On 31 December 2020, the President signed the Finance Bill, 2020 (now Finance Act, 2020) into law, alongside the 2021 Appropriation Act. Indeed, the introduction of the Finance Act, 2020 (FA 2020) at the beginning of fiscal year 2021 is a step in the right direction. One can come to a conclusion that the Nigerian government is making conscious efforts to align its local laws with global best practices, promote fiscal equity, improve the ease of doing business, provide support for small businesses and cultivate a suitable environment for investment in infrastructure. The effort of the Nigerian government towards ensuring that the Finance Act is finalized and that it accompanies the Appropriation Act yearly must be commended. It is a forward-thinking initiative and we believe that with this yearly review of the tax laws, all redundant and ambiguous sections of our tax laws will soon be eliminated.

The FA 2020 introduced substantial changes to a number of tax and regulatory laws in Nigeria. This includes amendments to key provisions of about fourteen (14) Acts, including but not limited to Companies Income Tax Act, Personal Income Tax Act, Petroleum Profits Tax Act, Tertiary Education Trust Fund Act, Value Added Tax Act, Capital Gains Tax Act, Industrial Development (Income Tax Relief) Act, Customs and Excise Tariff Act and Stamp Duties Act. This article seeks to review the key amendments made by the FA 2020, with particular focus on their impact on the manufacturing sector.

What has changed – Direct Taxes

Reduction of Minimum Tax Rate

In a bid to reduce the burden on companies given the negative impact of Covid-19 on businesses, FA 2020 amended the provisions of section 33 of the Companies Income Tax Act (CITA) to reduce minimum tax rate to 0.25% from the initial 0.5%. This 50% reduction in minimum tax rate is applicable to tax returns prepared and filed for any year of assessment due on any date between 1 January 2020 and 31 December 2021. This is quite commendable, as the Nigerian government has taken into consideration the plight of businesses, considering the toll the pandemic has taken on them. It is quite possible that some qualifying companies whose filing deadline became due prior to signing of the FA 2020 have already filed and remitted their taxes. Such companies should consider re-filing their returns and adjusting their tax payable accordingly. Since the Act also amended the section on tax refunds, it should be easy for the companies to claim a refund of excess minimum tax, for returns filed between 1 January 2020 and 31 December 2020.

Nevertheless, companies with less than ?25 million turnover, companies within the first four years of commencement of business and companies engaged in agricultural trade or business will continue to enjoy exemption from minimum tax.

Exemption of Small Companies from Tertiary Education Tax (TET)

The FA 2020 clarifies the uncertainty in the FA 2019 by amending Section 1 of the Tertiary Education Trust Fund Act to expressly exempt small companies from TET. This confirms that companies with turnover of less than ?25 million who were exempt from CIT are also not liable to TET. Although, some qualifying taxpayers already took this position and currently do not assess themselves to TET, the FA 2020 has given the required legal basis to support this practice.

Inclusion of Covid-19 Donations or Contributions as Allowable Deduction

The Covid-19 pandemic has seen governments all over the world make socio-economic changes to relieve the impact of the pandemic on its people and the economy. In Nigeria, the government took deliberate steps through its agencies, regulators and its various arms to support both businesses and the citizenry during the pandemic. It is common knowledge that some manufacturing companies made contributions through donations in cash and in kind to support the palliatives provided by the government.

The FA 2020, taking into cognizance the efforts of these companies, amended Section 25 by inserting a new subsection that expands the allowable tax deductible donations to include donations made by companies to the Covid-19 crisis intervention fund or any similar fund set up by the Federal Government or any State Government.

It is important to note that the amount allowable for deduction by companies is limited to 10% of assessable profits, after deduction of other allowable donations. Companies are also required to provide requisite documentation evidencing the donations to the relevant tax authority, together with the costs incurred wholly, reasonably, exclusively and necessarily for this purpose. It is therefore expedient that companies keep appropriate and sufficient records to support their claims with the relevant tax authority as and when necessary.

Manufacturing companies that procured or manufactured items donated in kind are advised to review their records and ensure that they satisfy the requisite conditions for enjoying tax deductibility with respect to the donations made.

Claim of Capital Allowance on Software

The FA 2020 amends the second schedule of the CITA to expand the definition of Qualifying Capital Expenditure (QCE) to include capital expenditure on the development and acquisition of software or other electronic applications. The implication is that capital allowance claims on software are now permissible. This aligns with the government’s desire to encourage investment in technology, which is a vital tool for production in the manufacturing industry, particularly with increased automation in production processes.

The above notwithstanding, the FA 2020 does not indicate the applicable capital allowance rates for software, neither does it clarify whether or not investment allowance on qualifying assets is claimable on software-related expenses. Taxpayers would generally expect further clarifications on this in the future. In the meantime, it may be advisable for taxpayers to apply the current capital allowance rates applicable to the related hardware component/equipment to any corresponding software-related expense.

