The Nigerian government recently enacted the Finance Act of 2023, introducing several significant changes to the country’s financial landscape. From the taxation of digital assets to enhanced reporting requirements, the Act aims to streamline the economic framework and promote transparency. In this summary, we explore five crucial points outlined in the new legislation, shedding light on the taxation of digital assets, reporting obligations for companies, deductions for specific industries, levies on imported goods, tax benefits of insurance, and penalties for non-compliance. Understanding these key provisions is essential for individuals and businesses operating within Nigeria’s evolving financial landscape. Let’s delve into the details.

A New Digital Asset Tax of 10%

The Nigeria Finance Act of 2023 has introduced a 10% capital gains tax on digital assets. This tax applies when you sell or dispose of valuable digital items and make a profit. The tax is calculated by subtracting allowable deductions from your total earnings in a specific assessment year. It applies to various types of property, including options, debts, and intangible assets, regardless of their location. The tax also includes foreign currencies, except the Nigerian currency. Any property you create or acquire without buying it is considered an asset for tax purposes. The law however failed to define what a digital asset is, raising controversies as to its intentions. 

Companies Must Now Share Detailed Revenue for Operations in Nigeria

The new law also says that if a company files tax returns and doesn’t give a separate financial statement for its operations in Nigeria, the company must provide detailed statements of the total revenue earned during that time from its Nigerian operations. These statements should be certified by one of the company’s directors and their external auditor, and should include all invoices issued to the customers.

Saving on Taxes: How Companies Can Now Deduct Expenses to Lower Their Tax Bill

When a company calculates how much profit it made for a specific year, it can deduct a certain percentage called “capital allowances” from that profit to reduce the amount of tax it has to pay.

Read also : Crypto Banking Pioneer Silvergate Closes Shop

Usually, the maximum percentage that can be deducted is 66.67% of the company’s profit. But there are now some exceptions for specific types of companies, under the new law. 

For example, companies involved in gas operations or the agro-allied industry (which means they work with agriculture and farming) or those in the manufacturing business are not limited by this rule. They can deduct more than 66.67% if they qualify.

However, if a company wants to claim these deductions, they have to reduce the value of the asset they bought by the amount of any other deduction they might claim for that asset. This is called an “investment allowance.” It’s important to subtract this investment allowance from the value of the asset before calculating the capital allowances.

Contributing to Africa: New 0.5% Levy on Imported Goods 

When goods are brought into Nigeria from countries outside of Africa, there is a special fee called a levy that needs to be paid under the law. This levy is 0.5% of the value of the goods. The purpose of this fee is to help Nigeria make financial contributions to different organizations like the African Union, the African Development Bank, and other groups that work together with many countries. These organizations help with things like development projects, trade, and cooperation among nations. The money from this fee is used to support these efforts and fulfill Nigeria’s financial obligations to these organizations.

Tax Benefits of Insurance: How to Use Premium Payments to Lower Your Tax Bill

Sometimes, people pay money to an insurance company to protect themselves or their loved ones. This is called a premium. When a person pays this premium, the new law says they can get a deduction, which means they can subtract that amount of money from the total amount of money they earned for the year.

The deduction is allowed for two types of insurance:

1. If someone pays for insurance on their own life or the life of their husband or wife.
2. If someone pays for a special kind of plan called a deferred annuity. This is like a savings plan that gives you money in the future. It’s based on your own life or the life of your husband or wife.

But there’s a rule: If someone takes out some of the money from the deferred annuity before five years have passed since they paid the premium, then they have to pay taxes on that money when they take it out. It’s important to wait for at least five years before taking out any money from the deferred annuity to avoid extra taxes.

Read also: United Kingdom Visa Payment Changes for Sierra Leone Applications

Reduced Tertiary Institution Trust Fund Tax: New Rate Set at 2.5%

The Tertiary institution trust fund tax has been reviewed downward to 2.5% from its previous 3% under the new law. 

Consequences of Breaking the New Law: Understanding Tax Penalties and Offenses

1. Penalties for Not Following the Law: If you don’t obey the law or regulations, you might have to pay a big amount of money called an administrative penalty. It’s N10,000,000.
   
2. Extended Penalties: If you keep breaking the rules for a long time, you could face an extra penalty. It’s N2,000,000 for each day you keep breaking the rules, or another amount decided by the Minister of Finance.
   
3. Penalties if Found Guilty: If you’re found by the court to have done something wrong under the law or related regulations, you might have to pay a big fine. It’s N20,000,000.
   
4. Imprisonment: Along with the fine, you might also have to go to jail for six months if you’re found guilty.
   
5. Penalties for Specific Violations: There are different specific things you can do wrong, like not following notices, not answering questions, or not submitting required forms. If you do any of these, you’ll get penalties according to what the law says.
   
6. Penalty for Incorrect Accounts: If you make up fake accounts, prepare false schedules or statements, or give wrong or misleading information about how much tax you owe, you’ll get a penalty. The penalty is either N15,000,000 or 1% of the tax you didn’t pay correctly, whichever is higher. And you still have to pay the right amount of tax.
   
7. Fine for False or Misleading Information: If you give false or misleading information about how much tax you owe, you’ll get a fine. The fine is either N15,000,000 or 1% of the tax you didn’t pay correctly, whichever is higher. You also still have to pay the right amount of tax.
   
8. Compounding Offenses: The tax service has the power to settle offenses by accepting money instead of giving more punishment. The money you pay can’t be more than the maximum fine allowed. They’ll give you an official receipt for the money you give them this way.

New Finance Law Nigeria New Finance Law Nigeria New Finance Law Nigeria New Finance Law Nigeria

Realtek Sues MediaTek Over ‘Alarming’ Patent Litigation

Charles Rapulu Udoh

Charles Rapulu Udoh is a Lagos-based lawyer, who has several years of experience working in Africa’s burgeoning tech startup industry. He has closed multi-million dollar deals bordering on venture capital, private equity, intellectual property (trademark, patent or design, etc.), mergers and acquisitions, in countries such as in the Delaware, New York, UK, Singapore, British Virgin Islands, South Africa, Nigeria etc. He’s also a corporate governance and cross-border data privacy and tax expert. 
As an award-winning writer and researcher, he is passionate about telling the African startup story, and is one of the continent’s pioneers in this regard