Tax experts have welcomed the signing of Finance Bill 2019 into law by President Muhammadu Buhari, saying it will improve government’s revenue and ease tax burden on micro, small and medium sized enterprises (MSME).
The Finance Bill, which the president signed into law yesterday, will kick-start the implementation of the new Value Added Tax (VAT) rate of 7.5 per cent, a 50 per cent hike from the old rate of five per cent.
Speaking in an interview with THISDAY, the Tax Leader/Head of Tax and Corporate Advisory Services at PwC, Mr. Taiwo Oyedele, said: “The Finance Bill that has been signed by the president is a good development because in 20 years, it is the first time since 1999 we are having something of this scale and size, which is focused on how to fund the budget and issues around tax and reforms and its effect on MSMEs.
“It also has issues to do with stamp duties where the threshold has been raised to N10,000 meaning you don’t have to pay stamp duties if you are buying less than N10,000.
“And of course, the most talked about VAT increase from five per cent to 7.5 per cent and there has been an expansion of items exempted from VAT to include what the poorest and most vulnerable people would consume in terms of food items, education, healthcare etc.”
According to him, the law will encourage MSMEs to grow, reduce their tax burden and enable the government to raise revenue.
The Head of Consulting, Agusto Consulting Limited, Mr. Jimi Ogbobine, described the new Finance Act as “undoubtedly the biggest fiscal reform of the Buhari administration, dwarfing the Voluntary Asset Income Declaration Scheme (VAIDS).
He said by stratifying corporations by size via revenue, the Finance Act could potentially pare back the incidents of tax evasion amongst small businesses.
Ogbobine noted that the Act also addresses fiscal disadvantages in the tax polity, especially those that affect the insurance industry and the treatment of withholding taxes on dividends.
“The big debate should now shift to the management of the VAT windfall by the state governments. The sub-nationals (states and local governments) receive 85% of the VAT proceeds. For now, the VAT increase is supposed to help the states meet the increase in payroll owing to the increase in the minimum wage. We expect greater fiscal vision from the states. We expect the bulk of the VAT windfall to go into infrastructure to create greater impact for the tax payers,” he explained.
On tax on dividends, he said: “Previously when dividends are paid out to shareholders and these are higher than chargeable or total profits of the business, the dividend paid out was deemed to be the chargeable profit and a tax rate of 30 per cent was charged.
“If dividend is a residual income available to shareholders after tax has been charged, charging tax again when the dividend was paid out amounts to charging tax on an after-tax income, thus leading to double taxation. With the new Finance Act, this provision of charging tax from dividend is now removed.
“Minimum tax computation will now be based on revenue alone. It will now be charged on 0.5 per cent of turnover. Of course, the revenue mentioned here must be at least N25m since companies with revenue of N25 million are exempted from corporate income tax (CIT),” he further explained.
Also, analysts from Ezcellon Capital stated: “The VAT increase is not unexpected as the Nigerian VAT regime is one of the lowest in the world so it is not really a bad thing, especially given the government needs to fund its budget.
“So, while government revenue increases, we hope government would look into critical areas of infrastructural deficit and there should be strategical investments into that.
“There is a part regarding the insurance company where their taxable profit is going to be reduced meaning that the insurance sector would benefit from it because it is an important sector of the economy. And that is a welcome development if this would improve their performance and sustainability over time.”
Buhari Signs Finance Bill into Law
Buhari’s assent to the bill yesterday was announced by his media adviser, Mr. Femi Adesina, in a statement.
He said the president had told the National Assembly last year that the 2020 budget, which comprised five objectives, was also made up of the draft Finance Bill.
The draft Finance Bill, according to the statement, consisted of 7.5 per cent increase in VAT rate from the hitherto five per cent rate.
He recalled the president’s remarks that: “This 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; supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms; and raising revenues for government.”
Adesina stated that with the president’s assent to the bill, there would be more revenue to finance key government projects, especially in the areas of health, education and critical infrastructure.
The signing into law of the Finance Bill will herald the much-awaited implementation of the new VAT rate of 7.5 per cent.
The new VAT rate is an increase of 2.5 per cent from the hitherto five per cent rate.
The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, had on September 12, 2019, after the Federal Executive Council (FEC) meeting in the State House, Abuja, announced the proposed increase of VAT rate.
But three days after, the federal government explained that the VAT increase was not 2.2 per cent rise as widely reported but rather an increase of 2.5, which it said would bring the new VAT rate to 7.5 per cent.
Ahmed had at the September 12 briefing, explained that the VAT increase was conceived to be more largely beneficial to state governments than the federal government.
According to her, the federal government only retains 15 per cent of VAT, leaving the bulk of 85 per cent balance for the states.
She also said the decision was taken after extensive consultations with relevant stakeholders.
However, the proposed increase then, which was the first official confirmation of the speculations in the polity for almost nine months, was accompanied by a wide range of criticisms from members of the public who argued that the increase would further impoverish the people.
The criticisms, notwithstanding, the president presented the 2020 budget to a joint session of the National Assembly on October 8 last year, including the Finance Bill.
