President Muhammadu Buhari, on the 31st of December 2020, signed the Finance Bill, 2020 (now "Finance Act" or "FA 2020") into law. Similar to the Finance Act, 2019 which introduced several long-overdue and far-reaching changes to Nigeria's fiscal landscape, the Finance Act, 2020 was enacted to refine select provisions of various statutes (revenue laws and other kindred legislation) and it also introduced provisions to clarify certain provisions in the Finance Act, 2019.

The changes to the Nigerian tax laws will further improve the Ease of Doing Business in Nigeria, which has been a front burner issue for the Nigerian government. In July 2016, President Muhammadu Buhari established the Presidential Enabling Business Environment Council (PEBEC) to implement reforms in the Nigerian business environment in order to make the country a progressively easier place to establish and conduct business. Notably, PEBEC made significant efforts towards improving the ease of doing business in Nigeria, with the result being a gradual improvement in Nigeria's position on the World Bank's Ease of Doing Business rankings, from 170 out of 190 countries in 2015 to 131 out of 190 in 2020.

In this Article, we have set out some provisions of the FA 2020 and their potential impact on the ease of doing business in Nigeria.

Relevant Provisions of Finance Act 2020 which affect the Ease of Doing Business in Nigeria

1. Introduction of E-initiatives

Given the impact of the COVID-19 pandemic on business activities and the increased need for the adoption of virtual and electronic processes in government administration, the FA 2020 introduced some electronic initiatives to address these dynamics. Based on the new introductions, the Federal Inland Revenue Service (FIRS) can now serve notices of Companies Income Tax assessment electronically. Similarly, taxpayers can object to such assessments electronically. This is expected to improve the ease of paying taxes and automation of tax processes in Nigeria, which is a relevant indicator in measuring the ease of doing business in Nigeria.

Furthermore, a new subparagraph has been introduced in the Fifth Schedule to the Federal Inland Revenue Service (Establishment) Act which empowers the Tax Appeal Tribunal ("TAT") to conduct hearings remotely (via virtual means). Based on this introduction, physical presence of parties is no longer a mandatory requirement for a tax matter to be heard at the TAT.

These developments are in line with 21st century business realities and should significantly improve the administration of tax, as well as the adjudication of tax matters in Nigeria.

2. Exemption of Small Companies from Payment of Tertiary Education Tax

Section 1(2) of the Tertiary Education Trust Fund (Establishment) Act has been amended to include a provision that provides for the exemption of small companies from the payment of Tertiary Education Tax ("TET") which is chargeable at 2% on the assessable profit of a company registered in Nigeria.

The Finance Act, 2019 had introduced an exemption for small companies (i.e. those with gross turnover of not more than ₦25 million) from CIT but they were not exempted from TET. This exemption has now addressed this issue and should reduce the tax burden on small companies.

Given that certainty is a cardinal principle of a good tax system and is one of the indicators for measuring ease of doing business in any country, it is expected that this introduction will improve the Nigerian business climate as it lays to rest the issue of whether small companies are liable to pay TET.

3. Introduction of Additional Items Exempt from Value Added Tax (VAT)

The FA 2020 has introduced new items to the VAT exemption list as follows:

  • Commercial aircrafts, commercial aircraft engines, commercial aircraft spare parts;
  • Airline transportation tickets issued and sold by commercial airlines registered in Nigeria; and
  • Hire, rental or lease of tractors, ploughs and other agricultural equipment for agricultural purposes.

These exemptions are significant especially for players in the transportation and agricultural sectors who will now transact without the additional financial and compliance burdens of VAT on those items. It is expected that there will be a boost in these industries, and by extension, in the Nigerian economy.

Notably also, "goods" and "services" have now been redefined to clearly exclude interest in lands and buildings, with the effect that transactions in respect of lands and buildings are now clearly exempt from VAT. This effectively lays to rest the controversy on whether real estate transactions, including outright sale or lease of commercial or residential lands and buildings, are subject to VAT. These amendments help companies with decision making, thus improving the ease of doing business in Nigeria.

4. Exemption of Minimum Wage Earners from Personal Income Tax (PIT)

The FA 2020 has introduced a provision to exclude the income of a person earning gross income at the National Minimum Wage (as defined under the National Minimum Wage Act) or less in any year of assessment from the payment of PIT.

Under the National Minimum Wage Act, 2019, the current National Minimum Wage in Nigeria is ₦30,000 per month. Thus, individuals who are paid the National Minimum Wage of ₦30,000 or less per month are exempt from paying PIT. Companies with such employees would not be required to deduct income tax via the PAYE scheme from these employees.

This development is expected to have significant impact on low income earners as this will reduce the financial burden on individuals earning the National Minimum Wage of ₦30,000 and thus increasing their monthly disposable income. Also, the exemption of this category of taxpayers reduces the compliance burden on companies with employees that fall within this category.

5. Tax Treatment of COVID-19 and other Related Donations

Prior to the enactment of the FA 2020, there was uncertainty as to the treatment/deductibility of donations made towards combating the COVID-19 pandemic and other in-kind donations made to the government. However, the FA 2020 has introduced a provision to allow for the tax deductibility of in-kind or cash donations made by companies to any fund set up by the Federal Government or any State Government, or to any agency designated by the Federal Government or to any similar fund or purpose in consultation with any ministry, department or agency of the Federal Government, in respect of any pandemic, natural disaster or other exigency.

The amendment however comes with a proviso stating that the deductibility is limited to 10% of assessable profits. Furthermore, the relevant documents evidencing the donation must be presented to the relevant tax authority and the cost of the donation must be shown to have been wholly, reasonably, exclusively and necessarily incurred in relation to the procurement, manufacture or supply of the inkind donation.

These amendments appear to cushion the adverse effects of the COVID-19 pandemic and other similar crisis, particularly with respect to encouraging donations from companies, as they are more certain about the tax treatment of such donations.

However, there are still questions with respect to these introductions by the FA 2020 that appear unanswered. An important area of concern is whether donations that are capital in nature, such as donation of an ambulance or building, are effectively captured under the deductibility of in-kind donations introduced by the FA 2020. This is because the provisions of Section 27(2) of the CIT Act which excludes donations made by way of capital expenditure from deductibility has still not been deleted.


Improving the ease of doing business in Nigeria is a task that requires consistent affirmative action through policies and laws, and effective implementation of those policies and laws. While more can be still done, the changes introduced in the FA 2020 are further testaments to the commitment of the government to affirmative policy and legislation, and it is hoped that that the attractive changes will be implemented in a manner that will ensure that taxpayers enjoy the maximum benefits thereof.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.