7.5% VAT kicks off as Buhari signs Finance Bill

Image result for Buhari
With yesterday’s signing into law of the Finance Bill, President Muhammadu Buhari has triggered the operationalisation of the 7.5% Value Added Tax (VAT) as proposed.
The Value Added Tax is proposed to increase from 5% to 7.5%. The 2020 Budget projections are based on this new VAT increase as a result, States and  Local Government Authorities (LGAs) will benefit more from the VAT increase.
The objectives of the Bill, as outlined by President Buhari, are to strategically: “promote fiscal equity by mitigating instances of regressive taxation; reform domestic tax laws to align with global best practices; introduce tax incentives for investments in infrastructure and capital markets; support small businesses in line with the ongoing Ease of Doing Business Reforms; and raise revenues for the Government by various fiscal measures, including a proposed increase in the rate of Value Added Tax (VAT) from 5% to 7.5%.
The key highlights of the new tax law are that banks  will request for Tax Identification Number (TIN) before individuals are allowed to open bank accounts while existing account holders must provide their TIN to be able to operate their accounts.
By this Act,  Non-residents who provide imported technical and management services in Nigeria will be taxable at a final Witholding Tax rate of 10%; Dividends distributed from petroleum profits will attract 10% withholding tax. Those that will be affect by this law will be those with investments in oil and gas.
A minimum tax provisions of 0.5% of turnover will apply to companies without profit and are  unable to pay Company Income Tax (CIT) and exemption will only apply to small companies that record less than ₦25 million turnover. Non-resident companies will now pay minimum tax.  Specifically, small businesses with turnover less than ₦25 million will  be totally exempted from Companies Income Tax (CIT) and entities with less than ₦25 million in turnover are exempted from VAT registration.
Going forward, CIT rate of 20% now applies to medium-sized companies with turnover between ₦25 million and ₦100 Million. This is to boost Small and Medium Enterprises (SMEs). The law will now allow the use of  EMAILS as a communication medium with tax institutions particularly the FIRS and State Revenue Agencies.
Early payment of Company Income Tax has been incentivised with the deduction of 2% of tax payable by medium-sized companies and 1% for large companies.
Henceforth, Stamp duty on bank transfers will apply to amounts from ₦10,000 and above. Transfers between the same owner’s accounts in the same bank will be exempted. Electronic bank transfers included.
Taiwo Oyedele of PriceWaterhouseCoopers in an interview with TVC noted that “by increasing VAT from 5% to 7.5% at 2019 or 2018 level of performance, you are going to raise around ₦550 billion. Now when you raise ₦550 billion only 15% goes to the Federal Government, 50% goes to the states and 35% to the local government. All together that is not going to move the needle in terms of bridging the budget deficit but may be its a baby step in the right direction.”
A positive take on the new VAT initiative Oyedele added is that the “burden does not fall on the vulnerable and poorest people in the society as well as small businesses. Which is what I think that government has tried to do with the finance bill by expanding the list of exempt items and then creating a threshold for small businesses not to have to worry about charging VAT on their goods and services.”
He described the bill as “a reform measure which I think is good if you are able to enable businesses grow, you can create more employment and then that way you can generate more revenue from VAT because more people can consume because they have more buying power and if businesses become more profitable they can pay more taxes so altogether I think it’s a positive development.”

Related Post

Leave a Reply

Your email address will not be published. Required fields are marked *