The New Finance Act and the Place of Directors in Ensuring Corporate Compliance

The New Finance Act and the Place of Directors in Ensuring Corporate Compliance


The purpose of corporate governance is to promote regulatory compliance, ensure organizational integrity and growth, guide structures of decisions emanating from the board and generally provide the need to work according to laid down principles. Corporations can have many different structures, but the most typical structure consists of the  shareholders, board of directors, officers and employees. The structure of corporate governance determines the distribution of rights and responsibilities between the different parties in the organization and sets the decision-making rules and procedures. The Board plays a major role in sustaining good corporate governance, and to ensure such competency of the board, measures of selection are put in place of directors1. Directors are acknowledged as being among key participants and stakeholders in the corporate governance practice. In Nigeria, the awareness of corporate governance and the importance attached to it is taking on increasing significance. Thus, the roles of directors are important, thus essential to the board of directors and as individuals in the life of a company. Directors take interest in better understanding their roles as well as what makes for enhanced board effectiveness, hence the increasing attention to corporate governance awareness and training. Nigerian law defines directors as ‘persons duly appointed by the company to direct and manage the business’ (section 244[1] the Companies and Allied Matters Act Cap 2020 Laws of the Federation of Nigeria (CAMA) Directors of a company registered under this Act are persons duly appointed by the company to direct and manage the business of the company. (2) In favour of any person dealing with the company there shall be a rebuttable presumption that all persons who are described by the company as directors, whether as an executive or otherwise, have been duly appointed. However, by section 245(1) CAMA, notwithstanding that they were not ‘duly appointed by the company’, a person by whose directives the directors of a company are accustomed to act, is also deemed to be a director of the company albeit a ‘shadow director’ Shadow director. Without prejudice to the provisions of sections 244 and 250, and for sections 253, 275 and 281 of this Act, “director” shall include any person on whose instructions and directions the directors are accustomed to act.2 According to the Nigerian Code of Corporate Governance (NCCG), there are types of directors, executive directors, non-executive directors, non -independent directors, each director playing a different role, and selection criteria. Executive Directors (EDs) are employees holding senior managerial positions in the Company.

They have a dual relationship with the Company as Directors (accountable to shareholders) and as employees – members of the management team, answerable to the Board. Typically, they have responsibility for specific aspects of the business – Operations, Risk, Credit, HR & Admin, IT, etc. and report to the Board in respect of these specific business areas. They are usually technically competent in the area of oversight and responsibility for the day-to-day running of the Company. As employees of the Company, they are expected to devote their whole time and attention to the business of the Company. Non-Executive Directors, Executive Directors are expected to contribute to the robustness of deliberations on the Board to engender optimal decision making. The full complement of the Board’s diversity reckons with the skills set and experience Executive Directors bring on board. It will thus be a disservice to the Board and the enterprise if the only view the Board gets to hear from the Management side is that of the CEO. Independent Non-executive Directors are entirely independent of the relationship of the board3. The directors run about 98% of decisions in the company, and therefore every corporation pays tax and allowable deductions clearly with the knowledge of directors. Corporate tax is the company’s tax due on any profits made. This is calculated on a corporation’s tax return which is due for each year. The corporate tax, also called company tax or corporation tax, is a direct tax levied on a company’s income or capital by the government. The maximum corporate tax rate is equal to
35%. Directors of limited companies are usually also shareholders. Many small startup companies are one-person operations, whereby the only person who owns, manages, and works for the company is the single director shareholder-employee. Therefore, the Corporate Tax Rate in Nigeria stands at 30 percent.


