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Nigeria’s Finance Act 2020: Insights Series and Sector Analysis



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  • By PwC Analysts


Economic Context

The outbreak of COVID-19 pandemic led to a contraction of the Nigerian economy by -6.1% in Q2 2020 compared to 2.1% in Q2 2019. Mining and Quarrying contracted by 6.6%, Manufacturing by 8.8%, Real Estate by 22%, Insurance by 29.5%, Construction by 31.8%, and Trade by 16.6%. However, Information and Communication grew by 16.5%, Financial Institutions by 28.4%, and the agricultural sector remained resilient as it grew by 1.6% in Q2 2020. The GDP growth trend continued in Q3 2020 and for the rest of 2020.

Many key economic indicators did not move in the right direction. Inflation rose to 15.75% by the end of 2020, the highest in almost 3 years while unemployment remained high at over 27%.

Nigeria’s total public debt increased by 18% to over N32.2 trillion as at the end of 2020 from N27.4 trillion recorded as at 31 December 2019. Meanwhile, disruptions to international trade flows as a result of the COVID-19 pandemic weighed heavily on foreign trade in 2020, with exports posting a significant decline of 45.5% in Q2.

Various monetary policy interventions and fiscal policy measures introduced by the government helped cushion the severity of the projected economic decline in 2020 while the Economic Sustainability Plan, the 2021 Appropriation Act and changes introduced via the Finance Act 2020, are expected to facilitate economic recovery and boost inclusive growth in 2021.

Highlights of the Finance Act 2020

In what is becoming an annual tradition, the Finance Act 2020 (“FA 2020”) was passed by the National Assembly and signed into law by the President on 31 December 2020. The FA 2020 which comes into effect from 1 January 2021 compliments the 2021 Federal Government’s Budget of Economic Recovery and Resilience, anchored on the following key objectives:

  • Adopt appropriate counter cyclical fiscal policies to respond to the economic and revenue challenges;
  • Reform extant fiscal policies to prioritise job creation, economic growth and social economic development and domestic revenue mobilisation;
  • Provide fiscal relief for taxpayers;
  • Propose measures to fund the Federal Government’s COVID-19 pandemic as well as any similar crises in the future;
  • Ensuring coordination of fiscal, monetary and trade policies; and
  • Reform the Fiscal Responsibility and Public Procurement Acts.

Covid-19 responses, fiscal reliefs and counter-cyclical measures

The FA 2020 provides for various reliefs in the form of tax deduction for donations made by companies to Covid-19 intervention funds; reduction of minimum tax payable by companies from 0.5% to 0.25% of turnover for the two years of assessment due between 1 January 2020 and 31 December 2021; exemption of small companies from education tax; use of courier service, email or any other electronic means for assessments and objections. Also, there is an exemption of compensation for loss of office up to N10 million from tax; exemption of low-income earners earning minimum wage or less from personal income tax; reduction of import duties and levy on vehicles; exemption of commercial flight tickets from VAT; and duty-free importation of aircraft and aircraft components. These measures are designed to cushion the impact of the economic challenges triggered by the COVID-19 pandemic.

Fiscal reform and policy coordination

Various measures introduced by the FA 2020 in this regard include exemption of small companies from mandatory preparation of audited accounts (this aligns with the new provisions of CAMA 2020); use of technology by FIRS for tax administration including accessing information directly from taxpayers’ accounting systems. Also, there is now a legal framework for the Tax Appeal Tribunal to conduct virtual hearing.

Capital allowance can now be claimed on software as a qualifying capital expenditure; deduction for life assurance premium on the life of the insured and his/her spouse has been reinstated after it was deleted by the Finance Act 2019. There is a restriction of deductible pension contributions to only schemes approved under the PRA; reform of commencement and cessation rules under the Personal Income Tax Act; definition of time and place of supply for VAT purposes; exemption of land and building from VAT; redesignation of stamp duty on bank transfers as Electronic Money Transfer (EMT) levy with a new revenue sharing formula (15% to federal government and the FCT, 85% to states). In addition, the FA 2020 provides for the creation of dedicated accounts by tax types for the payment of tax refunds; sanctions to ensure confidentiality of taxpayer information by tax officers; and requirement for free zone enterprises to file returns with the FIRS.

Budget funding and revenue mobilisation

New penalties have been introduced for violation of various requirements introduced by the FA 2020 including deliberate or dishonest acts to falsify tax returns. Other changes include provision of a legal framework for the introduction of excise tax on telecommunications services; introduction of Significant Economic Presence (SEP) rules for Technical, Management, Professional and Consultancy services provided by non-resident individuals and other unincorporated entities under PITA; expansion of VAT obligations of foreign companies doing business with customers in Nigeria; legal framework to strengthen exchange of information under various international treaties; redefinition of “gross income” for the purpose of Consolidated Relief Allowance (CRA) as income from all sources lessall tax-exempt income and other tax deduction; expansion of the scope of taxable goods and services for VAT purposes; establishment of unclaimed funds trust fund to manage unclaimed dividends and dormant accounts balances; and clarification of the rules for the taxation of international shipping companies and airlines under CITA and CGT Act.

Fiscal responsibility and public procurement reforms

The FA 2020 introduced a limit of cost to revenue ratio at 50% for government owned entities or such other ratios as the Finance Minister via a Gazette upon the approval of the National Assembly may prescribe. In addition, government corporations are required to remit the balance of their operating surpluses to the Consolidated Revenue Fund of the Federation on a quarterly basis.

The Act also expands the definition of “contracts” by specifying parties to a procurement contract as the procuring entity and a consultant, supplier or contractor. The scope expansion of the Public Procurement Act and the definition of contract seek to capture all forms of procurement of services, goods and works by the public sector and all arms of government.


The Finance Act 2020 continues the tax reform measures introduced by the Finance Act 2019 and provides different frameworks to respond to the economic challenges brought about by the Covid-19 pandemic. The new finance act also clarifies a number of ambiguities identified in the previous amendments as well as other extant provisions of the various tax laws.

The changes underscore the government’s resolve to continue to adopt and leverage technology in tax administration. Beyond tax, the FA 2020 extends to other legislation bothering on public procurement, fiscal responsibility, business regulations and trade policies. It is expected that government will continue to engage with key stakeholders to keep the reforms under constant review and make further changes as may be necessary in order to meet the intended objectives.

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