Financial Literacy
Personal Income Tax – What does this mean to me?
There are some misconceptions with respect to statutory tax obligations of business owners as well as those in paid employment. For instance, many business owners believe they do not have individual tax obligations once their businesses have complied with the tax laws. Some people think Personal Income Tax (PIT) rates in Nigeria are in the region of 40% – 50% and so avoid any discussion around payment of taxes. Many others do not even know the difference between PIT and corporate taxes and which one applies to them. It is therefore no surprise that the Voluntary Assets and Income Declaration Scheme (VAIDS), a tax amnesty program organized by the Federal Ministry of Finance in conjunction with tax authorities in Nigeria, has left several people pondering on its relevance to them. This article provides fundamentals of the tax system in Nigeria in relation to PIT and why individuals should prepare themselves for both VAIDS and post-VAIDS era.
Personal Income Tax – What You Need to Know
Income of an individual derived from sources such as employment, business, asset, investments etc. is subjected to tax under the PIT Act 2011 (as amended) in Nigeria. The applicable income tax rate depends on income level and corresponding tax rate for each income bracket. There was a time in the country when PIT rates were significantly on the high side. For instance, PIT rate applicable between 1977 -1986 was 70% on annual income of 30,000 Naira and above; between 1986 – 1997, the PIT rate was 55% on annual income of 40,000 Naira and above. The PIT rates have however dropped significantly in recent times. When you consider reliefs and allowances, such as consolidated relief allowance, pension contribution, interest on mortgage for owner-occupied house and life assurance premium, that are to be deducted from taxable income, the average effective PIT rate is around 18%!
It is necessary to understand the difference between the personal income and company income and the applicable tax authority. Where an individual owns a company, the profit of such company is subjected to tax under the Companies Income Tax (CIT) Act. However, the income the individual receives from the company is taxable under the PIT Act. The fact that the company has paid CIT does not excuse the individual who owns such company from accounting for PIT on his own income derived from that company, except where such income is specifically exempt from PIT.
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Written by:
Emeka Onwuka
Partner & Head
Private Client & Family Wealth Practice
Andersen Tax Nigeria
MSME
GEEP provides COVID-19 palliative microloans to 87,614 traders
The loans were in line with the government’s policies to reduce poverty and boost productivity.
The Federal Government of Nigeria, through the Government Enterprise and Empowerment Programme (GEEP), has provided a COVID-19 palliative relief loans to about 87,614 traders across twenty states. This was disclosed earlier today through a brief press statement that was made available via the government’s official Twitter handle.
According to the disclosure, the microloans have helped to reduce extreme poverty and encouraged productivity following the easing of the lockdown. Part of the statement said:
“In line with the vision of the Nigeria Government to curb poverty and boost productivity in different parts of Nigeria, GEEP has provided palliative microloans to 87,614 petty traders hit by COVID19 pandemic in 20 states of the country in the first phase of disbursement.
“These palliative microloans have helped petty traders revive their businesses, as the government eases lockdown measures nationwide. The second phase of the disbursement will target 412,386 petty traders across the country.”
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In line with the vision of @NigeriaGov to curb poverty and boost productivity in different parts of Nigeria, @geep_ng has provided palliative microloans to 87,614 petty traders hit by #COVID19 pandemic in 20 states of the country in the first phase of disbursement.#GovtAtWorkNG
— Government of Nigeria (@NigeriaGov) August 10, 2020
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The Federal Government also announced that the second phase of the loans would be disbursed to a 412,368 trader across the country in a bid to restart economic productivity as the government eases the economic lockdowns that have heavily affected the informal and formal sectors.
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The palliative schemes under the GEEP scheme include FarmerMoni, TraderMoni, and MarketMoni.
FEATURED
FG releases new details on MSMEs support scheme, budgets N200 billion for loans
The Bank of Industry will also join to coordinate the implementation of the scheme.
The Federal Government has released new details on the Micro Small and Medium Enterprises (MSMEs) support scheme being rolled out under the National Economic Sustainability Programme.
According to estimates provided, the sum of N50 billion will be used to provide payroll support, N200 billion for loans to artisans, and N10 billion support to private transport companies and workers
The government disclosed in a tweet on the official handle of the government, the support scheme will include a Guaranteed Off-take Scheme for priority products, and an MSMEs Survival Fund.
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The Federal Govt is rolling out, under the NESP, support schemes for MSMEs nationwide, including a Guaranteed Offtake Scheme (guaranteeing off-take of priority products); and an MSMEs Survival Fund that will make payroll support available to save jobs & sustain local production. pic.twitter.com/yLkHQn6zy3
— Government of Nigeria (@NigeriaGov) August 10, 2020
Modalities for the take-off scheme
The first track is a Guaranteed Off-take Scheme which will ensure continued local production and safeguard 100,000 existing small businesses to save 300,000 jobs.
