What Is It About Finance Act 2023 That OPS Hates

By Christopher Okpoko

The FA 2023 is an act that amended relevant tax, excises and duty statutes in accordance with the macroeconomic policy reform of the federal government of Nigeria, and makes further provisions in specific laws in connection with public financial management of the federation. Before now, the Finance Bill, 2023 was an Executive Bill prepared by the then Honourable Minister for Finance, Budget and National Planning, Mrs. Zainab Ahmed, and presented by His Excellency, former President, Muhammadu Buhari, together with the 2023 Budget proposals to the National Assembly. Following several reviews and updates by both the Executive and National Assembly, the Finance Bill, 2023 was signed into law on 28 May 2023 by the former President as Finance Act, 2023.

According to PWC report, the Finance Act (FA) 2023 is the 4th in the series of Finance Acts in Nigeria. The previous administration adopted this fiscal policy model after its re-election in 2019 to support the implementation of the annual budget. The FA 2023 was signed by the former president Muohammadu Buhari on the eve of his last day in office (28 May 2023) but the effective date is stated as 1 May 2023. The key changes introduced by the FA 2023 are

Taxation of gains on the disposal of digital assets including crypto currency at the rate of 10 percent

.Deduction of capital losses on assets for capital gains tax purposes for the same type of asset, may be carried forward for a maximum of 5 years.

Rollover relief on sale of shares is subject to reinvestment of the proceeds within the same year of assessment.

Deletion of investment allowance on plant and equipment.

Imposition of 0.5 percent levy on goods imported into Nigeria from outside Africa.

All services including telecommunication services are liable to excise tax at rates to be prescribed by the President.

Tax deduction restored for premium paid in respect of insurance on own life and spouse.

Sharing of Electronic Money Transfer (EMT) levy 15 percent to Federal Government, 50 percent to State Governments and 35 percent to Local Governments.

Application of transfer pricing rules to VAT on transactions between connected persons considered to be artificial or fictitious.

Companies appointed to withhold VAT at source are to remit such VAT to the FIRS on or before the 4th day of the following month.

VAT on goods purchased via electronic or digital platforms from a nonresident supplier appointed as an agent of the FIRS to be chargeable to VAT and paid by the importer unless the proof of appointment and registration with FIRS is provided.

Redefinition of building for VAT purposes to exclude any structure not permanently affixed to land for all or most of its useful life.

Increase in Tertiary Education Tax rate from 2.5 percent to 3 percent of assessable profits.

Criticisms of the Organized Private Sector (OPS)

As widely reported in the media, the Director-General of Nigeria Employers’ Consultative Association (NECA) Mr. Adewale-Smatt Oyerinde expressed concerns over the new tax burdens in the finance FA 2023 as passed by the National Assembly. Some of these concerns included that:

while organized businesses are still faced with burdensome numbers of taxes, the Finance Bill seeks to add additional burden on businesses;

it is worrisome that the Tertiary Education Tax (TET) was increased from 2.5 percent to 3.0 percent without regard for current economic situation faced by businesses. More so, organized businesses are currently burdened with over 50 different taxes, levies and fees;

increasing Company Income Tax (CIT) rate for a gas-flaring company from the standard 30 percent to 50 percent is also worrisome, considering the fact that these companies are already covered in the Petroleum Industry Act. This could be a recipe for further divestment;

the imposition of Excise Duty at rates to be specified via Presidential Order on all services including telecommunication services, is too broad, vague, and could be subject to abuse and further strangulation of the business community; and

it was absurd that the National Assembly would consider and pass the Finance Bill in an unusual manner;

Consequently, in line with President Tinubu’s policy of creating conducive environment for businesses to thrive, he recently signed four Executive Orders including the FA2023, implementation of which was deferred from May 28, 2023 to September 1, 2023. The three other Executive Orders, reversed the laws hastily signed by former President Muhammadu Buhari, towards the end of his administration.

Meanwhile, the President of Chartered Institute of Taxation of Nigeria (CITN), Mr. Samuel Agbeluyi expressed its full support towards the federal government’s initiative to set up the Presidential Committee on Fiscal Policy and Tax Reforms. And as well praised President Tinubu for appointing a CITN member, Mr. Taiwo Oyedele, as the chairman of the Presidential Committee on Fiscal Policy and Tax Reforms. Also, he stated that he expects that the committee’s mandate would lead to improved revenue collection efficiency, promote transparency, foster a healthy tax culture, and encourage voluntary compliance. He also called for open dialogue and engagement of all stakeholders in the Nigerian tax system for the reforms to be all inclusive and meaningful and as well confirmed CITN’s intention to participate fully as it had always done in the current reforms process.

On its part, the NECA Director General has called for a total reversal of the Act instead of its suspension till September, 2023. However, on the impact of the President’s recent decision, he said it had prevented businesses, especially Small and Medium Enterprises, from collapsing. According to him, the Executive orders would allow the organized businesses to constructively dialogue with the government on some of the defects of the Finance Act 2023; it did not stop the whole issue but temporarily stopped the business economy from sliding; and it has allowed businesses to engage the government on the matter constructively.

It is worthy to note that part of the federal government’s objective with the Finance Act 2023 is to raise sufficient revenue to fund its operations in the 2023 fiscal year as well as to respond to emerging tax, fiscal and economic issues, including:

reducing headline corporate tax rates for Small and Medium-Sized Enterprises;

reforming archaic tax legislation in line with global best practices to combat Base Erosion and Transfer Pricing;

reforming the taxation of securities lending and real estate investment trusts to spur increased investments on our capital markets;

empowering the Federal Inland Revenue Service and the Nigeria Customs Service to optimize their use of technology to more efficiently collect taxes and levies.

However, it was observed that unlike the previous years where the Finance Bills were signed into law in the month of January, the Finance Act 2023 was signed a day to handover to the new administration (May 28, 2023) probably to destabilize the administration of President Bola Tinubu. Besides, one may wonder whether the organized private sector were not aware of the reviews and updates of Finance Bill 2023 during its first and second reading in the National Assembly until it was passed?

Never the less, entrepreneurs are the bedrock of any economy and in Nigeria, according g to the National Bureau of Statistics (NBS), Micro, Small and Medium Enterprises (MSMEs) account for 49.8 percent of Nigeria’s Gross Domestic Product (GDP) and constitute a significant share of the total number of businesses in Nigeria. In terms of labour force, they account for about 85 percent of total industrial employment and are spread across all the sectors of the economy. They are also active in providing creative solutions, innovative ideas and value creation in the sectors where they operate. But, despite their important contribution the Nigerian business environment has not been fully supportive of their potential. Small business owners continue to grapple with numerous challenges which limit their productivity, expansion potential and employment capacity. Some of these challenges include limited access to capital, high interest rate, infrastructure deficit, inadequate power supply, as well as policy and regulatory inconsistency. More recently, insecurity has become a major barrier to the growth of small businesses in Nigeria. In fact, in recent time, some businesses have either closed shop or left to neighbouring countries because of the harsh business environment.

Thus, considering the fact that Nigeria is ranked 131 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. And given the current level of unemployment in addition to the above challenges in Nigeria, this is certainly not the best of time to increase the burden on businesses