Nigeria’s Withholding Tax Exemption Hits 70%: A Game-Changer for the Financial Sector
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The Nigerian Senate has passed the Companies and Allied Matters Act (Repeal and Re-enactment) Bill, 2020, which is set to become law once it receives presidential assent. This development brings significant changes to the financial sector in Nigeria.
Acquisition Financing Landscape
A major boost to the acquisition financing landscape in Nigeria comes with the introduction of a provision that permits private companies to provide financial assistance for the acquisition of their own shares, subject to certain conditions. Prior to this, financial assistance has been prohibited for such transactions, causing difficulties during privatisation processes like the power sector.
Central Bank of Nigeria’s Response to COVID-19
The Central Bank of Nigeria (CBN) has taken several measures to respond to the COVID-19 pandemic:
- Reduced interest rates
- Introduced a targeted credit facility
- Injected liquidity into the banking system
- Pledged billions of naira to support various sectors, including health, manufacturing, and infrastructure development
Debt Recovery and Enforcement: A New Era
The CBN has introduced a circular requiring banks to include a clause in financing documents that allows lenders to exercise a right of set-off from any monies in any account held by the obligor with another bank or financial institution. This move aims to facilitate debt recovery and enforcement, but its implementation remains unclear.
Stamp Duty: A New Challenge for Lenders
The Federal Inland Revenue Service has increased the rate of stamp duty payable on unsecured loan agreements from NGN500 to 0.125% of the loan amount. This development has significantly impacted the lending market, with lenders facing a substantial increase in lending costs.
The Future of Banking and Finance in Nigeria
As the global economy navigates challenges posed by the pandemic and fluctuations in oil prices, Nigerian lenders will likely focus on:
- Ensuring obligors adopt various hedging arrangements to mitigate foreign currency volatility
- Discussing mass restructuring of existing financings, particularly in the oil and gas sector
Impact of Withholding Tax Exemption
With the exemption under withholding tax now standing at 70%, it is expected that this development will have a significant impact on the financial sector in Nigeria. As the country continues to navigate these challenging times, it remains to be seen how lenders and obligors will respond to these changes and what implications they will have for the future of banking and finance in Nigeria.