After much ado, President Muhammadu Buhari has signed into law the Finance Bill also known as the Nigerian Tax and Fiscal Law (Amendment) Bill, which was submitted alongside the 2020 Appropriation Bill to the National Assembly.
The newly signed law was created to enact fiscal measures to support the 2020 budget. Its strategic objectives include: 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 small businesses in line with the ongoing ease of doing business reforms and Raising revenues for government, by various fiscal measures, including a proposed increase in the rate of the Value Added Tax (VAT) from 5% to 7.5%
The question is, what future does the Finance Act hold for Nigerian businesses? Firstly, early-stage startups with revenues of ₦25 million are now exempt from paying the mandatory company income tax (CIT). For medium scale businesses with revenues between 25 – 100 million Naira, a 20% CIT will be required, instead of the standard 30% which is now apportioned to large scale companies with revenues of ₦100 million and above. This stands to incentivise investments as shareholders may be encouraged to invest more in small and early-stage startups.
The Finance Act also provides for changes to personal income tax as a tax identification number (TIN) will now be compulsory open and operate a personal bank account. Hence, startups/SME employees who have previously escaped taxes may soon find it difficult.
Of primary concern to most Nigerians, is the increment of Value-added Tax from 5% to 7.5% on all VATable items. However, to cushion the effect of the raise, the bill introduces more goods that are no longer considered as VATable items e.g, 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.
Existing businesses and prospective investors should understand that the Finance Act has its challenges and opportunities and professional guidance is imperative to enable them fully understand the full range of impact on their business operations currently and in the long run. They are to also look out for and adhere to any new compliance requirements regarding their tax obligation so as to enjoy their tax-paying benefits in Nigeria.
Olatorera Consultancy Limited is a new-generation consulting company providing business development and consulting services to established companies and high net-worth individuals. Olatorera Consultancy provides critical and analytical services to companies under our radar to enable them innovate and serve their clients more effectively and efficiently using digital resources and modern strategies. Olatorera Consultancy provides the seal and stamp of Africa’s Best to enable great companies compete stronger on a global scale. Olatorera Consultancy publishes an annual list of “Africa’s Best 100 Companies” and “Africa’s Best 100 Leaders”. To network with the team at Olatorera Consultancy Limited, please add your company to the reviews page here. An Olatorera Consultancy company representative may be in touch with you shortly after reviewing your company’s readiness for business consultation services.