology to automate the tax administration process including tax assessment, collection and information gathering. This provision recognizes that technology is central to the effective administration of taxation systems. Across the globe, there has been a significant shift towards e-administration with increasing options for online filing of tax returns as well as online payments. The FIRS already has an active platform at where tax payers can carry out electronic tax transactions namely e-filing, e-tax payment, e-receipt, e-tcc (tax clearance certificate),e-stamp duties etc. However, the FIRS is yet to completely eliminate requirement of physical visits to their office for tax transactions. Tax Identification Number will be required to create an account on the portal and to access the electronic services. Payments can be done on the website using the following payment channels; Remitta, Interswitch, NIBSS, E-tranzact and infiniti.  Thus the provision is in line with the existing policies of FIRS.
  • Information and documents to be confidential– Section 34 of the Bill amended Section 39 of the FIRSEA. The tax payer information gathered by the FIRS is to be kept confidential in line with the legal provisions on data privacy, data protection etc. The section inserted a punishment of One Million Naira or 3 years imprisonment on conviction as a deterrent for breach of confidentiality by tax officials.
  • Virtual Hearing by Tax Appeal Tribunal– Section 37 of the Act amended Paragraph 20(2) of the Fifth Schedule to FIRSEA empowering the TAT to conduct hearing remotely via virtual means using such technology as may be necessary to ensure fair hearing.

The Finance Bill 2020 also contains provisions with regards to:

  • Creation of the Covid 19 Crisis Intervention Fund at the tune of 500 Billion Naira;
  • Establishment of unclaimed dividends trust fund;
  • Amendments to the Fiscal Responsibility Act;
  • Amendments to the Public Procurement Act.

Recommendations by the Senate Committee

  • The inclusion of free duty and levy for commercial airline operators in line with presidential waivers and approval already granted by the President in the Customs and Excise Tariff Act (CETA).
  • Capital Gain Tax returns should be filed per year on the 30th of June and 31st December of every tax year.
  • Deductions provided for in the Company Income Tax should, among others, be based on the actual cost of the in-kind donation instead of the value which may be different from what the donor actually incurred.
  • Section 25(9) of CITA proposed be reduced from 25 per cent to 15 per cent of assessable profits to reduce the amount of deductions available for voluntary donations made to State or Local Government. And penalty or fine to be disallowed for deductions should be restricted to those imposed by legislation enacted by the National Assembly or States Houses of Assembly with the aim of removing the restriction that will be occasioned by the proposal in the Bill with the aim of ease of doing business.
  • Reduction in the Tax Relief periods under the Industrial Development Income Tax Relief Act, from initial five years to four years and additional three years to two years as this will enable the government to start taxing the relevant organization after a total period of 6 years of tax holiday.
  • Goods and services exempted under the Value Added Tax (VAT) should include commercial aircraft, engine, spare part, airline transportation ticket. Also hire, rental or lease of tractors, plough and other agricultural equipment or implements should be included as parts of goods and services exempted from VAT.
  • Under Stamp Duty Act, it was recommended that the Minister of finance subject to the approval of the National Assembly shall make regulation for the imposition, administration, collection and remittance of the electronic levy.  The sharing formula of the electronic levy between States and Federal Government should be States Government taking 85% and Federal Government being the collecting agent on behalf of the States collects 15 per cent.


From a cursory reading of the Finance Bill 2020, it is distilled that the bill is an improvement to the Finance Act 2019. Certain ambiguities, errors, loopholes in the FA 2019 were clarified, corrected and eliminated by the Bill respectively. Tax is a significant contributor to the Government’s revenue and it is observed that the present regime is channeling its effort to improve tax generated revenue. However, The Bill also provided for incentives that will potentially enhance the growth of the agricultural sector, small companies as well companies that acquire software for business efficiency. The Bill also introduced Virtual hearing as a valid means of resolving tax disputes by the Tax Appeal Tribunal. These legislations are commendable. Generally, the Bill attempted to align Nigeria’s tax legislation with global best practices and it is hoped that similar results will be achieved in our tax system.

Ebube Godwin Onyejekwulum ACIArb(UK), LLM Taxation (in view) is an Associate Counsel at Synergy Attornies and can be reached via

Ebube Godwin Onyejekwulum

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