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Introduction

Since 2019, the Nigerian Federal Government (FG) has annually enacted Finance Acts into law to support the annual budgets for the respective fiscal years, drive the macroeconomic policy reforms of the FG and bring the tax laws in sync with modern realities amongst other objectives.  In this regard, the National Assembly, composed of both the Senate and the House of Representatives, on 28 December 2022, passed the 2023 Finance Bill (the Bill). The Bill has been sent to the President for presidential assent. Once the Bill is assented to by the President, it will undergo other ancillary law-making processes, such as the publication in the Federal Gazette in line with the provisions of the Acts Authentication Act to become law.

Proposed Amendments  

The following are some of the notable amendments proposed by the Bill:

1.    Capital Gains Tax (CGT) Act
a)    Expansion of the list of chargeable assets under the CGT Act to include digital assets. Thus, digital assets such as cryptocurrency and non-fungible tokens will be included as assets liable to CGT in Nigeria.
b)    Taxpayers are now allowed to deduct the capital loss made from the disposable of a chargeable assets against the capital gain made from the disposable of an identical chargeable assets in a taxable year.

2.    Value Added Tax (VAT) Act:
a)    The timeline within which any person appointed by FIRS to collect and remit VAT on the transactions with its counterparty will now be on or before the 14th day of the following month and no longer the 21st day.
b)    Goods purchased through an online electronic/digital platform, operated by a non-resident supplier and imported into Nigeria will not be subjected to a further VAT on their clearance with the Nigerian Customs Service provided that the importer can show evidence that the non-resident supplier charged VAT on the sales invoice.

3.    Companies Income Tax (CIT) Act:
a)    Medium and large gas-flaring companies will now be subjected to CIT at the rate of 50% unless the gas is flared or vented as a result of emergency in accordance with the law;
b)    In terms of incentive, medium and large companies that are involved in commercial winning, capturing, producing, and utilising associated and non-associated gas get a single 50% investment tax credit on qualifying expenditure.
c)    The Bill seeks to repeal the Rural Investment Allowance incentive granted to companies that incur capital expenditure on the provision of electricity, water, or tarred road facilities. Also repealed is the Reconstruction Investment Allowance granted to companies for expenditure on plant and equipment.
d)    The Bill also seeks to repeal the 25% income tax exemption granted to hotels that derived convertible currencies from tourists and which income is put in a reserved fund to be utilised within five years on certain projects. However, the exemption remains in force for such funds already set aside in accordance with the provisions of the extant CIT Act, until the funds are fully utilized.

4.    Petroleum Profits Tax Act (PPTA)
a)    The Bill provides that decommissioning and abandonment expenses are now deductible but must have been approved by the Nigerian Upstream Petroleum Regulatory Commission.
b)    The Bill provides for stiffer penalties for non-compliance with the requirement of delivery of accounts and returns, failure to comply with FIRS notices amongst others. The penalties are an administrative penalty of N10,000,000 plus additional penalty of N2,000,000 for each subsequent day the failure continues, or upon conviction, a fine of N20,000,000 or such other sum the Minister of Finance may prescribe by an Order, or imprisonment for 6 months or to both fine and imprisonment.

5.    Customs, Excise, Tariff etc. (Consolidation) Act
a)    The Bill seeks to introduce a 0.5% levy on goods imported from outside Africa to finance the Federal Government’s contribution to multilateral organisations such as the African Union, African Development Bank, African Export-Import Bank, and the United Nations.
b)    The Bill further provides that excise duties are to be paid on all services provided in Nigeria with the rate being set by the President in accordance with provisions of the Act.

6.    Personal Income Tax (PIT) Act
A key amendment to the PIT Act introduced by the Bill is to the effect that insurance premiums paid by an individual on his life or the life of his spouse, or contract for a deferred annuity on his life or the life of his spouse are allowable deductions for PIT purposes provided that any portion of the deferred annuity withdrawn before the end of five years will be liable to tax.

7.    Stamp Duties Act

The Bill seeks to allocate 35% share of Electronic Money Transfer Levy receipts to the Local Governments, 50% share to State Governments, and 15% to the Federal Government and the Federal Capital Territory, Abuja.

Commentary

Based on our detailed review of this Bill, we consider that a number of the proposed amendments will have the following impacts:
a.    The increase in CIT payable by gas-flaring companies from 30% to 50% is expected to help Nigeria achieve its climate change commitments as it dissuades gas-flaring activities. However, given the dearth of infrastructure in the gas segment of the Nigerian petroleum sector, this move may end up disincentivising investment as companies that do not have the financial capacity to invest in gas commercialisation projects may wish to stay out of the petroleum industry due to little or no profit that will result upon the payment of the high income tax.
b.    The deduction of decommissioning and abandonment expenses is expected to incentivize oil and gas companies to clean up abandoned oil and gas fields littered across the country.
c.    The provision that allows businesses to net capital losses against capital gain on identical capital assets in a taxable year aligns with the ease of doing business objectives of the Government and is expected to stimulate business activities in some key sectors of the economy such as the real estate sector.
d.    The addition of a 0.5% customs levy on imported goods from outside Africa will increase the cost of products from the affected countries and affect their desirability as the price is likely to be passed on to consumers. This may also benefit locally produced products as they may be suitable alternatives for consumers.
e.    Similar to the above, the extension of the excise duty fees to be paid on all services should have the same effect on the cost of services to customers, which might adversely affect how frequently they use them. However, we observe that the extent of the impact depends on the excise duty rate set by the President.

Conclusion

As in previous Finance Bills passed into law by the Federal Government, we understand that part of the FG’s objective with the current Bill is to raise sufficient revenue to fund its operations in the 2023 fiscal year.

However, we note that unlike the previous years where the Finance Bills were signed into law in the month of January, this Bill is yet to be signed into law by the President even as the first quarter of 2023 comes to an end. Considering that the intention of the Government has always been to fund each fiscal year’s budget with the Finance Act that is enacted in the relevant year, it is yet to be seen whether the Bill will be signed into law especially as the tenure of the current President comes to an end on 29 May 2023.

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