In the concluding days of 2022, the Finance Bill 2023 (“FB23”) was presented for passage by the (bicameral) National Assembly and transmission thereafter to the President for assent, in the process of transforming it into a binding statute. However, the passage and assent tarried for several months for no officially disclosed reason. With the coming into force of the Business Facilitation Act and its attendant changes on few tax law provisions, hopes of a Finance Act for 2023 began to fade in some quarters.
The Senate finally passed the FB23 on 3rd May 2023, while the House of Representatives passed it on 24th May 2023. The immediate-past President, Muhammadu Buhari, donated his presidential assent on 28th May 2023, birthing the Finance Act 2023 (“FA23”).
The FA23 amended the following existing tax laws and regulatory legislations in Nigeria; the Capital Gains Tax Act, the Companies Income Tax Act, the Value added Tax Act, the Customs and Excise Tariff (Consolidation) Act, the Tertiary Education Trust Fund Act, the Corrupt Practices and Other Related Offences Act, the Public Procurement Act, and the Ministry of Finance (Incorporated) Act. The commencement date is expressed as 1st May 2023.
This article highlights key changes brought about by the FA23 for our esteemed corporate and individual clients and public readers.
Capital Gains Tax (CGT)
It was arguable that section 3 of CGT Act defines chargeable assets in a way that could capture digital assets. For emphasis, the said provision is excerpted below:
“3. Chargeable Assets
Subject to any exceptions provided by this Act, all forms of property shall be assets for the purposes of this Act, whether situated in Nigeria or not, including –
- Options, debts and incorporeal property generally;
- Any currency other than Nigerian currency; and
- Any form of property created by the person disposing it, or otherwise coming to be owned without being acquired.”
Commendably and in line with the principle of certainty, the FA23 has now amended Section 3(a) of the CGTA to expressly include digital assets amongst chargeable assets recognised under the Act. Notably however, the FA23 neither defines what “digital assets” are, nor does it describe it by way of examples. With the fast-paced evolution and improvement in digital technology, we highly recommend a definition and a description (by examples) for digital assets. With such definition and description, tax administrators may be better ready to handle new CGT scenarios occasioned by such technological evolution.
Previously, losses accruing to a person on disposal of a chargeable asset were not deductible from gains accruing from the disposal of such asset. This was an affront to the basic tax principle of symmetry – if the capital gains are taxable, then the capital losses should also be tax-deductible.
Laudably, the FA23 shows sound legislative judgment in this respect. Section 5 of the CGTA now allows taxpayers to set-off capital losses against capital gains with respect to the same or identical assets. Interestingly too, a taxable person who incurs aggregate capital losses which exceed their aggregate capital gains within a taxable year is permitted to carry such aggregate losses forward for deduction from chargeable gains arising from the disposal of the same type of asset in the following year(s). A caveat here is that such carrying forward is permitted for a maximum timeframe of five (5) years immediately after the year in which the loss was incurred.
Regarding securities pre-2021, only gains accruing to a person from disposal of Nigerian government securities, stocks and shares were CGT-exempt. The Finance Act 2021 extended the exemption to, inter alia, capital gains accruing to a person on disposal of shares in any duly registered Nigerian company where the proceeds from such disposal are reinvested (within the same year of assessment) in the acquisition of shares in the same or other Nigerian companies. However, the rollover relief did not apply to capital gains from disposal of shares.
The FA23 amended Section 31(6) of the CGTA to provide for a rollover relief on gains from disposal of shares, subject to the reinvestment of the proceeds within the same year of assessment.
For example, Mr. Khay Bee resides in Lagos State and acquired shares in Zenith Bank Plc for N100,000 in 2003. He sells these shares in June 2023 for N50,000,000. He then immediately acquires fresh shares in Zenith Bank Plc for N60,000,000 to enable him continue his business expansion.
If Mr. Khay Bee makes a claim to the Lagos State Internal Revenue Service (LIRS) for rollover relief, he would be deemed to have made zero loss or gain from his disposal of the shares initially acquired for N100,000. The transaction would also be treated as though the cost of acquiring the new shares (N60m) were reduced by the difference between the actual proceeds of disposing the old shares (N50m) and the value of the proceeds which he is treated as receiving under section 31(1)(a) of the CGTA (N100,000), which will equal (N49.9m). This amount (N49.9m) will be deducted from the cost of the new asset for capital allowances and CGT purposes.
Companies Income Tax (CIT)
To strengthen enforcement of CIT filing obligations in the shipping, air transport, “and other relevant sectors”, the FA23 mandates regulatory agencies (such as the Federal Ministry of Transport, Nigerian Airspace Management Agency, Nigerian Maritime Administration and Safety Agency, Nigerian Ports Authority, etc.) to require the presentation by taxable companies (associated with transport by sea and air, or relating to port or airport) of evidence of income tax filing, and tax clearance certificates.
This requirement is crucial to business continuity or the obtaining of relevant approvals and permits such as the air operator’s certificate, air transport license, permit for non-commercial flight, shipping company/agency license, shipping chandler license, etc.
