The Nigeria Finance Act of 2019 represents a significant milestone in the country’s ongoing efforts to strengthen its fiscal policies and promote economic growth. Enacted to complement the annual budget, this legislation introduces several key amendments to the tax and regulatory framework. As a leading accounting firm in Nigeria, we present an overview of the Nigeria Finance Act 2019, highlighting its key amendments and implications for businesses and individuals.
1. Value Added Tax (VAT) Rate Increase:
One of the most notable changes introduced by the Finance Act 2019 is the increase in the Value Added Tax (VAT) rate. The Act raised the VAT rate from 5% to 7.5%, effective from February 1, 2020. This move was aimed at expanding the government’s revenue base and enhancing its capacity to provide essential services and infrastructure. Businesses and consumers should take this adjustment into account when budgeting and pricing goods and services.
2. Tax Exemption Threshold for Small Businesses:
The Finance Act 2019 provides relief for small businesses by raising the threshold for tax exemption. Micro, Small, and Medium Enterprises (MSMEs) with an annual turnover of 25 million Naira or less are now exempt from paying Companies Income Tax (CIT). This amendment aims to support small businesses, encouraging their growth and contribution to the Nigerian economy.
3. Introduction of Digital Services Tax (DST):
In response to the global challenges of taxing digital transactions, the Finance Act 2019 introduces the Digital Services Tax (DST). Foreign companies that provide digital services to Nigerian consumers without a physical presence in the country are now subject to DST at a rate of 2% of their gross revenue. This measure seeks to ensure that multinational digital service providers contribute their fair share of taxes to the Nigerian economy.
4. Amendments to Petroleum Profits Tax (PPT) and Companies Income Tax (CIT):
The Finance Act 2019 introduces amendments to the Petroleum Profits Tax (PPT) and Companies Income Tax (CIT) provisions. Notable changes include eliminating the tax exemption for dividends distributed from petroleum profits and clarifying the rules on taxation of Real Estate Investment Companies (REICs). These amendments aim to align tax regulations with international best practices and enhance transparency in the oil and gas sector.
5. Capital Gains Tax (CGT) and Stamp Duty Amendments:
The Act amends the Capital Gains Tax (CGT) and Stamp Duty provisions to address certain shortcomings in the existing tax framework. These amendments include exemptions from CGT for companies undergoing a restructuring process and revised rates for stamp duties on financial transactions. The revisions aim to simplify tax administration and promote investment in the Nigerian financial sector.
Implications and Conclusion:
The Nigeria Finance Act 2019 brings about significant changes to the tax landscape, with both benefits and challenges for businesses and individuals. While the increase in VAT and introduction of DST may increase tax liabilities for some companies, the tax exemption for small businesses provides much-needed relief for MSMEs. Additionally, the amendments to CGT and Stamp Duty provisions are expected to streamline transactions in the financial sector.
As an accounting firm in Nigeria, we emphasize the importance of understanding and adapting to these tax reforms. Businesses should assess the implications of the VAT rate increase on their pricing strategies and consider the impact of DST on their digital services. Small businesses can leverage the increased tax exemption threshold to reinvest in their growth and expansion.
By staying informed and proactively aligning their financial strategies with the changes brought about by the Finance Act 2019, businesses and individuals can navigate the evolving tax landscape and contribute to Nigeria’s economic development. As the country continues its journey towards fiscal reform, we encourage taxpayers to seek professional advice to ensure compliance and optimize their tax planning for a prosperous future.
For professional advice on Accountancy, Transfer Pricing, Tax, Assurance, Outsourcing, Company Registration, and CAC matters, please contact Sunmola David & CO (Chartered Accountants & Tax Practitioners) at www.sunmoladavid.com. You can also reach us via WhatsApp at +2348038460036.