Finance Act 2021: Critical Changes and Implications to the Nigerian Tax Legislations


Akinselure Daniel Adetomiwa 


The importance of taxation cannot be overstated in any way. The basic goal of the Nigerian tax system, like that of other jurisdictions, is to generate profit to effectively manage all levels of government and provide infrastructure to the general people. A working tax system and efficient tax administration are required to establish an effective tax push. This effective tax administration and functioning tax system create a tax culture that limits the potential for corruption and tax evasion.

Significant revisions to the Nigerian Finance Act have been made over the years in the pursuit of what is believed to be directed toward the progressive accomplishment of the Nigerian tax system’s aims. Here’s a quick rundown: President Muhammadu Buhari signed the Finance Bill (the Finance Act or the Act) on December 31, 2020, and it went into force on January 1, 2021. The Finance Act made over 80 changes to the country’s existing tax laws and regulations. The Capital Gains Tax Act, the Companies Income Tax Act, the Personal Income Tax Act, the Nigeria Export Processing Zone Act, the Oil and Gas Export Free Zone Act, the Federal Inland Revenue Service (Establishment) Act, and the Customs and Excise Duties Act, amongst others. It’s vital to note that the purpose of the Finance Act 2020 was to remedy inadequacies, ambiguities, and provide clarity to key legal requirements. Another component of the Finance Act 2020 was that it gave companies incentives to help them cope with the effects of COVID-19. In addition, The Crisis Intervention Fund and The Unclaimed Funds Trust Fund were established by the Act. These funds were intended to respond to the effects of the COVID-19 epidemic on the Nigerian government’s budget during the 2020 fiscal year.[1]

President Muhammadu Buhari signed another Finance Bill, 2021 (now known as the Finance Act 2021) into law on December 31, 2021, which took effect on January 1, 2022. To offset the tragic consequence of the COVID-19, the latter Finance Act, like the earlier Finance Act, made substantial reforms to Nigeria’s tax and regulatory regulations. The Capital Gains Tax Act, Companies Income Tax Act, Federal Inland Revenue Service (Establishment) Act, Personal Income Tax Act, Customs, Excise, Tariffs Etc. (Consolidation) Act, Value Added Tax Act, Nigerian Police Trust Fund (Establishment) Act, and others are among the laws amended by the Finance Act 2021.[2]

In essence, the purpose of this study is to evaluate the significant changes and ramifications of the new Finance Act on several Nigerian tax laws. 




The capital gains tax was first implemented in Nigeria in 1967 at a rate of 20%, however, it was later decreased to a rate of 10%. Gains from the sale of chargeable assets such as shares, bonds, and other securities were previously subject to capital gains tax, but in 1998, the Nigerian government reclassified such gains as non-chargeable gains, exempting the gain from the prescribed rate of capital gains tax.

To put it another way, before the enactment of the Finance Act 2021, proceeds inferred from the sale of shares and stocks in any Nigerian firm were specifically exempt from capital gains tax. The Finance Act of 2021 has the effect that proceeds from the sale of shares and stocks are now subject to capital gains tax at a rate of 10%.[3]  To buttress further, if a Nigerian firm engages in any activity that results in the sale of shares or stocks, the corporation will be subject to a 10% capital gains tax. However, before liability may emerge, the shares or stocks must be sold for a total of ₦100 million or more in any twelve months. Similarly, any proceeds reinvested in the shares of the Nigerian firm or any other company during the same assessment year are excluded.[4] Also excluded from capital gains tax are the transfer of shares in a licensed security lending transaction and the sale of assets owned by the Nigerian government.

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The Companies Income Tax Act[5] exempted profits of Nigerian companies concerning items exported from Nigeria before the introduction of the Finance Act 2021, provided that the earnings of such exports were utilized to purchase raw materials, plants, equipment, or spare parts. This is interpreted to mean that it extends tax exemption rights to companies engaged in upstream, midstream, or downstream petroleum operations that are either subject to Hydrocarbon Tax or Companies Income Tax under the recently enacted Petroleum Industry Act.

The response is that there is some confusion in the application process when it comes to the taxability of proceeds from exports of enterprises engaged in petroleum operations. To address this ambiguity, the Finance Act 2020[6] added a new provision stating that profits earned from exports by firms engaged in upstream, midstream, or downstream petroleum operations are not exempt from Company Income Tax. As a result, companies’ profits from exports of items made in upstream, midstream, and downstream petroleum operations are no longer tax-free.[7] 


The Companies Income Tax Act exempts certain gains from income tax before the Finance Act 2021. The Companies Income Tax Act, Section 23 (1) (C), states:

“Any company engaged in ecclesiastical, charitable or educational activities of a public character in so far as such profits are not derived from a trade or business carried on by such company”.

