Taxes & Tariffs | |
Taxes & Tariffs | |
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Thursday,
January 16, 2020 /09:38 AM / By FDC Ltd / Header Image
Credit: @NigeriaGov
President
Buhari has signed the finance bill into law. This comes days after assenting to
the 2020 budget. The new law amends a number of extant tax laws including the
Company Income Tax (CIT), Value Added Tax (VAT), Petroleum Profit Tax, customs
and excise tariff, Personal Income Tax, Stamp Duties Tax and the Capital Gains
Tax.
The
main objective of the finance bill is:
1.
To promote fiscal equity
2.
Reform the domestic tax laws to align with global best practices
3. Introduce tax incentives for investments in infrastructure and capital
markets
4.
Support MSMEs
5.
Increase Government revenues
Key Highlights
1.
VAT to increase to 7.5% from 5%
2.
Companies with turnover less than N25 million pa are tax-exempt from CIT
(Progressive tax)
3. Companies that earn between N25 million - N100 million annually will pay
20% of their profit as CIT
4. Companies with annual income in excess of N100 million annually will pay
30% of their profit as CIT
5.
To avoid double taxation, tax on dividends is no longer applicable
6. Tax Identification Number (TIN) is a prerequisite for operating a bank
account
7. The threshold for stamp duty on online transactions increased to N10,000
from N1,000
8. Stamp duty removed for bank transfers below N10,000 9. Goods and
services redefined to cover intangible items
The Goodies
The
introduction of a bill that amends various tax laws is a welcome development in
the tax system. This could boost the economy by stimulating the growth of small
and medium scale enterprises and increase foreign direct investments into the
country.
In
addition, the VAT increase is expected to help fund the minimum wage
implementation by state governments. State and local governments will receive
85% of the revenue while the federal government will receive 15%.
The baggage
It
is no news that consumer demand has been relatively weak, the revised VAT would
have a knock-on effect on consumer disposable income due to the additional 2.5%
VAT on most consumer goods. The wage increase and higher VAT will exacerbate
inflationary pressures.
Inflation
has increased consecutively since September 2019 and an increase in consumer
price inflation is imminent. If the higher VAT leads to a spike in inflation in
January, the MPC would be left with no alternative but to commence a tightening
cycle and raise the MPR.
Finally,
the onus is on the government to address tax revenue shortfalls, eliminate
leakages and improve transparency in expending the collected revenue.
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