Impact of Finance Act 2021 on Nigeria Businesses.

Finance Act 2021 is a bill passed by the Federal Government of Nigeria to amend the existing tax laws and regulations.

The 2021 Finance Bill was signed into law by the Nigerian President on 31 December 2021 and takes effect from 1 January 2022. Below are the top 10 changes:

1. Capital gains tax at 10% is chargeable on the disposal of shares worth N100m or above in any 12 consecutive months except to the extent that such proceed is reinvested in the shares of any Nigerian company.
2. The education tax payable by Nigerian companies has been increased from 2% to 2.5% of assessable profits.
3. Companies engaged in educational activities are now subject to corporate income tax regardless of whether such activities are of a public character.
4. A science and engineering levy of 0.25% of profit before tax is payable by companies engaged in banking, mobile telecommunication, ICT, aviation, maritime, and oil & gas with a turnover of N100m and above.
5. FIRS to assess, collect and enforce the payment of Nigerian Police Trust Fund levy. The tax was introduced in 2019 at the rate of 0.005% on the net profit of companies operating in Nigeria.
6. Imposition of excise duty at N10 per liter on non-alcoholic, carbonated and sweetened beverages. This could translate to an increase in the retail price of products by up to 5% with lower end products bearing higher burden.
7. The reduction of minimum tax rate from 0.5% to 0.25% of turnover (less franked investment income) will apply to any two accounting periods between 1 Jan 2019 and 31 Dec 2021 as may be chosen by the taxpayer.
8. FIRS may assess tax on the turnover of a foreign digital company involved in transmitting, emitting, or receiving signals, sounds, messages, images or data of any kind including e-commerce, app stores, and online adverts. Such companies are also obliged to charge, collect and remit VAT to FIRS.
9. Only FIRS is to be responsible for the administration, assessment, collection, accounting and enforcement of taxes and levies due to the Federation, the Federal Government and any of its agencies except otherwise authorized.
10. All tiers of government are now empowered to borrow for “critical reforms of significant national impact” in addition to capital expenditure and human development.

The Act has several provisions that are expected to have positive impact on businesses and nation as a whole. The impact are as follows:

1. Reduction of tax burden for small businesses: The Act provides incentives for small businesses at lower corporate income tax rate of 20% for businesses with annual turnover of N25millon or less and an exception from Tertiary Education Tax.

2. Promotion of Investment: The Act promotes investment in Nigeria by granting tax exemption for companies that invest in infrastructure and granting tax holiday for companies that start operations in certain designated industries.

3. Advancement of Digital Economy:  The Act has a provision that imposes a 1.5% levy on the gross income of companies operating in Nigeria’s digital economy such as E-commerce platforms. The revenue generated from this levy is expected to be used to fund initiatives aimed at improving Nigeria’s digital infrastructure.

4. Tax Administration: The Act simplified tax administration by introducing measures such as Tax identification numbers for individuals and tax clearance certificates for companies. This would make it easier for businesses to comply with tax regulations.

The overall aim of the Finance Act 2021 is expected to have positive impacts on businesses and the nation as a whole by promoting economic growth and development and easing business in Nigeria by providing tax incentives for small businesses and companies that invest in key sectors of the economy.