CAUTION! 7 ITEMS THAT GOT THE BOOT FROM THE NIGERIAN COMPANY INCOME TAX ACT BY THE 2019 FINANCE ACT

 

Hey there, tax enthusiasts! Let’s look at some fascinating legal twists. You might think tax laws are dull, but today, we’re giving you the inside scoop on seven sneaky sections that the FinanceAct 2019 waved goodbye to in the Nigerian Company Income Tax Act (CITA). These aren’t just any old sections—each one had its own role, and their deletion means major changes in how businesses operate. So, let’s break down what’s gone and why you should care!

1. The Goodbye to Replacement of Obsolete Plant and Machinery (Section 41)

Once upon a time, if your business was updating old equipment, Section 41 had your back. It provided a 15% investment tax credit for companies replacing outdated plant and machinery. This perk was designed to encourage companies to keep their equipment in tip-top shape, fostering productivity and efficiency. But, the Finance Act 2019 didn’t see it that way anymore!

With the deletion of Section 41 by Section 17 of the Finance Act 2019, businesses no longer get this sweet tax credit. Translation? Replacing obsolete machinery just got a bit more costly. Companies may have to think twice before investing in the latest tech, which could mean slower modernization for some industries.

2. Nigerian Dividends for Non-Nigerian Companies (Section 20(b))

Imagine being a foreign company reaping Nigerian dividends with little tax hassle! Section 20(b) was all about that. If a company was neither Nigerian nor doing business in Nigeria, it could enjoy tax-free dividends from Nigerian companies. Sounds like a dream for international investors, right?

But Section 8 of the Finance Act 2019 gave this section the axe. Now, these companies face different rules regarding tax on dividends. This move aimed to increase the tax base and close loopholes that allowed companies to benefit tax-free. International companies will now think twice before counting their dividend chickens!

3. Profits Exempted from Withholding Tax (Section 23(1)(n))

Ever heard of tax exemptions on dividends, interests, rents, or royalties? Section 23(1)(n) was a blanket that covered these, letting companies breathe a little easier. This part of the CITA made sure that even if a company had exempt profits, withholding taxes could still apply, maintaining a balanced approach.

But the Finance Act 2019 said “not so fast!” Section 9(a)(i) deleted this exemption clause. Now, companies can expect withholding tax deductions on dividends and other income sources without any special protections, meaning there’s no avoiding those taxes on distribution payments!

4. The Perks for Gas Utilization (Downstream Operations) – Section 39(1)(e)

If you were involved in the gas business, downstream operations came with some financial perks! Section 39(1)(e) allowed companies to deduct the interest on loans for gas projects from their taxes. The goal was to foster growth and innovation in the gas sector, making it easier to secure loans for big projects.

However, Section 15(a) of the Finance Act 2019 snipped this perk right out. No more tax-deductible interest on loans, which means companies in the gas sector may have to rethink their financing strategies. It’s a costlier path ahead for them, especially in a sector where large-scale loans are the norm!

5. Interim Dividend and Upfront Income Tax Payment Requirement

The Finance Act 2019 section 17 removed the requirement in section 43 of CITA for companies paying interim dividends to remit 30% to the tax authorities upfront. This rule, initially established to secure tax revenues early, added a financial strain on companies. Its removal now provides more flexibility in dividend payments.

6. Interest on Loans for Gas Projects: Another Setback for the Gas Industry (Section 39(1)(e))

Yep, we’re back to the gas sector, because the Finance Act 2019 hit it hard. Section 39(1)(e) used to allow companies to deduct interest on loans for gas projects, helping them finance critical projects with a little less financial strain.

But as we mentioned before, Section 15(a) of the Finance Act 2019 removed this deduction, making gas projects that much more expensive. Companies in this sector are now faced with a tougher financial landscape, meaning fewer incentives to expand or modernize operations in the Nigerian gas industry.

7. International Dividends and Their Tax Implications (Section 20(b))

Section 20(b) created a tax-free haven for dividends received by foreign companies from Nigerian entities. This was a big incentive for foreign investment in Nigeria, as international investors enjoyed some tax-free income on dividends received from Nigerian companies.

But Section 8 of the Finance Act 2019 took that away, ending the tax-free treatment of these dividends. Now, foreign companies that want to enjoy dividends from Nigerian companies need to re-evaluate their tax liabilities in Nigeria. This change adds a layer of tax consideration for global investors and affects the attractiveness of Nigerian dividends.

Wrapping It Up: Why Should You Care?

The Finance Act 2019 came in like a whirlwind and shook up the Nigerian tax landscape. While it’s easy to see these changes as mere legal updates, each deletion has real-world effects. From gas companies to foreign investors, these amendments mean companies need to get creative with their financial planning.

So, what’s the big takeaway? For businesses, it’s a reminder to stay agile and adaptable. For investors, it’s a signal to do a deeper dive into the Nigerian tax environment. And for tax enthusiasts? It’s just another fascinating chapter in the world of tax law!

Remember, tax laws can have a huge impact on investment, business decisions, and even the job market.