The Finance Bill, among other things, proposed an increase in the Value Added Tax (VAT) rate from 5 per cent to 7.5 per cent. The additional revenue from the increase in VAT rate would be used to fund healthcare, education and infrastructure. The Government intends to mitigate the impact of the VAT rate increase by introducing a VAT exemption threshold for businesses with a turnover of less than N25 million per annum, and expanding the list of VAT-exempt items to include the following:
- Brown and white bread;
- cereals including maize, rice, wheat, millet, barley and sorghum;
- fish of all kinds;
- flour and starch meals;
- fruits, nuts, pulses and vegetables of various kinds;
- roots such as yam, cocoyam, sweet and Irish potatoes;
- meat and poultry products including eggs;
- milk;
- salt and herbs of various kinds; and
- natural water and table water.
The Bill was signed into law by the President, Muhammadu Buhari, on January13, 2020 and will be effective from the date of same signing. It is also not intended to be a ‘one-off’ document as the Nigerian government intends to amend the Finance Act annually along with each appropriation Bill; as a way to ensure that there exists a more integrated fiscal structure in governance, and more efficient planning as well.
The Bill also focuses on making such changes that concern the following:
- Companies Income Tax: Key Amendments were made to the Act:
- To update the provisions concerning the CIT as regards modern requirements.
- That every company intending to open a new bank account must provide a tax identification number to the relevant bank to have the bank account created.
- The introduction of digital tax imposed on transactions carried out via the internet or internet-enabled services.
- The introductionof tax on technical, management, consulting, and professional services offered by an offshore company to a company domiciled in Nigeria. To ensure that Nigeria secures a fair amount of revenue from such activities. It is at the discretion of the Minister of Finance to determine where a company carries out substantial business in Nigeria.
- Personal Income Tax: Key Amendments were made to the Act:
- To introduce the provision that every person intending to open a new bank account must provide a tax identification number to the relevant bank to have the bank account created
- Customs and Excise duties: This was only amended to include the clause ‘Goods Imported and those manufactured in Nigeria’; according to Part 111, Section 21 of the Customs and Excise Tariff Consolidation Act.
This amendment indicates that the Nigerian government intends to impose excise duties on goods that are imported if the same goods are already produced locally. This is to serve as a deterrent for traders who opted to import goods as a way to avoid the levy of excise on same goods if they were produced locally. It would also encourage the local manufacturing industries.
– Capital Gains Tax: Changes made are essentially grammatical corrections.
– Stamp Duty: Changes made are essentially grammatical and others relatedto the definition section of the Act.
Also, the Bill includes an amendment to the First Schedule, by including ‘locally manufactured sanitary towels, tampons or pads’ under the list of VAT-exempted items in the VAT Act.
In general, it is impressive that the National Assembly has taken the initiative to update some tax laws in Nigeria. This will go a long way in boosting investor confidence and reduce issues around multiple taxations.
In all, the increase in VAT, which is the most impactful issue, will affect all consumer goods and services, except those listed above.An increase of VAT on these products from 5 per cent to 7.5 per cent is a burden that will be borne by the end-user but may also affect consumer/buyer attitude in the long run.
It is advised that businesses and intending investors consider taking a strategic approach to confronting this challenge, as a drastic increase in price may hurt their company’s customer base, and a drop in price may hurt the company’s profit margins.
Also, businesses and investors, particularly manufacturers, must intensify engagements with the Nigerian government to focus more on providing the necessary solutions to ease manufacturing and reducing the cost of production and distribution. This would create a wider band within which companies can vary the prices of their goods and compete effectively.
IkechukwuIbeawuchi, BL., LL.M
Business, Regulatory and Public Policy Analyst,
ACIOE Associates, Nigeria.
i.ibeawuchi@acioe.com
