A new law has been signed by Nigerian President Muhammadu Buhari which goes after boosting government revenue via a raising value-added tax (VAT) rate and simultaneously supporting small businesses, Reuters revealed.
The finance bill which was signed into law on Monday will raise the VAT rates from 5 per cent to 7.5 per cent, which is arguably still the lowest in the world.
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According to a 2019 BBC report, Nigeria was highlighted to face a fiscal crisis if it failed to improve its ability to collect taxes. Africa’s populous nation and biggest economy expenditure doubled and debt servicing cost grew substantially, while revenues missed their targets by 45 per cent a year since 2015.
Reuters cited that, Nigeria has been struggling with the diversification of its economy to reduce dependence on sales of crude oil, which also sustained changes in revenue, falling from 57 per cent between 2012 and 2014 to 41 per cent between 2016 and 2018.
Further, the Nigerian had taken the initiative to increase VAT and company income tax since 2015.
According to PWC (a global network of tax consulting form), SME’s in Nigeria contributes about 48 per cent of national GDP, account for 96 per cent of businesses and 84 per cent of employment.
Further, with many challenges facing the small business including the multiplicity of taxes and the high cost of doing business, the new law might face setbacks. Hence-the government has taken a serious stance on enhancing non-oil revenue, despite the oil sector contributing over 90 per cent of foreign currency.
Also, with the bill passed in 2019 with the 2020 budget record of $34.6 billion, Nigeria’s economy is expected to recover from low growth following a recession occurred four years ago.
Per the new law, the government will introduce a graduated tax scale for small businesses, with firms that generate less than $70,000 in annual turnover exempt from corporate tax.
Tax experts say the finance bill will seek to tax companies with digital activities that have a significant presence in Nigeria and generate profits.
As Nigeria is estimated to have one of the world’s lowest ratios of tax to GDP, the new bill will help to reform its domestic tax laws and provide incentives for investments in infrastructure and the capital markets while supporting small businesses.
Oscar Onyema Nigerian Stock Exchange chief executive officer said on Monday he expects the new bill and 2020 budget implementation to have a positive impact on corporate earnings and consumer spending.
