Nigeria exempts food from Value Added Tax (VAT) as it increases the tax to 7.5 per cent as it seeks to alleviate the cost burden from consumers.
The Value-added tax will be effective from February 1, 2020, the exception of bread, cereals, cooking oils, culinary herbs, fish, flour and starch, fruits, meat and poultry. Others are milk, nuts, pulses, vegetables, natural water, roots, salt, table water and sanitary towels.
On January 13, 2020, Nigeria’s President Muhammadu Buhari signed into law the 2019 Finance Bill, increasing VAT and also exempted companies with less than $82,000 capital from paying tax.
According to PWC (a global network of tax consulting form), 48 per cent of national GDP is contributed by SME’s in Nigeria, account for 96 per cent of businesses and 84 per cent of employment.
The Senior Special Assistant to the President on Media & Publicity, Mr Laolu Akande said that the new law seeks to consolidate the already made efforts in creating enabling environment for improved participation in the private sector and contribution to the economy as well as boosting the country’s revenues.
“It (Finance Act) is designed to promote fiscal equity by mitigating instances of regressive taxation; reforming domestic tax laws to align with global best practices, and to introducing tax incentives for investments in infrastructure and capital markets. It is supporting micro, small and medium-sized businesses in line with the administration’s Ease of Doing Business Reforms; Raising Revenues for Federal, State and Local Governments,” Mr Akande said.
According to Nigeria’s revenue sharing formula, 85 per cent of the collected VAT goes to states and local governments.
With the new Act $0.14, Stamp duty charge is now applicable only to transactions amounting to $27.55 and above, a noteworthy increase on the former threshold of $2.75.
With the bill passed in 2019 and the 2020 budget record of $34.6 billion, Nigeria’s economy is expected to recover from low growth following a slump which occurred four years ago.
With Nigeria estimated to have one of the world’s lowest ratios of tax to GDP, the new bill will help reform its domestic tax laws and provide incentives for investments in infrastructure and the capital markets.