Deductions on life insurance, 10% tax on digital assets… highlights of 2023 finance act

To sustain the steam in its efforts to ramp up revenue generation, the federal government has introduced some changes in taxes and excise duties following the amendment of the new 2023 finance act.

TheCable understands that ex-President Muhammadu Buhari signed the 2023 finance act into law on May 28, 2023 — a day before he handed over power to the new administration.

Although the act became effective on May 1, 2023, the government later amended some aspects of the document.

The sections that were adjusted include the capital gains tax act, the companies income tax act, and the industrial development (income tax relief) act.

Others are the personal income tax act, the tertiary education trust fund (establishment) act, the customs and excise tariff (consolidation) act, the value-added tax act, among others.

Prior to the new finance act, the federal government had published the fiscal policy measures (FPM) outlining the rates of taxes and excise duties for the current year.

The new FPMs, which consist of supplementary protection measures (SPM), revised excise duty rates, and green taxes; were approved by Buhari.

TheCable highlights some of the top amendments in the 2023 finance act.

10% TAX ON CRYPTO AND DIGITAL ASSETS

In the 2023 finance act, taxation of gains on the disposal of digital assets, including cryptocurrency was fixed at the rate of 10 percent, according to Taiwo Oyedele, a tax and fiscal policy expert at PricewaterCoopers (PwC).

TheCable’s examination of the document shows that the words “digital assets” were included in the amendment of section 3 (a) of the capital gains tax act. But no further details were provided vis-a-vis the exact tax percentage.

Last year, Zainab Ahmed, former minister of finance, budget, and national planning, had said the government was making plans to tax cryptocurrencies and other digital assets.

The minister said the plan was “in line with the government’s policy thrust of enhancing cross-border and international taxation and growing e-commerce with emerging markets”.

On May 4, the government approved the national blockchain policy — a move that now allows the use of blockchain technology and also implies that the ban on cryptocurrency trading in Nigeria has been lifted.

COMPANIES TO PAY TAXES ON CAPITAL LOSSES FOR 5 YEARS

The finance act also stipulates that the deduction of capital losses on assets for capital gains tax purposes, may be carried forward for a maximum of five years.

“In computation of chargeable gains under this act, the amount of any loss which accrues to a person on the disposal of any asset shall be deductible from gains accruing to the person disposing that asset, provided that such loss shall only be deductible against the same type of asset,” the document said.

According to the act, where the aggregate capital losses by any taxable person in a tax year exceed the aggregate chargeable gains, such loss may be carried forward for deduction from chargeable gains arising from the disposal of the same type of asset in the following year.

“…provided that such losses shall only be carried forward for a maximum of five years immediately succeeding the year in which the loss was incurred,” it added.

FG TO PENALISE OIL FIRMS THAT FAIL TO PROVIDE TAX RECORDS

Amendments under the petroleum profit tax act mandate oil companies to give necessary documentation of business transactions for tax filing, and failure to do so would attract a fine.

According to the act, every company engaged in petroleum operations shall, “for each accounting period of the company, make up accounts of its profits or losses and prepare the major particulars to determine petroleum profits tax”.

It also made provision for new oil companies — such as the Dangote refinery — to file their audited accounts and returns within 18 months from the date of its incorporation, and within five months after any period ending on December 31 of the following year.

“In the case of any other company, provided that where there is an interval between 31st December of the preceding year and the date on which the company commences the bulk sale or disposal of chargeable oil or condensate, the interval shall be deemed to form part of the preceding period,” the act reads.

Companies that fail to comply with the provisions are liable to pay a penalty for late filing — “N10,000,000 on the first day the failure occurs and N2,000,000 for every subsequent day in which the failure continues.”

TELECOM SERVICES TO PAY TAX AS DIRECTED BY THE PRESIDENT

The finance act also said all services under the telecommunications sector are liable to excise tax at rates prescribed by the president.

Recently, Isa Pantanmi, former minister of communications and the digital economy, insisted that telcos were exempted from the 5 percent tax slammed on telecoms services.

Pantanmi said the former president greenlit the exemption, adding that Buhari’s “approval supersedes all other declarations regarding the issue and we stand by it”.

TAX DEDUCTIONS ON LIFE INSURANCE PAYMENTS

In addition, the act restored tax deductions on monies paid for life insurance subscriptions.

“…there shall be allowed a deduction of the annual amount of any premium paid by the individual during the year preceding the year of assessment to an insurance company in respect of insurance on his life or the life of his spouse; or contract for a deferred annuity on his own life or the life of his spouse,” the document further reads.

It noted that any portion of the deferred annuity that is withdrawn before the end of five years from the date the premium was paid, shall be subject to tax at the point of withdrawal.

0.5% LEVY ON IMPORTED NON-AFRICAN GOODS, TERTIARY EDUCATION TAX NOW 3%

The finance act also imposed a 0.5 percent levy on goods imported into Nigeria from outside Africa. The levy is expected to finance the federal government’s contribution to multilateral organisations such as the African Union (AU), United Nations (UN), and the African Development Bank (AfDB).

The tertiary education tax rate was increased from 2.5 percent to 3 percent of assessable profits.

Other provisions in the document state that companies appointed to withhold value-added tax (VAT) at source are to remit such to the Federal Inland Revenue Service (FIRS) on or before the 14th day of each month; public officers who award or sign any contract without budget provision, administrative approvals, and procurement plan, will be liable to three years imprisonment or a fine of N10 million.

Adjusting the distribution formula for revenues generated through the electronic money transfer (EMT) levy, the act said the federal government would get 15 percent, state governments would receive 50 percent, and 35 percent would go to the local governments.