Previously, capital allowances were claimable on plant and machinery (such as equipment, business vehicles, etc.) at the rate of 10%. Rural investment allowance was also claimable by a company which incurs capital expenditure on provisions of facilities such as electricity, water, tarred road, or telephone for the purpose of trade or business at rates ranging between 5 to 100% of the amounts of such expenditure. The FA23 has abolished both allowances.
Hotels were entitled to 25% CIT exemption from incomes in convertible currencies derived from tourists stashed in a reserved fund to be used within 5 years for tourism development. The FA23 has now abolished this exemption. Despite this change, hotels with such funds may continue to enjoy the exemption until the 5-year period elapses or until the funds are fully utilised, whichever occurs earlier. By its Public Notice released on 10th June 2023 (hereinafter called “the FIRS J23 Notice”), the FIRS has clarified that the said exemption will no longer be available for tax returns becoming due in respect of accounting period ending or after 1st July 2023.
It is advised that the FIRS is circumspect in the administration of this aspect of its latest public notice. The clear provision of the FA23 is to the effect that “a company that has set aside reserved funds shall continue to enjoy the exemption until the funds are fully utilized or the five years limit has elapsed, whichever occurs first”, not “until 1st July 2023”. Should a controversy arise, the FIRS must be ready to yield to the express provisions of the FA23 or risk getting any affected assessment set aside by Tax Appeal Tribunal.
Previously, the amount of capital allowances deductible from the assessable profits of agro-allied and manufacturing companies could exceed 66.67% of the assessable profits. By the FA23, companies engaged in upstream and midstream gas operations as defined by relevant statutes are now included.
Customs and Excise
Goods imported into Nigeria from outside Africa now attract an additional 0.5% levy. The proceeds of this tax are aimed at settling financial obligations to African multilateral institutions.
In addition, all services including telecommunication services are now liable to excise duty at rates to be prescribed by the President.
Personal Income Tax (PIT)
The Finance Act 2020 (FA20) previously redefined the pre-2020 tax provisions applicable to tax deductions on paid insurance premiums. It allowed deductions of the annual amount of any premium paid by an individual (during the year preceding the year of assessment) to an insurance company:
- in respect of insurance on his life or the life of his spouse; or
- of a contract for a deferred annuity on his own life or the life of his spouse.
With the enactment of the FA21, the provision above was brought subject to the provision of the PIT Act on artificial or fictitious transactions aimed at reducing tax liability. However, the provision (b) above on deferred annuity was severed.
The FA23 has now amended Section 33(3) of the Personal Income Tax (PIT) Act again restoring the (b) provision above on deferred annuity with a proviso that– “any portion of the deferred annuity that is withdrawn before the end of five years from the date the premium was paid shall be subject to tax at point of withdrawal.”
Petroleum Profits Tax (PPT)
In addition, penalties have been revised to reflect current economic realities. Some provisions have also been tactically reworded to possibly reduce controversies. For instance, previously, the liability for breaching the PPTA or any “rule” (for which no penalty was specifically provided) was stated to be “a fine of N10,000”. Now, the liability for breaching the PPTA or any “regulations made under this Act” is stipulated as “an administrative penalty of N10,000,000”.
The provision for compounding has also been given more flesh. For instance, the FIRS may accept “sum of money not exceeding the maximum fine specified for the offence”.
As a background, the FA19 formally introduced the legal framework for the imposition of stamp duty on electronic money receipts or transfers. A year later, the FA20 introduced a fresh section 89A to the Stamp Duties Act by which the Electronic Money Transfer Levy (EMT) was introduced – a one-off charge of N50 on electronic money receipts or transfers of N10,000 and above. By this fresh Section 89A, revenues accruing from stamp duty were to be distributed on the basis of derivation between the Federal Government and the FCT (15%) and the State Governments (85%).
It would be recalled that prior to FA19, the CBN had mandated the deduction and remittance to it of N50 stamp duty on electronic money transfers and receipts from N1,000 and above. The FA21 made progress by amending Section 89A of the SDA (as earlier amended by the FA20) to make provision for the legal framework for the treatment of “arrears of the relevant stamp duties and electronic money transfer levies collected between 2015 and 2019”.
The FA23 has now amended the distribution formula earlier created by the FA20 as follows:
- 15% to the Federal Government and the FCT;
- 50% to the State Governments; and
- 35% to the Local Governments.
Value-Added Tax (VAT)
The FIRS is now empowered to apply transfer pricing rules on transactions considered to be artificial or fictitious between connected persons.
The FA19 amended the VAT Act by requiring a person to whom goods or services (from a non-resident company) are supplied in Nigeria to remit the applicable VAT in the currency of the transaction. The FA19, FA20, and FA21 also maintained “on or before the 21st day of every month” as the timeline within which VAT returns may be filed, and the applicable VAT remitted.
The FA23 now requires persons appointed to withhold or collect VAT at source to remit such VAT on or before the 14th day of the following month. By the FIRS J23 Notice, the FIRS commendably explained that VAT withheld or collected in June 2023 will be remitted on or before 14th July 2023. This shows that VAT withheld or collected in May 2023 will not be caught up by this new timeline.
