The Finance act is a key piece of legislation that has been updated regularly in the last few years. In 2020 I wrote a post about the changes introduced in 2019. Since then there have been two sets of changes including the most recent that were signed into law by the President on the 31st December 2021 and which take effect in 2022.
There are some really in depth and technical articles on the Finance bill available should you be interested in finding out more. This post will highlight the changes that impact individuals so that you are aware and take action for those that are relevant.
Finance Act version 2.021
The Finance Act 2021 introduced changes to 12 underlying tax laws including those related to capital gains tax, companies income tax act and the Insurance act. This post looks at the changes signed into law on the 31st December 2021 that have an impact on us as individuals in 2022, these are specifically:
- Capital gains tax act
- Introduction of Capital gains tax on profits from the sale of shares
- Companies income tax
- Extension of taxation to non-Nigerian digital companies that do business in Nigeria
- Exemptions from taxation continue for certain company types
- Customs, Excise tariffs, Value added tax act
- Introduction of excise duty on non-alcoholic, carbonated and sweetened beverages
- Personal income tax act
- Deferred annuities deductions no longer eligible
- Increase in fines for non-compliance
Capital Gains Tax
Capital gains tax is a charge made on the profits from an investment. Its a flat rate of 10% of all profits and is paid following the sale of the investment.
The changes
Capital gains tax is now payable on gains from the disposal of shares in Nigerian companies. This basically means that anything that is listed on an exchange such as the Nigerian Exchange Limited, NASD or unlisted shares.
There are some exemptions:
- Where the proceeds are used to purchase more shares in the same or another Nigerian company within the same year of assessment. Any part of the gains that are not reinvested are subject to capital gains tax
- Where the disposal proceeds are below ₦100m (c. $200,000) and the relevant tax returns have been filed
- Where the shares are being disposed of as part of a regulated securities lending transaction
What to do
Be aware of the changes and once you have large portfolio sales to consider, get tax advice. CGT is payable to the State internal revenue service.
Companies Income tax act
The changes and impact
The changes that impact companies and their taxation may impact us as business owners and also indirectly as customers. Two key changes i want to highlight:
- Non-Nigerian digital companies, that have a fixed base of business in Nigeria and are involved in the transmission, emission or receipt of signals, e.g. Meta, may now have their revenues assessed for tax purposes. These companies will have to comply with witholding tax and VAT requirements
Tax increases typically cause companies to invest less in their businesses and people which could have a knock on effect on employment and investment into the economy. It remains to be seen how digital companies that fall under this will cope with the changes and how they will be enforced. The additional cost should hopefully not discourage new investment in the economy but may be passed onto consumers to fund it in some way.
- Exemptions from taxation
For the business owners out there, the list of business types and activities that are exempt from taxation remains robust. If you are a business owner you should definitely get familiar with the list as there may be an addition that is of advantage to your business. The full list is below:
Value Added Tax Act
What is Value Added Tax (“VAT”)?
Value added tax (“VAT”) is a tax on consumption and is payable on products purchased at the point at which they are sold e.g. meals at a restaurant, groceries, flight tickets, cars, furniture etc. VAT enables a government to raise additional funds from economic activity carried out by Individuals.
Changes and impact
An excise duty (tax levied on certain goods and commodities) has been introduced on non-alcoholic, carbonated and sweetened beverages at a specific rate of ₦10 per litre.
Your 500ml fizzy drinks are about to go up, how companies will deal this remains to be seen but I expect that there will be an increase in price. The government is using this opportunity to try to improve the health of the nation and making ‘unhealthy’ beverages more expensive this is expected to deter us from buying the larger sizes and as a result cut consumption and improve our health. What will the additional funds be spent on? This remains to be seen but in other countries ‘sugar taxes’ are applied to improving healthcare.
Personal Income Tax
Changes
- Life insurance premiums paid for the tax payer or their spouse are now deductible from your income tax calculation.
This could absolutely be an incentive to purchase life insurance and of course to include this deduction within your personal income tax return every year. These sweeteners encourage people to go through the income tax payment process especially if there is a hefty premium that can be used to reduce tax.
2. Penalties. There are also two changes to the penalties applicable for failure to comply with the personal income tax act specifically a fine of ₦20,000 on conviction and, where the failure to comply relates to failure to provide a return on time or to complete one at all, a ₦2,000 per day fine for every day of non-compliance.
This is something to take seriously and where you earn income outside of paid employment, including dividends etc, you should be completing a personal tax return to report this and to assess if you have any additional tax payable.
That’s it for the top changes impacting individuals. The full gazette showing the changes to the legislation is here for your reading pleasure.
Thanks for listening and here’s to your Financial health.