It is no longer news that the President, Muhammadu Buhari has signed the Nigeria finance bill 2019(now Finance Act 2020) into law. The new legislation which became effective February 1, 2020 seeks to cut taxes for small businesses; while increasing VAT is meant to:
- promote fiscal equality
- align local tax laws with international standards
- introduce tax incentives for investments in infrastructure and capital markets
- support Small and Medium Scale Enterprises and
- raise Government revenues
Some major impacts of the Bill on Small Businesses include:
Increase in VAT Rate
The recently signed 2019 Finance Act by the Federal Government of Nigeria increased the VAT rate from 5% to 7.5%. However, some items were exempted from the new VAT to lessen the burden of taxation on vulnerable segments, and promote equitable taxation. They include:
i. Basic food items
ii. Natural and table water
iii. Locally manufactured sanitary towels, pads or tampons
iv. Services rendered by Microfinance banks
v. Educational institutions’ tuition fees
Company Income Tax Exemption for Small Businesses
Company Income Taxes (CIT) are based on the gross profit that your business earns after subtracting operating expenses from gross revenue. The new act exempts small businesses with annual turnover of less than ₦25 million from paying Company Income Tax. CIT for businesses with gross profit between ₦25 million to N100 million has also been reduced from 30% to 20%. The benchmarked 30% will remain for Large scale Businesses earning ₦100 million or above in gross profit.
Furthermore, businesses that pay their taxes on time will get a reprieve of 2% bonus for medium-size companies and 1% bonus for other companies.
Reduction in Stamp Duties Charges
With the new Act, the ₦50 Stamp duty charge will now be applicable only to transactions amounting to ₦10,000 and above, a significant increase on the former threshold of ₦1,000.
Mandatory Tax Identification Number to Operate Business Account
All businesses are now required to provide their Tax Identification Number (TIN) as a precondition to holding and maintaining a bank account in Nigeria. Meanwhile, existing account holders (opened prior to September 30, 2019) will be required to provide their TINs to continue operating their accounts.
The new Finance Bill is going to affect every business owner one way or another, regardless of where they are in terms of scale. Small business owners especially will be required to keep proper books of account as proof to claim the tax exemption as contained in the act.
