The Danger of Supermarket Economies without Manufacturing

A nation that experiences an explosion of supermarkets, hypermarkets, and massive shopping malls without a corresponding rise in manufacturing is heading toward a dangerous economic imbalance. It creates a society that consumes heavily but produces very little - a recipe for long‑term hardship.

Supermarkets and malls are not the problem by themselves.

The real problem is what fills their shelves.

When 80–90% of the goods sold in these retail giants are imported, the nation faces:

• Too much import pressure
• Very low export activity
• A widening trade deficit
• A weakening currency
• A shrinking industrial base
• A rising unemployment rate

This imbalance becomes even worse when citizens develop an overblown appetite for imported goods - food, clothing, electronics, household items, even basic consumables. When a nation prefers foreign goods over local products, its economy slowly suffocates.

Why this is dangerous

1. Imports drain national wealth: Money leaves the country faster than it enters. The nation becomes a marketplace for other countries’ factories.
2. Local industries collapse: Domestic manufacturers cannot compete with cheap imports. Factories close. Jobs disappear. Skills vanish.
3. Exports remain low: Without strong manufacturing, the nation has nothing significant to sell to the world. No exports means no foreign exchange earnings.
4. Currency becomes unstable: High import demand puts pressure on the national currency. Prices rise. Inflation increases. Hardship deepens.
5. Retail expansion becomes deceptive: Malls give the illusion of prosperity, but they are only distribution centres for foreign economies.

The result? A fragile economy.

An economy built on consumption rather than production is like a house built on sand. It looks impressive from the outside, but it cannot withstand pressure. When global supply chains shake, the nation collapses.

The cultural impact is equally severe

When everything we buy is imported, people begin to believe that foreign is better and local is inferior. This mindset destroys national pride, weakens cultural identity, and erodes heritage.

A nation that does not produce cannot preserve its heritage.

A nation that only consumes cannot secure its future.

This is why the influx of supermarkets and malls - without manufacturing - is not development. It is economic dependency disguised as progress.

'Segun-Martins Ogunyemi, FCA

...creating & adding values with ICE (Integrity, Contentment & Excellence)

The Market of Hope

Hope, as the Oxford Dictionary defines it, is a feeling of expectation and desire for a particular thing to happen. The archaic definition goes even deeper - a feeling of trust. Hope is not just an emotion; it is a currency. It is something people invest in, something they cling to, something they buy into when everything else around them seems to be failing.

Michelle Obama captures the power of hope beautifully when she writes:

“You may not always have a comfortable life and you will not always be able to solve all of the world’s problems at once, but don’t ever underestimate the importance you can have because history has shown us that courage can be contagious and hope can take on a life of its own.”  

Her words remind us that hope is not passive. It is active, contagious, and capable of shaping destinies.

In Nigeria today, hope has become a national commodity - something leaders sell and citizens desperately buy. The current Federal Government of Nigeria came into power on the mantra of “Renewed Hope.” This slogan was not accidental; it was strategic. It tapped into the deep longing of millions of Nigerians who have endured decades of economic decline, insecurity, unemployment, and hardship.

It is therefore safe to say that the political class presented Nigerians with a market of hope - a marketplace where promises were displayed like goods on a shelf, and citizens, weary from years of disappointment, reached out eagerly to purchase them. The President Bola Ahmed Tinubu (BAT) administration understood that Nigerians were standing at a crossroads of desperation and expectation. The people were ready to buy hope because the reality they were living in was already unbearable.

In other words, hope became the product, and the citizens became the customers.

But hope is not enough on its own.

Hope must translate into policy.

Policy must translate into action.

Action must translate into relief.

Relief must translate into progress.

When hope is sold without delivery, it becomes deception.

When hope is promised without structural change, it becomes noise.

When hope is offered without economic revival, it becomes frustration.

Nigeria today stands in a delicate place. The air is filled with expectations - stern, heavy, urgent expectations. People are watching. People are waiting. People are measuring every policy, every decision, every outcome against the promise of renewed hope.

The question now is simple:

Will this hope become reality, or will it become another chapter in the long history of unfulfilled promises?

Hope can take on a life of its own - but only when leaders breathe life into it through integrity, competence, and courage.

'Segun-Martins Ogunyemi, FCA

...creating & adding values with ICE (Integrity, Contentment & Excellence)

Timing: Crucial to Business Success

There is no one-size-fits-all formula for ensuring a startup's survival, but it is critical to understand which aspects are most significant in predicting a company's success. I saw a video on TED where an entrepreneur named Bill Gross gave a fantastic presentation about why firms survive, which he presented as the outcomes of his research.

