The President of Nigeria Muhammadu Buhari has signed the financial bill 2019 on 13/01/2020 Monday, which attempts to increase the Value-Added Tax (VAT) rate from 5% to 7.5% into the law in Abuja.
The bill aims to reform Nigeria’s tax regimes in line with the best global practices prevailing. Other objectives would include:
- Mitigating instances of regressive taxation to promote fiscal equity
- Incentivizing investments in infrastructure and capital markets
- Raising government revenue to finance areas of health, education, and infrastructure
- Supporting Micro, Small and Medium-sized businesses to harmonize with Ease of Doing Business reforms
With the introduction of the new financial bill, individuals will have to provide their Tax Identification Number (TIN) to open a bank account or to operate the existing ones.
As per the bill, corporates with annual turnover less than N25 million are exempted from paying company income tax and the threshold for stamp duty has been raised from N1,000 to N10,000. So, stamp duty charged for online transactions will apply to amounts from N10,000 and above. Transfers between the same person’s accounts in the same bank will be exempted.
Medium-sized companies can have a deduction of 2% and large companies 1% on early payment of Company Income Tax.
Medium-sized companies with a turnover between N25 million and N100 million have a CIT rate of 20% which aims to promote the SMEs.
Dividends distributed from petroleum profits and non-residence providers of imported technical and management services in Nigeria will be charged a withholding tax at 10%.
E-mail is allowed as a communication medium with tax institutions, namely, Federal Inland Revenue Service (FIRS) and state revenue agencies.
Implications and Concerns over the new financial bill:
- Many favorable provisions for small businesses
- Adverse impact due to the increment in VAT, bringing in cost pressures
- Affects margins, to accommodate the additional cost
- Erosion of capital due to the compulsion on loss-making firms to pay tax
- Operation in a high-cost environment and having to worry about the provision on a minimum tax
The financial bill was submitted along with the budget but was signed after 27 days the 2020 budget was signed, on 17 December 2019.