The finance bill was submitted alongside the 2020 budget to the National Assembly by Nigerian President Muhammadu Buhari and has just been signed into law after various deliberations.
The bill which has been signed is now an act and has five major objectives which are :
Raising government revenue through various fiscal measures.
Reform domestic tax laws to align with global best practice.
Promote fiscal equity by mitigating instances of regressive taxation.
Supporting micro, small and medium scale businesses in line with Ease of Business reforms.
Introducing tax incentives for investments in infrastructure and the capital market.
This new act raises VAT from 5% to 7.5%. However, a list of goods and services exempted from the VAT increment has been provided so it doesn’t affect low income earners and companies and will in turn promote equitable taxation. The items exempted include:
Basic food items-Bread, Cereal, Cooking oils, Culinary herbs, Flour and Starch, Fish, Fruits (fresh or dried), Live or raw meat and poultry, Salt, Roots, Pulses, Additives (Honey), Milk, Nuts, Vegetables, Water (Natural and Table water)
Locally manufactured sanitary towels, pads and tampons.
Services rendered by microfinance banks.
Tuition (Nursery, Primary, Secondary and Tertiary Education)
In Nigeria’s revenue sharing formula, 85% of collected VAT goes to States and Local governments. It means the additional VAT derived from this increase will go towards helping States and Local governments fulfil their obligations to people especially with the new minimum wage.
With this act, businesses with annual turnover below N25 million are exempted from this tax increase. Companies with less than N25 million annual turnover are charged zero CIT (Companies Income Tax). Those with annual turnover between N25 – N100 million are referred to as “Medium-sized” companies in the act and have their CIT reduced from 30% to 20%. Companies that engage in agricultural production in Nigeria have been given an initial tax free period of five years which can be renewed for an additional three years.
There is also an introduction of Personal Income Tax introduced by the act. Contributions to pensions and retirement funds, societies and schemes will now be unconditionally taxable.
A N50 stamp duty charge has also been introduced and will be applicable to transactions of N10, 000 and above and not N1, 000 like it was hitherto the signing of the bill.
Additional details regarding this act and the implications of its provisions will be provided in subsequent articles.