From individuals to households, businesses (small and big) and the manufacturing sector, the Finance Act 2020 passed into law last year, has growth incentives for many economic agents in Nigeria.
The Finance Act, which reviews and introduces over 80 amendments to 14 different laws, took effect January 1, 2021, and is expected to set the tone in driving Nigeria’s 2021 Budget of Economic Recovery and Resilience.
On December 31, 2020, President Muhammadu Buhari signed the Finance Bill, 2020 (now Finance Act) into law alongside the 2021 Appropriation Bill (now Appropriation Act).
The Finance Act 2020 amends some key provisions of the Capital Gains Tax Act, Companies Income Tax Act, Industrial Development (Income Tax Relief) Act, Personal Income Tax Act, Tertiary Education Trust Fund Act, Customs & Excise Tariff (Consolidation) Act, Value Added Tax Act, Federal Inland Revenue Service (Establishment) Act, Fiscal Responsibility Act, Public Procurement Act, Companies and Allied Matters Act, Nigerian Export Processing Zone Act and Oil and Gas Export Processing Free Zone Act.
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Like every new law, it is likely to come with its challenges and opportunities for businesses and individuals. The following economic agents in the Nigerian economy have the most incentive from the Act.
Manufacturing sector
With the amendment of the provisions of Section 33 of the Companies Income Tax Act (CITA), which led to a reduction in the minimum tax rate to 0.25 percent from the initial 0.5 percent, the Finance Act is geared towards reducing the burden on Nigerian companies who have been hit by the impact of the COVID-19 pandemic.
According to the law, the 50 percentage point reduction in minimum tax rate is applicable to tax returns prepared and filed for any year of assessment due on any date between January 1, 2020, and December 31, 2021.
“This is quite commendable, as the Nigerian government has taken into consideration the plight of businesses, considering the toll the pandemic has taken on them. Some qualifying companies whose filing deadline became due before signing of the FA 2020 may have already filed and remitted their taxes,” Vincent Okoukoni, manager at Anderse, said.
Also, the Act reduces import duty on tractors from 35 percent to 5 percent; Mass transit vehicles for the transport of more than 10 persons and Trucks from 35 percent to 10 percent, and reduction of import levy on Cars from 30 percent to 5 percent.
According to analysts, the reduction in import duty, particularly for tractors, will help reduce the cost of production for many Nigerian manufacturing companies, especially as many of them now depend largely on local sources for their raw materials.
SMEs
The Act simplifies the uncertainty in the 2019 Act, as it amended Section 1 of the Tertiary Education Trust Fund Act and thus and exempted Small Companies from Tertiary Education Tax (TET).
As a result, companies with a turnover of less than N25 million who were exempt from CIT are also not liable to TET.
Also, the Act confirms that a small or medium company engaged in primary agricultural production may be granted pioneer status for an initial period of four years and an additional two years.
With the recent amendment, Taiwo Oyedele, West Africa tax leader, PwC Nigeria, is optimistic that the “cost of doing business” for small and medium businesses will be “reduced.”
Hit by the double challenge of COVID-19 and slow economic growth, small businesses in Africa’s most populous nation are now more vulnerable as constraints in liquidity and cashflow coupled with increased payments delays have resulted in endemic depletion of working capital.
The opportunity to, therefore, reduce cost in a COVID-19 era is one of the catalysts needed to ensure Nigeria’s 41.5 million MSMEs survive the pandemic. MSMEs are the bedrock of the Nigerian economy as they account for over 95% of all businesses and contribute over 50% to the economy.
Consumers
The Act amended the Value-Added Tax (VAT) increase in the Act of 2019. In a bid to attract more revenue from tax, the Nigerian government in 2020 increased VAT from 5 percent to 7.5 percent.
With the law, commercial airline tickets are exempted from VAT, and the case is the same for hire or lease of agricultural equipment for agricultural purposes.
Also, the new law excluded land and buildings, money and securities from the definition of goods and services for VAT purposes.
Policy awareness
For Nigeria to achieve the full potential of the incentives and relief offered through the new Finance Act, analysts have suggested that more awareness be created to enable more players tap from the opportunity.
Oyedele believes people are not well informed about the opportunities offered by the Act.
“There is need for more awareness by the tax authority, institution agencies, financing firms,” he said, adding, “If the Act is offering these opportunities and people are not aware, the impact that we are looking for will not happen.”
Eze-ego is a Lagos-based businessman, even though he speaks with top players in his industry, he is not aware of the opportunities available to him from the new Act.
“I don’t know or understand the opportunities the 2020 Finance Act has for my business. If the government can come up with such a great incentive, then they should also try and inform us,” he said.
According to Onome Bominuru, associate commercial practice group, Anderxen Tax, she is hopeful that the implementation of the Finance Act will yield the expected impact.
“We hope that its implementation will be in a manner that allows companies to enjoy the maximum benefits of the changes and improvements ushered in by the Finance Act 2020,” Bominuru said.
