The Nigerian economy has not been left out of the various improvements in technology and innovation leading to more efficiency and effectiveness. Several measures have been introduced in various sectors of the economy to improve customer experience and ease of doing business.

This notwithstanding, many of the Nigerian Laws have not been amended to provide the legal framework required to support the business improvements experienced in the economy. The Companies and Allied Matters Act, 1990, which was enacted thirty years ago, was one of those laws that needed to be amended to provide the necessary framework for doing business in Nigeria in line with the times.

Several events have necessitated the repeal of the Companies and Allied Matters Act, 1990. The outdated statute embodied provisions that among other things, were generally adjudged as unfriendly to micro, small and medium enterprises, with huge time and cost implications and ultimately impeding the ease of doing business in Nigeria. These have over time fostered administrative bottlenecks in the corporate environment and eroded investors' confidence.

This article focuses on the major tax considerations surrounding the newly enacted Companies and Allied Matters Act, 2019 ("CAMA 2019" or "the Act") and their implications on ongoing and potential businesses.

CAMA 2019 was signed into law by President Muhammadu Buhari on August 7, 2020 and has ushered in a new era of corporate practice in Nigeria. The Act seeks to greatly ease regulatory requirements for small companies, enable more convenient business processes and enhance Nigeria's corporate terrain. Some provisions introduced by the CAMA 2019 include the provisions for Model Articles of Association, Single Membership Companies, Attorney General's Consent for Companies Limited by Guarantee, Small Companies, Business Rescue Options and Private Company Acquisition.

Nexus between CAMA 2019 and Nigeria's Tax Framework

While the CAMA 2019 is not a taxing statute, its amendment has some significant impacts on the Nigerian tax compliance processes. This is largely because a sizeable portion of the profits of incorporated and registered business forms in Nigeria constitutes an integral part of government tax revenue. Based on the statistics from the National Bureau of Statistics, the revenue generated by the Federal Inland Revenue Service (FIRS) majorly from corporate entities was about four times the amount of total tax collected by the thirty-six (36) states of Nigeria for Q1 - Q4 of 2019. In the first half of 2020, 55% of the revenue generated by the FIRS was from non-oil taxes.

We have examined below the tax considerations arising from some of the provisions of CAMA 2019:

  1. Small Company Provisions

Definition of Small Companies

Even though the Companies Income Tax Act was amended through the Finance Act, 2019 the same year the CAMA 2019 was enacted, it is surprising that there are striking differences between the two statutes with respect to similar subjects. While CAMA 2019 defines a Small Company in Section 394 as one that: "(i) is a private company; (ii) possesses a maximum turnover of ?120,000,000; (iii) possesses a maximum net assets value of ?60,000,000; (iv) has no alien members; (v) has no member that is a government, government corporation or agency; and (vi) has directors shareholding of at least 51% of the equity share capital", the CITA (as amended by the Finance Act) defines a Small Company as "one that earns a gross turnover of ?25,000,000 or less". The effect of this conflict in definition of a Small Company by both statutes is that small companies per CAMA that surpass the ?25,000,000 threshold per CITA, would be viewed as Medium-sized Companies under CITA and will be liable to Companies Income Tax (CIT) at 20%. In a similar vein, small companies per CAMA with turnover of ?100,000,000 or above will be viewed as a large company under CITA and will be liable to CIT at a rate of 30%. This wide disparity is unnecessary and should have been harmonized by both statutes, to ensure the uniformity of definition.

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