As we all are aware, the COVID-19 pandemic triggered an economic downturn across most economies of the world. By the end of last year, the world’s economy fell into recession with the contraction estimated at -3.5 percent compared to global growth of 2.8 percent in 2019.
Subsequently, the Nigerian economy was also impacted by the pandemic, reflected by the contraction in economic growth in the second and third quarters of 2020, respectively. Just as it has been in the news, it is advisable for Nigerians to see so far that economic activities in the country are recovering gradually, reflected by a reduced contraction of 3.6 percent in the third quarter of 2020, compared to the 6.1 percent contraction in the previous quarter.
According to the International Monetary Fund (IMF), the global economy is projected to grow by 5.5 percent in 2021. The international financial institution has forecasted that the Nigerian economy will rebound from the estimated contraction of -3.2 percent in 2020 to growth of 1.5 percent in 2021. The National Bureau of Statistics (NBS) projects a higher growth of three percent for Nigeria in 2021. In line with this projection, the consistent and committed focus of the government is to accelerate economic recovery from the recession and return to diversified, sustainable and inclusive economic growth.
Given the impact of the pandemic on the domestic economy and other key macroeconomic variables, there was, as is consistent with the position of Mrs. Zainab Ahmed, the Honourable Minister of Finance, Budget and National Planning, a clear need for the government’s proactive implementation of macroeconomic strategies that would support domestic revenue mobilisation, enhance investment inflow, stimulate job creation and restore the economy on the path of sustainable, diversified and inclusive growth.
It is in line with the tradition established with the Finance Act of 2019, that the federal government proposed and passed the Finance Act, 2020 to support the 2021 federal budget of ‘Economic Recovery and Resilience’ by stimulating growth and improving the government’s fiscal position. It is on record that the Act took effect from 1st January 2021 alongside the 2021 Appropriation Act.
Essentially, the Finance Act, 2020 is structured across five broad thematic areas of: (i) enacting counter cyclical measures and crisis intervention initiatives (ii) introducing broad-based tax and fiscal responsibility reforms (iii) implementing key public procurement reforms (iv) providing fiscal relief targeted at key sectors such as mass transit for mass transit, transportation and minimum wage earners; and (v) ensuring closer coordination of monetary, fiscal and trade policies across ongoing ease of doing business and other key reforms.
It is important to note that the Finance Act, 2020 consolidates on the fiscal reforms introduced in the Finance Act, 2019 but does not propose any new taxes or increases in existing tax rates. The Act has introduced 80 changes to about 14 different tax laws including the Company Income Tax Act, the Capital Gains Tax Act, Stamp Duties Act, Oil & Gas Export Free Zone Act, Customs & Excise Tariff etc. (Consolidated) Act, Value Added Tax Act, amongst others.
Some of the provisions of the Finance Act 2020 are consolidate on tax incentives in the Finance Act, 2019 which were targeted at stimulating micro, small and medium enterprises (MSMEs), given the role they play in employment generation and output growth.
For instance, the Finance Act, 2020 extends the corporate income tax exemption in the Finance Act, 2019 for micro and small enterprises with an annual turnover of N25 million or less to include exemption from paying tertiary education tax. Also, small or medium enterprises who are engaged in primary agricultural production may, on application, be granted pioneer status (tax relief) for an initial period of four years and an additional two years (making a total of six years).
Other provisions of the Finance Act, 2020, as Mrs. Ahmed said at PWC Nigeria’s executive roundtable on the finance Act, 2020 and economic outlook for 2021, include: (i) Exemption of all low-income employees who earn the minimum wage or less from Personal Income Tax; (ii) A 50 percent reduction in Minimum Tax levied on companies from 0.5 percent to 0.25 percent of gross turnover less franked investment income; (iii) Reduction of import duty on tractors from 35 percent to five percent; mass transit vehicles for the transport of more than 10 persons and trucks from 35 percent to 10 percent, and the reduction of import levy on cars from 30 percent to five percent; (iv) Exemption of commercial airline tickets, commercial aircraft spare parts, animal feed, rental or lease of agricultural equipment for agricultural purposes, amongst others from value added tax (VAT).
Other key reforms in the Finance Act, 2020 are targeted at supporting the implementation of the 2021 Budget: these include restrictions on the cost-to-revenue ratios of government and state-owned enterprises to increase operating surplus remittances; reforms extending the Public Procurement Act, for the first time, to cover the judiciary and the National Assembly, as well as shortening procurement periods, increasing procurement mobilisation fee thresholds from 15 percent to up to 30 percent, and providing for e-procurement. We intend to judiciously utilize our available resources to implement the 2021 Budget to boost infrastructural development, restore growth, and improve the general economic wellbeing of Nigerians.
We, therefore, are encouraging Nigerians to take seriously the assurance that the federal government will continue to champion economic policies aimed at improving revenue generation, enhancing economic competitiveness, attracting foreign direct investments, encouraging domestic investors, and enhancing overall macroeconomic stability, despite the significant challenges posed by the COVID-19 pandemic. Given all stated, needless to say that this administration is committed to stimulating economic growth by fostering economic resilience in our businesses, communities and the broader economy, in line with the thematic thrust of the 2021 Budget.