President Muhammadu Buhari on Monday signed the Finance Bill into law. This of course heralded the commencement of the proposed 7.5% Value Added Tax (VAT).
The Value Added Tax is proposed to increase from 5% to 7.5%.
The 2020 Budget projections are based on this new VAT increase with States and Local Government Authorities (LGAs) expected to benefit more from the VAT increase.
The objectives of the Bill, as outlined by President Buhari, are to strategically: “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 small businesses in line with the ongoing Ease of Doing Business Reforms; and raise revenues for the Government by various fiscal measures, including a proposed increase in the rate of Value Added Tax (VAT) from 5% to 7.5%.”
The key highlights of the new tax law are that banks will request for Tax Identification Number (TIN) before individuals are allowed to open bank accounts while existing account holders must provide their TIN to be able to operate their accounts.
By this Act, Non-residents who provide imported technical and management services in Nigeria will be taxable at a final Witholding Tax rate of 10%; Dividends distributed from petroleum profits will attract 10% withholding tax.
Those that will be affected by this law will be those with investments in oil and gas.
A minimum tax provision of 0.5% of turnover will apply to companies without profit and are unable to pay Company Income Tax (CIT) and exemption will only apply to small companies that record less than ₦25 million turnover.
Non-resident companies will now pay minimum tax. Specifically, small businesses with turnover less than ₦25 million will be totally exempted from Companies Income Tax (CIT) and entities with less than ₦25 million in turnover are exempted from VAT registration.
Going forward, CIT rate of 20% now applies to medium-sized companies with turnover between ₦25 million and ₦100 Million. This is to boost Small and Medium Enterprises (SMEs). The law will now allow the use of Emails as a communication medium with tax institutions particularly the FIRS and State Revenue Agencies.
Early payment of Company Income Tax has been incentivised with the deduction of 2% of tax payable by medium-sized companies and 1% for large companies.
Henceforth, Stamp duty on bank transfers will apply to amounts from ₦10,000 and above.
Transfers between the same owner’s accounts in the same bank will be exempted. Electronic bank transfers included.