Understanding Finance Act 2019

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Introduction

Finance And Finance Act

The term “finance” refers to issues including the development, management, and study of money and investments. It entails employing future income flows to finance current initiatives through the use of credit and debt, securities, and investment. The study of money, investments, and other financial instruments is referred to as finance in a wide sense. Public finance, corporate finance, and personal finance are the three main divisions of finance. Taxation systems, government spending, budgeting techniques, stabilization measures, debt problems, and other issues relating to the government are all considered to be part of public finance. Managing a company’s assets, liabilities, revenues, and debts is part of corporate finance. Personal finance is the term used to describe all financial choices and actions made by a person or household, such as saving for a down payment on a home, budgeting, purchasing insurance, and preparing for retirement. The finance act makes the required adjustments to the union government’s direct taxes (income tax and wealth tax) and indirect taxes (excise charges, custom duties, and service tax).          `

Finance Act 2019

On January 13, 2020, the finance act 2019 was ratified and will go into force. This law incorporates a number of tax levies. The act was passed in order to alter a number of different tax laws, including the Petroleum Profit Tax Act.P13, the Company Income Tax Act.Cap.C21, the Value Added Tax Act.Cap.VI, the Customs and Excise Tariff, and the Personal Income Tax Act.Cap.P8. The Federal Laws of Nigeria (2004) call for a revision of the tax laws to make them more flexible in light of tax reform and other relevant issues. These changes were implemented with the idea of achieving a number of strategic goals, including: Increasing government revenue through the employment of various fiscal tools; Promote fiscal equity by providing palliative measures against instance of regressive taxation, Reform domestic tax laws to align with global best practice by adoption or incorporation of recommendations of OECD into the Nigerian tax system, Introduce tax incentives for investments in infrastructure and capital markets and Support Medium and Small businesses by ensuring that its provisions are in line with the ease of doing business reforms with a view of reducing their tax burden.

Companies Income Tax Act (CITA) Cap C4. Laws of the Federation (LFN) 2004 (as amended)

New CIT rates based on firm revenue are introduced by the Act. Small businesses (with a turnover of less than N25 million) would pay 0% CIT, medium businesses (with a turnover of N25 million to N100 million) will pay 20% CIT, and large businesses (with a turnover of more than N100 million) will pay 30% CIT. This clause aims to give small and medium-sized businesses tax relief (SMEs). In dealing with the taxation for non-resident companies, the Finance Act amends the CITA’s Section 13 provisions to establish a nexus for the taxation of foreign corporations’ profits from remotely provided technical, managerial, consulting, or professional services to a person residing in Nigeria. The Withholding Tax (WHT) that will be withheld from such foreign corporations on such transactions will be the only tax they are responsible for paying. Additionally, the Finance Act includes provisions for taxing any foreign company that transmits, emits, or receives signals, sounds, messages, images, or data of any kind from cable, radio, electromagnetic systems, or any other electronic or wireless apparatus to Nigeria in connection with any activity, including electronic commerce.

The act also introduced new deductibility rules. The fundamental idea for expenses to be deductible for tax purposes in Nigeria, they must be entirely, rationally, exclusively, and necessarily incurred for business purposes. The Finance Act makes no significant modifications to this tenet. However, it changes how the rules are put into practice in an effort to close gaps in the application of the rules governing cost deductibility. One such loophole allows a business to deduct from non-exempt income the costs incurred to produce tax-exempt income (such as foreign-sourced dividend, interest, rental, and royalty income transferred into Nigeria through government-approved channels, income on bonds, treasury bills, etc.). As a result, the non-exempt income is lowered by an excessive expenditure deduction, which in turn dramatically lowers the profits subject to tax. The Finance Act aims to answer the question of whether taxes paid by a firm on behalf of another individual are deductible. For instance, this will have an impact on transaction taxes paid by landlords, Pay-As-You-Earn taxes paid by some businesses on behalf of their employees, and Pay-As-You-Earn taxes paid by foreign service providers. Therefore, such agreements might need to be reassessed to manage the higher corporation tax incidence they will produce.

