Nigeria: Finance Bill – Government Limits Tax Incentives on Oil, Gas and Others’ Operations

Abuja – In its renewed push to boost domestic resource mobilization, the Federal Government has restricted companies involved in the trading or use of gas in downstream operations in the country to a “once in a life”, according to the latest amendments to the 2021 finance law.

The new law stipulates that additional investments, reorganization or other forms of corporate restructuring cannot benefit from an additional tax incentive under the gas investment program.

These corporations are further prohibited from receiving similar incentives under any other section of the Corporations Income Tax Act (CITA) or other law.

In addition, companies engaged in upstream oil operations would continue to have an obligation to withhold VAT, even when they have not started their commercial operations or have not reached a turnover of 25 million of naira.

However, corporate profits engaged in educational activities in the country are now subject to tax due to the removal of educational activities from the CITA Section 23(1)(c) exemption provisions.

In addition, the higher education tax rate was raised from 2% of taxable profits to 2.5%.

According to the Federal Inland Revenue Service (FIRS), the new tax law further stipulates that capital gains arising from the disposal of stocks and shares of Nigerian companies, for aggregate proceeds amounting to N100 million or more over any period of 12 consecutive months, are liable to capital gains tax (CGT) at 10% where the proceeds have not been reinvested during the same tax year in the acquisition of shares of the same company or other Nigerian companies

In addition, corporate profits from the export of goods produced in upstream, midstream and downstream petroleum operations are also subject to tax, as specified in section 23(1)(q) of the CITA.

Further, he reiterated that non-resident companies liable to tax on profits arising from the supply of digital goods or services to Nigerian customers under the Significant Economic Presence (SEP) rule may be assessed on a fair and reasonable percentage of their turnover if there is no taxable profit, the taxable profit is less than can be expected from that type of trade or business, or the taxable profit cannot be determined.

In addition, the new amendments to the finance law stipulate that the capital allowance on eligible capital expenditure incurred to generate tax-exempt income was not deductible from taxable profits from non-tax-exempt income under of the CITA.

In addition, he stated that capital cost allowances resulting from the QCE employed for both taxable and tax-exempt income will be pro-rated when the tax-exempt income represents more than 20% of the company’s total income.

The capital cost allowance on qualifying capital expenditures incurred by small businesses is deemed to be used during periods when such businesses are exempt from tax under CITA Section 31(1C).

However, the minimum tax rate has been reduced from 0.5% to 0.25% for two consecutive accounting periods falling from January 1, 2019 to December 31, 2021, depending on the choice of the taxpayer.

The finance law also stipulates that any company claiming the reduced rate of 0.25% under the minimum tax rule of Article 33 of the CITA but filing its tax returns late would be subject to a penalty equal to the benefits or reduction claimed.

The FIRS also stated that taxpayers may pay the tax owing in installments provided that the last installment is paid on or before the payment due date.

Under the current regime, the withholding tax (WHT) deducted from payments to a Unit Trust will be the final tax on such income provided that such deduction is remitted in full to the FIRS.

In addition, companies operating in the banking, mobile telecommunications, ICT, aviation, marine and oil and gas sectors with a turnover of N100 million and above, are required to pay NASENI Levy at 0.25% of their pre-tax profits and the tax is to be administered by the FIRS.

The Finance Act also conferred on the FIRS the duty to assess, collect, account and execute payment of levy from the Nigerian Police Trust Fund.

The levy is 0.005% of the net profit of companies carrying on business in Nigeria as per Section 4 of the Nigerian Police Trust Fund (Establishment) Act.

While also strengthening the service, the law stated that anyone who does not grant FIRS access to its information processing systems to deploy its automated tax administration technology after 30 days notice, or such extension granted by the service, shall be subject to a penalty of N25,000 for each day it continues not to grant access.

In addition, any bank that fails to prepare and submit quarterly new account statements or any information required by the relevant tax authority, or submits incorrect statements or information, under Section 28 of FIRSEA or of sections 47 and 49 of the PITA, is liable to a penalty. N1 million for each quarterly statement or information not provided or incorrect statement or information provided.

The law further provided that “any person employed in the service or otherwise who has access to taxpayer information is under a strict legal obligation to keep such information confidential.

“Leakage of taxpayer information by this person is subject to a fine, imprisonment or both a fine and imprisonment.”

FIRS said: “It is an offence, punishable by a fine of N10 million imprisonment or both, for any agency of the Federal Government (other than FIRS) or any of their employees or consultants. , to exact books or returns for tax purposes, or to perform the duty of assessing, collecting or enforcing tax, or to pay any part of the tax receipts to any person or into any account , other than the relevant accounts designated by the constitution or relevant laws of the National Assembly.”

Meanwhile, other federal government agencies are legally required to report cases requiring tax investigation, enforcement, or compliance, encountered in the performance of their duties, to the Service for Necessary Action; they are prohibited from exercising tax control, control or investigation.