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The Finance Act and You: Five Quick things to note in 2022

January 15, 2022

Abel Akeni. Vahyala Kwaga

Congratulations! You made it into 2022 and have survived multiple straight weeks in Nigeria’s wobbly economy, afflicted with the dreaded double-digit inflation, making it one of the worst 20 economies (out of 196) in the world. So, congrats —you get a survival certificate and another one for kindness, too! Americans are not so nice; with an inflation rate of 7%, they are dragging President Joe Biden by his pants with the hashtag #BidenFlation. Comparatively, with an inflation rate of 15.4% in Nigeria, which is twice as worse as the United States, President Muhammadu Buhari is living “the baby boy lifestyle”, seeing as there is no commensurate outrage at him for the soaring prices of food and other consumer goods. No be juju be that?

Anyway, away from the inflation news we bring you new year tidings (both good and bad) depending on where you sit on the tax-payer/tax-collector spectrum. In an effort to boost non-oil revenue by raising an estimated N10.71trillion to finance part of the 2022 N17.12trillion budget, the FG has made certain amendments to the Finance Act signed into law in December 2021 for implementation this year. Here are some key takeaways and how this law will affect Nigerians or business owners, or both

  1. Surprise! RCCG, Christ Embassy, Winners Chapel, NASFAT, Ansar ul-Deen and over 16,300 faith-based organisations may now pay taxes. 

According to Section 7 of the 2021 Finance Act passed, the Trade and Business of Friendly Societies, Cooperative Societies, Ecclesiastical Companies, Sporting Societies, etc., that are registered as companies, are now subject to Tax — an amendment and substitution of the Companies Income Tax Act, in s.23(1) of a new subsection. There are long-standing ethical and perhaps moral reasons why these public activities have not been brought under scrutiny for taxation by governments in Nigeria, but that position seems to be changing; as many engage in business activities directly or indirectly. All other faith-based organisations that are registered as not-for-profit may enjoy tax exemptions as provided by the law.

2. FIRS has been remodelled after the famous Internal Revenue Service (IRS) of the United States of America. 

As a policy thrust of this administration, Section 22 of the  Finance Act has now transferred the power for tax & levy collection from virtually all of the 900+ federal Ministries, Departments, Agencies & Administrative units that were previously doing so to a single entity — the Federal Inland Revenue Service, FIRS. Any civil servant who does not comply is now liable to a prison term of not more than 5 years and/or a fine of N10 million naira

We believe this is targeted at some agencies, like the Niger Delta Development Commission, NDDC. They are notorious for collecting levies without proper accountability while lamenting publicly that oil companies are not complying. In one instance, NDDC awarded a N10bn contract to Starline Consulting to collect levies from oil and gas companies — despite having heavily paid civil servants for the purpose. The money was shared to legislators and other vested interests; na the matter EFCC still dey settle till just now; only N150m has been recovered. 

3. Twitter, Facebook, Instagram, and the likes to pay additional tax; famous foreign freelance Instagram influencers, comedians, and skit makers also affected. 

In several amendments (amounting to 6 in number), the federal government now brings into its tax net companies that make a profit in the country, even if they have no ‘physical office’.

Where a company does not have a fixed base but habitually transacts business through a person or agent or where it emits or transmits or receives signals as a result of any commercial electronic activity, high-frequency trading, management of an app, electronic data storage, and online adverts, among others; the entity is liable to pay tax. 

This tax affects some consulting firms, virtually ALL online companies and firms including Uber, Amazon, Facebook, Twitter, and Nigerians who own firms that advertise online, among others. It also affects foreign freelance comedians, skit makers, influencers on TikTok, Instagram, Twitter if they collect money for online adverts. 

The tax rate could be up to 6% of the companies’ turnover in Nigeria as the Act doesn’t mention any specific rate but a “reasonable turnover tax basis”. In effect, the rate will be discretionary. 

4. Do you love coca-cola, Mirinda, La casera etc? Brace for impact; your appetite just got taxed!

According to section 17 of the Finance Act, Excise Duty of N10.00k is now Payable on every Litre of non-alcoholic, carbonated and sweetened beverages (an amendment and insertion of a new s.21(3) of the Customs, Excise and Tariffs (Consolidation) Act). This means, for example, that the famous 50CL PET bottle of coke would now attract N5 kobo tax per bottle, 33CL 5-Alive attracts N3.30 kobo, while the 1-litre of any of these drinks would attract N10. Note that soft drinks is only a segment of the non-alcoholic beverage market; non-alcoholic wines are also affected. 

Nigeria consumed a total of N551 Billion on non-alcoholic beverages in 2019, according to the National Bureau of Statistics (NBS). Nigeria is projected to consume as many as 21.91billion liters of non-alcoholic beverages per year by 2026 and the Nigerian government wants to “secure the bag” in this market. This new N10/liter tax would mean Nigeria could earn as much as N28.8 billion per year in additional tax revenue. Pretty neat eh? At least the FIRS guys think so, but the Organized Private Sector (OPS) has been kicking and screaming against the tax, while legislators, political appointees, and civil servants are quietly padding the 2022 budget for their personal gains rather than for poverty reduction, wealth creation, employment generation, and economic growth purposes.  

5.  Sell off your investment in a Nigerian company; you get taxed — except you invest in another Nigerian company during the year. 

Nigerian tech Startups alone raked in N592.2billion ($1.41bn) in 2021. With this inflow came an increase in the valuation of some startups with some earlier investors “cashing out” with the sale of some of their shares at a higher value. The Nigerian government wants a share of this pie. It is applying the “Capital Gains Tax” principle, meaning any gain you make on Capital you invested in the shares of a public or private company would now be taxed — provided the investment is N100 million or more. Smaller, investors need not worry; as it seems this tax is aimed at the pockets of those that are chilling with the big boys. 

By way of illustration, if you sell shares for which you initially invested capital of N120 million naira for N200 million naira today and decide not to reinvest the entire N200 million naira, you pay tax on the gain of N80 million naira you made. This means you pay a tax of N8 million naira. If you do not make a profit (or gain), you do not pay any tax. If you reinvest it into another Nigerian company, you also don’t get taxed. 
Sales of Nigerian government securities by Nigerians are exempted from this tax, (an amendment of the Capital Gains Tax Act, in s.30(1)).