The Presidency on Sunday disclosed some items exempted from the Finance Act 2019 signed by President Muhammadu Buhari on Jan.13, 2020. This was done to reduce public tension.
The additional exemption was disclosed in a statement by Laolu Akande, Senior Special Assistant to the President on Media and Publicity, Office of the Vice President.
According to him, the new exemption was done to calm the tension created by the VAT increase. In his words, “in order to allay fears that low-income persons and companies will be marginalised by the new law, and to reduce the burden of taxation on vulnerable segments and promote equitable taxation, therefore, the Finance Act 2019 has extended the list of goods and services exempted from the Value Added Tax”.
Exemptions Of The Finance Act
The exemption of the Act has been said to include;
Basic food items – additives (honey), bread, cereals, cooking oils, culinary herbs, fish flour and starch, fruits (fried or dried), live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, water (natural water and table water).
Locally-manufactured sanitary towels, pads or tampons.
Services rendered by micro finance banks and tuition relating to nursery, primary, secondary and tertiary education.
Exemption of businesses with less than N25 million annual turnover from the VAT payments.
Companies Income Tax (CIT)
In addition to businesses with less than N25m turnover being exempted from VAT, they’re also charged Zero CIT. CIT for companies who make revenues between 25-100 million naira (described in the Act as “medium-sized” companies) has been reduced from 30 to 20 per cent.
Also, large companies with an annual turnover greater than N100m will continue to pay the standard 30 per cent of Companies Income Tax.
In addition, the new law grants all companies engaged in agricultural production in Nigeria an initial tax-free period of five years. This, they can renew for an additional three years.
To top it all, there’s an initiative to promote tax compliance through bonus reductions in the CIT for early remittance. The bonus come at 2% bonus for medium-size companies and 1% bonus for other companies.
Personal Income Tax
The Presidency further noted that “the new Act now include electronic mail as an acceptable form of correspondence for persons disputing assessments by the Tax Authorities.”
Also, “contributions to pension and retirement funds, societies and schemes are now unconditionally tax-deductible.”
Stamp Duty Tax
The new act further stated that “the N50 Stamp duty charge will now be applicable to transactions amounting to N10,000 and above, which is a significant increase on the former threshold of N1,000.”
There are also other items exempted from Stamp Duty which the new act expanded on.
Customs And Excise Tariff
The President has also made provisions for Customs and Excise Tariff. It states that “to reduce unfair advantages previously conferred on imported goods at the expense of locally manufactured ones, certain imported goods are not subject to excise duties similar to locally manufactured goods.”
The New Finance Act 2019
Basically, the New Finance Act was established with some objectives as it’s the first legislation to accompany an Appropriation Act since democracy in 1999.
The Presidency noted that despite the increase in VAT rate, Nigeria’s VAT rate of 7.5 percent is still the lowest in Africa and one of the lowest anywhere in the world. Nigeria’s VAT rate is lower than that of countries like South Africa: 15 percent, Ghana: 12.5 percent, Kenya: 16 percent, Egypt: 14 per cent, Rwanda: 18 per cent, and Senegal: 18 percent.
Therefore, the objectives include;
Objectives of the Finance Act
- To 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 micro, small and medium-sized businesses in line with the administration’s Ease of Doing Business Reforms.
- Raise Revenues for Federal, State and Local Governments.”
To achieve all of these, the Presidency has noted in the statement that; “we shall sustain this tradition by ensuring that subsequent budgets are also accompanied by a finance law.”
Most importantly, 85 percent of the incoming VAT will go to states and local governments. This will help the state and local government fulfill their obligations to their citizens. Chief of this obligation is abiding by the new minimum wage as already noted by state Governors.