Revisiting Private Sector’s Grouses about Finance Bill

The groundswell of criticisms of the 2022 Finance Bill, which was hurriedly passed by the National Assembly but suspended by President Muhammadu Buhari, have provided sufficient grounds for the outgoing administration to address the reservations of the members of the organised private sector who insist on wide consultations to avoid additional tax burden on businesses, reports Festus Akanbi

As the nation awaits what becomes of the Finance Bill 2022 recently passed by the National Assembly but which has been put in abeyance by President Muhammadu Buhari, some members of the Organised Private Sector (OPS) have outlined steps to make the document acceptable and workable.

Two weeks ago, President Buhari signed the N21.83 trillion 2023 appropriation bill into law, marking the last time he would be performing such a task as Nigeria’s president. The president however deferred the signing of the Finance Bill, which is still being reviewed, as it conflicts with the fiscal term of the Petroleum Industry Act (PIA).

The budget, which contained robust provisions for the funding of this year’s general election, was passed by the National Assembly on December 28 last year. 

The controversial Finance Bill brought about a wide-range of amendments to the following legislations: Companies Income Tax Act; Customs, Excise Tariff Act; Personal Income Tax Act; Petroleum Profits Tax Act; Stamp Duties Act; Value Added Tax Act; Capital Gains Tax Act; Corrupt, Practices and Other Related Offences Act; and the Public Procurement Act.

Key Amendments in the Bill

A key amendment in the bill is the new provision  that subjects gains on digital assets to tax under the Capital Gains Tax Act at the rate of 10 per cent.

The bill also subjects income derived by a company from gaming, gambling, betting, or lottery business to tax under the Companies Income Tax Act.

It also provides for a tax increase for gas-flaring companies. In line with Nigeria’s climate change commitments to ensure the reduction of greenhouse gas emissions, the Bill proposes that gas-flaring medium and large companies are to be liable to corporate taxation at a 50 per cent rate. It is anticipated that this rate will help to deter gas-flaring, as it is more than the typical 30 per cent nominal income tax rate.

The Bill also makes a case for the set-off of capital losses against capital gains on two identical capital assets (that is, two assets that are of the same kind) in a taxable year.

There is also remittance of Value Added Tax (VAT) by specific entities. Under the new provision, entities like MTN, and oil and gas companies, appointed to deduct VAT at source on invoices received from their vendors will be expected to remit such VAT to the Federal Inland Revenue Service (FIRS) on or before the 14th day of the following month (currently 21st day of the following month).

In addition to the existing customs duties and other charges, a levy of 0.5 per cent is to be imposed on goods imported into Nigeria from outside Africa. It is stated that this duty will be used to make payments for subscriptions, and other financial obligations to multilateral institutions like the African Union (AU), African Development Bank (AfDB), and others.

According to the bill, the existing investment allowance of 10 per  cent applicable on qualifying expenditure incurred on plant and equipment will no longer apply as of December 31, 2022, when the Bill was expected to have been passed as an Act.

There is also a rollover relief on shares and stocks. Investors are required to pay a tax of 10 per cent on the gains they make from the sale of their shares in startups and other companies. The Bill, however, proposes that investors that purchase shares from startups will be eligible to roll over reliefs if they reinvest the proceeds of the sale of such shares. Rollover relief provides a mechanism for deferring payment of tax from the sale of an asset, where the proceeds from such sale are reinvested to buy new assets.

The bill also stipulates that all services, including but not limited to telecommunication services, provided in Nigeria will be subject to excise duties.

According to the bill, the Minister of Finance, Budget, and Economic Planning is to be charged with the responsibility for the supervision of the Tariff Review Board.

LCC Warns Against Removal of Tax Waivers

In its response, the Lagos Chamber of Commerce and Industry (LCCI) last week called on the federal government to tread cautiously with its plan to save over N6 trillion by removing tax waivers and exemptions granted to some large enterprises in the oil and gas sector. 

The chamber in a statement titled, “LCCI Comments on the 2022 Finance Bill,” noted that President Muhammadu Buhari withheld his presidential assent to the proposed legislation in order to subject it to further review.

The statement signed by the Director General of the LCCI, Dr. Chinyere Almona, cited the statement of the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed during her budget presentation. The minister reportedly stated that the plan to exit some large enterprises from the Pioneer Status Incentives, the government can save about N6 trillion tax expenditure (waivers, exemptions, incentives granted by the government).

LCCI said: “But on the path of caution, we urge the government to be conservative in raising tax rates, since there are new ways of rescuing some tax expenditures to add up to government revenue in 2023. Leaving rates at their levels will not lead to a loss of revenue.”

The LCCI noted that with the divestments by some international oil companies from the oil and gas sector, Nigeria needed to “reposition the industry through a steeply implemented PIA to pave the way for new investments and encourage indigenous companies to reflate the sector with required investments.”

As part of its input in the bill, the LCCI suggested the retention of the Tertiary Education Tax (TET) rate at 2.5 per cent since it was just recently increased from 2.0 per cent to 2.5 per cent. It explained that at the proposed rate of 3.0 per cent, Nigeria’s corporate income tax rate would rise to about 36 per cent, which is one of the highest rates in the world, according to available research.

“Retain the 30 per cent Company Income Tax for all oil and gas companies; consider amending the Petroleum Profit Tax Act with the same provision in the PIA Section 1042,” the chamber said.

Stakeholders’ Engagement

The LCCI also recommended that the Finance Bill should be presented for extensive stakeholders’ consultations before being passed by the National Assembly. It pledged to continue to work to mobilise the private sector to support the implementation of the 2023 federal budget.

It, however, said, “On achieving revenue targets for the budget, the MDAs and Government Owned Enterprises (GOEs) can intensify their revenue mobilisation efforts in an enabling environment where the private sector thrives.

On its part, the Centre for the Promotion of Private Enterprise (CPPE) took exception to what it described as the hasty passage of the bill, saying there was practically no room for public hearing and engagement with stakeholders in the consideration of the bill. 

The centre posited that the rushed passage of the Bill by the National Assembly calls to question the representative role of the Assembly.

The Chief Executive of the Centre, Dr Muda Yusuf, who spoke on an ARISE News Channel’s programme last week, noted that it was curious and puzzling that the Senate gave just 24 hours’ notice for stakeholders to attend a public hearing on the bill, which is a piece of legislation that has profound implications for investment, citizens welfare and the Nigeria economy.

According to him, the House of Representatives gave a more generous notice of about three weeks, noting however that in a sudden and baffling twist of events, the House passed the bill before the date of the advertised public hearing which was January 13, 2023.

Protests against Additional Tax Burden

Yusuf pointed out that the Bill passed contained the imposition of excise duties on all services with rates to be determined by presidential order.  According to him, all of these have far-reaching implications for investors and citizens; affect the cost of production, operating costs and undermine investors’ confidence.

“It has profound inflationary implications. It will effectively move corporate tax to almost 35 per cent which is one of the highest globally.” He appealed to President Buhari not to leave a legacy of an unbearable tax burden for investors in the Nigerian economy, noting that the torrent of taxes, levies, and fees was crippling businesses. Yusuf, therefore, urged the President to withhold assent on the 2022 Finance Bill until the National Assembly properly engages stakeholders as required by legislative protocols.

It is hoped that by the time the new version of the Finance Bill is passed, it will contain the input of the private sector operators and other stakeholders in the Nigerian economy. It is then the much-awaited Finance Bill will reflect the current realities in the Nigerian economy.