Vatable goods purchased through an online electronic or digital platform operated by a non-resident supplier will be chargeable to VAT and paid by the importer unless the non-resident supplier provides proof of appointment/registration (of itself) by the FIRS as a VAT collection agent (and any other document required by the FIRS).
Previously, fixtures and structures severable with (relative) ease such as “radio and television masts, transmission lines, towers, vehicles, and other similar structures” were regarded as part of a “building”. Thus, landed property or realty vendors could sell these fixtures and structures (along with the land and building) and apply this provision to insulate the transaction from VAT liability.
This is no longer the position. The FA23 has now amended the definition of ‘building’ for VAT purposes to exclude “any fixtures or structures that can easily be removed from such land, such as radio and television masts, transmission lines, cell towers, vehicles, mobile homes, caravans and trailers”. The FIRS J23 Notice notes that companies letting, trading in, or furnishing services with such items must charge VAT at the prevailing rate with effect from 1st July 2023.
Tertiary Education Tax (TET)
FA23 increased the TET rate from 2.5% to 3% of assessable profits. The FIRS J23 Notice notes that this new TET rate takes effect for TET becoming due for accounting period ending on or after 1st July 2023.
The FA23 has occasioned massive changes to several laws, many of which have been underscored in the foregoing pages. The prompt intervention of the FIRS via the FIRS J23 Notice is laudable. Hopefully, more clarifications will be issued by way of circulars, public notices, and other subsidiary legislations as issues arise in the administration of FA23 and its impact on the ease of doing business.
Taxpayers are not left out and challenges are inevitable. Consultation of competent tax legal advisors will certainly mitigate the negative impacts of such challenges.
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 Part I, Section 1 of the FA23.
 See Part II of the FA23.
 Cap. C1 LFN 2004 (“the CGTA”).
 Section 2 of the FA23.
 Section 3 of the FA23.
 New section 5(2) of the CGTA, as amended by Section 3 of the FA23.
 Section 2 of the Finance Act 2021 which amended section 30 of the CGTA.
 See Part III of the Finance Act 2023.
 Section 5 of the FA23 which amends section 14 of the Companies Income Tax Act, Cap. C21 LFN 2004 (“the CITA”).
 Section 32 of the CITA.
 Section 34 of the CITA.
 Sections 6 and 7 of the FA23 amending paragraph 18(3) and (7) of the Second Schedule to the CITA.
 Section 37 of the CITA.
 Section 8 of the FA23.
 Posted on 10th June 2023 at 8:56 am via the official Twitter handle of the FIRS, “Federal Inland Revenue Service NG” @FIRSNigeria, last accessed 13th June 2023. <https://twitter.com/FIRSNigeria/status/1667440635442282496?t=dSz6nd_QIdPnYlNojSL75w&s=08>.
 Paragraph 24(7) of the Second Schedule to the CITA.
 Section 10 of the FA23 which amending section 13 of the Customs, Excise, Tariff etc. (Consolidation) Act, Cap. C45 LFN 2004 (CETC Act) by introducing a fresh subsection 4.
 Section 11 of the FA23 amending section 21(2) of the CETC Act.
 Section 29 of the FA20 which amended section 33(2) & (3) of the PIT Act, Cap. P8 LFN 2004 (PITA).
 Section 23 of the FA21 which again amended section 33(3) of the PITA.
 Section 13 of the FA23.
 Cap. C20, LFN 2004 (PPTA).
 No. 6, 2021. Section 14 of the FA23 amending section 2 of the PPTA.
 Approved by the NUPRC pursuant to section 232, and in compliance with section 233 of the Petroleum Industry Act (PIA), and the Nigeria Upstream Decommissioning and Abandonment Regulations 2023.
 Section 15 of the FA23 amending section 10 of the PPTA.
 Section 51(1) of the PPTA.
 Section 18 of the FA23 amending section 51(1) of the PPTA.
 Section 18 of the FA23 amending section 52 of the PPTA.
 Section 54 of the FA19 which amended section 89(3) of the Stamp Duties Act, Cap. S8, LFN 2004 (SDA).
 Section 89A (4) of the SDA (as amended by the FA20).
 Section 27 of the FA21.
 Section 22 of the FA23 which amends section 7 of the VAT Act, Cap. V1 LFN 2004, by introducing a fresh subsection 3.
 Section 37 of the FA19 which created fresh subsections 3 and 4 to section 14 of the VAT Act.
 See section 38 of the FA19 which amended section 15(1) of the VAT Act; and section 31 of the FA21 which amended section 14 of the VAT Act.
 Section 23 of the FA23 which amends section 14(3) of the VAT Act.
 Section 24 of the FA23 which amended section 16 of the VAT Act.
 Section 46 of the VAT Act.
 Section 25 of the FA23 which amended section 46 of the VAT Act.
 Section 26 of the FA23 which amended section 1(2) of the Tertiary Education Trust Fund (Establishment) Act, No. 16 2011.