Some provisions in the Nigerian tax laws are outdated and ambiguous. Over the years, Nigerian lawmakers made attempts to amend gray areas in the tax laws but with little impact. One new legislation that will reform the Nigerian tax space is the Finance Bill 2019. The bill seeks to amend seven (7) tax laws in Nigeria.
Companies Income Tax (CIT)
- Where a business changes its accounting date, ceases operations or commences business, it creates an abnormal basis period. An abnormal basis period is when the basis period is greater than or less than 12 months. The effect is an overlap and gaps in basis period which further creates double taxation and other tax issues. Proposed changes to the commencement and cessation rules will eliminate overlaps and gaps to remove double taxation, issue of capital allowance and other tax issues.
- Where a company applies the minimum tax and dividend tax rules, a taxable loss may result in a tax payable position. Minimum tax and dividend tax rules have been modified in the Finance Bill. The minimum tax is 0.5% of turnover except for companies with an annual turnover that is below NGN25 million. Excess dividend tax will apply to distributed profits that have not been taxed; except for profits exempt from tax and franked investment income.
- Insurance companies can carry forward tax losses for an indefinite period rather than the 4-year restriction. Also, insurance companies can deduct reserve for unexpired risks on a time-sharing basis. Minimum tax provisions for insurance has been removed.
- Micro and small businesses with an annual turnover below NGN 25 million will be exempt from CIT.
- Businesses with an annual turnover between NGN 25million and NGN 100million will pay CIT but at a lesser rate of 20%.
- Medium-sized companies who pay their CIT before the due date gets a discount of 2% of tax payable while a 1% discount is for large companies.
- A proper definition of moratorium and repayment period under the tax-exempt on interest on foreign loans.
- For deducting interest, thin capitalization rules apply at 30% of earnings before interest, tax, depreciation, and amortization. The excess deduction can be carried forward for 5 years.
- Non-resident companies with foreign technical and management services will have a deemed tax presence which is taxable at a withholding tax (WHT) rate of 10%.
- Any expense incurred to earn an exempt income is a disallowable item against other taxable income.
- Banks to request for Tax Identification Number (TIN) of account signatories before opening corporate bank accounts. Also, existing account holders must provide their TIN to continue operating their accounts. At the moment, most banks often request TIN as part of KYC requirements for corporate account holders.
- Email correspondence is an acceptable means of interacting with the local tax authorities.
Petroleum Profits Tax
Dividend distributed from petroleum profits attract 10% withholding tax.
Personal Income Tax
Capital Gains Tax
- An increase in the VAT rate from 5% to 7.5%.
- The definition of goods and services now includes intangibles.
- Businesses with an annual turnover below NGN25 million in a calendar year are exempt from VAT registration.
- Companies that have ceased operations will be required to deregister from VAT.
- The payment of VAT is on a cash basis. That is, VAT payable refers to output VAT collected from customers less and input VAT paid to suppliers in the previous month.
- Henceforth, the VAT reverse charge applies to imported services.
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