As the Nigerian Senate prepares to begin legislative processes on the bill to amend various tax laws in the country, President Muhammadu Buhari has proposed sweeping changes to Nigeria’s tax system.
In a bid to drive revenue, President Buhari presented the 2019 Finance Bill, which seeks to introduce major changes in major tax laws, to the Legislature along with the 2019 Budget.
As earlier reported on Nairametrics, the 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; and
- supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms.
While presenting the budget earlier, President Buhari disclosed that the Finance Bill proposes an increase in the VAT rate from 5% to 7.5%. As such, the 2020 Appropriation Bill is based on this new VAT rate. The President also noted that the additional revenues would be used to fund health, education and infrastructure programmes. “As the States and Local Governments are allocated 85% of all VAT revenues, we expect to see greater quality and efficiency in their spending in these areas as well.”
The VAT Act already exempts pharmaceuticals, educational items, and basic commodities.
Meanwhile, details of the finance bill show some sweeping changes being proposed. Here are some of the important changes you should know about.
- Excess dividend tax to apply only to untaxed distributions other than profits specifically exempted from tax and franked investment income.
- Small businesses with turnover of less than N25 million to be exempted from Companies Income Tax.
- A lower CIT rate of 20% to apply to medium-sized companies with turnover between N25 million and N100 million.
- Commencement and cessation rules modified to eliminate overlaps and gaps to avoid double taxation and complication during commencement.
- Minimum tax provisions amended to 0.5% of turnover and exemption only applies to small companies (less than 25m turnover), so non-resident companies will now pay minimum tax.
- Insurance companies can now carry forward tax losses indefinitely, deduct reserve for unexpired risks on time apportionment bases while special minimum tax for insurance has been abolished.
- Bonus of 2% of tax payable (medium-sized companies) and 1% for large companies for early payment of CIT.
- Introduction of thin capitalisation of 30% of EBITDA for interest deductibility. Any excess deduction can be carried forward for 5 years.
- Deemed tax presence for non-residents with respect to imported technical and management services now taxable at a final WHT rate of 10%.
- Any expense incurred to earn exempt income now specifically disallowed as a deduction against other taxable income.
- Dividend distributed from petroleum profits now to suffer 10% withholding tax.
- Banks to request for Tax Identification Number (TIN) before opening bank accounts for individuals, while existing account holders must provide their TIN to continue operating their accounts.
- Email correspondences to be recognised for communicating with tax authorities.
- The meaning of supply and definition of goods and services has been expanded to cover intangible items other than land, among others.
- Specific requirement for VAT deregistration for discontinuing operations.
- Introduction of VAT reverse charge on imported services.
- VAT registration threshold of N25 million turnover in a calendar year to be introduced.
- Remittance of VAT now to be on cash basis, that is, difference between output VAT collected and input VAT paid in the preceding month.
- Compensation for loss of employment below N10m to be exempted from CGT
- Stamp duty on bank transfer to apply only on amount from N10,000 and above. Transfers between the same owner’s accounts in the same bank also to be exempted.