President Muhammadu Buhari has on Monday in the State House signed the 2019 Finance Bill into law. This is sequel to the passage of the Bill by the National Assembly and the subsequent forwarding of the Bill by the legislature to the President for assent.
Mr. President submitted the Finance Bill, 2019 on the 14th of October 2019 to accompany the 2020 Executive Budget Proposals and 2020 Appropriation Bill, which proposes to introduce tax reforms that will help Government achieve its revenue projections for the 2020 Budget (N8.155trillion).
It would be recalled that President Buhari, while presenting the 2020 Appropriation Bill to the National Assembly, had also presented the Finance Bill and said: “This Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to our fiscal laws.”
“The finance Act strategic objectives include the following: Promoting fiscal equity by mitigating instances of regressive taxation (such as tax reforms for the insurance sector); Reforming domestic tax laws to align with global best practices (such as taxes of digital business and e-commerce); Introducing tax incentives for investments in infrastructure and capital markets (such as targeted incentives for real estate investment trusts (REITs) and securities lending in the capital market); Supporting micro, small and medium Enterprises (MSMEs) in line with the ease of doing business reforms such as Value Added Tax (VAT) threshold and lower company income tax (CIT) rates for MSMEs; and raising revenues for government to fund the 2020 Budget. There is a VAT rate increase and excise duty on imported excisable goods.
Though the Finance Act 2019 proposes an increase of VAT rate from five percent to 7.5 percent, it is important to note that 85% of the revenue realised from the increase would go to the people; the States and the Local Governments Areas (LGAs) are to get 50 percent and 35 percent respectively while only 15 percent will go to the Federal Government.
The 2019 Finance Act is a peoples law considering the expansion of VAT exemption list which includes: basic food items (agro and aqua based staple foods) such as additives, cereals, cooking oils, culinary herbs, fish of all kinds (other than ornamented), flour and starch, fruits, live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, and water; Locally manufactured sanitary towels, tuition (primary, secondary and tertiary education); and services rendered by Microfinance Banks.
In a statement issued by Mr. Femi Adesina, Special Adviser to the President, (Media & Publicity), it is stated that with the assent, there will be more revenue to finance key government projects especially in the areas of health, education and critical infrastructure.
In her reaction, Honourable Minister of Finance, Budget and National Planning, Mrs. Zainab Shamsuna Ahmed, commended the President for ensuring that “the strategic objectives in the finance Act recognise the crucial relationship between fiscal policy, the regulatory environment and the strong capital market we all seek to effect in Nigeria.
“We planned that, going forward, the annual budget will always be accompanied by finance bills to enable the realisation of revenue projections. Future finance bills will therefore also provide us with additional opportunities to incrementally improve the fiscal policy and regulatory/legal environment in order to further strengthen our domestic capital market, and ultimately ensure sustained and inclusive growth and development,” she stated.
Highlighting the amendments, Mrs. Ahmed noted that the Finance Act, 2019 has offered incremental, but necessary, amendments to certain provisions of existing tax laws, including the following: Companies Income Tax Act (CITA), 2004; Personal Income Tax Act (PITA), 2007; Value Added Tax Act (VATA), 2007; Petroleum Profits Tax Act (PPTA); Stamp Duties Act (SDA), 2007; Customs and Excise Tariff Act, 2004; and Capital Gains Tax Act, 2007.
Some of the proposals contained in the finance Act include: Amendment of excess dividend tax rules that result in double taxation and discourage investments; Review of commencement and cessation business rules that also lead to double taxation; An incentive of two percent bonus for early tax payment by medium-sized companies and one percent for large companies; An increase in the VAT rate; Moderation of inefficient and ineffective tax incentives; and closing loopholes in the existing tax laws that allow tax avoidance resulting in tax revenue leakages.
The Finance Act has also taken care of essential palliatives to support MSMEs and mitigate the impact of the VAT rate increase on the most vulnerable businesses, communities and citizens in the economy. Some of these measures include: Expanding the list of VAT-exempt items (e.g. basic food items, educational materials and medical supplies); Introducing a VAT registration threshold for MSMEs with a turnover of less than N25 million per annum; Reducing the corporate tax rate for MSMEs from 30 percent to 20 percent for Small firms (with turnover of between N25million and N100million per annum.); and exempting micro-firms (with turnover of less than N25million per annum).
On the implementation process of the Act, Mrs. Ahmed has said that she will issue a statement in due course.