There have been various issues involving the scope, interpretation, and implementation of this clause in the context of the profits of public educational institutions. The Court of Appeal decision in the matter of Best Children International Schools Limited vs. the Federal Inland Revenue Service[8] gave rise to Section 7 of the Finance Act 2020. The court ruled that a profit-making educational institution organized as a “company limited by shares” is subject to Companies Income Tax.[9] However, where an educational institution is set up as a “company limited guarantee” it is exempted from Companies Income Tax. The provision of Section 26 of the Companies and Allied Matters Act 2020[10], which states that “a company limited by guarantee is not expected to distribute its profits among its shareholders,” is the basis for this exemption.

This exemption has now been revoked by the Finance Act of 2021, and all educational institutions, even those of public character, would be subject to Companies Income Tax.

As a result, educational institutions will be required to comply with this new requirement by timely preparing and filing their tax returns to avoid penalties and interest. Another impact is that educational institutions will be subject to the Companies Income Tax Act’s minimum tax and other anti-tax avoidance measures.[11] 


In general, if a Nigerian or non-resident firm declares (a) no assessable earnings or (b) less than projected assessable profits in a tax year, the tax authorities can levy Companies Income Tax on the company based on a proportion of its turnover. The Best-of-Judgment Assessment is the name given to this system of tax (BoJ). Only non-resident corporations that have established a tax presence in Nigeria through the use of a fixed base, a dependent agency, or a taxable single contract with earnings generated and attributable in Nigeria were liable to a BOJ assessment before the FA 2021. The Federal Inland Revenue Service (FIRS) may levy Companies Income Tax (CIT) on the profits of a non-resident digital service company that sends, receives, or transmits signals, sounds, messages, images, or data in any form, including e-commerce, app stores, and online advertisements. A “fair and reasonable percentage” of the company’s turnover derived from or attributable to its economic presence in Nigeria would be taxed as income tax.[12]

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Under the Finance Act 2021, Corporations that provide digital services and have a Significant Economic Presence (SEP) in Nigeria have now been added to the categories of non-resident companies that may be subject to the BoJ evaluation.[13] 



By virtue of the Finance Act,[14] the Minister has the power to implement rules for the imposition, administration, collection, and remittance of the Electronic Money Transfer (EMT) charge, subject to National Assembly approval.[15] Accordingly, the Act empowers the Minister to promulgate regulations governing the auditing of applicable stamp duties and EMT levy arrears received between 2015 and 2019. The Act also mandates that any subsequent EMT levies be disbursed within 30 days after collection. Aiming to clarify the auditing and treatment of back-duty stamp duties, the Finance Act, 2021’s retrospective applicability is questionable. Regardless, it is believed that it will assist resolve the continuing disagreement between FIRS and SBIRs over the payment of stamp duties/EMT levied on individual transactions.



Non-alcoholic, carbonated, and sweetened drinks now attract a N10 excise levy per litre under Section 17 of the Finance Act, 2021.[16] The implementation of excise duty on these items attempts to reduce the development of ailments like diabetes and obesity, while simultaneously increasing the federal government’s income potential. A bond or a cash deposit is required to pay excise duty on excisable items in Nigeria, according to extant Nigeria Customs Service regulations. Non-alcoholic, carbonated, and sweetened beverage importers will be required to pay the corresponding excise duty upon entry into Nigeria. As an excise tax, the expense of the charge is supposed to be passed on to ultimate consumers. Nigeria has joined over 40 nations, including Hungary, France, and South Africa, in implementing WHO guidelines to tackle non-communicable illnesses, such as Type 2 diabetes, which are linked to excessive use of sugar-sweetened drinks. Despite the noble purpose underlying this provision, the tax’s usefulness is uncertain.[17]

First, the tax is too wide to achieve meaningful sugar reduction. A tax based on the amount of sugar in each litre of drink would be more targeted. This strategy also allows producers to respond properly by lowering sugar content or producing healthier alternatives depending on consumption trends.[18]

