What you should know about the Finance bill President Buhari signed into law.

Yesterday, President Buhari signed the 2020 Finance Bill into law, following its passage by the National Assembly. According to the presidency, the Finance Bill proposes an increase of the VAT rate from 5 per cent to 7.5 per cent, as such, the 2020 Appropriation Bill is based on this new VAT rate. With the president’s assent, there will be more revenue to finance key government projects especially in the areas of health, education and critical infrastructure. The new law contains over 90 changes to 7 different tax laws.

The objectives of the bill includes promoting fiscal equity by mitigating instances of regressive taxation, reforming domestic tax laws to align with global best practices, introducing tax incentives for investments in infrastructure and capital markets, supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms and Revenues for Government.

Here are some important things to take note of:

  • For Early-stage startups and businesses with revenues of ₦25 million ($68,900), they would no longer have to pay the required company income tax (CIT). Medium scale businesses with revenues between ₦25 million and ₦100 million will pay a required 20% CIT, instead of the standard 30% which will now only be for large scale companies with revenues above $100 million.
  • Nigeria’s tax GDP ratio stands at 6%, a stark contrast in comparison to the Organisation for Economic Co-operation and Development average of 34% and the African average of 17%
  • Africa’s most populous nation has one of the lowest VAT rates in the world. In Ghana, the VAT rate is 12.5%, while it stands at 15% and 16% in South Africa and Kenya respectively.
  • The National Bureau of statistics estimates the total revenue generated from VAT in 2018 at N1.108 trillion. It is expected that at the current level of remittance, the government can generate another N550 billion, a 50% increase in taxation.
  • According to Stears Business, an increase in VAT affects prices of goods or services as businesses pass the additional costs to consumers. At a macro level, this can reduce household consumption as incomes are squeezed by the extra cost—businesses also lose out as they lose customers. The consequence here is a fall in GDP and incomes which reduces the amount of revenue that the government gets from VAT.
  • To reduce the burden of the VAT increase on consumers, the finance bill broadens the basic food items exempt from VAT.
  • Before the bill was signed into law, VAT was applicable to small, medium and large-scale businesses under the same rate of 5%. It is proposed that only businesses with an annual turnover of ₦25 million and above will be required to charge, collect and register for VAT.
  • In Ghana, Kenya and South Africa, small businesses are not subject to VAT. A minimum threshold of around ₦13m annual turnover is prescribed for Ghana whilst the threshold is placed at ₦17m for Kenya and ₦23m for South Africa. 

Richard Ogundiya

Journalist & Techpreneur. Africa, communications and data.

Leave a Comment

Your email address will not be published.

Previous Story

West Africa’s Centralized Currency and What You Need to Know

Next Story

Assurance: a documentary about female DJs in Lagos.

Latest from News & Developments