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Uche Usim, Abuja
“Government has a lot to do for businesses to thrive, as a basis for raising enough tax targeted by the new law. Infrastructure is critical, as the country’s facilities are poor. The signing of the law should be supported by improved infrastructure stock and enabling business environment, as the law alone is not enough”.
These were the views of a council member of the Chartered Institute of Taxation of Nigeria (CITN), Dr. Titilayo Fowokan, while advising the Federal Government on best ways to implement the Finance Bill signed into law last week by President Muhammadu Buhari.
Fowokan was one of the experts, who ticked off the impediments that may hamper the full realisation of the Finance Act.
Other bottlenecks identified, aside infrastructure rot, include institutionalised corruption, unfriendly business climate, poor transparency and accountability in the system, among others.
President Buhari had, on January 13, signed the Finance Bill into law, thus making it an Act after it secured legislative approval. The new document amends 80 provisions across the companies income tax, petroleum profits tax, personal income tax, value-added tax, customs and excise duties, capital gains tax and stamp duties.
The journey began in 2019 when President Buhari presented the Finance Bill alongside the 2020 Appropriation Act to National Assembly.
He said: “This Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to our fiscal laws. “These objectives are; Promoting fiscal equity by mitigating instances of regressive taxation; Reforming domestic tax laws to align with global best practices; Introducing tax incentives for investments in infrastructure and capital markets; Supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms; and Raising Revenues for Government.
“The draft Finance Bill proposes an increase of the VAT rate from five per cent to 7.5 per cent, as such, the 2020 Appropriation Bill is based on this new VAT rate,” he had added.
According to his spokesman, Mr Femi Adesina, with the assent, there will be more revenue to finance key government projects especially in the areas of health, education and critical infrastructure.
The Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, has said that the implementation of the 7.5 per cent Value Added Tax (VAT) commences February 1, 2020, as all the necessary administrative procedures, especially the gazette of the Act by the Federal Ministry of Justice, would have been completed by then.
The Accountant-General of the Federation (AGF), Mr Ahmed Idris, while commenting on the Act disclosed that his office has begun implementation, noting that government transactions now attract 7.5 per cent VAT.
Idris, who made the disclosure at a session with finance journalists reiterated that the objectives of the Act centre on deepening fiscal equity by dismantling factors responsible for regressive taxation.
“Other objectives are to reform domestic tax laws and ensure they align with global best practices; and introduce tax incentives for investments in infrastructure and capital markets”.
He added that the new document aims at supporting existing small businesses and providing the suitable environment for new ones to sprout; in line with the ongoing ease of doing business reforms.
Already, the fiscal and monetary authorities have closed ranks in an effort to ensure successful implementation of the document, especially in the area of raising revenue for the government, in order to reduce borrowings.
Nonetheless, economic experts have charged the Federal Government to walk the talk by ensuring that the contents of the new act are implemented to the letter.
Eze Onyekpere, Lead Director, Centre for Social Justice, in a telephone chat with Daily Sun said: “Signing the Finance Bill is a welcome development. We must start implementation immediately. No time to waste. Raising the threshold of Stamp duty from N1,000 to N10,000 is a welcome development because it reduces the burden on the people.
“But quick implementation is vital so we know how things go and if there is any need for review. For now, let’s give it a chance. It’s a step in the right direction”.
Another expert, who craved anonymity expressed worry over the rising debt of the country without a robust revenue generating structures in place.
“Nigeria has a major challenge of revenue generation and our debt keep swelling. How do we offset the debt? The USA is owing trillions of dollars but it has a solid revenue generating fulcrum. Its debt can never sink it. We’re already being boxed into a debt trap. Forget about all the song and dance about our low debt to GDP ratio. I hope this Finance Act will be implemented fully. We need to generate more revenue and stop piling debts for the unborn generation”, he said.
