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FG aims to raise revenue, stimulate SMEs with new fiscal law

14 Jan 2020
Financial Nigeria

Summary

Under the law, small companies will pay 0 per cent in Companies Income Tax. They will also not be required to make VAT returns with respect to goods and services rendered.

Nigerian President Muhammadu Buhari

President Muhammadu Buhari, on Monday, signed the Nigerian Tax and Fiscal Law (Amendment) Bill 2019, also known as the Finance Bill 2019, into law. The bill was signed nearly two months after the National Assembly passed and forwarded it for presidential assent.

In a statement issued on Twitter yesterday, President Buhari said the legislation, which was introduced alongside the 2020 Appropriation Bill in October, will support implementation of the budget and create an enabling environment for business and investment by the private sector.

The Finance Bill 2019 (now an Act) contains various amendments to seven different tax laws, namely the Value Added Tax Act, Companies Income Tax Act (CITA), Petroleum Profit Tax Act, Stamp Duties Act, Personal Income Tax Act (PITA), Capital Gains Tax Act, and Customs, Excise Tariff, Etc. (Consolidation) Act. The new law effectively increases the rate of VAT in Nigeria from 5 per cent to 7.5 per cent.

As part of the government's tax reform agenda, the government also said the Finance Act will help align domestic tax laws with global best practices. The law is also expected to incentivize investments in infrastructure and capital markets, and raise government revenues.

"With the assent, there will be more revenue to finance key government projects especially in the areas of health, education and critical infrastructure," Femi Adesina, Special Adviser to the President on Media and Publicity, said in a statement.

A key feature of the new fiscal law is the introduction of a graduated tax scale for small businesses. Under the law, small companies (with gross turnovers of not more than N25 million) will pay 0 per cent in Companies Income Tax (CIT). They will also not be required to make VAT returns with respect to goods and services rendered.

Medium-sized companies (with total turnovers of more than N25 million but not more than N100 million) will pay a lower rate of 20 per cent in CIT. Buhari said the aim is to support micro, small and medium enterprises (MSMEs) in line the government’s ease of doing business reforms. The tax policy is expected to stimulate the emergence and growth of such enterprises in the country.

The law also provides for stamp duty on bank transfers to apply on amounts from N10,000 and above. However, transfers between the same owner’s accounts in the same bank are exempt the charge. The law also requires for Tax Identification Numbers (TINs) to open and operate bank accounts in Nigeria.

Chief Executive Office of Nigerian Stock Exchange (NSE), Oscar Onyema, told Reuters on Monday that he expects the new law and 2020 budget to have a positive impact on corporate earnings and consumer spending.

However, some other experts have argued that the law will reduce consumers’ disposable income and increase the inflation rate. Director-General of Nigeria Employers’ Consultative Association (NECA), Timothy Olawale, noted that the legislation will further impoverish the citizens.

The Act will take effect after it has been published in the gazette or officially made public.


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