President Muhammadu Buhari has signed the 2019 finance bill into law. The disclosure was made known via the President’s Twitter handle on Monday.
According to the President, this is the first time, since the return of democracy in 1999 that a Federal Budget is being accompanied by the passage of a Finance Bill.
The President’s Tweet partly read:
“I am pleased to announce that this morning I signed into law the Finance Bill, 2019. We introduced the Bill alongside the 2020 Budget, to:
- Reform Nigeria’s tax laws to align with global best practices;
- Support MSMEs in line with our Ease of Doing Business Reforms;
- Incentivize investments in infrastructure and capital markets;
- Raise Government revenue.
“This is the first time, since the return of democracy in 1999, that a Federal Budget is being accompanied by the passage of a Finance Bill specially designed to support its implementation and to create a truly enabling environment for business and investment by the private sector.
“I thank the leadership and members of the 9th National Assembly for the hard work and support that have gone into the passage of the landmark Deep Offshore and Inland Basin PSC Amendment Bill, and the Finance Bill; both vital to the successful implementation of the 2020 Budget.”
The highlights of the Finance Bill
In October 2019, President Muhammadu Buhari submitted the Finance Bill 2019 to the National Assembly. The bill sought to implement wide fiscal reforms and transform the government approach to tax administration.
Here are details of the finance bill you should know about.
- Excess dividend tax to apply only to untaxed distributions other than profits specifically exempted from tax and franked investment income.
- Small businesses with a turnover of less than N25 million are now exempted from Companies Income Tax.
- A lower CIT rate of 20% to apply to medium-sized companies with a turnover between N25 million and N100 million.
- Commencement and cessation rule modified to eliminate overlaps and gaps to avoid double taxation and complication during commencement.
- Minimum tax provisions amended to 0.5% of turnover and exemption only applies to small companies (less than 25m turnover), so non-resident companies will now pay minimum tax.
- Insurance companies can now carry forward tax losses indefinitely, deduct reserve for unexpired risks on time apportionment bases while special minimum tax for insurance has been abolished.
- Bonus of 2% of tax payable (medium-sized companies) and 1% for large companies for early payment of CIT.
- Introduction of thin capitalisation of 30% of EBITDA for interest deductibility. Any excess deduction can be carried forward for 5 years.
- Deemed tax presence for non-residents with respect to imported technical and management services now taxable at a final WHT rate of 10%.
- Any expense incurred to earn exempt income now specifically disallowed as a deduction against other taxable income.
- Dividend distributed from petroleum profits now to suffer 10% withholding tax.
- Banks to request for Tax Identification Number (TIN) before opening bank accounts for individuals, while existing account holders must provide their TIN to continue operating their accounts.
- Email correspondences to be recognised for communicating with tax authorities.
- The meaning of supply and definition of goods and services has been expanded to cover intangible items other than land, among others.
- Specific requirement for VAT deregistration for discontinuing operations.
- Introduction of VAT reverse charge on imported services.
- VAT registration threshold of N25 million turnover in a calendar year to be introduced.
- Remittance of VAT now to be on a cash basis, that is, the difference between output VAT collected and input VAT paid in the preceding month.
- Compensation for loss of employment below N10m to be exempted from CGT
- Stamp duty on bank transfer to apply only on the amount from N10,000 and above. Transfers between the same owner’s accounts in the same bank also to be exempted.
What it means: After intense criticisms of the 2019 finance bill, it is now law after signed by the President. It means all components contained in the bill will now be fully implemented. One of the major highlights that triggered criticisms among Nigerians is the VAT increase from 5% to 7.5% increase.
Experts have argued that this may spike the price of items and largely affect the purchasing power of Nigerians. While some components introduced increments, several others are aimed at reducing taxes, especially for SMEs, thereby stimulating economic activities.