The Federal Inland Revenue Service (FIRS) has released various information circulars (the Information Circulars) on its opinion and clarification of certain provisions in the Finance Act 2019 (the Act). It would be recalled that the Finance Bill 2019 was assented to by the President in January 2020, thereby effecting key changes to Nigerian tax laws. The Information Circulars were therefore issued pursuant to the Act, to address certain issues, such as transitional provisions, that were not expressly mentioned in the Act.
The Information Circulars released were to clarify the following:
- Sundry provisions of the Finance Act 2019 as it relates to CITA: This circular provides clarity on the determination of dividends paid out of retained earnings, the exemption of small companies from companies income tax (CIT), withholding tax (WHT) obligations of small companies, tertiary education tax obligations of small companies (exempted from CIT) and treatment of capital allowances for small companies. The circular also includes an anti-abuse provision.
- The Stamp Duties Act: This circular covers electronic stamps, the mode of denoting stamp duties, the effect of electronic documents received in Nigeria, the appropriate authority to collect stamp duties as well as the applicable stamp duties rate on certain transactions.
- The operation of Regulated Securities Lending Transaction: The circular explains the nature of regulated securities lending, the taxation of such transactions, the deductibility of expenses, WHT obligations, income earned by individuals and the application of stamp duties. Considering that this sector is niche and still expanding, the clarification circular is a step in the right direction.
- Commencement and Cessation Rules, and Business Reorganisation: The abolishment of commencement and cessation tax rules makes this circular necessary for taxpayers, especially those in the transition period. This circular covers determination of assessment years and accounting periods, cessation of business, business reorganization and restructuring, amongst others.
- Real Estate Investment Companies (REIC): The nature of REICs, the taxation of the income earned by REICs, the effect of dividend tax provisions on REICs, exemption from tax, deductibility of distributions as well as the WHT obligations were covered in the circular.
- Value Added Tax (VAT) rate: This circular clarified the definition of goods and services, the rate of tax, the transitional issues relating to the increased VAT rate, registration and deregistration for VAT, registration for non-residents, self-account provision, the VAT threshold, definition of exported services and calculation of penalties.
- Taxation of Insurance Companies: The circular covers both life and non-life insurance business and provided clarification on reserve for un-expired risk.
The release of the Information Circulars is a welcome development as it provides taxpayers with the much-needed clarifications on the Finance Act. It also gives insight as to how the FIRS intends to implement the provisions of the Act.
Please expect our detailed newsletter on the analysis of each of the highlights mentioned above.