How Nigeria's 2021 Finance Act impacts businesses

Nigeria's Finance Act for 2021 came into effect on January 1, 2022, as a strategic move by the Nigerian government to bolster revenues, tackle rising debt servicing costs, and address budget deficits while aiming to stabilize the economy. The Act comes at a challenging time for policymakers, with various complexities in play as they strive to strike a delicate balance amidst the economic strains brought on by the COVID-19 pandemic. Taiwo Oyedele, Partner and Africa Tax Leader at PwC Nigeria, sheds light on the key amendments and implications of the Finance Act on businesses and the Nigerian economy. The Finance Act 2021 marks a departure from its predecessors, focusing more on revenue generation rather than providing business incentives. While the previous Acts aimed to enhance the business environment and offer tax breaks, the 2021 Act introduces new taxes, levies, and surcharges, posing a significant challenge for businesses in a still-recovering economy. One of the prominent amendments in the Act is the introduction of capital gains tax on shares, a previously untaxed area. Under the new provisions, individuals selling more than 100 million Naira worth of shares within a 12-month period will be subject to a 10% tax. Additionally, the expiration of the exemption order on corporate bonds has led to a substantial tax burden on corporate bond transactions, raising the effective tax rate to around 40%. These changes in the capital market taxation landscape arrive at a critical juncture when the sector plays a vital role in financing development amid economic recovery challenges. Another significant aspect of the Finance Act 2021 pertains to the digital economy and tax implications for digital companies operating in Nigeria. With the government's decision not to sign the global treaty on digital taxation, Nigeria has implemented unilateral measures targeting digital companies with a significant economic presence in the country. The new regulations require digital companies with Nigerian customers to register with tax authorities, pay income tax on Nigerian-generated income, remit VAT on their services to Nigerian customers, and potentially face a deemed tax rate on turnover. These measures could lead to an adjustment in pricing strategies by affected companies to offset the increased tax costs, potentially impacting consumers in Nigeria. The Finance Act 2021 represents a paradigm shift in Nigeria's tax landscape, emphasizing revenue generation and tax compliance while navigating the challenges of a fragile economy and evolving global tax frameworks. Businesses and stakeholders in Nigeria must adapt to the new tax regime, explore tax planning opportunities, and stay updated on compliance requirements to mitigate the impact of the Finance Act on their operations and investments. In a climate of economic uncertainty and fiscal constraints, strategic tax management and financial planning are crucial for businesses to thrive and contribute to Nigeria's economic resilience and growth.