According to him, the most important aspect in forecasting start-up success is timing; it is critical that a company enters the market at the correct time. Team and Execution is the second most critical component, because a brilliant business idea is worthless if it isn't carried out by the right people. The next consideration is the originality and uniqueness of the business idea – while having a brilliant company idea is advantageous, it is not the only consideration. Because a business model can be built later in the start-up phase if necessary, it is the fourth most influential aspect. Bill says that it is not difficult for a business to secure finance after it has gotten enough traction, hence funding, also known as capital, is the least crucial aspect.

We typically devote a significant amount of time to worrying about capital (i.e. money), but the truth is that if you have the right timing, team, idea, and business model, you can simply obtain funding.

The bottom line is that if you want your startup or business idea to succeed, you must do the following. When your idea takes off, look for perfect timing, a wonderful team, and everything else will fall into place.

Highlights of Nigeria's 2022 Budget

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.

Minimum Tax vs Finance Act 2020

Overview

Income tax is payable on taxable income or profits generated by companies from their activities. There are situations where a company’s tax computation results in no tax liability. In such a situation, the company will be liable to tax based on minimum tax. Section 33 (1) of Companies Income Act, Cap C21, LFN 2004 states that “Notwithstanding any other provisions in this Act where in any year of assessment, the ascertainment of total assessable profits from all sources of a company results in a loss, or where a company's ascertained total profit results in no tax payable or tax payable which is less than the minimum tax, there shall be levied and paid by the company the minimum tax as prescribed by subsection (2) of this section.” By implication, Minimum tax applies to all companies in Nigeria, especially the small and medium enterprises (SMEs), who in any year of assessment have no taxable profit or whose tax payable is lower than minimum tax computed.

There have been many misconceptions and controversies trailing the introduction of the minimum tax in Nigeria in the recent past. Taxpayers and authorities have differed on the concept and application in practice. These include the use of various and different parameters applied in the determination of minimum tax payable by companies which include turnover of the company, gross profit, paid-up capital and net assets of the company. This approach was cumbersome and in most cases, time-consuming. Arguments stressed that this tax is paid from the equity (paid-up capital) and net assets of the company even when the company is running at a loss; the exemption granted to companies with imported equity of 25% and above did not allow for a level playground when compared with companies with locally sourced equity and more. 

Before the amendments introduced by Finance Acts 2019 and 2020, subsection 2 of Section 33 of CITA Cap C21, LFN 2004 defined the basis for the computation of minimum tax in Nigeria as:

(2) For the purposes of subsection (1) of this section the minimum tax to be levied and paid shall- (a) if the turnover of the company is N500,000 or below and the company has been in   business for at least four calendar years be‐

(i)   0.5 per cent of gross profit; or      

(ii)   0.5 per cent of net assets; or      

(iii)   0.25 per cent of paid‐up capital; or      

(iv)   0.25 per cent of the turnover of the company for the year, whichever is higher; or  

(b)   if the turnover is higher than N500,000, be whatever is payable in paragraph (a) of this subsection plus such additional tax on the amount by which the turn‐over is more than N500,000 at a rate which shall be 50 per cent of the rate used in paragraph (a) (iv) of this subsection. 

The federal government in light of these controversies have amended the minimum tax regulation in the Finance Acts 2019 and 2020. Section 14 of the Finance Act 2019 amended Section 33 of CITA to introduce a new basis for computing minimum tax, moving away from a combination of equity, net assets and revenue-based approach to a complete revenue based-model. In the amendment, the minimum tax is to be computed at a flat rate of 0.5% of gross turnover less franked investment income. The amendment also deleted the exemptions granted to companies with imported equity of 25% and above and introduced a minimum tax exemption for small companies with a gross turnover of less than N25,000,000.

Section 13 of Finance Act 2020 introduced a further amendment to Section 33 of CIT by providing a 50% reduction in minimum tax rate from 0.5% of gross turnover less franked investment income to 0.25%. This amendment is effective for the Years of Assessment (YOA) commencing from 1 January 2020 to 31 December 2021.

