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“…for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself by the handle,Winston S. Churchill.

The Nigerian government has been making tremendous efforts to expand and diversify its tax revenue from oil, especially following the shocks recently experienced in the global crude oil market and the projected decline in the global crude oil demand in the face of threats of substitutes caused by Shale, electric vehicles e.t.c. According to the IMF, Nigeria’s tax to GDP ratio is among the lowest in the world and the Bretton woods institution has called for an urgent and comprehensive economic reform to expand the non-oil tax revenue in Nigeria.

In October 2019, President Muhammadu Buhari submitted the Finance Bill 2019 to the National Assembly. The bill seeks to implement wide fiscal reforms and transform the government approach to tax administration. While some components introduce increments, several others are aimed at reducing taxes, especially for SMEs, thereby stimulating economic activities. This is the first time that the Nigerian Government is making an attempt at effecting a holistic change to its entire fiscal laws at one sweep.

The bill, if passed into law, will make an overwhelming change to the administration of tax in Nigeria and further support SMEs in line with the ease of doing business reforms of government. Some of the proposed changes are examined below with a specific focus on their effects on SMEs, insurance and other businesses in Nigeria.

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Value-Added Tax Increase

This bill seeks to increase the value-added tax from the present 5% to 7.5%. The Federal Government argues that Nigeria’s VAT ranks among the lowest in the world. I have, however, argued that this perspective is a bit narrow as the challenge with VAT or any other tax in Nigeria is not so much about rates, but more about the poor collection, income levels, and citizens’ trust in the government’s ability to effectively utilize tax proceeds. For example, according to the IMF, the informal sector accounted for 65% of Nigeria’s 2017 GDP, and this sector is largely excluded from the tax net as they are unstructured and largely unregulated. In my earlier article titled, Nigeria’s VAT increase: Penny-wise, Pound Foolish, I posited that the proposed VAT increase might further impoverish the citizens and ultimately fail to meet its objectives of revenue increase.

It is therefore refreshing to see other provisions of the Finance Bill, some of which may cushion the effect of the proposed VAT increase.

The proposed amendment to Section 16 of the Company Income Tax (CIT) Act

This section has over the years been a pain and an inhibitor of growth to the insurance business in Nigeria. In tax practice, all expenses wholly and reasonably incurred to generate a particular amount of revenue are allowable for tax purposes in their entirety. This is not the case under section 16 as it limits allowable claims expense, commission, and other direct expenses to 25% of the total premium. Operators in the Insurance Industry have been calling for a review of this section to no avail.

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With the newly proposed Finance Bill 2019 however, if passed into law, insurance companies will be assessed and taxed like other sectors in the economy. Besides, the limitation of losses carried forward to four years of assessment has been abolished. Insurance companies can now carry forward losses indefinitely, deduct reserve for unexpired risks on time apportionment bases while special minimum tax for insurance has been abolished. This is laudable and is expected to catalyze the improved profitability of insurance companies.

The proposed amendment to Section 33 of CITA – Minimum Tax

The proposed amendment to this section limits minimum tax computation to 0.5% of turnover and companies with turnover of less than ₦25 million will be exempted from minimum tax payment. Furthermore, a tax rate of 20% will apply to small businesses with a turnover between ₦25 million and ₦100 million. These amendments are laudable, as they will stimulate growth in the SME space, improve their profitability and as a result, their working cash flow, as they will now be able to retain more profits which hitherto, would have gone to the government through taxes.

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On the flip side, the repeal of the minimum tax exemption granted to companies with 25% imported equity might discourage potential foreign investors into critical sectors of the economy that require foreign investment but a long time to break-even.


The proposed amendment to Section 19 – Excess Tax Dividend

Section 19 aims to prevent tax avoidance mechanisms of companies but rather became an overkill to preventing tax revenue losses. The section provides that where the dividend payment of a company is higher than taxable profits, the dividend shall be taken as the taxable profit and assessed to tax at the CIT rate. However, dividends can be paid out of retained earnings which have been taxed before or franked investment income received by the company which should not be subjected to tax.

This, therefore, invariably results in double taxation for the company. The proposed amendment to this section is that excess dividend tax shall apply to only untaxed distributions other than profits specifically exempted from tax and franked investment income. This is to discourage double taxation whereby dividend paid out of retained earnings that have been subjected to tax will be subjected to a further tax.

