Hope for Nigeria’s revenue deficit as finance bill becomes law

On Monday, President Muhammadu had given assent to the finance bill, 27 days after he signed the 2020 budget.

Although the bill was presented alongside the 2020 appropriation bill, it was understood that the bill was carefully studied before the president signed it.

Earlier in October during the 2020 budget presentation, the president had reiterated the commitment of the government to increase revenues across boards.

“This Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to our fiscal laws.”

“The Finance Act strategic objectives include the following: Promoting fiscal equity by mitigating instances of regressive taxation (such as tax reforms for the insurance sector); Reforming domestic tax laws to align with global best practices (such as taxes of digital business and e-commerce); Introducing tax incentives for investments in infrastructure and capital markets (such as targeted incentives for real estate investment trusts (REITs) and securities lending in the capital market).

“Also supporting Micro, Small and Medium Enterprises (MSMEs) in line with the ease of doing business reforms such as Value Added Tax (VAT), threshold and lower Company Income Tax (CIT) rates for MSMEs; and raising revenues for government to fund the 2020 Budget. There is a VAT rate increase and excise duty on imported excisable goods,” he stated. 

Although the Finance Act 2019 proposes an increase in the VAT rate from five per cent to 7.5 per cent, it is important to note that 85 per cent of the revenue realised from the increase would go to the States and the Local Governments Areas (LGAs) who are to get 50 per cent and 35 per cent respectively while only 15 per cent will go to the Federal Government. 

The 2019 Finance Act as analysed by Daily Times proposed VAT exemption list which is basic food items (agro and aqua-based staple foods) such as additives, cereals, cooking oils, culinary herbs, fish of all kinds (other than ornamented).

Others are  flour and starch, fruits, live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, and water; Locally manufactured sanitary towels, tuition (primary, secondary and tertiary education); and services rendered by Microfinance Banks. 

In a statement issued by Mr. Femi Adesina, Special Adviser to the President, (Media & Publicity), it is stated that with the assent, there will be more revenue to finance key government projects especially in the areas of health, education and critical infrastructure.

Also reacting to the signing of the bill into law, Minister of Finance, Budget and National Planning, Mrs Zainab Shamsuna Ahmed, said that “the strategic objectives in the finance Act recognises the crucial relationship between fiscal policy, the regulatory environment and the strong capital market we all seek to effect in Nigeria can be achieved. 

“We planned that going forward, the annual budget will always be accompanied by finance bills to enable the realisation of revenue projections. 

Future finance bills will therefore also provide us with additional opportunities to incrementally improve the fiscal policy and regulatory/legal environment in order to further strengthen our domestic capital market, and ultimately ensure sustained and inclusive growth and development,” she stated. 

Highlighting the amendments, Ahmed noted that the Finance Act, 2019 has offered incremental, but necessary, amendments to certain provisions of existing tax laws, including “Companies Income Tax Act (CITA), 2004; Personal Income Tax Act (PITA), 2007; Value Added Tax Act (VATA), 2007; Petroleum Profits Tax Act (PPTA); Stamp Duties Act (SDA), 2007; Customs and Excise Tariff Act, 2004; and Capital Gains Tax Act, 2007.”

Some of the proposals contained in the Finance Act also include amendment of excess dividend tax rules that result in double taxation and discourage investments, review of commencement and cessation business rules that also lead to double taxation.

Others include the incentive of two per cent bonus for early tax payment by medium-sized companies and one per cent for large companies.

Also, an increase in the VAT rate; moderation of inefficient and ineffective tax incentives and closing loopholes in the existing tax laws that allow tax avoidance resulting in tax revenue leakages. 

The Finance Act has also taken care of essential palliatives to support MSMEs and mitigate the impact of the VAT rate increase on the most vulnerable businesses, communities and citizens in the economy, Ahmed further stated.

She said some of these measures taken to ensure that he bill caters for the masses include “Expanding the list of VAT-exempt items (e.g. basic food items, educational materials and medical supplies); Introducing a VAT registration the threshold for MSMEs with a turnover of less than N25 million per annum; Reducing the corporate tax rate for MSMEs from 30 per cent to 20 per cent for Small firms (with a turnover of between N25million and N100million per annum.), and exempting micro-firms (with turnover of less than N25million per annum),”

Furthermore, a statement by the Finance minister’s special adviser on media and Communications, Yunusa Tanko Abdullahi has stated that Ahmed will soon issue a statement on the implementation process of the new finance law in due course.