Capital Gains Tax (CGT)

The amended Section 2 of the CGT Act requires taxpayers who dispose chargeable assets and make capital gains in any year, to pay and file CGT returns not later than 30 June and 31 December of that year. It is unclear why two due dates were provided for payment and filing of CGT as this may create unnecessary ambiguity. Typically, additional clarifications would be required in order to ensure proper guidance for taxpayers.

Accountability and Compulsory Record Keeping Compliance by Companies

The FA 2020 seeks to eradicate the culture of poor record keeping which is rampant among small and medium businesses. In this regard, Section 63 of CITA was amended to ensure that businesses, including companies exempted from incorporation in Nigeria, maintain proper record of accounts and sufficient information on business operations. The Act also includes punitive measures which state that where businesses fail to provide records requested by the tax authority, such businesses are liable to pay as penalty, ?100,000 in the first month in which the failure occurs and ?50,000 for each subsequent month in which the failure continues. It remains to be seen how this amendment will be implemented by the tax authorities and hopefully, this will not constitute additional burden to small businesses.

Emails as Valid Means of Objection to Assessment Notices

Sections 68 and 69 of CITA were amended to affirm courier service, emails, or other electronic media as valid means for issuing notices of assessment by the FIRS and the submission of objections by taxpayers. The FA 2020 seeks to ease the burden of physical submissions and promote ease of compliance with the tax laws. This is a positive development as it has the potential to reduce compliance burden. This could also positively improve the country’s rank with respect to ease of paying taxes and ease of doing business in Nigeria.

Timeline for Payment of Tax Arising from Assessment Notices

The FA 2020 has revised the time limit within which taxes from final assessments (without any objection) should be paid. This was reduced from two (2) months to thirty (30) days. As

Stiffer Penalties for Deliberate Misstated Returns Filed by Companies

The Act provides punitive measures for companies who deliberately misstate their profits or taxes from selfassessment, in form of penalty and interest on the misstated amount, which shall accrue from the day the incorrect returns were filed. The Act is however silent on how tax authorities will ascertain returns that were deliberately misstated by taxpayers.

What has changed – Indirect Taxes

Confirmation of Commencement Period of the New 7.5% VAT Rate

The FA 2020 addresses the ambiguity in commencement date of the VAT rate and provides legislative credence to the Minister of Finance’s position by amending Section 4 of the VATA to confirm that the VAT rate of 7.5% became effective on 1 February 2020.

Timing of Supply of Goods and Services

The Act has introduced a new section 2A that provides clarification on the time of supply of a good/service (for VAT purpose). The section confirms that supply is deemed to take place at the time an invoice or receipt is issued by the supplier, or payment is due to, or received by the supplier in respect of that supply, whichever occurs first. This will resolve issues on advance billing, invoice dates and future agreements.

Modification of the Definition of VATable Goods and Services

The FA 2020 amends the VAT Act and explicitly exempted land, building, money and securities from the definition of goods. It further exempts interest in land, building, money or security from the Definition of VATable services. Therefore, the controversy around whether the sale or transfer of interest in land, building money and security are liable to VAT has now been fully resolved.

Confirmation of WHT as Final Tax on Income Earned by Non-resident Companies (NRCs) from Technical, Management, Consultancy and Professional Services Rendered to Persons in Nigeria

The FA 2020 includes a proviso that clearly states that Withholding Tax (WHT) is the final tax on the income earned by NRCs that render Technical, Professional, Management and Consultancy (TPMC) services to persons in Nigeria. Manufacturing companies who enjoy TPMC services rendered by NRCs are required to deduct WHT on the fees payable to such NRCs to the extent that the NRCs have Significant Economic Presence in Nigeria.

New Items Exempt from VAT

The Schedule to the VAT Act expanded the scope of goods exempt from VAT to include commercial aircrafts, commercial aircraft engines and commercial aircraft spare parts. In a similar vein, exempt services now include hire, rental or lease of tractors, ploughs and other agricultural equipment employed for agricultural purposes. Taxpayers are to take note of this development and ensure non-applicability of VAT on such goods and services.

Reduction in Excise Duty Rates

In a bid to encourage investment in the agricultural sector, excise duty on tractors have been significantly reduced from 35% to 5%; duty on motor vehicles for public transport and transport of goods has been reduced from 35% to 10%; and levy on motor vehicles for personal use was reduced from 30% to 5%. This is a welcome development, as cost of importation would be reduced and the vehicles will become more affordable.


The conscious effort of the Nigerian government to amend existing tax laws and improve on the identified gaps in the extant tax laws is highly commendable. The enactment of FA 2020 also returns the tradition of accompanying the annual Appropriation Act with a Finance Act that provides a platform for meeting revenue and other specific economic targets. It is our hope that its implementation will be in a manner that allows companies enjoy the maximum benefits of the changes and improvements ushered in by the FA 2020.