The Finance Act 2023 introduced significant changes to Nigeria's tax landscape. Building on previous amendments, this legislation modified various tax provisions affecting businesses across sectors. This guide explains the key changes and their implications for your business.
Overview of Finance Act 2023
Background
The Finance Act 2023 continued Nigeria's tax reform journey, aiming to:
- Increase government revenue
- Improve tax compliance
- Align with international standards
- Support economic development
- Close tax loopholes
Effective Date
Most provisions became effective upon presidential assent in 2023, with some having specific commencement dates.
Company Income Tax Changes
Tax Rate Structure
The Finance Act 2023 confirmed the tiered CIT rate structure:
| Company Category | Turnover | Tax Rate |
|---|
| Small | ≤ ₦25 million | 0% |
| Medium | > ₦25M - ₦100M | 20% |
| Large | > ₦100 million | 30% |
Minimum Tax Provisions
| Aspect | Change |
|---|
| Minimum tax rate | 0.5% of gross turnover |
| Small company exemption | Exempt from minimum tax |
| Application | When no taxable profit or tax is lower |
Commencement and Cessation Rules
| Situation | Treatment |
|---|
| New businesses | Relief in commencement years |
| Ceasing businesses | Rules for final years |
| Transition periods | Specific provisions apply |
Loss Relief
| Type | Provision |
|---|
| Loss carry forward | Unlimited period |
| Annual utilization | Maximum 50% of assessable profit |
| Order of set-off | Current year losses first |
Capital Allowances
| Asset Category | Initial Allowance | Annual Allowance |
|---|
| Buildings | 15% | 10% |
| Plant & Machinery | 50% | 25% |
| Motor vehicles | 50% | 25% |
| Furniture & fittings | 25% | 20% |
| Agricultural equipment | 95% | Nil |
Value Added Tax Changes
VAT Rate
| Aspect | Status |
|---|
| Standard rate | 7.5% (unchanged) |
| Registration threshold | ₦25 million turnover |
VAT Exemptions
Key exempt items include:
- Basic food items (unprocessed)
- Medical and pharmaceutical products
- Educational materials and services
- Baby products
- Agricultural equipment and inputs
Zero-Rated Supplies
| Category | Examples |
|---|
| Exports | Goods exported from Nigeria |
| Diplomatic supplies | To accredited diplomats |
| Humanitarian goods | To registered organizations |
Non-Resident VAT
| Provision | Details |
|---|
| Digital services | VAT on services to Nigerian consumers |
| Withholding mechanism | Nigerian business may withhold VAT |
| Registration option | Non-residents may register |
Withholding Tax Changes
WHT Rates
| Payment Type | Rate |
|---|
| Dividends | 10% |
| Interest | 10% |
| Rent | 10% |
| Royalties | 10% |
| Directors' fees | 10% |
| Professional fees | 10% |
| Contracts | 5% |
WHT Credit Mechanism
| Aspect | Treatment |
|---|
| Credit against CIT | WHT suffered available as credit |
| Unutilized credits | Carry forward provisions |
| Documentation | WHT certificates required |
Personal Income Tax Changes
Tax Rates
The graduated tax table remains:
| Income Band | Rate |
|---|
| First ₦300,000 | 7% |
| Next ₦300,000 | 11% |
| Next ₦500,000 | 15% |
| Next ₦500,000 | 19% |
| Next ₦1,600,000 | 21% |
| Above ₦3,200,000 | 24% |
Reliefs and Deductions
| Relief | Amount/Rate |
|---|
| Consolidated Relief Allowance | ₦200,000 or 1% of gross income + 20% of gross income |
| Pension contribution | Employee: 8%, Employer: 10% |
| NHF contribution | 2.5% of basic salary |
| NHIS contribution | Employer contribution deductible |
Employment Income
| Category | Taxability |
|---|
| Salaries and wages | Fully taxable |
| Benefits in kind | Taxable at prescribed rates |
| Reimbursements | Non-taxable if wholly expended |
| Gratuity | Exempt up to limits |
| Pension | Exempt after contributions taxed |
Tertiary Education Tax
Rate Increase
| Aspect | Details |
|---|
| Current rate | 2.5% of assessable profit |
| Planned increase | To 3% (phased implementation) |
| Applies to | Nigerian companies |
| Exemptions | Foreign companies, small companies |
Computation
| Step | Calculation |
|---|
| 1 | Determine assessable profit |
| 2 | Apply TET rate |
| 3 | File with CIT return |
| 4 | Pay alongside CIT |
Stamp Duties
Key Rates
| Instrument | Rate |
|---|
| Share transfer | 0.75% |
| Lease agreements | Based on annual rent |
| Loan agreements | 0.125% |
| Insurance policies | Varies by type |
Electronic Transactions
| Provision | Details |
|---|
| Electronic receipts | Liable to stamp duty |
| Electronic transfers | ₦50 on transfers above ₦10,000 |
Capital Gains Tax
Rate and Exemptions
| Aspect | Details |
|---|
| Rate | 10% |
| Exemptions | Main residence (certain conditions) |
| Exemptions | Stocks and shares (certain conditions) |
| Rollover relief | Reinvestment provisions |
Disposal of Assets
| Situation | CGT Treatment |
|---|
| Sale of land/building | 10% on gain |
| Sale of equipment | 10% on gain |
| Involuntary disposal | Rollover relief available |