Just last week, the Director-General of the Debt Management Office (DMO), Patience Oniha revealed that Nigeria’s total public debt, comprising the Federal Government, 36 States and the Federal Capital Territory (FCT), as at September 2019, stood at N26.215 trillion.
According to her, the comparative figure for June 2019 was N25.701 trillion, which implies that in the quarter July to September 2019, the total public debt grew by 2 per cent.
“Similarly, total debt, as a percentage of GDP, was 18.47 per cent by September 2019.That was well within the limit of 25 per cent and fares better in comparison with the debt/GDP ratios of countries such as the United States of America, United Kingdom and Canada with ratios of 105 per cent, 85 per cent and 90 per cent respectively for the same period.
“However, because they generate adequate revenues, their debt service/revenue ratios for the same period were much lower at 12.5 per cent, 7.5 per cent and 7.5 per cent respectively when compared to Nigeria’s 51 per cent in 2017.
“The low revenue base of Nigeria relative to its GDP is clearly reflected in the high debt service to revenue ratio. This clearly brings to fore, the need for revenues to grow. The efforts towards increasing and diversifying revenue such as the passage of the Finance Bill and Strategic Revenue Growth Initiative of the Federal Ministry of Finance, Budget and National Planning should thus be supported”, she noted.
A clinical analysis of the new Finance Act shows a clear reduction of corporate tax for MSMEs from 30 percent to 20 percent for Small firms (with turnover of between N25 million and N100 million per annum.); and exempting micro-firms (with turnover of less than N25 million per annum).
The new Act provides essential palliatives to support MSMEs and mitigate the impact of the VAT rate increase on the most vulnerable businesses, communities and citizens in the Nigerian economy.
The new document contains the amendment of excess dividend tax rules that result in double taxation, thereby discouraging investments; it reviews the commencement and cessation of business rules that also lead to double taxation.
There is an incentive of two per cent bonus for early tax payment by medium-sized companies and one per cent for large companies; an increase in VAT rate; moderation of inefficient and ineffective tax incentives; closing loopholes in existing tax laws that allow tax avoidance resulting in tax revenue leakages.
The Finance Act provides that businesses must register for VAT filing from the commencement of the business thus cancelling the six months grace period. It defines commencement of business as “the date the first transaction is carried out or first advertises products for sale or first day it delivers or receives a consignment of goods”.
Sanitary products may get cheaper: VAT-exempt items have been expanded to include honey, bread, cereals, cooking oils, culinary herbs, fish, flour, starch, fruits, meat, poultry, milk, nuts, pulses, roots, salt, vegetables, water, sanitary pads, tampons, tertiary, secondary, primary and nursery tuition. This may translate to a slight decrease in the prices of these items as VAT is added to the price of items after production.
Again, there is no more tax on compensations for job losses to an individual on tax-exempt except it exceeds N10 million.
Contrary to the widespread belief, account holders do not require a Tax Identification Number (TIN) to operate their personal account. The document states that “Every person engaged in banking shall require that a person intending to open a bank account for the purposes of its business operations must provide a tax identification number as a precondition for opening such bank account or continued operation of a bank account”.
With the new order, Nigerian companies are to pay withholding tax for engaging foreign consultants with significant local economic presence.
Again, 15 per cent tax credit for companies that replaces obsolete machinery has been abolished. Dividends, rental income received by real-estate investment companies now exempt from company income tax provided 75 per cent of such income is redistributed within 12 months.
All non-resident companies earning income from advertising, marketing, social media platforms, among others, would be subject to tax on profits realised in Nigeria.
VAT will now be paid on services provided by non-resident companies. Consumers of such services must self-remit if VAT is not included in the invoice.
Minimum tax provisions amended to 0.5 per cent of turnover and exemption only applies to small companies (less than N25million turnover), so non-resident companies will now pay minimum tax.
The N50 stamp duty on all inflows into accounts to apply to amounts from N10,000 and above; while dividends from oil companies are to be taxed.
