Finance Act: FG Limits Tax Incentives on Oil, Gas, Others’ Operations

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* FIRS now sole tax administrator

James Emejo in Abuja

In its renewed drive to boost domestic resource mobilisation, the federal government has limited companies involved in the trade or business of gas utilisation in downstream operations in the country to a, “once in a lifetime” tax-free regime, according to the latest changes effected in the Finance Act, 2021.

The new law states that additional investment, re-organisation or other forms of corporate restructuring shall not qualify for a further tax incentive under the gas investment programme.
Such companies are further barred from similar incentive under any other sections of the Companies Income Tax Act (CITA) or other law.

Moreover, companies engaged in upstream petroleum operations would continue to have obligation to withhold VAT, even when they have not commenced commercial operations or have not reached N25 million turnover.

However, profits of companies engaged in educational activities in the country are now liable to tax due to the removal of educational activities from the exempt provisions of Section 23(1)(c) of CITA.
Also, the rate of tertiary education tax has been increased from two per cent of assessable profits to 2.5 per cent.

According to the Federal Inland Revenue Service (FIRS), the new tax law further stipulates that capital gains from the disposal of stocks and shares in Nigerian companies, for aggregate proceed amounting to N100 million or more in any period of 12 consecutive months, is liable to Capital Gains Tax (CGT) at 10 per cent where the proceeds have not been reinvested within the same year of assessment in the acquisition of shares in the same or other Nigerian companies

Also, profits of companies from the exports of goods produced in upstream, midstream and downstream petroleum operations are also liable to tax as clarified in section 23(1)(q) of CITA.

Additionally, it reiterated that non-resident companies liable to tax on profits arising from providing digital goods or services to Nigerian customers under the Significant Economic Presence (SEP) Rule may be assessed on fair and reasonable percentage of their turnover in the event that there is no assessable profit, the assessable profit is less than what is to be expected from that type of trade or business, or the assessable profit cannot be ascertained.

Furthermore, the new amendments to the Finance Act states that capital allowance on qualifying capital expenditure incurred in generating tax-exempt income was not deductible from the assessable profits arising from income not exempt from tax under CITA.

In addition, it stated that capital allowances accruing in respect of QCE employed for both taxable and tax-exempt income shall be pro-rated where the tax-exempt income constitutes more than 20 per cent of the total income of the company.

Capital allowance on qualifying capital expenditure incurred by small companies are deemed utilised during the periods such companies are tax-exempt in accordance with Section 31(1C) of CITA.

However, minimum tax rate was reduced from 0.5 per cent to 0.25 per cent for any two consecutive accounting periods falling on 1 January 2019 to 31 December 2021, as may be elected by the taxpayer.

The Finance Act also states that any company that claims the reduced 0.25 per cent rate under the minimum tax rule in section 33 of CITA but filed its tax returns late would be liable to penalty equal to the benefits or reduction claimed.

The FIRS also stated that taxpayers may pay tax due in instalments provided that the final instalment shall be paid on or before the due date of payment.

Under the current regime, Withholding Tax (WHT) deducted from payments to a Unit Trust shall be the final tax on such income provided the said deduction is fully remitted to FIRS.

Moreover, companies engaged in the business of banking, mobile telecommunication, ICT, aviation, maritime and oil and gas with turnover of N100 million and above, are liable to pay NASENI Levy at 0.25 per cent of their profits before tax and the tax is to be administered by FIRS.

The Finance Act also vested the FIRS with the duty to assess, collect, account and enforce the payment of the Nigeria Police Trust Fund Levy.

The levy is 0.005 per cent of the net profit of companies operating business in Nigeria as provided under Section 4 of the Nigeria Police Trust Fund (Establishment) Act.

While also strengthening the service, the Act stipulated that any person who fails to grant FIRS access to its information processing systems to deploy its automated tax administration technology after a 30 days’ notice, or such extension granted by the service, is liable to a penalty of N25, 000 for each day it continues to fail to grant the access.

Also, any bank that fails to prepare and submit quarterly returns of new accounts or any information requested by the relevant tax authority, or submit incorrect returns or information, under section 28 of FIRSEA or sections 47 and 49 of PITA, is liable to a penalty of N1 million for each quarterly return or information not provided or incorrect returns or information provided.

The law further provided that, “Any person employed in the service or otherwise that has access to taxpayer information is under a strict legal obligation to keep such information confidential.
“Leakages of taxpayer information by such person is liable to fine, imprisonment or both fine and imprisonment.”

The 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 staff or consultant, to demand for 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 National Assembly.”

Meanwhile, other agencies of the federal government are under statutory obligation to report cases requiring tax investigation, enforcement or compliance, encountered in the course of performing their function, to the service for necessary action; they are forbidden from carrying out tax monitoring, audit or investigation.