The Finance Act 2023 in Nigeria, which became effective on September 1st, 2023, brings forth several significant changes to the country’s tax and financial landscape. Here’s a detailed analysis of the key amendments:
See Top 14 Changes Made by the Finance Act 2023
1. Taxation of Digital Assets: One of the most notable changes is the introduction of a 10% tax on gains from the disposal of digital assets, including cryptocurrencies. This signifies a move by the Nigerian government to regulate and capture revenue from the burgeoning cryptocurrency market.
2.Capital Losses Carryforward: The Act allows for the carryforward of capital losses on assets for capital gains tax purposes for up to 5 years. This provides relief for taxpayers who incur losses on their investments, as they can offset these losses against future gains.
3.Rollover Relief on Shares: Rollover relief on the sale of shares is now subject to reinvestment within the same year of assessment. This encourages the reinvestment of proceeds from share sales, potentially spurring investment activities.
4.Removal of Investment Allowance: The Act deletes the investment allowance on plant and equipment, which might affect businesses’ capital expenditure decisions, potentially impacting certain sectors.
5.Import Levy: An important change is the imposition of a 0.5% levy on goods imported into Nigeria from outside Africa. This aims to boost domestic production and reduce reliance on imports.
6.Excise Tax on Services: All services, including telecommunication services, are now subject to excise tax at rates to be prescribed by the President. This broadens the scope of excise taxation to include services.
7.Tax Deduction for Insurance Premiums: Tax deduction is reinstated for premium payments related to insurance on one’s life and spouse, potentially encouraging individuals to secure insurance coverage.
8.Electronic Money Transfer Levy Sharing: The Act outlines a new revenue-sharing model for the Electronic Money Transfer (EMT) levy, distributing it among the Federal, State, and Local Governments. This ensures a more equitable distribution of this tax revenue.
9.Transfer Pricing for VAT: Transfer pricing rules will apply to Value Added Tax (VAT) on transactions between connected persons considered artificial or fictitious. This prevents tax evasion through artificial pricing.
10.VAT Withholding and Remittance: Companies responsible for withholding VAT at source must remit the VAT to the Federal Inland Revenue Service (FIRS) on or before the 14th day of the following month. This ensures timely revenue collection.
11.VAT on Digital Purchases: VAT is now chargeable on goods purchased via electronic or digital platforms from nonresident suppliers acting as agents of the FIRS unless proof of registration with FIRS is provided. This closes a potential tax loophole.
12.Redefinition of Building for VAT: The Act redefines what constitutes a building for VAT purposes, excluding structures not permanently affixed to land for most of their useful life. This clarification aims to prevent ambiguity in VAT application.
13.Tertiary Education Tax Increase: The Tertiary Education Tax rate increases from 2.5% to 3% of assessable profits, potentially boosting funding for higher education institutions.
14.Ministry of Finance Incorporated: The Act establishes a Governing Council, Executive Board, and Management Team for the Ministry of Finance Incorporated, likely to enhance governance and management within the ministry.
In summary, the Finance Act 2023 introduces several changes to Nigeria’s tax and financial regulations. Some provisions aim to increase revenue, such as the taxation of digital assets and the import levy, while others seek to encourage investment and compliance, such as capital loss carryforwards and VAT rule clarifications. These changes collectively reflect the government’s efforts to adapt to evolving economic trends and strengthen the country’s fiscal framework.
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About the Author
Olatunji is the founder Taxmobile.Online and Managing Partner/CEO of AOA Professional Services. Prior to this,Olatunji worked as Director,Tax & Regulatory Services at Nolands Nigeria Professional Services, Senior Manager -Tax,Regulatory & Advisory Services at Saffron Professional Services.
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Olatunji Abdulrazaq CNA ACTI