THE signing into law of the Finance Bill 2019 by President Muhammadu Buhari is laudable. Expectedly, the Finance Act 2019 will set the tone for Nigeria’s fiscal policy for 2020 and beyond. Moreover, its diligent implementation will enhance the generation of more revenue for the government through increased taxation. It will also stimulate growth for small businesses and address the current low ranking of Nigeria on many global development indices. While the new law will encourage the growth of small and medium-sized businesses, there are concerns that it may lower the pu
Although the objectives of the Act appear attractive for big and small businesses, they are tailored to rake in more revenue for the government. A case in point is the recent hike of Value Added Tax (VAT) to 7.5 per cent from the previous five per cent. Besides, the finance law will promote fiscal equity by mitigating regressive taxation, reform domestic tax laws and align with global best practices as well as introduce tax incentives for investments in infrastructure and capital markets. It will also support micro, small and medium-sized businesses in line with government’s Ease of Doing Business reforms. It is expected that there will be more revenue to finance government projects in health, education and infrastructure.
On this score, the finance law merits public support, provided the funds will be used to develop infrastructure and improve the quality of life of Nigerians. On the positive side, the new Act has made some changes to the Company Income Tax (CIT), Petroleum Profits Tax Act (PPTA), Personal Income Tax Act, Capital Gains Tax Act, Customs and Excise Tariff, Stamp Duties Act, among others. Due to the removal of some tax exemptions and other incentives they previously enjoyed, the oil and gas sector will incur more operational costs.
Hitherto, oil companies enjoyed a five-year ‘tax holiday,’ accelerated capital allowance after the tax free period as well as tax-free dividends for five years. These incentives, which are also enjoyed by industrial projects that use gas, have been repealed by the new Finance Act. Before now, under Section 60 of the Petroleum Profits Tax Act, withholding tax was not charged on dividends from upstream operations. Henceforth, dividends from upstream companies are subject to withholding tax at the prevailing rate of 10 per cent or 7.5 per cent if payable to recipients of a treaty country.
It is commendable that the new law has taken into consideration the cost often incurred by oil majors by way of technical management and other professional services. That is why the new law allows a Nigerian recipient of such services to deduct withholding tax from the applicable fees. Concerning the CIT Act, the law has introduced provisions that create a taxable presence for non-resident firms that are doing digital activities in the country, provided such companies have “significant presence” in Nigeria. This is meant to ensure taxation of companies with economic base in the country.
It is laudable that small businesses will be exempted from company income tax, which is 30 per cent of the profit earned. The over 17 million small and medium-sized registered businesses will benefit from the largesse. The insurance industry is not an exception, because under the new Act, they can carry forward their losses almost indefinitely. This was not the case previously when they were restricted to carry forward such losses for only four years. Now, life and non-life insurance businesses will no longer be liable to special minimum tax provision.
We support the implementation of the new Finance Act provided it is done in such a way that will not adversely affect Nigerian workers. Government’s drive to generate more revenue should not be at the expense of ordinary Nigerians. Though it is the duty of citizens to pay tax, it becomes easier to do so if they can see that the taxes they pay are impacting on their lives. Therefore, government should fine-tune some aspects of the law to avoid crippling businesses. We urge it to remove the contentious areas in the new Act so that the economy will begin to witness a breath of fresh air as envisaged by the new law.
Let government embark on a more aggressive taxpayer enlightenment and expansion of the tax net to capture more citizens. Currently, less than 40 per cent of Nigerians are tax compliant. We believe that the government has much more to do for businesses to thrive. However, the implementation of the new law should be supported by improved infrastructure and enabling business environment. Above all, government should block all leakages in its revenue collection systems.
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