Capital allowances are a critical aspect of tax planning and play a significant role in supporting businesses’ investment in fixed assets. The Nigeria Finance Act 2019 introduced changes to the capital allowances regime, impacting how businesses can claim deductions for the wear and tear of qualifying assets. These changes influence the tax landscape for businesses, affecting their financial planning and decision-making processes. In this article, we will explore the key provisions of the Finance Act 2019 concerning capital allowances and their implications for businesses in Nigeria.
1. Introduction of Capital Allowances for Qualifying Expenditure:
The Finance Act 2019 introduced capital allowances for qualifying capital expenditure on certain items not previously covered under the Capital Allowances Act. This expansion of qualifying assets allows businesses to claim deductions for items such as computer software, data handling equipment, and agricultural and transportation equipment. This change recognizes the evolving nature of business operations and encourages investment in technology and infrastructure.
2. Accelerated Capital Allowances for Some Industries:
The Act provides for accelerated capital allowances for businesses operating in specific sectors. These sectors include agriculture, manufacturing, mining, and gas. The accelerated allowances aim to incentivize investment in these sectors by allowing businesses to claim higher deductions for qualifying assets. This provision supports the growth and development of critical industries in Nigeria.
3. Capital Allowances on Lease Payments:
The Finance Act 2019 introduced capital allowances on lease payments for certain capital assets. Businesses that enter into finance leases for qualifying assets can claim capital allowances on the lease payments. This change provides businesses with an additional avenue to claim deductions for their investment in assets while supporting their financial flexibility.
4. Capital Allowances on Industrial Buildings and Structures:
The Act also provides for capital allowances on qualifying expenditure incurred for the construction or improvement of industrial buildings and structures. This inclusion encourages businesses to invest in infrastructure that supports industrial activities and economic growth.
5. Impact on Tax Planning and Investment:
The changes in the capital allowances regime have implications for businesses’ tax planning and investment strategies. Businesses must consider the timing of their investments to optimize their capital allowances claims. Strategic planning can lead to reduced taxable profits and lower overall tax liabilities, contributing to improved cash flow and financial performance.
6. Compliance and Documentation:
Accurate record-keeping and documentation are crucial to substantiate capital allowances claims. Businesses must maintain proper records of their qualifying expenditure, lease agreements, and other relevant documentation. Non-compliance with documentation requirements can result in the disallowance of capital allowances claims and potential penalties.
The Nigeria Finance Act 2019’s changes to the capital allowances regime reflect the government’s efforts to encourage investment, support economic growth, and align with evolving business practices. The expanded scope of qualifying assets, accelerated allowances for specific sectors, and capital allowances on lease payments provide businesses with opportunities to optimize their tax positions.
By strategically planning investments and effectively claiming capital allowances, businesses can enhance their financial performance, support growth, and contribute to Nigeria’s economic development. The changes introduced by the Finance Act 2019 create opportunities for businesses to thrive while aligning with responsible and sustainable tax planning practices.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, online accounting support, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at Lagos, Ogun state Nigeria offices, www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.