The proposed amendment to Section 29 – Commencement and Cessation Rule

The old basis for computing tax liabilities for the commencement of business and cessation of business poses a risk of double taxation as there are chances of overlap in the basis period of assessment. The proposed amendment seeks to correct this by replacing the old basis with a simplified actual year basis period of assessment.

Other Amendments

Other amendments in the proposed Finance bill seek to instil more convenience into the tax regime. Examples are:

  • The Bonus of 2% of tax payable (medium-sized companies) and 1% (Large Companies) for early payment of tax
  • Exemption of stamp duty for bank transfer below ₦10,000 and transfers between same owner’s account within the same bank: this is specifically beneficial to MSMEs, especially those in the micro-businesses as a lot of their transactions volume fall in this category.
  • Compensation for loss of employment below ₦10 million to be exempted from Capital Gain Tax
  • Exemption of companies with turnover less than ₦25 million from VAT registration and filling: this removes the regulatory bureaucracy/bottlenecks that MSMEs have continuously faced in their attempt to maintain VAT compliance.

The robustness of the proposed amendments to our fiscal laws is unprecedented in the history of tax administration in Nigeria and it will provide significant support for SMEs in terms of tax benefits. However, no matter how fantastic a tax regime is structured, there will always be loopholes that will be exploited by taxpayers to avoid tax. Therefore, the government needs to continuously review and update our tax statutes to block these loopholes and ensure the government receives the right amount of tax. At the same time, the government needs to invest in critical sectors of the economy that will stimulate production, while also pruning down the over-bloated government expenses.

The government needs to find a way to effectively capture the informal sector in the tax net as it has huge potentials to drive significant improvement in the government’s tax revenue. Furthermore, there needs to be a conscious effort on the part of the government to plug leakages in tax collection to ensure the taxes that are collected are not funnelled into the private pockets.

The proposed amendment in the Finance bill 2019 for banks to request Tax Identification Number (TIN) for account opening for individuals and for existing customers to provide their TIN to continue operating their accounts, is a move in the right direction. If the current Financial Inclusion drive of the CBN successfully capture a sizeable number of the informal sector, and the FIRS can collaborate effectively with the banking sector, a good number of the players in the informal sector can be captured in the tax net and invariably increase government’s revenue from taxes.

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This bill, if passed, will definitely be a big win for Buharinomics and a very laudable effort at overhauling the nation’s fiscal laws, especially around taxation. As highlighted, most of the elements are clearly aimed at easing business operations and alleviating the regulatory burdens for SMEs. This is expected to stimulate growth in the SME space and ultimately drive increased growth rate for the economy.

Article was written by Ayo Bankole Akintujoye, Sulaiman Quadri on behalf of Nairametrics Foundation



  1. Why is it hard for you to say, President Buhari and his team have done amazing work with this bill.

    they have listened to the people to understand the fault in the system that has stagnated the nation for years. We are seeing highlights of this bill and it looks like common sense, but dont forget we have been living in dark ages for more than 20 years imposed on us by rent-seeker that could care less for the prosperity of the nation.

    This bill is ground breaking and if they are giving award for bills he is suppose to get the award, and this is probably the most important bill in the history of Nigeria.

    A bill that saves the country from complete destruction.

    I want to add a few things:
    a) as banks are made agents, people and businesses should have the option to opt-in for automatic tax deduction. let the federal and state government agree on a fixed percentage of deposits and let that cover all payable taxes.

    b) More and most people/businesses want to pay taxes, thats alot and significantly more than people that dont want to pay.

    and if you check the people that dont want to pay they usual feel cheated in one way or the other.

    the high volume of people that want to pay and that dont pay, dont pay because of the volume of paper work involved and the unregulated 3rd party fees.

    the unregulated 3rd party fees, is the scam that stagnated Nigeria that didnt let information on how to fix our tax system reach the president.

    while the financial bill fixes a lot of things, there is still issues at CAC and CAMA 2 which reads like landmine, CAC undermined the initial VAIDS program.

    CAC is still trying to treat private SMEs like Public Held companies, and i have a feeling they still have plans to undermine this bill when it becomes law. because they will still ask SMEs to pay for filings, telling them its mandatory and still costing larges sums of money to 3rd parties.

    they still have on their website that LLC even though private held and small needs to either have lawyer or secretary etc to register, and they have plenty of forms to make life as complicated as possible so that you definitely can sort it by yourself. these are the scams that has cost Nigeria its development years and uncountable loss of talent and life.

    As we move Nigeria forward into the future with Finance Bill we need to also sort out the rubbish they are doing at CAC.


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