Professional View

Companies that have no taxable profits for the 2020 year of assessment or whose tax on profits is below the minimum tax are expected to compute their minimum tax based on the amendments of the Finance Act 2020. This implies that companies that have filed their returns for the 2020 assessment year based on the 2019 financial accounting year may be expected to file an amended tax return where their minimum tax for this period is based on 0.5% of turnover. Also, companies that are in their first four calendar years of operation as well as companies engaged in agriculture business, or small companies are exempt from minimum tax. This is equally applicable to non-life insurance companies at 0.25% of the gross premium and to life insurance companies at 0.25% of gross income. Also exempted from the payment of minimum tax are small companies with annual turnover of below NGN25 million (twenty-five million naira),

However, it is pertinent to note that foreign equity is no more a basis for exemption. Businesses with at least 25% foreign equity and indigenous companies have the same exposure to Minimum Tax.

Note that dormant companies are not exonerated from payment of minimum tax in Nigeria. Usually, it is assumed that dormant companies are exempted from the payment of taxes because they are not yet involved in any money-making activity. However, this assumption is not supported by any provision in the tax laws and the tax authorities are making every possible effort to ensure that every registered company in Nigeria is made to comply with tax legislation. It is highly recommended that owners of dormant companies in Nigeria should seek the assistance of registered tax practitioners to ascertain their tax exposures. This is because a company is only exempted from paying taxes in Nigeria in the event of cessation of business.

Authorised & Issued Share Capital: Explained

 A share is the interest of a shareholder in a company, measured by a sum of money.

What Is Share Capital?

Share capital is the most common way of determining the ownership of a company. In relation to a company limited by share capital, the share capital will be issued to the shareholders when the company is first set up. However, further share capital can be issued at a later date if necessary.

What Is Authorised Share Capital?

Authorised share capital can be defined as the largest amount of share capital that a company can issue. This amount will be agreed on when the company is being incorporated. Again, this amount can be increased at a later date if the shareholders wish.

The authorised share capital does not all have to be paid. It is the maximum value of the share capital and in some cases much of this value may remain unissued. The authorised share capital does not impose an obligation on the shareholder to pay on the winding up of the company, hence why some see authorised share capital as something of limited importance.  

The authorised share capital will tell you the maximum amount of share capital that the company can have and will set out the nominal value of each share.

The articles of association of the company are important as they outline how much authorised share capital the company can potentially issue if changes need to be made down the line. It is common for companies to increase their share capital and if this change is required there are certain documents which will need to be filled out and submitted to the Corporate Affairs Commission (CAC).

It should also be noted that the authorised share capital can be divided into different share classes such as preferable or redeemable, each of which are subject to different rights.

What Is Issued Share Capital?

The Dictionary of Company Law describes issued share capital as “the nominal value of the shares actually issued.”

Issued share capital is the amount of capital that is actually paid by the shareholders. This will usually be a smaller amount than the authorised share capital and will be taken up by the shareholders of the company for money or another form of consideration.

If a company is winding up, the issued share capital will be the amount of money that the shareholders will be liable for; therefore, the issued share capital will equal the amount of money that the shareholders will owe if all or part of the shares are unpaid.

If the issued share capital has not all been paid up (paid for) when it is issued, i.e. if the shares are partly paid shares, each shareholder will be liable for the amount owed on any share that they hold if the company goes into liquidation.

The Difference between Authorised Share Capital and Issued and Paid up Share Capital

As explained above, there are different terms that describe the different types of capital that a company has. The term ‘authorised share capital’ refers to a company’s capital in the broadest terms possible. It refers to every share the company would be able to issue if it wanted to, or if it became necessary to. The authorised share capital is set by the company’s shareholders and it can only be increased with their approval.

The ‘issued capital’ and ‘paid-up capital’ is the proportion of the authorised share capital that has actually been raised by issuing shares to shareholders, and for which full payment of the shares has been made by the shareholders to the company. When a company decides to raise funds with capital contribution, it can convert as much of its authorised share capital as it would like into issued share capital by selling shares. Those who receive shares pay money to the company and then become shareholders.

The authorised share capital is therefore the maximum amount of funding that can be raised by issuing company shares. The issued and paid up share capital then refers to the amount of investment shareholders have made in the company.

Accounting for Authorised Share Capital and Issued and Paid up Share Capital

The authorised share capital does not have any monetary impact on the company until it’s issued. Therefore, it does not need to be recorded in the company’s bookkeeping. However, the issued and paid up share capital needs to be accounted for in the company’s books. This is because the selling of shares has had an immediate monetary impact on the company finances: the company has received money.

