All you need to know about the Nigerian Finance Act 2019 to avoid sanction
January 31, 2020
Finance Act 2019 – On Monday, 13 January 2020, the Finance Act 2019 was signed into law by President Mohammad Buhari, sequel to the signing of the 2020 Budget on 17 December 2019.
The bill which was forwarded for passage into law on 14 October 2019, proposed changes that are focused on raising additional revenues in order for the Federal government to meet its 2020 Budget targets, amongst other objectives.
The changes in the now signed Finance Act 2019 are majorly resulting from the recent efforts of the FG, through the Federal Inland Revenue Service, to reform the domestic tax laws to better align with the International Standard Practices as to taxation and will significantly change the administration of different taxes in Nigeria including:
- The Companies Income Tax
- Personal Income Tax
- Petroleum Profit Tax
- Capital Gains Tax
- Value Added Tax
- Custom Duties and Stamp Duties
The Minister of Finance has stated that the commencement date for the new tax regime/Act is 1st February, 2020.
You should however understand the aims behind this new tax act, and why it’s pertinent to comply without further delay.
Objectives of the Finance Act 2019 include the following:
- The act seeks to promote fiscal equity by mitigating instances of regressive taxation
- Reforms on domestic laws to align with Global best practice
- To support Micro, Small and Medium- Sized businesses in line with the ease of doing business reforms
- To increase Government revenues by various fiscal measures and stakeholder investment in capital market.
Highlight of the key Extant law is on the following tax category:
- Companies Income Tax (CIT)
- Value Added Tax (VAT)
- Capital Gain Tax (CGT)
- Stamp Duties Act (SDA)
The new law and interpretation
Companies Income Tax
From the view above, companies are now classified to remit and meet the provision of this act based on annual turn-over.
A. Small Companies (Turn-over N25million or less) it means that for a company to belong to the category of small company, it’s annual turn-over should be within N25million or less.
B. Medium Companies (Turn-over above N25million and less than N100million)
C. Big Companies (Turn-over from N100million and above)
In view of this, the companies have been classified according to their annual turn-over and capacity as well tax rate payable as seen above.
The below table shows the Companies Income Tax (CIT) rates based on revenues as seen:
|Categorization||Bases of categorization||Tax rate|
|Small company||Turn-over of up to N25million||0%|
|Medium company||Turnover > N25million < N100milion||20%|
|Large/Big company||Turn-over > N100million||30%|
The new law and interpretation (Companies Income Tax)
For company income tax, there’s a bonus of 20% of tax payable (Medium sized companies) and 1% for large companies for early payment of Company Income Tax.
If a business which makes sales of N25million and above, pays its Company Income Tax early enough (within 90 days after year end), it gets 1% to 2% discount.
The new law and interpretation Value added Tax (VAT)
There’s an increase in the rate of value added tax from 5% to 7.5% – with effect from February 1, 2020, eligible registered business (Banks and others) will start charging customers VAT at the rate of 7.5% on eligible transactions.
Specific requirement for VAT deregistration for discounting operations – Businesses have to go through a deregistration of VAT process, if they close operations. They can no longer shut down quietly
VAT registration threshold of N25million turn-over in a calendar year to be introduced – in each year, if a business hits N25million in sales, it would register and pay VAT.
Example: Where a taxpayer reported N20million in December, 2019 such taxpayer will not charge/file VAT from February 1st, 2020. If such company achieves N25million threshold in April, 2020, VAT will be charged on its sales from the month of May to be remitted not later than June 21st, 2020.
Self-charging principle – This provision is to ensure that taxable persons who would ordinarily not have been charged by vendors who fall below the threshold, are to self-charge themselves VAT in respect of supplies from such non-taxable persons.
The new law and interpretation
Capital Gains Tax (CGT) restricted tax exemption on compensation for loss of office – A 10% is imposed on capital sum received as compensation for loss of office.
However, the Finance Act limits the impact by exempting any capital sum of N10million or less received as compensation for loss of office.
Stamp Duty on bank transfer to apply only on amount from N10,000 and above. Transfer between the same owner’s accounts in the same bank also to be exempted
Stamp duty of N50 naira used to apply for amounts from N1000 naira, it’s now from N10,000 naira.
Tax Identification Number (TIN)
Banks to request for Tax Identification Number before opening business bank accounts for individuals, while existing accounts holders must provide their TIN to continue operating their accounts.
Email correspondences to be recognized for communicating with tax authorities.
Asides the usual letters delivered from the tax office to businesses offices/doorsteps, mails are now allowed and tenable as valid means of communication on tax matters.
Conclusion and summary
In line with the Finance Act of 2019, VAT has been increased from 5% to 7.5% effective February 1st, 2020.
There’s an introduction of N25milion VAT compliance threshold
Companies with less than N25million annual turn-over are exempted from paying Company Income Tax (CIT).
Expansion of scope of companies taxable in Nigeria to include companies that operate within the Nigeria digital space among others.
Tax Identification number will now be required for opening bank accounts or continue operation of existing bank accounts.
Stamp duty is now N50 naira per N10,000 naira deposit and above against per N1000 naira deposit and above.
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