The Nigeria Finance Act of 2019 marked a significant milestone in the country’s tax landscape, introducing sweeping changes to corporate taxation. Aimed at promoting economic growth, enhancing tax compliance, and improving the ease of doing business, the Act had a profound impact on businesses operating in Nigeria. As a leading accounting firm in Nigeria, we delve into the key provisions of the Nigeria Finance Act 2019 and their far-reaching impact on corporate taxation.
1. Value Added Tax (VAT) Rate Increase:
Arguably one of the most notable changes in the Finance Act 2019 was the increase in the Value Added Tax (VAT) rate from 5% to 7.5%. Effective from February 1, 2020, this adjustment impacted businesses across various sectors. Companies had to recalibrate their pricing strategies to accommodate the higher VAT rate, while consumers experienced a slight rise in the cost of goods and services. The increase in VAT collection bolstered government revenues, enabling the provision of essential services and infrastructure.
2. Expansion of VAT Coverage:
To broaden the tax base and increase VAT revenue, the Finance Act 2019 expanded the scope of goods and services subject to VAT. Items that were previously exempted, such as lease rentals, aircraft maintenance, and passenger transportation services, were now included in the VAT net. This expansion led to increased compliance and enhanced tax collections, contributing to the government’s revenue generation efforts.
3. Tax Exemption Threshold for Small Businesses:
In a bid to support and stimulate the growth of Small and Medium Enterprises (SMEs), the Act raised the tax exemption threshold for Companies Income Tax (CIT) from turnover of 5 million Naira to 25 million Naira. SMEs with an annual turnover of 25 million Naira or less are now exempt from paying CIT. This measure aimed to alleviate the tax burden on smaller businesses, fostering entrepreneurship and encouraging job creation in the SME sector.
4. Minimum Tax Exemption:
The Finance Act 2019 granted relief to companies with low turnover by exempting those with an annual gross turnover of 25 million Naira or less from Minimum Tax. Minimum tax is typically calculated based on a percentage of gross turnover and applies regardless of profitability. This exemption provided a breathing space for small businesses during their early stages of growth, allowing them to channel resources towards expansion and innovation.
5. Tax Incentives for Pioneer Industries:
To encourage investments in industries deemed critical to Nigeria’s economic development, the Finance Act 2019 extended the pioneer status incentive to qualifying businesses. Companies granted pioneer status enjoy a tax holiday for an initial period of three years, exempting them from corporate income tax. This incentive aimed to promote innovation and attract investments in priority sectors, contributing to job creation and economic diversification.
6. Export Expansion Grant (EEG) Scheme:
The reintroduction of the Export Expansion Grant (EEG) scheme under the Act provided incentives to companies engaged in non-oil exports. EEG grants are based on the value of non-oil export volumes, encouraging businesses to explore international markets and diversify their revenue streams. This measure aimed to boost Nigeria’s export capacity and reduce reliance on oil revenues.
7. Digital Services Tax (DST):
The Finance Act 2019 introduced the Digital Services Tax (DST) to address the challenges of taxing digital transactions. Foreign companies providing 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 provision ensures that multinational digital service providers contribute their fair share to Nigeria’s tax revenue.
The Nigeria Finance Act 2019 brought about significant changes to corporate taxation, impacting businesses across various sectors. While the increase in the VAT rate and the expansion of VAT coverage led to increased revenue collection for the government, the Act also introduced several incentives to support SMEs and attract investments in priority industries.
As a trusted accounting firm in Nigeria, we advise businesses to stay informed about the provisions of the Finance Act 2019 and its implications for their tax planning and compliance strategies. By leveraging the opportunities provided by the Act and aligning their operations with the new regulations, companies can contribute to Nigeria’s economic growth and prosperity while ensuring compliance with the evolving tax framework.
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.