The authorised share capital of a company is only reported on the Statement of Financial Position (i.e Balance Sheet) for information purposes. It isn’t considered in the totalling of the Statement of Financial Position. The issued and paid up share capital however is accounted for on the company’s Statement of Financial Position and is considered in its totalling.

An Example of Authorised Share Capital

Imagine that you have a company which has an authorised share capital of 500,000 shares, all valued at N0.50 each. The total amount of authorised share capital for the start-up is therefore N250,000. However, the start-up’s issued capital may only be 50,000 shares, and so they will only have N25,000 in capital. It may seem strange for them not to have maxed their authorised share capital out, as they could have an additional N225,000 in capital. But, it’s actually sensible not to do this.

By keeping the shares in the company treasury, the company retains the controlling interest in the business. If the company was to sell all of these shares, then the shareholders would have more influence over the decisions the company makes.

Moreover, if this company was a start-up for example, by keeping the authorised share capital high while the actual issued capital remains low may allow for additional financing rounds from investors. Once again, shareholder approval may not be given if the company has already split stock. If however, the company has held a lot of its stock back, it won’t need to get shareholder approval to go for further funding. If it was then unsuccessful, it still has additional authorised capital it could potentially issue in the future to raise money.

'Segun-Martins Ogunyemi, ACA, ACTI | Principal Consultant, Pro Logic Ideas Consulting | URL: prologicideas.com

Finance Act 2019: Things to Note

The Finance Act 2019, which was signed into law on 13 January 2020, contains various tax changes with effect from 13 January 2020. We summarise the main business tax measures in this article.

New companies income tax rates

New CIT rates, based on turnover, have been introduced. The rates for Fiscal Year 2020 are as follows:

Category	Annual Turnover (NGN)	Tax Rate
Small Company	N25million or less	0%
Medium-sized company	More than N25million but less than N100million	20%
Large Company	N100m and above	30%

Exemptions from companies income tax

In order to encourage agricultural business, attract investors to the Real Estate Sector and encourage growth in the Nigerian Capital Market and exports, the profits of the following types businesses will be exempted from corporate tax:

1. Agricultural businesses

Companies engaged in agricultural production will enjoy a five-year tax holiday and, upon satisfactory performance of agricultural production, the holiday will be renewed for an additional maximum period of 3 years. However, the company will not be granted similar incentives under any other Act, such as pioneer status under the Industrial Development (Income Tax Relief) Act. It is hoped that the holiday will encourage more entrants into the agricultural sector.

2. Real estate investment companies

In line with the government objective to bridge the gap in housing needs, a new tax Incentive is introduced to investors in the Real Estate Sector. A Real Estate Investment Company will enjoy exemption of withholding tax (WHT) from dividend and rental income received by it, provided 75% of the dividend and rental income is distributed within 12 months after the end of the financial year. However, WHT will be deducted from the final dividend distributed to the shareholders of the investment company.

3. Regulated security lending transactions

In support of the introduction of a new asset category in the Nigerian Capital Market, compensating payments which qualify as dividend or interest received by an approved agent from a lender or borrower in a Regulated Security Lending Transaction, and compensating payments which qualify as dividends received by a lender from its approved agent or borrower as defined in Section 9(1) ( c) of CITA, would also be exempted from tax.

Digital transactions and services rendered by non-resident companies

1. Profits on digital transactions, as defined in Subsection 1(c) of Section 16 of  CITA, of a company that has significant economic presence in Nigeria will be deemed to have been derived from Nigeria and will be taxable in Nigeria.
2. Fees earned on transactions such as technical, management, consultancy or professional services rendered from abroad to a person in Nigeria, to the extent that the company has significant economic presence in Nigeria, will be taxable in Nigeria

The extent of significant economic presence would be defined by an Order of the Finance Minister.  In any case, the WHT deducted from the above transactions will be the final tax on the transaction.

Expenses incurred in deriving tax-exempt income

Any expense incurred in deriving tax-exempt income will not be allowed for income tax purposes. In view of this, expenses of this nature should be segregated from other expenses so that the Federal Inland Revenue Service (FIRS) would not use its discretion to determine the expenses that would not be allowed for tax purposes.

Additional expenses that would not be allowed for tax purposes are:

• Penalty prescribed by the  Act of National Assembly for violation of any statue
• Tax or penalty paid on behalf of another person.