For taxation for dividend, there is exemption of profit from excess dividend tax rule The CITA’s Excess Dividend Tax (EDT) provision is meant to serve as a law prohibiting tax avoidance. It establishes a minimum degree of defense against business tax evasion employing nimble tax planning schemes. Consequently, the rule, a dividend payment from a corporation should in any year be regarded as a business’s taxable income if the actual for the year taxable income is lower than the same dividend was paid year. After-tax profits that have been transferred to a retained earnings account which has occasionally been subject to further taxation as a result of this interpretation. In some other cases, this clause has been applied to dividend payments made from tax-exempt profits, thereby rescinding the tax exemption on such gains. Numerous disagreements between taxpayers and the Federal Inland Revenue Service (FIRS) have arisen as a result of the unforeseen consequences of a rigorous application of the rule, some of which have been resolved in the FIRS’s favour by the courts.

There was a public notice by the FIRS on the 14 October 2015 on its decision to commence the collection of advance CIT on interim dividend payment which came as a surprise to many tax professionals and might have disrupted and affected company’s cash flows since then. Deleting this clause from the Finance Act is therefore a desirable change advancement for many taxpayers. Even so, by eliminating the clause, the dividends are free from WHT. This amended act also introduced Moderation of Foreign Loan Exemption, Changes to Modalities for payment of tax, it also introduced a new progressive CIT system and so many others.

Petroleum Profits Tax Act (PPTA) Cap C4. Laws of the Federation (LFN) 2004 (as amended)

Beneath the past PPTA framework, profits paid out of after-tax benefits were exempted from charge beneath any other taxing legislation. Consequently, investors in upstream petroleum operations in Nigeria were allowed to appreciate charge free returns on investment. The alteration repudiates this exemption and subjects such investors to WHT, which is the last assess payable by the investors on those benefits.

Personal Income Tax Act (PITA) Cap P8 Laws of the Federation (LFN) 2004 (as amended)

The finance act made some modifications to the PITA which are; Necessity for each person (body corporate, trustee, partnership, etc.) to supply a Tax Distinguishing proof Number as a precondition for opening a bank account and for continued operations of its bank account in regard of its business operations. Replacing reference to Federal Board of Inland Revenue with Federal Inland Revenue Service. Removal of the requirement to obtain approval from the FIRS as a precondition for claiming contributions made to a pension, provident and other retirement benefits fund as a tax-deductible expense. Cancellation of the provisions granting children and dependent relative allowances and life affirmation premium relief. This revision seeks to resolve the controversies surrounding the privilege of chargeable people to children and subordinate relative allowances in expansion to the consolidated help allowance granted beneath the PITA. Clarification that a notice of objection submitted via electronic e-mail will be considered valid.

Value Added Tax Act (VATA), Cap V1, LFN 2007 (as amended)

There is an Increase in VAT rate and palliative measures to manage its impact. The Finance Act provides for a VAT rate increase by 50%, i.e., from 5% to 7.5%. The rate increase, when combined with other VAT-related changes, is expected to increase VAT revenue significantly.  To moderate the impact of the changed VAT rate increase to 7.5% and facilitate financial growth and advancement through SMEs, the Back Act introduces palliative measures for miniaturized scale and small enterprises. One palliative degree is the presentation of a VAT compliance limit. The threshold is to exempt companies with an annual turnover of N25,000,000 or less from enlisting for the charge, charging the tax, rendering a month to month return of its deals and purchases and from the penalties prescribed by the Act for non-compliance with the administrative arrangements. It is anticipated that, by presenting a VAT compliance edge, the cost of charge administration will decrease since the FIRS can presently centre its compliance monitoring efforts on huge businesses only. When combined with an expanded VAT rate, expanded charge yield may be accomplished on an overall premise. This measure also energizes many more companies to come voluntarily into the formal tax net for the reason of enjoying the assess benefits available. It is trusted that once businesses then come into the assess net, they would remain indeed after their businesses grow beyond the exemption threshold hence permitting their contribution to the treasury in future years. Another noteworthy palliative is exemption of administrations rendered by microfinance banks (unit, state and national) from VAT. This will, ideally, create a more extensive opportunity for growth and improvement of micro, little and medium enterprises. Another controversial issue that may potentially be resolved by the Finance Act is the VAT-ability (in Nigeria) of services provided outside Nigeria by a nonresident company (NRC) to a Nigerian company.

