Highlights
The 2022 budget has a deficit of about N6.25tn, approximately 3.39% of GDP. This is slightly above the 3% ceiling set by the Fiscal responsibility Act 2007 (FRA). However, the president alluded that the expenditure level was necessary to assist with overcoming current security challenges and accelerate post-recession growth. The President insists that Nigeria only has a revenue challenge and not a debt sustainability problem.
The deficit is expected to be financed by new borrowings, privatisation proceeds and drawdown on loans secured for specific projects.
Non-debt recurrent expenditure of N6.83tn is the largest expense item, with 60% relating to personnel costs at N4.11tn.
The capital expenditure budget of N4.89tn represents an increase of 18% compared to 2021, and about 30% of total 2022 expenditure.
Debt service expenditure is estimated at N3.61tn, representing about 35.6% of the projected revenue for the year.
The President highlighted that the loans would be directed at financing critical development projects and programmes, and highlighted plans to grow the revenue-to-GDP ratio from currently about 8%, to 15% by 2025.
The President has indicated intentions to strengthen frameworks for concessions and Public-Private Partnerships (PPP). He also made reference to exploring innovative approaches for sustainably raising infrastructure financing, such as implementing the Sovereign Green Bond Programme and debt-for-climate swap mechanisms.
Revenue mobilisation
The President underscored 4 strategies to improve revenues, including:
enhancing tax and excise revenues;
reviewing the effectiveness of policies for tax waivers and concessions;
increasing customs revenue through technology; and
preserving the revenue derived from the oil and gas sector.
Petroleum Industry Act
The President commended the National Assembly for the passage of the Petroleum Industry Act (PIA), highlighting his hopes of attracting investments in the sector.
2021 Finance Bill
The 2021 Finance Bill would subsequently be forwarded to the National Assembly after completion of consultations. The Bill is intended to support the realisation of the 2022 fiscal projections. Below are some of the changes.
A. Capital Gains Tax Act (CGTA)
1. Section 30 of CGTA - Capital gains from the disposal of shares and stocks in Nigerian companies, for aggregate proceeds amounting to N100 million or more in any 12 consecutive periods is subject to CGT at 10%, provided that the proceed is not reinvested within 12 months.
B. Companies Income Tax Act (CITA)
2. Profits of companies engaged in educational activities are no longer exempt from tax under Section 23(1)(c)of CITA
3. The profits of companies from the exports of goods produced in Upstream, Midstream and Downstream Petroleum operations are no longer exempt from tax under section 23(1) (q) of CITA;
4. Section 30 of CITA is amended to empower FIRS to assess a non-resident company liable under the Significant Economic Presence (SEP) rule to income tax on a percentage of the profits it earns from providing digital services to Nigerian customers.
5. Section 31 of CITA now provides that Capital allowance on qualifying capital expenditure incurred in generating exempt income is no longer deductible from the assessable profit of non-exempt income under CITA, provided that joint QCE shall be pro-rated where the exempt income constitutes more than 20% of the total income of the company.
6. Section 31(1C) - QCE incurred by small companies shall be regarded to have been fully utilised.
7. Any company that claims the reduced 0 25% rate under the minimum tax rule in section 33 of CITA but filed a late tax return under section 55, will be liable to a penalty which shall be an equivalent to the benefits or reduction claimed;
8. Further to the amendment to Section 33 of CITA by Finance Act 2020, granting a reduced minimum tax rate from 0.5% to 0.25% to companies for two years, taxpayers may now elect to apply the reduced rate in any two accounting periods falling within 1 January 2019 to 31 December 2020 or 1 January 2020 to 31 December 2021.
9. Taxpayers now have absolute discretion, under section 77 of CITA, to pay their taxes in instalment, provided that the final instalment shall be paid on or before the due date.
10. Section 78 of CITA is also amended to provide that WHT deducted from payments to a unit trust shall be the final tax on such income.
C. Customs Excise Tariff Etc. Consolidation Act.
11. Section 21 of the CETCA is amended to introduce a N10 tax on a litre of non-alcoholic, carbonated and sweetened drinks.
D. Federal Inland Revenue Service (Establishment) Act (FIRSEA)
12. Section 25 of FIRSEA now makes it a punishable offence for any person who fails to grant FIRS access to its systems to deploy its automated tax administration technology after a 30 days’ notice or such extension granted by the Service.
13. Every bank that fails to prepare and submit returns or submit incorrect returns as required by section 28 of FIRSEA shall now be liable to a penalty of N1m for each return or information not provided or incorrect returns or information provided.
14. Section 68 of FIRSEA – the supremacy of the extant tax laws in the first schedule of the FIRSEA over any other law; and the role of the FIRS over any other agency in respect of tax administration is emphasised under the law and enforceable;
It is also an offence, punishable by a fine of N10m, imprisonment or both, for any agency of government (other than FIRS) or any of their staff or consultant, to demand books or returns for the purposes of tax, or carry out the function of assessment, collection or enforcement of tax, or pay any portion of tax revenue to any person or into any account, other than the relevant accounts designated by the constitution or relevant laws of the NASS.
15. Section 68(5) now mandates other Agencies of the Federal Government to report cases requiring tax investigation, enforcement or compliance, encountered in the course of performing their function, to the Service for necessary action.
16. Section 50 of FIRSEA places a strict legal obligation on any person employed by the FIRS or otherwise who has access to taxpayer information to keep such information confidential. Leakages of taxpayer information by such a person may lead to criminal prosecution.
E. Tertiary Education Trust Fund Act (TETFA)
17. The rate of tax under Section 1(2) of the Tertiary Education Trust Fund Act has been increased from 2% of assessable profits to 2.5% of the assessable profit.
F. National Agency for Science and Engineering Infrastructure (NASENI)
18. Section 20 of the NASENI Act imposes a tax of 0.25% of profits before tax of companies engaged in the business of banking, mobile telecommunication, ICT, aviation, maritime and oil and gas, with a turnover of N100 million and above.
G. Nigeria Police Trust Fund (Establishment) Act
19. Section 4 of the PTFEA empowers the FIRS to assess, collect, account and enforce the payment of a levy of 0.005% of the net profit of companies operating a business in Nigeria.
H. Value Added Tax Act (VATA)
20. Section 15 - Companies engaged in Upstream Petroleum operations will continue to have obligation to withhold VAT, even when they have not commenced commercial operations or have a turnover of less than N25 million.
