Updated: Buhari signs finance bill into law

President Muhammadu Buhari has signed the finance bill into law. The president revealed this on his Twitter handle

 The law which seeks to promote fiscal equity, align domestic laws with global best practices and support micro, small and medium-sized businesses was presented along with the 2020 appropriation bill. It was signed into law January 13, weeks after the Budget was been approved.

In seeking to raise government revenue, the new law increases the rate of Value Added Tax (VAT) from 5 percent to 7.5 percent.

The law also changes the classification of companies for the purpose of taxation. It classified small companies as those with a turnover of up to N25 million and will be exempt in paying income tax while, medium companies with turnover above 100million will pay 20 percent of their profits as income tax while large companies with turnover of over 100million will pay 30 percent income tax.

Analysts have called the law an, omnibus draft legislation, aimed at curing the deficiencies of major primary tax legislation by amending obsolete and contentious provisions. This is a major aspect of the initiatives suggested by the President Enabling Business Environment Council (PEBEC)and the National Tax Policy Implementation Committee.

A provision that will quickly have the most obvious direct impact on people is the introduction of a requirement for banks to obtain tax identification number (TIN) from corporate customers as a pre-condition for opening or maintaining bank accounts. Now, also individuals are now compelled to obtain TIN.

On the other hand, the law removes the tax exemption on withdrawals from pension schemes except the prescribed conditions are met; emails are to be accepted by the tax authorities as a formal channel of correspondence with taxpayers and the conditions attached to tax exemption on gratuities have been removed. Therefore gratuities are unconditionally tax exempt.

Penalty for failure to deduct tax will also apply to agents appointed for tax deduction. This penalty is 10% of the tax not deducted, plus interest at the prevailing monetary policy rate of the Central Bank of Nigeria

The law increases the tax base by including non-resident companies (NRCs). The law introduces provisions that create a taxable presence for NRCs carrying on digital activities, consultancy, technical, management or professional services in Nigeria, provided that they have “significant economic presence” (SEP) in Nigeria, and profit can be attributable to such activity.