Finance Act 2020: The Key Changes in Tax Landscape


The Finance Act, 2020 was signed into law by the President of the Federal Republic of Nigeria Muhammadu Buhari, CGFR on Thursday, December 31, 2020, with the commencement date of Friday, January 1, 2021. The Act has introduced further significant changes to various tax laws in the country. The Act introduced changes in the under listed tax laws which have implications for tax practitioners as well as administrators and taxpayers in Nigeria:

  • Capital Gains Tax Act;
  • Company Income Tax Act;
  • Industrial Development (Income Tax Relief) Act;
  • Personal Income Tax Act;
  • Tertiary Education Trust Fund Act;
  • Customs & Excise Tariff (Consolidation) Act;
  • Value Added Tax;
  • Federal Inland Revenue Service (Establishment) Act;
  • Fiscal Responsibility Act;
  • Public Procurement Act;
  • Companies and Allied Matters Act;
  • Nigerian Export Processing Zone Act; and
  • Gas Export Processing free Zone Act

Specific Changes Introduced by the Act

The most significant changes introduced by the Act are discussed hereunder:

The Finance Act 2020 has cleared the ambiguity in the Finance Act 2019, on the amount of compensation for loss of office that is to suffer Withholding Tax under the Capital Gain Tax Act.

The Finance Act 2020 provides that the compensation for loss of office over N10 million is subject to withholding tax. The payment will be made by the organization at the point of payment of the compensation for loss of office by deducting the tax at source and remitting same within the time frame as specified under the Pay-as-you-earn regulations.

The FA 2020 introduced a reduction of rate for minimum tax payable by companies from 0.5% to 0.25% of the company’s gross turnover provided that the tax returns are prepared and filed in respect of a year of assessment that ends on any date between January 1, 2020, to December 31, 2021.

Deductibility of donations made in cash or kind to the government in respect of any pandemic or natural disaster subject to a maximum of 10% of assessable profit after other allowable donations.

FA 2020 has empowered the Federal Inland Revenue Service (FIRS) to prescribe the form of accounts other than the audited financial statements for small and medium companies as defined under the Company Income Tax Act (CITA).

The acceptability of electronic filing of returns has been codified in law as the Act permits that notice of assessment and objections as stated in CITA may be done via courier, email or electronically as may be directed by FIRS in a notice.

The Tax Appeal Tribunal has been empowered to conduct hearings remotely via virtual proceedings.

Small or medium companies engaged in primary agricultural production may be granted pioneer status for an initial period of four years and this can be renewed for an additional two years.
Gross income for personal relief purposes was redefined as income from all sources less nontaxable income, exempt items and income on which no further tax is payable.

These are comprised of non-taxable income, franked investment income, National Housing Fund contribution, National Health Insurance Scheme contribution, life assurance premium, National Pension Scheme contribution, gratuities, allowable business expenses and capital allowances. This amendment has consequential increase on the effective tax rate of income earners going forward as this definition will result in a lower gross income base for granting the Consolidated Relief Allowance (CRF) claimable by taxpayers.

Low-income earners earning minimum wage or less have been exempted from payment of personal income tax effective 1st January 2021.
The concept of Significant Economic Presence (SEP) introduced to CIT in Finance Act 2019 has been replicated in Personal Income Tax Act (PITA) in FA 2020. Also, the definition of SEP has been provided in the Act. This amendment targets the income of non-resident individuals who are engaged as executors and trustees from technical, management, consultancy or professional services provided to a person resident in Nigeria. The income realised by such individuals under the SEP will be subject to Withholding tax at the rate of 10%. The WHT shall be a final tax on such income.

Goods liable to excise duties have been expanded to include telecommunication services provided in Nigeria as may be prescribed in the law or an order issued by the President of the Federal Republic of Nigeria.

Import duties payable on vehicles have been reduced as follows: duty on tractors from 35% to 5%; duty on mass transit vehicles for the transport of more than 10 persons and trucks from 35% to 10% and duty on cars from 30% to 5%. Also, the Act has exempted from VAT, commercial airline tickets and hire or lease of agricultural equipment for agricultural purposes.
FA 2020 established a Crisis Intervention Fund of N500billion or other sums as may be approved by the National Assembly and by way of trust, a sub-fund of the Crisis Intervention Fund, an Unclaimed Funds Trust Fund. The Unclaimed Funds Trust Fund will be funded by Unclaimed Dividends as well as credit balances in dormant accounts, which have remained unclaimed and dormant for a period of six years and above.

The FA 2020 makes clear provision for the management of the Fund which shall be a special debt owed by the Federal Government to the verified owners of the funds. These funds will be repaid upon verification of the owners.

For the companies operating in the Free Trade Zones, exemption from taxes is therefore subject to compliance with the filing of tax returns to the FIRS under CITA.


The amendment of tax laws will, directly and indirectly, impact individual taxpayers and corporate organisations. Tax administrators will be issuing circulars on modalities for the implementation of specific provisions in the Finance Act 2020. As the filing cycle for the tax returns has commenced, it is expected that tax practitioners will be able to develop capacity in the areas of changes introduced in the tax laws.

This will enable them to effectively guide taxpayers on the implementation of laws relating to them. Corporate organizations through their tax departments and units will be able to manage the effects of the amendments through effective tax planning and tax management strategies. Systems and processes need to be updated to reflect the current requirements of the law and should be executed immediately.

Also, the tax administrators will be required to drive tax compliance through effective education and information dissemination to guide taxpayers on the requirements of the current laws. The structure required to drive implementation of the laws including the deployment of robust technology will be a must for all tax authorities in the light of these changes.

Adefisayo Awogbade, M.Sc, FCTI
Registrar/Chief Executive
Chartered Institute of Taxation of Nigeria

About the Institute

The Chartered Institute of Taxation of Nigeria started on February 4, 1982, as an Association of Tax Administrators and Practitioners (ATP). Thereafter, it transformed into Nigerian Institute of Taxation, which was formally launched on February 21, 1982, and statutorily recognized on May 6, 1987, as a Company Limited by Guarantee.

The Institute was chartered by the Federal Government of Nigeria by the enabling Act No. 76 of 1992 (now CITN Act, CAP C10, Vol. 2, Laws of the Federation of Nigeria, 2004) and is charged with the responsibility, among others, of regulating and controlling the practice of the tax profession in its entire ramifications and determining the standards of knowledge and skills required to be attained by persons seeking to become professional Tax Practitioners or Administrators.

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