The Nigeria Finance Act of 2019 was a bold step taken by the government to strengthen the fiscal landscape, boost revenue generation, and support economic growth. As a leading accounting firm in Nigeria, we embark on an evaluation of the effectiveness of the Nigeria Finance Act 2019 in achieving its objectives of revenue generation and sustainable economic development.
1. Increase in Value Added Tax (VAT) Rate:
One of the major provisions of the Finance Act 2019 was the increase in the VAT rate from 5% to 7.5%. The rationale behind this change was to expand revenue collection and provide the government with additional resources to fund critical projects and public services. This increase in VAT was expected to lead to higher revenue generation for the government.
2. Expansion of VAT Coverage:
The Act also expanded the scope of goods and services subject to VAT, bringing in previously exempted items such as lease rentals, aircraft maintenance, and passenger transportation services. By widening the tax base, the government aimed to capture more economic activities and increase VAT revenue.
3. Tax Incentives for Priority Industries:
To stimulate investments in key sectors of the economy, the Finance Act 2019 extended the pioneer status incentive to qualifying businesses. This incentive offered a tax holiday for an initial period of three years, encouraging companies to invest in industries deemed vital for economic growth and development.
4. Digital Services Tax (DST):
Recognizing the challenges of taxing the digital economy, the Act introduced the Digital Services Tax (DST) for foreign companies providing digital services to Nigerian consumers. The DST aimed to ensure that multinational digital service providers contribute their fair share to Nigeria’s tax revenue.
Evaluation of Effectiveness:
The Finance Act 2019 represented a significant effort by the government to enhance revenue generation. Let’s evaluate its effectiveness based on the following aspects:
1. Impact on Revenue Generation:
The Finance Act 2019’s key objective was to increase government revenue through measures like the VAT rate increase and the expansion of VAT coverage. While it is essential to note that the Act was introduced in January 2020, and its full impact might take time to materialize, initial data suggests that the changes have contributed to higher VAT collections. However, the overall effectiveness in significantly boosting revenue generation requires continuous monitoring and analysis.
2. Encouragement of Investments:
The extension of the pioneer status incentive aimed to promote investments in priority industries. The Act sought to attract both domestic and foreign investments, spurring economic growth and job creation. Evaluating the effectiveness of this provision requires examining the inflow of investments in the qualifying sectors and their impact on economic development.
3. Addressing Digital Economy Taxation Challenges:
The introduction of the DST aimed to address tax challenges in the digital economy. Evaluating its effectiveness requires monitoring tax collections from digital service providers and ensuring compliance with the new regulation.
The Nigeria Finance Act 2019 represented a significant effort to enhance revenue generation and promote economic growth. While its provisions have the potential to generate higher tax revenues and stimulate investments, the Act’s full effectiveness requires continuous evaluation and analysis.
As an accounting firm in Nigeria, we believe that the Finance Act 2019’s effectiveness can be maximized through effective implementation, regular monitoring, and timely adjustments to address emerging challenges. We recommend the government, businesses, and stakeholders to collaborate closely to ensure that the Act’s objectives of revenue generation and sustainable economic development are achieved for the overall benefit of Nigeria’s economy and its citizens.
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.