Petroleum Profits Tax
Changes for Upstream
| Provision | Details |
|---|
| PPT rates | Vary by contract type |
| Allowable deductions | Specific provisions |
| Ring-fencing | Per field basis |
Deep Offshore/Inland Basin
| Area | Treatment |
|---|
| Deep offshore | Specific incentives |
| Inland basin | Preferential rates |
Tax Administration Changes
| Power | Description |
|---|
| Information access | Expanded third-party data access |
| Digital compliance | Electronic filing mandatory |
| Enforcement | Enhanced powers |
TaxPro Max
| Feature | Requirement |
|---|
| Online filing | Mandatory for most taxes |
| Electronic payment | Required via designated channels |
| Automated processing | System-generated assessments |
Penalties
| Offense | Penalty |
|---|
| Late filing | ₦50,000 + ₦25,000/month |
| Late payment | 10% + interest |
| Failure to register | ₦50,000 + ₦25,000/month |
| Inadequate records | ₦100,000 |
Sector-Specific Provisions
Technology/Digital Economy
| Provision | Impact |
|---|
| Significant Economic Presence | Non-resident taxation |
| Digital services | Specific VAT rules |
| E-commerce | Compliance requirements |
Agriculture
| Incentive | Details |
|---|
| CIT exemption | New agricultural businesses |
| Capital allowances | 95% first year for equipment |
| VAT exemption | Agricultural inputs |
Manufacturing
| Incentive | Details |
|---|
| Pioneer status | Tax holiday eligibility |
| Export incentives | Export expansion grant |
| Import duty relief | Qualifying inputs |
Financial Services
| Provision | Application |
|---|
| Bank taxation | Specific provisions |
| Insurance | Premium taxation |
| Securities | Transaction taxes |
Compliance Implications
For Small Businesses
| Requirement | Action |
|---|
| 0% CIT rate | Confirm turnover below ₦25M |
| VAT registration | Required if turnover exceeds ₦25M |
| Record keeping | Maintain adequate records |
For Medium Businesses
| Requirement | Action |
|---|
| 20% CIT rate | Plan for reduced rate benefit |
| Minimum tax | Consider 0.5% calculation |
| WHT compliance | Deduct and remit properly |
For Large Businesses
| Requirement | Action |
|---|
| Full CIT rate | 30% applies |
| Transfer pricing | Documentation required |
| Thin capitalization | Monitor debt/equity |
Planning Opportunities
Tax Efficiency Strategies
| Strategy | Benefit |
|---|
| Turnover management | Qualify for lower CIT rate |
| Capital allowance claims | Maximize deductions |
| Loss utilization | Plan loss relief |
| Group structure | Optimize entity setup |
Timing Considerations
| Area | Planning Point |
|---|
| Capital expenditure | Year-end purchases for allowances |
| Dividend payments | WHT and timing |
| Contract structuring | WHT optimization |
How Finora Helps with Finance Act Compliance
Automatic Updates
| Feature | Benefit |
|---|
| Rate changes | Automatically applied |
| Threshold monitoring | Alerts for rate changes |
| Compliance calendar | Updated deadlines |
Tax Calculations
Finora computes:
- CIT at correct tier rate
- VAT properly applied
- WHT accurately deducted
- PAYE using current tables
Reporting
| Report | How It Helps |
|---|
| Tax computations | Finance Act compliant |
| Returns preparation | Ready for filing |
| Compliance dashboard | Track all obligations |
Frequently Asked Questions
When did Finance Act 2023 take effect?
Most provisions became effective upon presidential assent in 2023. Specific provisions may have different commencement dates as specified in the Act.
Does the 0% CIT rate for small companies apply to all industries?
Yes, the 0% rate applies to companies with turnover of ₦25 million or less, regardless of industry. However, certain regulated industries may have specific provisions.
How do I know which CIT rate applies to my company?
Your CIT rate depends on gross turnover: ≤₦25M = 0%, >₦25M-₦100M = 20%, >₦100M = 30%. Review your turnover to determine your category.
What if my turnover crosses a threshold during the year?
The turnover for the preceding year determines your current year's rate. If turnover increases, you may move to a higher bracket the following year.
Are there any new reporting requirements?
Yes, enhanced record-keeping and electronic filing requirements. Transfer pricing documentation is mandatory for qualifying transactions.
Conclusion
Finance Act 2023 introduced changes affecting all Nigerian businesses:
Key Takeaways:
- CIT tiers remain at 0%, 20%, and 30%
- VAT continues at 7.5%
- Minimum tax is 0.5% of turnover
- Loss relief limited to 50% of profits annually
- Electronic compliance increasingly mandatory
Stay compliant by:
- Understanding applicable rates
- Meeting filing deadlines
- Maintaining proper records
- Planning for tax efficiency
Finora automatically applies Finance Act 2023 provisions to your tax calculations, ensuring accurate compliance.
Stay compliant with Finance Act 2023.
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