“The proposed changes in the Nigerian tax laws will affect Nigerian companies, foreign companies, and individuals,” said Yomi Olugbenro, Partner and West Africa Tax Leader at Deloitte Nigeria. “Some long-standing pains are about to be removed and new wake up calls going out to taxpayers.”
President Muhammadu Buhari presented the 2020 national budget proposal at a joint session of the National Assembly on October 8, 2019. But unlike previous budget presentations, the proposed spending plan was accompanied by the 2019 Finance Bill and presented to the lawmakers for consideration and perhaps passage into law.
The Finance Bill, which has passed through the second reading at the National Assembly, seeks to amend various tax and fiscal laws in Nigeria including the planned 50 percent increase in the country’s Value Added Tax (VAT) rate to 7.5 percent from 5 percent to ensure the optimal funding of the 2020 budget.
If all goes as planned, this would help the federal government achieve a 7 percent increase in revenue of a country which spends a larger chunk of its revenue to pay outstanding debts, leaving a paltry sum for capital projects as well as payment of salaries.
Interestingly, the 40-page Finance Bill contains several amendments to the existing laws regarding tax collection in Nigeria, but Taiwo Oyedele, Head, Tax and Corporate Advisory Services at PwC Nigeria, as well as Olugbenro have highlighted major changes that you should know.
The first is the amendment of excess dividend tax rules which currently results in double taxation and erodes corporate savings. When passed into law, the excess dividend tax will apply only to untaxed distributions other than profits specifically exempted from tax and franked investment income. This is to improve investor confidence and encourage foreign direct investment into the country.
Small businesses earning lower than N25 million turnover in any tax year will also benefit from the amendment as any business in that category will be exempted from Companies Income Tax which is 30 percent of the profit earned by registered companies in Nigeria.
Similarly, medium-sizes companies will also have their bites of the government’s tax largesse aimed at helping businesses grow. Companies in this category with revenue running in excess of N25 million but lower than N100 million in any tax year will be required to pay a company income tax rate of 20 percent.
The Finance Bill also seeks to modify the current commencement and cessation provisions. This is aimed at simplifying and eliminating the risk of double taxation to encourage investments.
Minimum tax, which is payable by companies having no taxable profits or where the tax on profits is below the minimum tax, will be amended to 0.5 percent of the turnover of the company. The government said the move was to simplify and harmonise the minimum tax regime to promote fiscal equity. As a result, non-resident companies will also be liable to minimum tax like Nigeria companies to remove discriminatory treatments, according to Olugbenro.
“Real Estate Investment Trusts are expected to enjoy clarity on applicable tax exemptions,” the Deloitte’s West Africa Tax Leader said. “This has been long in coming and hugely complementary to bridging the housing deficit and opening up space for commercial capital.”
Furthermore, “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,” according to Oyedele.
In a situation a registered company pays its company income tax 90 days before the due date, the government through the amendment hopes to reward such company for prompt compliance. The company will be entitled to a bonus (tax credit) of 2 percent of the tax payable for companies earning between N25 million and N100 million a year, and 1 percent for companies with more than N100 million annual turnover.
Introduction of thin capitalisation of 30 percent of earnings before interest, taxes, depreciation, and amortization of a Nigerian company for interest deductibility will also apply; owing to this excess deduction can be carried forward for 5 years.
“Deemed tax presence for non-residents with respect to imported technical and management services will now be taxable at a final withholding tax rate of 10 percent,” according to the PwC’s tax expert. “Any expense incurred to earn exempt income now specifically disallowed as a deduction against other taxable income.”
Also, dividends paid out of petroleum profits will not be subjected to a 10 percent withholding tax. Banks’ know-your-customer requirements have been upgraded, while both new and existing bank customers would be required to provide their Tax Identification Numbers (TIN) for subsequent bank transactions after the passage of the bill.
More so, taxpayers will have the privilege to reach out to tax authorities via email as the platform will be recognised when the bill becomes a law.
The definition of “goods” was included to cover all forms of tangible properties that are movable at the point of supply – excluding money and securities – and any tangible product, asset or property over which he derives benefits, and which can be transferred from one person to another – excluding interest in land.
Similarly, the definition of “services” was included to cover anything other than goods, money and securities supplied excluding services provided under a contract of employment.
There will be a specific requirement for VAT deregistration for discontinuing operations, the introduction of VAT on imported services, as well as introduction of VAT registration threshold of N25 million turnover in a calendar year to encourage SMEs.
Tax authorities will be required to remit the difference between the output and input VAT paid in the preceding month to a taxable person with cash, while compensation for loss of employment below N10 million will be exempted from the capital gains tax
Electronic payments will be introduced to stamp duty. Duty on bank transfers will now apply only on the amount from N10,000 and above and it will only attract a one-off duty of N50, while transfers between accounts of the same owner by the owner within the same bank will not be chargeable to duty
