What you need to know about FG’s new tax policy

As Nigeria intensifies efforts to tackle its fiscal deficit, the federal government recently introduced new taxes as a way of generating more revenue. The new taxes introduced has increased excise duty on alcoholic beverages, plastics and vehicles. Consequently, the government has now revised the import prohibition list with the inclusion of new items, a few […]

As Nigeria intensifies efforts to tackle its fiscal deficit, the federal government recently introduced new taxes as a way of generating more revenue.

The new taxes introduced has increased excise duty on alcoholic beverages, plastics and vehicles.

Consequently, the government has now revised the import prohibition list with the inclusion of new items, a few weeks to the end of President Muhammadu Buhari’s administration.

This disclosure on the new taxes is contained in the new Fiscal Policy Measures (FPM) for 2023 in a Circular dated April 20, 2023, and signed by the Minister of Finance, Budget and National Planning, Zainab Ahmed.

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The details of the new tax regime contained in the new Fiscal Policy Measures (FPM) documents and approved by President Muhammadu Buhari is set to take effect soon.

Tax on alcoholic beverages to increase from N75 to N100

According to the finance minister, N75 per litre will be charged on “all alcoholic beverages and beer not made from malt- whether fermented or not fermented” in 2023.

She added that the new excise duty on beer and stout will be increased to N100 per litre in 2024.

Before the new rates, the government taxed imported alcoholic beverages using valorem rates – levying of tax or customs duties) proportionate to the estimated value of the goods or transaction concerned. Now, there is a specific rate not an estimate. The same excise rate for beer will be applied to the importation of wine.

Import prohibition list increased

The federal government has also revised the import prohibition list with the inclusion of used motor vehicles above 12 years from the Year of manufacture; Paracetamol tablets/Syrups; Cotrimozazole tablets and Syrups; Metronidazole tablets and Syrups and Chloroquine tablets and Syrups.

Also included on the list are, Folic acid tablets; Vitamin B Complex tablets (except modified release formulations); Multivitamin tablets, capsules and syrups (except special formulations); Aspirin tablets (except modified release formulations and soluble aspirin).

Others are: Magnesium trisilicate tablets and suspensions; Piperazine tablets and syrups; Levamisole tablets and syrups; Ointments penicillin/gentamycin; Pyrantel pamoate tablets and syrups; Intravenous Fluids (Dextrose, Normal Saline, etc); Waste pharmaceutiques; and Mineral or chemical fertilisers containing the three fertilising elements nitrogen, phosphorus and potassium (NPK)

In the same vein, the federal government also introduced a Green Tax by way of excise duty on Single Use Plastics (SUPs) including plastic containers, films and bags at the rate of 10 per cent.

Additional taxes for imported vehicles

Also, under the new tax laws, the federal government introduced Import Adjustment Tax (IAT) levy on motor vehicles of 2 litre engine (2000 cc to 3999 cc) at 2 per cent, while vehicles with 4 litre engines (4000 cc) and above will attract 4 per cent IAT with effect from June 1, 2023.

It also added that “with effect from June 1, 2023, vehicles below 2000cc, mass transit buses, electric vehicles, and locally manufactured vehicles are exempted.”

Under the Supplementary Protection Measures (SPM) as it relates to the implementation of the ECOWAS Common External Tariff 2022-2026, the circular stated that the changes are effective from May 1, 2023 subject to 90-days grace period for importers who had opened Form M before May 1, 2023.

Items on the list also include rice, woven fabrics, ceramics tiles and sinks, steel, containers for compressed or liquified gas, aluminium cans, washing machines, electric generating sets and rotary converters.

Other are smart phones, new and used passenger motor vehicles and electricity metres.

The applicable duties for most of the items are unchanged from the 2022 FPM rates.

Background

The Federal government had earlier made moves to restructure its tax base through the Finance Act.

Checks by Daily Trust on Sunday show that Company Income Tax rate for a gas-flaring company (defined as a company that vents or flares associated or non-associated natural gas unless in the case of an emergency) is to be increased from the standard 30 to 50 per cent.

Also, the partial tax exemption from Company Income Tax (CIT) granted on income in convertible currencies derived from tourists by a hotel is repealed.

An import levy of 0.5 per cent is imposed on all eligible goods imported into Nigeria from outside Africa to finance Nigeria’s capital contributions, subscriptions and other financial obligations to various multilateral institutions such as the AU, UN etc.

In the same vein, all services, including but not limited to telecommunication services, provided in Nigeria to be liable to excise duty at rates to be specified via a Presidential Order.

In the same vein, it amended the Customs & Excise Tariff Act to clarify the responsibility and powers of the finance minister to review customs and excise tariffs through the Tariff Review Board.

The Finance Act also amended the Petroleum to align with the Petroleum Industry Act including penalties for making incorrect or late returns, recognition of the Nigerian Upstream Petroleum Regulatory Commission, tax deductibility of contributions to approved decommissioning and abandonment fund, etc.

The Act has in the same vein amended to the sharing formula for revenue from Electronic Money Transfer from the current 15 percent for FG and 85 per cent for states to 15 per cent for FG, 50 per cent for states and 35 per cent for LGs.

It also introduced general anti-avoidance transfer pricing rules to counteract any artificial arrangement in respect of transactions between connected persons for VAT purposes.

This Explainer is produced in partnership with the Centre for Democracy and Development CDD