Priority products include processed foods, personal protective equipment, hand sanitizers, face-masks, face-shield, shoe-covers and pharmaceuticals.
The implementation committee chaired by Ambassador Mariam Katagum, Minister of the Federal Ministry of Industry Trade and Investment, will collaborate with private sector MSME associations to verify and screen applications from bidding MSMEs, define quantity and price of products required, and also get participants to join in the procurements.
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SME survival fund
With a budget of N15 billion, the SME survival fund is expected to sustain 500,000 jobs in 50,000 SMEs.
Major sectors to benefit from the SME survival fund include hotels, restaurants, creative industries, road transport, tourism, private schools and export-related businesses.
The committee will identify eligible SMEs and screening and verification for this fund will be based on company registration, and tax registration. The implementation committee will approve disbursements through microfinance banks and fin-tech credit providers.
MSMEs that are unregistered will receive support to complete registration with the Corporate Affairs Commission (CAC), and all participants will be expected to make payments based on signed agreements.
The Bank of Industry will also join to coordinate the implementation of the scheme.
The scheme will last 3 months with Ambassador Mariam Katagum as Chairman, while Ibukun Awosika, Founder of The Chair Centre Limited (TCCL), and First Bank Nigeria will serve as the Vice Chairman.
More details are to be released subsequently from the Implementation Committee.
The Backstory
In July 2020, the Federal Government announced plans to roll out a N2.3 trillion stimulus package and survival fund for Micro Small and Medium Enterprises (MSMEs) to stay afloat amid the economic challenges imposed by the pandemic.
The Vice President Yemi Osinbajo, who also heads the Economic Sustainability Committee, announced it at the 2020 edition of the Micro MSMEs Awards held virtually in July.
To benefit from the scheme, MSMEs would have to go through a rigorous and painstaking verification process which will be based on certain criteria.
MSMEs that have between 10 to 50 staffs are qualified for this fund. The businesses must make their payroll available to the government for verification while applying for the fund. Once qualified, the MSMEs will be eligible to have their staff salary paid directly from the fund for 3 months.
FEATURED
How new CAMA 2020 will enhance SMEs’ ease of doing business
President Buhari recently assented to the Companies and Allied Matters Bill 2020.
The new Companies Allied Matters Act (CAMA) 2020 is expected to enhance the ease of doing business in Nigeria. The new document has repealed and replaced the extant CAMA 1990 with key amendments that would remove some bottlenecks from the old act.
The revised Act will make Nigeria’s business environment as competitive as its counterparts around the world.
Back story: Nairametrics had reported when President Muhammadu Buhari assented to the Companies and Allied Matters Bill 2020, which was recently passed by the National Assembly.
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He explained that some innovative processes and procedures were included in the new document to ease the operations of companies. Some of them are the introduction of Statements of Compliance, which replaced “authorised share capital” with minimum share capital to reduce costs of incorporating companies; and providing for electronic filing, electronic share transfers, e-meetings as well as remote general meetings for private companies.
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Provisions that aid ease of doing business:
* Provision of single-member/shareholder companies- Section 18 (2) of the new CAMA now makes it possible to establish a private company with only one member or shareholders.
* Restriction on multiple directorship in public companies- S.307(1) of the Act frowns at a person from being a director in more than five (5) public companies at a time.
* Appointment of Company Secretary now optional- Going forward, the appointment of company secretary for private company is optional. According to Section 330 (1) of the new CAMA, the appointment is only mandatory for public companies.
* A Director can’t hold the office of a Chairman, CEO – According to Section 265 (6), private firms are now restricted from appointing a director to hold the office of the Chairman and Chief Executive Officer.
* Procurement of Common seal not mandatory – Contrary to the previous document that insisted that every company must procure a Common Seal, CAMA 2020, according to Section 98, states that most jurisdictions around the world have expunged the requirement from their laws.
* Concept of Limited Liability Partnership and Limited Partnership – The new act combines the organisational flexibility and tax status of a partnership with the limited liability of members of a company.
* Virtual AGMs – New act made provision for virtual annual general meetings (AGM), provided that such meetings are conducted in accordance with the Articles of Association of the company. This is expected to facilitate participation from any location at minimal costs.
* SMEs exempted from appointing auditors – Small companies or any company with a single shareholder are no longer mandated to appoint auditors at the AGM to audit their financial records.
— Jumoke Oduwole (@joduwole) August 7, 2020
Why it matters:
Nigeria is largely dominated by Medium and Small-Scale Enterprises (MSMEs). Making registration easier for them brings in more businesses into the formal space. This also enhances tax revenue for the government.
The Companies and Allied Matters Act (CAMA) was promulgated in 1990 to regulate the formation and management of companies in Nigeria
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