One view on the subject is that such transactions should be liable to VAT in Nigeria because the recipient is in, and consumed the services, in Nigeria – meaning the services were effectively supplied in Nigeria. The contrary view is that a service supplied outside Nigeria should not be liable to VAT in Nigeria simply because it was enjoyed by a Nigerian-based customer. The differing views on the subject have been debated extensively by taxpayers and the FIRS and has even been    submitted to the courts, including the Court of Appeal (CoA), for determination. According to the CoA, in the case between Vodacom and the FIRS2, such services should be liable to VAT in Nigeria if provided to a Nigerian-based customer and enjoyed in Nigeria. It is noteworthy that this conclusion aligns with the Organisation of Economic Cooperation and Development’s Destination Principle. It is anticipated that, by presenting a VAT compliance edge, the cost of charge administration will decrease since the FIRS can presently center its compliance monitoring efforts on expansive businesses only. When combined with an expanded VAT rate, expanded charge yield may be accomplished on an overall premise. This measure also empowers many more companies to come voluntarily into the formal tax net for the reason of enjoying the charge benefits available. It is trusted that once businesses then come into the charge net, they would remain indeed after their businesses grow beyond the exemption threshold in this way permitting their contribution to the treasury in future years. Another noteworthy palliative is exemption of administrations rendered by microfinance banks (unit, state and national) from VAT. This will, ideally, create a more extensive opportunity for growth and advancement of micro, little and medium enterprises.

The finance act of made amendment for the cash basis of accounting for VAT and VAT refund. The Finance Act provides clarification that VAT should be accounted for on cash rather than accrual basis. Bookkeeping for VAT on cash basis implies that a taxpayer can as it were recoup input VAT that has been “paid” against output VAT that has been “collected”. For taxpayers who don’t have input VAT to claim, it is as it were VAT that has been collected that ought to be dispatched to the FIRS. The amendment would offer assistance manage taxpayer’s cashflows and reduce the chance that a business eventually bears the VAT burden for its customers, especially in cases of awful debt. A citizen who is entitled to a VAT discount is required to to begin with recoup its overpayment as a credit against consequent VAT collections. Any excess over and over the amount credited against VAT collections would at that point be refunded. By so doing, the current hone of applying VAT overpayments as a credit would be prescribed into law. Furthermore, the regulatory cost to businesses for making refund claims ought to reduce significantly. Although the Act does not prescribe conditions under which a refund claim may be made, it may be reasonable to conclude that refund claims should only be made after it has been determined that the Company would not collect enough output tax from which recoveries can be made. Such circumstances, in our view, would include dormancy, cessation or companies whose inputs are used in the creation of zero-rated goods, etc.

Stamp Duties Act (SDA) S8, LFN 2007

The Fund Act provides for alterations to the SDA that legalises the charge of stamp obligations on electronic receipts and also appoints the FIRS and State Internal Income Service as the important competent authorities responsible for collecting stamp duty on sake of the Federal Government and the State Governments, respectively. This addresses the dispute between the NIPOST and the FIRS as to which body is dependable for collecting the duties. The Stamp Duties Act was also amended to exempt transactions on Regulated Securities Lending Transactions (RSTL) which are exempted from stamp duties. Electronic receipts or transfers above NGN 10,000 will attract a one-off stamp duty of NGN 50.  However, the duty will not be applicable to transfers or payments into accounts owned by the same person within the same bank.

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Email: info@mocaccountants.com

Office Address: 5, Ishola Bello Close, Iyalla Off Street, Alausa, Ikeja, Lagos, Nigeria

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