Nigeria makes unused funds in dormant bank accounts loan to government

By Charles Abuede

• Broke government borrowing funds to plug financial holes

The Nigerian government has turned to unclaimed dividends and unused funds in dormant bank accounts belonging to investors and savers, in a desperate bid to plug huge financial holes in the federation.

It has succeeded in doing this by pushing through a legislation known as the 2020 Finance Act that the president signed into law in the last few days, which now specifies that unclaimed dividends in a quoted company and unused funds in a dormant bank account that’s outstanding for six years or more are to be transferred to an Unclaimed Funds Trust Fund as a special debt to the Federal Government.

The funds are to be managed by the country’s Debt Management Office (DMO) and shall be available to the shareholder or account holder at any time alongside the yield.

On 31 December 2020, Nigeria’s President Muhammadu Buhari signed into law the Finance Act 2020 alongside the 2021 budget following their passage by lawmakers after it was presented and approved by the Federal Executive Council in November 2020. To this end, the Finance Bill 2020 contains some key issues or changes which were introduced and which many Nigerians are unaware of.

TaiwoOyedele, a tax analyst and consultant at PwC, a tax advisory and audit firm, has highlighted major changes to the new Finance Act 2020, which Nigerians may need to be aware of as it became effective January 1 2021.

The Finance Act stipulates that the minimum tax for companies in respect of returns for years of assessments due between 1st January 2020 and 31st, December 2021 has been reduced from 0.5 per cent to 0.25 per cent of gross turnover less franked investment income. Also, the revenue from the deletion of electronic bank transfer as transaction liable to stamp duty and introduction of electronic money transfer levy of N50 on electronic transfer of money deposited in any bank or financial institution on any account on sums of N10,000 or above will be shared based on a derivation of 15 per cent to the federal government and the Federal Capital Territory, while the states will share 85 per cent.

The excerpts from the 2020 Bill also highlighted that there is a reduction of import duty on tractors from 35 per cent to 5 per cent; mass transit vehicles for the transport of more than 10 persons and trucks from 35 per cent to 10 per cent, and a reduction of import levy on cars from 30 per cent to 5 per cent.

Also, a small or medium company engaged in primary agricultural production may be granted pioneer status for an initial period of 4 years and an additional 2 years (making a total of 6 years). Meanwhile, there is an exemption of commercial airline ticket from VAT and hire or lease of agricultural equipment for agricultural purposes and exemption of low-income earners earning minimum wage or less from personal income tax. This means that persons who earn N30,000 and below are exempted by the Act from the PAYE tax system.

Furthermore, gross income for personal relief purposes has been redefined as income from all sources less non-taxable income, except items and income on which no further tax is payable. In the case of a venture, it can deduct all allowable business expenses and capital allowance. Compensation for loss of office up to N10 million will be exempted from capital gains tax; as tax due on excess above N10 million is to be deducted by the payer and remitted within the time specified under the PAYE Regulations.

For companies operating in the free trade zones, exemption from taxes is subject to compliance with tax filing and returns obligation to the FIRS as stated under section 55(1) of company income tax act (CITA).

A non-resident person that makes a taxable supply to Nigeria is required to register for tax and obtain TIN, include VAT on its invoice, and may appoint a representative in Nigeria for the purpose of its tax obligations. Though, the FIRS may issue guidelines for this purpose.

An upshot from the foregoing is hinged on the fact that Nigeria’s government is seeking other means of achieving its fiscal objectives while ensuring that the Nigerian tax system exhibits the cannons that allow for effectiveness and productivity as highlighted in the Finance Act of 2020.