  • Profits of companies engaged in educational activities are now liable to tax due
    to the removal of educational activities from the exempt provisions of Section
    23(1)(c) of CITA.
  • The profits of companies from the exports of goods produced in Upstream,
    Midstream and Downstream Petroleum operations are liable to tax as clarified
    in section 23(1)(q) of CITA.
  • Non-resident companies liable to tax on profits arising from providing digital goods or services to Nigerian customers under the Significant Economic Presence (SEP) Rule may be assessed on a fair and reasonable percentage of their turnover if there is no assessable profit, the assessable profit is less than what is to be
    expected from that type of trade or business, or the assessable profit cannot be ascertained [Section 30 (1)(b)(iii) of CITA].
  • Capital allowance on qualifying capital expenditure incurred in generating taxexempt income is not deductible from the assessable profits arising from income not exempt from tax under CITA. Capital allowances accruing in respect of QCE employed for both taxable and tax-exempt income shall be pro-rated where the tax-exempt income constitutes more than 20% of the total income of the company [section 31(1A) – (1B) of CITA].
  • Capital allowance on qualifying capital expenditure incurred by small companies is deemed utilised during the periods such companies are tax-exempt [section 31(1C) of CITA].
  • The minimum tax rate is reduced from 0.5% to 0.25% for any two consecutive accounting periods falling from 1 January 2019 to 31 December 2021, as may be elected by the taxpayer [Section 33 of CITA].
  • A company engaged in a trade or business of gas utilisation in downstream operations in Nigeria is entitled to a tax-free period, concerning that trade or business, only once in its lifetime; additional investment, reorganisation or other forms of corporate restructuring shall not qualify it for further incentive. The company will also not be entitled to similar incentives under any other sections of CITA or other law [Section 39(1)(a) of CITA]. Any company that claims the reduced 0.25% rate under the minimum tax rule in section 33 of CITA but filed its tax returns late is liable to a penalty that is equal to the benefits or reduction claimed [Section 55 of CITA].

In ascertaining the profits under the CITA, certain deductions are allowable. CITA fully encapsulates the deductions allowable in determining the taxable profits of the company5. It provides that “save where the provisions of subsection (2) or (3) of section 14 or 16 of this Act apply, for the purpose of ascertaining the profits or loss of any company of any period from any source chargeable with tax under this Act, there shall be deduction all expenses for that period by that company wholly, exclusive, necessarily and reasonable incurred in the production of those profits…” It further includes the following categories of deductions:

(a)any sum payable by way of interest on any money borrowed and employed as capital in acquiring the profits;

(b) rent for that period, and premiums the liability for which was incurred during that period, in respect of land or building occupied for the purposes of acquiring
accommodation occupied by employees of the company.

(c) in the case of any property-holding company expenses attributable to the maintenance of the property, directors’ remuneration, which shall not exceed N1O,OOO per annum in respect of each director, and the number of directors to be so remunerated shall in no case exceed three;

(d) any outlay or expenses incurred during the year in respect of salary, wages, or other remuneration paid to the senior staff and executives cost to the company of any benefit or allowance provided for the senior staff and executives which shall not exceed the limit of the amount prescribed by the collective agreement between the
company and the employees.

(e) Any expenses incurred for repair of premises, plant, machinery or fixtures employed in acquiring the profits.

(f) Bad debts incurred in the curse of a trade or business proved to have become worse during the period for which the profits are being ascertained.

(g) Any contribution to a pension, provident or other retirement benefits fund, society or scheme approved by the Joint Tax Board under the powers conferred upon it by paragraph (g) of section 85 of the Personal Income Tax Act.

(i) in the case of profits from a trade or business, any expense or part thereof
(i) the liability for which was incurred during that period wholly, exclusively, necessarily and reasonably for such trade or business and which is not specifically referable to any other period or periods, or
(ii) the liability for which was incurred during any previous period wholly, exclusively, necessarily and reasonably for such trade or business and which is specifically referable to the period of which the profits are being ascertained;

Section 25 and 25A of CITA also provide for deductions of donations made to fund, body or institutions in Nigeria to ascertain the profits. Section 26 of the Act also permits a deduction for research and development, provided such a deduction does not exceed 10% of the profit ascertained before any deductions. Finally, all corporate taxpayers including the directors are subject to the same company income tax rate of 30%, except companies in the petroleum upstream sector. Additional, other taxes may be applicable to companies in Nigeria. Such taxes include the Withholding Tax, which is payable in advance on executed contracts by the companies but subject to deduction from taxable profits; Value Added Tax, which is payable on certain goods and services; Education Tax Fund; Industrial Training Funds among others.

Nonetheless, the board of directors face a lot of ethical issues in its operations, and therefore its imperative role in combating them with a comprehensive corporate governance strategy is inevitable and essential. The role of the directors in ensuring the regulatory compliance of the finance act is collective and cannot be overemphasized, as the need for corporate governance is identified, corporate governance aims to ease effective, entrepreneurial and prudent management that can deliver the long-term success of the company, to ensure corporate governance, there should be maximum compliance of regulation, beginning with the directors.

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