Effective 1 January 2021, the Finance Act 2020 introduced significant changes to fifteen laws covering tax and non-tax laws in Nigeria. The revenue authority usually releases information circulars to guide stakeholders on the administration of the Finance Act. Consequently, the Federal Inland Revenue Service (FIRS) has released three information circulars to clarify the Finance Act 2020. Topics covered include interest on a foreign loan, agricultural loan, excess dividend tax, withholding tax obligations, capital allowance of small companies. Others are compensation for loss of office, profits from the services of a non-resident individual, the revised definition of gross income. Furthermore, the information circulars cover three principal acts. They are the Capital Gains Tax Act, Companies Income Tax Act, and Personal Income Tax Act.
Capital Gains Tax (CGT) Act
FIRS information circular on changes in capital gains tax looks at chargeable assets, location of assets (ships or aircraft used in international trade, compensation for loss of office, and filing of CGT returns.
Companies Income Tax Act (CITA)
The circular on sundry provisions of the Finance Act 2020 (CITA) explains various sections, such as the revised rules on excess dividend tax and minimum tax. For instance, calculation of dividends paid out of retained earnings and the capital allowance for small companies exempt from CIT.
Interest on a foreign loan, agricultural loan, withholding tax obligations, addition to the list of donations allowable for CIT, removal of provisional tax, incentives for gas utilization activities. FIRS intends to recover tax liability or reject the submission of a company when there is tax evasion.
The circular provides clarity on the tax on profits from the services of a non-resident individual. It also explains the allowable deductions, changes in the definition of gross income, and exemption of minimum wage workers. A sample calculation of personal income tax under the new law is in the circular.