10 rules in Finance Act 2021 that impact businesses

If you own or manage a business in Nigeria, there are 10 new rules in the amended Finance Act that will impact your business. They relate to taxes, levies and rules that came into force on 1January 2022.

The amended law radically alters various existing tax laws. Significantly affected are a new excise tax on non-alcoholic beverages and a higher rate of education tax. The Act also introduces payment special levies for Science & Engineering, and forced contribution to a Police Fund.

10 rules in finance act 2021
FIRS Chairman Nami

Here is a summary of the top 10 changes in the amended Finance Act 2021

1. Capital Gains Tax

Government charges 10% of the proceeds for individuals and corporations that dispose shares worth N100 million and above. However, the tax is waived for proceeds that are reinvested to buy shares in any Nigerian company.

2. Education Tax

Education Tax is slightly adjusted upwards. Companies hitherto paid 2% of their assessed profits as Education Tax. However, beginning from 1 January 2022, they will pay 2.5% of their assessable profits for this Tax.

3. Corporate Income Tax

Companies engaged in educational activities are now captured into the tax net. They will henceforth pay corporate income tax notwithstanding whether such activities are of a “public character.”

4. Science & Engineerng Tax

Similarly, some companies are targeted to pay a Science and Engineering Levy of 0.25% of their profits before tax. Affected companies are those in banking, mobile telecommunication, ICT, aviation, maritime, and oil & gas with turnover of N100m and above.

5. Police Levy

The Nigerian Police Trust Fund Levy is now in force. FIRS is therefore empowered to assess, collect and enforce the payment. The tax was introduced in 2019 and the levy is 0.005% of net profit of companies operating in Nigeria.

6. Duty on Non-alcoholic Drinks

Government imposed a tax on non- alcoholic drinks. Government now collects Excise Duty of N10 per litre on non-alcoholic, carbonated and sweetened beverages. There are fears that this could lead to an increase in the retail price of products by up to 5% with lower end products bearing higher burden.

7. Minimum Tax Rate:

A taxpayer may choose to reduce minimum tax rate from 0.5% to 0.25% of turnover (less franked investment income) within any two accounting periods between 1 Jan 2019 and 31 Dec 2021.

8. Offshore Company Turnover & VAT.

FIRS assesses tax on turnover of foreign digital companies 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 must charge, collect and remit VAT to FIRS.

9. Federal Tax Administration

FIRS has sole responsibility to administer, collect, account and enforce payment of taxes and levies due to the Federation, the Federal Government and any of its agencies except otherwise authorized.

10. Power to Borrow

All tiers of government are now empowered to borrow for “critical reforms of significant national impact” in addition to capital expenditure and human development.

10 rules in amended Finance Act