Second, the marginal price increases (N10 per litre) may not be adequate to change excessive customers’ consumption patterns. For example, the WHO estimates that a 20% levy on sugary drinks is necessary to induce a 20% reduction in consumption. The projected N10 per litre increases prices by less than 10%. Regardless, reducing sugar intake might have major long-term qualitative and quantitative advantages for Nigerian health.[19]

Third, the amendment did not clarify whether the tax will be levied “ex-factory” or “sales price”, causing a disparity in the impact on production and/or sales of these beverages. Further information is required to allow impacted producers to plan and implement smoothly.[20]



According to Section 51 of the Finance Act, 2020, the FIRS can now use technology for tax administration and data collection in Nigeria.[21] However, the FIRS must provide the taxpayer with 30 days’ notice before accessing their information system to acquire information. The Finance Act of 2021 now imposes a daily administrative penalty of N25,000 on taxpayers who fail to provide FIRS access. This will accumulate each day of failure. Despite the foregoing, the Act recognizes that a taxpayer may be unable to allow the FIRS access to its system. According to the Act, the taxpayer must notify the Service in writing why it is refusing access to the FIRS.[22]

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The Finance Act, 2021 modified Section 68 of the FIRSEA to make the FIRS the sole government agency responsible for administering, assessing, collecting, accounting, and enforcing federal taxes and levies. The FIRSEA’s First Schedule lists the enabling laws for various taxes and levies. The Act also makes it illegal for any government entity or agency to manage, collect, account for, or enforce taxes and levies payable to the Federal Government unless the Minister of Finance permits it. No other Federal Government agency may legitimately audit corporations in Nigeria. The Act allows the Service to work with other federal government agencies to enforce tax and levy collection in Nigeria.[23]



The Finance Acts of 2019 and 2020 have revealed that the government seeks to guarantee that non-resident supplies are correctly collected and taxed in Nigeria. To this aim, the Finance Act 2021 allows FIRS to select tax agents (including non-residents) to collect and remit VAT. Normally, when a non-resident makes a taxable supply, the recipient in Nigeria is obligated to withhold and remit tax. With the FA 2021, a non-resident provider appointed as a tax agent by the FIRS is required to collect and submit VAT to the authority. If the non-resident supplier agent fails to collect tax, the Nigerian recipient of the supply shall be liable. Finally, a non-resident tax agent may establish a representative in Nigeria to perform its tax duties.[24]


The Finance Act 2021 has changed the fiscal environment, and both corporate and non-corporate taxpayers need to understand how the new rules will affect their operations. While the FA 2021 proposes several important tax law reforms, highlighted is the inclusion of new taxes, increases in current taxes, and new tax compliance duties which would raise taxpayer liabilities and likely enforcement issues. The FIRS and state tax authorities are anticipated to produce guidelines and information circulars to clarify the FA 2021 regulations. The Finance Act is projected to raise the FG’s domestic revenue and improve the country’s economic performance this year. Taxpayers should always seek expert advice to guarantee compliance with tax rules.

Daniel is studying law  at the Lagos State University 




[3] Section 2, Finance Act 2021

[4] Section 30, Capital Gains Tax Act 2004 (as amended)

[5] Section 23, Companies Income Tax Act 2004

[6] Section 7 (1) (a) Finance Act 2021

[7] Section 23 (1) (q) Companies Income Tax Act 2004 (as amended)

[8] Best Children International Schools Limited V. Federal Inland Revenue Services (2018) LCN/12274(CA)

[9] Finance Act, 2020 _KPMG Impact Analysis E-Book

[10] Companies and Allied Matters Act (CAMA) 2020

[11] Anderson Digest, Finance Act 2021- Review of Salient Tax Provisions and Potential Implication on Businesses

[12] Section 4, Finance Act 2021

[13] Section 30 Companies Income Tax Act 2004 (as amended)

[14] Section 27 of Finance Act, 2021

[15] Section 89 A (3) Stamp Duties Act 2004 (as amended)

[16] This provision implies that it amends Section 21 of the Customs, Excise Tariffs Act

[17] Finance Act, 2020 _KPMG Impact Analysis E-Book

[18] Ibid

[19] Ibid

[20] Anderson Digest, Finance Act 2021- Review of Salient Tax Provisions and Potential Implication on Businesses

[21] Section 25(4) of the FIRSEA

[22] Finance Act, 2020 _KPMG Impact Analysis E-Book

[23] Ibid

[24] Templars Tax Alert- A Primer of Key Changes Introduced by The Finance Act 2021


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