As the financial landscape evolves with the Nigeria Finance Act of 2019, individuals must adapt their tax planning strategies to optimize their financial well-being and ensure compliance with the law. The Act introduced several changes that impact personal taxation, offering opportunities for individuals to minimize their tax liabilities while contributing to the country’s economic growth. As a trusted accounting firm in Nigeria, we present key tax planning strategies for individuals to consider under the Nigeria Finance Act 2019.
1. Understand the Tax Exemption Threshold:
One of the crucial aspects of tax planning under the Finance Act 2019 is understanding the tax exemption threshold. Individuals with an annual income of 25 million Naira or less are exempt from paying Personal Income Tax (PIT). To benefit from this threshold, individuals can optimize their income streams to stay below the exempted bracket, reducing their overall tax liability
2. Leverage Tax-Deductible Expenses:
The Act allows individuals to deduct certain expenses from their taxable income, effectively lowering their tax burden. Common tax-deductible expenses include contributions to pension schemes, National Housing Fund (NHF), and approved charitable donations. By strategically maximizing these deductions, individuals can reduce their taxable income and, in turn, decrease their tax liabilities.
3. Capitalize on Retirement Contributions:
Under the Finance Act 2019, contributions to a registered pension scheme are tax-deductible up to a specified limit. Savvy individuals can take advantage of this provision by planning their retirement contributions strategically. Contributing the maximum allowable amount to a registered pension scheme not only secures a financially secure retirement but also lowers the taxable income, resulting in reduced tax obligations.
4. Explore Tax-Free Investments:
To promote economic development, the Act encourages investments in government-approved tax-free instruments, such as infrastructure bonds and sukuk (Islamic) bonds. By considering tax-free investment opportunities, individuals can generate returns without being subject to taxation, thereby enhancing their overall investment yield.
5. Participate in the Voluntary Assets and Income Declaration Scheme (VAIDS):
The Nigeria Finance Act 2019 extended the Voluntary Assets and Income Declaration Scheme (VAIDS) to provide individuals with an opportunity to regularize their tax affairs without facing penalties or prosecution. By voluntarily disclosing any previously unreported assets and income, taxpayers can resolve past tax irregularities and enjoy a fresh start in their tax compliance journey.
6. Plan Capital Gains Tax (CGT) Considerately:
The Act offers certain capital gains tax reliefs, including exemptions for gains from the disposal of securities listed on the Nigerian Stock Exchange. Individuals can structure their investment portfolio to take advantage of these CGT reliefs, minimizing tax liabilities arising from the sale of qualifying assets.
7. Maintain Accurate and Comprehensive Records:
Effective tax planning hinges on maintaining meticulous financial records. Individuals should keep accurate and comprehensive records of their income, expenses, and investments. Organized record-keeping ensures that all eligible deductions and exemptions are properly accounted for, enabling individuals to optimize their tax planning strategies.
In light of the Nigeria Finance Act 2019, tax planning for individuals has taken on increased importance. By understanding the tax exemption threshold, leveraging tax-deductible expenses, capitalizing on retirement contributions, exploring tax-free investments, participating in VAIDS, planning capital gains tax thoughtfully, and maintaining meticulous records, individuals can navigate the tax landscape more efficiently.
As a reputable accounting firm in Nigeria, we advise seeking professional guidance to tailor tax planning strategies to individual circumstances. By implementing informed tax planning and compliance, individuals can secure their financial futures while contributing to the country’s economic development and prosperity.
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.