Today’s discussion is a continuation of our review of the Finance Act, 2019 with emphasis on Companies Income Tax Cap C21, LFN 2007 (CITA) to guide corporate and individual taxpayers of the impacts of the Act on their businesses.
The Finance Act substituted Section 10 of CITA with Section 10. In the old Section 10, a company was merely identified by the RC Number. This has changed as follows:
S.10(1) states: “Every company shall have a Tax Identification Number (TIN), which shall be displayed by the company on all business transactions with other companies and individuals and on every document, statement, returns, audited account and correspondence with revenue authorities, including the Federal Inland Revenue Service, Ministries and all Government Agencies.”
S.10(2) states: “Every person engaged in banking or other financial services in Nigeria shall require all companies to provide their TIN as a precondition for opening a bank account or, in the case of an account already opened within three months of the passage of this Act, the bank shall require such TIN to be provided by all companies as a precondition for the continued operation of their bank accounts.”
The Act classified companies into three categories – Small, Medium-sized and Large. Previously, only businesses in some specific industries with an annual Turnover of N1million and below in the year of assessment were charged a lower tax rate of 20 per cent of total profits for the first five years. This was applicable only to Manufacturing, Agricultural Production, Mining of Solid Minerals and wholly Export Trade businesses, while the rate for other industries was 30%. This has changed as follows:
This tends to provide a favorable window of benefits for small companies as stated below:
iii. Large Company – This is a company with a Gross Turnover of N100 million and above with a tax rate of 30 per cent of total profits in the relevant tax year.
Taxation of the transactions carried out through the digital platform
The Act introduced new amendments to CITA for the taxation of digital transactions. The amendment introduced the establishment of “Significant Economic Presence” of a business in Nigeria in determining taxable income, rather than physical presence. The effect of this is that digital transactions consummated with non-residents can now be easily assessed to tax in Nigeria.
The Act promotes collaboration among financial institutions, relevant tax authorities and providers of digital services to ensure that cross-border and local transactions through the digital platforms are captured into the Nigerian tax net in line with the recommendation of the Organisation for Economic Cooperation and Development (OECD).
(S.29 CITA) Repeal of the old commencement and Cessation Rules
There were instances of overlapping basis periods during the first three years of commencement of business in the old rule creating issues of double taxation. This has been addressed in the Finance Act. Businesses will now be subjected to tax on preceding year basis from the first and subsequent years of assessment.
Instances of gaps in between basis periods existed under the old rule such that profits of such periods escaped being taxed. This has been corrected as the assessable profits for the year of cessation is now the profits from the beginning of the accounting period to the date of cessation. However, it should be noted that the tax thereof shall be payable within six months from the date of cessation.
The remaining amendments to CITA in the Finance Act, 2019 will be discussed later.