On January 1, 2020, I started this story on the Finance Bill, 2019 which has recently been passed into law as announced by Nigeria’s President on his twitter handle in the early hours of January 13, 2020. In this edition, we take further look into the Finance Act, 2019 (hereafter referred to as “the Act”) with focus on Petroleum Profit Tax, Customs and Excise Duties and Capital Gain Tax.

Petroleum Profit Tax

The only alteration in the Act that relates to petroleum profit tax was a repeal of Section 60, Petroleum Profit Tax Act (PPTA). This Section was deleted to ensure dividends paid out of petroleum profits are subjected to withholding tax. The deleted Section states that

[n]o tax shall be charged under the provisions of the Personal Income Tax Act or any other Act in respect of any income or dividends paid out of any profits which are taken into account, under the provisions of PPTA, in the calculation of the amount of any chargeable profits upon which tax is charged, assessed and paid under the provisions of PPTA Section 60, PPTA (Repealed)

The intendment of that Section was for persons who earn income by rendering services to a company carrying on petroleum related business, or persons who earn dividends by reason of their investments in a company carrying on petroleum business not be taxed on such income or dividends because the petroleum trading company would have, from the source, withheld the tax on such income or dividend.

With the repeal, shareholders in petroleum trading companies will need to be vigilant to ensure that their dividends from such companies are not doubled-tax. Tax obligation on dividend earned from such companies will now be chargeable by the relevant tax authorities under the Personal Income Tax Act (PITA). Withholding tax in income accrued on services rendered to petroleum trading companies still applies by virtue of Section 54, PPTA.

Excise Duty

Goods liable to excise duty were certain made-in-Nigeria goods as provided for under Section 21, Customs and Excise Tariffs etc. (Consolidation) Act (CETA). Excises have the potentials of being disincentives especially for goods like stout, cigarettes and alcoholic substance. It is an indirect tax that is deductible at production point and not point of sale. The addition to the law is for duties to be imposed on same class of goods coming into the Nigeria from abroad.

Capital Gains Tax

Tax on capital gains, as the name suggests, relates to tax on capital assets (i.e. non-inventory assets). Examples are real estate, bonds, shares etc. Under Nigerian laws, it relates to all form of property including debts. Section 32, Capital Gains Tax Act (CGTA) exempted CGT on transfer of shares occasioned by corporate restructuring such as acquisitions, mergers or takeovers. This provision however has been amended to narrow and limit the concession. It is narrow because the restructuring must meet certain criteria and limited because no further restructuring can occur within 365 days after the initial restructuring. This reform primarily seeks to checkmate potential tax avoidance under the old law.

The Act also amended the aspect of CGT that deals with chargeable gains in the form of compensation for personal injury. There will be no CGT levied on such compensation as long the sum is below 10 Million Naira. This sum under the old law was just 10,000 Naira which seems quite obsolete given economic realities and cost of enforcement.

Join me in the coming weeks as I shall be sharing with you the last two episodes of this series of the Finance Act, 2019. In those episodes, I will be closing with the impact of the Act on individuals and businesses as it relates to company income tax, VAT and stamp duty. Please feel free to leave your comments on all or any of our stories. This blog was contributed by Jude Akpevweoghene Daniel, a member of the Chartered Institute of Taxation, Nigeria and Partner at Oceanic LP.