Expenses involving related parties

Any expense incurred within or outside Nigeria involving related parties that is not in compliance with the Transfer Pricing Regulations would not be allowed for tax purposes. A taxable person should ensure that every expense involving related parties meets arm’s length principles in order not to be exposed to avoidable tax.

Tax bonus

In order to encourage early payment of corporate tax, the Finance Act reintroduced the tax bonus which was abolished in 2007.  The rates are as follows:

Medium sized-company	2% of the tax due
Large company	1% of the tax due

The bonus will be available as a credit to be utilised against future tax, provided the tax due is remitted within three months after the company’s accounting year end. For instance, a company with a December accounting year end would enjoy the tax bonus if the tax due is paid on or before 31 March of the following year.

Commencement and cessation of business rules

In order to eliminate the excess tax charged because of overlapping periods on commencement and cessation of business, the basis periods of assessment in the first three years of commencement of business have been replaced with a new provision.  The rules on cessation of a business have also been replaced.

1. Commencement of business

Year of Assessment	Basis Period
1st year of assessment	From the date of commencement to the end of first accounting period
2nd year of assessment	From the beginning to the end  of the second financial year
3rd year of assessment	From the beginning to the end  of the third financial year

For example, if a company commences business in April 2020 and prepares Audited Financial Statements (AFS) to 31 December 2020, its first year of assessment will be 2021, which would be based on its AFS for the period to 31 December 2020.  Its 2022 and 2023 years of assessment would be based on its AFS for the years ended 31 December 2021 and 2022 respectively.

2. Cessation of business

In the year of cessation of business, the taxable profit will be the profit from the beginning of the last accounting period to the date of cessation.  The tax computed must be remitted not later than six months from the date of cessation.

For example, if a company with a 31 December year end ceases operation in April, the profit to be assessed to tax will be for the period 1 January to 30 April, and the tax must be remitted to FIRS not later than 31 October of the same year.

Minimum tax

Minimum tax is pegged at a flat rate of 0.5% of turnover, which would be applicable to companies with no total profit or whose computed tax is less than the minimum tax.  Franked investment income will be excluded for the purpose of the minimum tax computation,

Another amendment to the minimum tax rule is that a company with imported equity of at least 25% of its paid up capital would no longer enjoy the exemption.

Small companies with a turnover of less than NGN 25 million, companies carrying on an agricultural trade or business, and companies that have been in business for less than four calendar years would be exempted from the minimum tax. 

The new provision on minimum tax will increase the tax collectible from companies, apart from simplifying the minimum tax calculation.

Pre-operation levy abolished

The Pre-operation levy of NGN 25,000 in the first year and NGN 20,000 in subsequent years before issue of a Tax Clearance Certificate (TCC) to companies who are yet to commence operation has been abolished. 

Such companies can now apply to the FIRS for a TCC at no cost to them. 

Thin capitalisation

In order to curb loss of taxes due to base erosion and profit shifting (BEPS), the Seventh Schedule to the CITA on deductible interest has been introduced. Henceforth, interest incurred by a Nigerian Company (excluding a company engaged in the business of banking and insurance) in respect of debt (as defined in paragraph 6b of the newly introduced Seventh Schedule to the Act) issued by a foreign connected person that would be allowed for tax purposes will be limited to 30% of earnings before interest, tax, depreciation and amortisation (EBITDA).  Excess interest will be carried forward to the following year, subject to a maximum of five years.  Any company that violates this provision will be liable to penalty of 10% plus interest, on the excess interest charged in the year.

This is a positive development to curb loss of tax due to thin capitalisation.  However, the reason why the provision is targeted at interest on foreign loans only is unexplained.  The implication of the provision is that the restriction will not apply to interest on loans sourced from unconnected persons abroad and loans obtained internally. In order to ensure a level playing ground, the provision ought to apply to all excess interest, no matter how and where the loan is sourced.

Tax incentives

The Finance Act introduced new incentives and modified existing ones, while some have been withdrawn. Apart from the new incentives for Real Estate Sector and Regulated Securities Lending Transaction (RSLT), the following incentives were modified: 

• Interest on foreign debt

The maximum exemption from tax of interest on foreign debt with a repayment period and moratorium period of not less than seven years will be reduced from 100% to 70%. The moratorium should not be less than two years, and the moratorium is the period at the beginning of the loan term during which the borrower is not expected to make any payment.

• Gas utilisation

Henceforth, approval of the Minister of loan for a gas project will no longer be  required.

This measure is necessary to remove the bureaucracy in obtaining the approval and also fast track processing of a loan. 

A new subsection 2 was introduced to Section 39 of CITA “Gas Utililisation (downstream operation)” to the effect that the provisions of Section 39 will not apply to a company that has claimed or intends to claim the incentives under the Industrial Development (Income Tax Relief) Act in respect of the same qualifying capital expenditure. 

The 15% investment allowance for the replacement of obsolete plant and machinery is also abolished.

Reduction of WHT rate on construction

The WHT rate on road, bridge, building and power plant contracts has been reduced from 5% to 2.5%.  This is a positive development to ease the cash flow problem faced by contractors whose effective tax rate on turnover is less than 5%. 

Capital Gains Tax changes

The Finance Act exempts the following transactions from Capital Gains Tax (CGT):

• Loss of employment
  Recognising the need for an employee to have adequate funds to start a new lease of life after loss of employment, CGT will now be charged on an amount in excess of NGN 10,000,000, as against NGN 10,000 in the old Section 36(2) of the CGT Act.
• Mergers and acquisitions
  In furtherance of the Government’s intention to encourage mergers and acquisitions, there will be no CGT on the sale or transfer of assets in a merger arrangement for better organisation of a business if the sale does not take place within 365 days prior to the reorganisation.
  If the acquiring company makes a subsequent disposal within 365 days after the date of the transaction, the CGT exemption will be withdrawn.

Petroleum profit tax change

The provision of the PPT Act that exempts deduction of WHT from dividend declared by companies that are assessed to tax under the Act has been deleted.  In order to ensure a level playing field for all investors, dividends declared by such companies will be subject to WHT deduction at the appropriate rate and remitted to the relevant tax authorities.

Stamp duty changes

• Electronic receipts or transfers above NGN 10,000 will attract a one-off stamp duty of NGN 50.  However, the duty will not be applicable to transfers or payments into accounts owned by the same person within the same bank. 
• The Stamp Duties Act was also amended to exempt transactions on Regulated Securities Lending Transactions (RSTL) which are exempted from stamp duties. The transactions are listed as additions in the Schedule to the Stamp Duties Act. 

Taxation of insurance companies

The subsections in Section 16 of the Companies Income Tax Act, (CITA) on taxation of insurance business (life and general) that hitherto subjected insurance companies to excessive taxes are either now replaced or deleted. Other amendments in the Act relating to Insurance businesses are:

• Life assurance businesses - Investment income taxable on life assurance businesses will be based on income derived from the Shareholders Fund. For this purpose, it is necessary for the Insurance Companies to properly document investment income from the Shareholders’ Fund.
• Non-life assurance businesses - The cap on reserve for unexpired risks and claims and outgoings has been relaxed. Henceforth, reserve for unexpired risks will be calculated on a time basis of the risks accepted during the year. With respect to outstanding claims and other outgoings, an estimated amount of all outstanding claims and outgoings will be allowed except that those not utilised for the settlement of claims and outgoings will be added back to total profit.

The basis of calculating minimum tax of insurance companies is also stated in the Act as follows:

1. 0.5% of gross premium for non-life insurance businesses
2. 0.5% of gross income for life assurance businesses.

Adjusted Losses of insurance companies can now be carried forward.

Value Added Tax changes

There have been a number of VAT changes, some of which are briefly summarised as follows:

• The VAT rate has been increased from 5% to 7.5% with effect from 1 February 2020
• Companies with turnover of less than NGN 25 million are exempt from charging VAT on their goods and services and filing VAT returns
• VAT remittance is now to be ‘cash based’ as against ‘invoice based’
• A new reverse charge provision has been introduced so that any taxpayer that receives services from non-resident persons (legal or natural) who did not add VAT to the invoice, must self-account for the VAT and remit the same to the FIRS in the currency of the transaction.
• To encourage mergers and acquisitions, there will be VAT exemption on proceeds of mergers or acquisitions, provided the assets acquired are not disposed of within the succeeding 365 days prior to the date of reorganisation, failing which the concession would be withdrawn.
• To serve as a deterrent for non-compliant by taxpayers, penalty and interest for various offences committed under the VAT Act have been reviewed upward as follows:

Offence	1st month	Every subsequent month
Failure to Register for VAT return	NGN 50,000	NGN 25,000
Failure to notify the FIRS of change of address, or cessation of trade or business	NGN 50,000	NGN 25,000
Failure to submit VAT returns	NGN 50,000	NGN 25,000

'Segun-Martins Ogunyemi

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