In October 2019, the Finance Bill was presented before a joint session of the National Assembly for reading. After a public hearing held in November of the same year, the House of Representatives and the Senate passed the Bill, which was then assented to by the President in January 2020. The Act makes significant amendment to the Companies Income Tax Act (CITA), Personal Income Tax Act (PITA), Capital Gains Tax Act (CGTA), Custom and Excise Tariff and the Stamp Duties Act.
The following are the impact which the provisions of the Act will have on Startups and businesses in Nigeria:
• The first notable impact which the Act will have is the provision of incentives for businesses in Nigeria by the elimination or partial reduction of taxes depending on their sizes. Section 7 of the Act amends section 23(1) of the Companies Income Tax Act (CITA) by proposing the general exemption of small companies from the Companies Income Tax. Small companies, defined as firms with turn-over of less than N25,000,000 ($68,500) do not have to pay Companies Income Tax as required by the Federal Government. Medium sized firms with an annual turn-over ranging between N25 million ($68,500) and N100 million ($274,000) are expected to pay a lower Companies Income Tax of 20%, while larger companies with an annual turn-over exceeding N100 million will pay 30% of Companies Income Tax. Also, upon remittance of CIT by large and medium-sized companies 90 days before the due date, they will be granted 1% and 2% respectively of the CIT paid as a credit against future taxes.
• Notwithstanding the above, businesses not registered in Nigeria have a wider base for tax. According to the Act, Non-Resident Companies carrying on digital activities, consultancy, technical, management or professional service in Nigeria will be taxed as long as they have “Significant Economic Presence” (SEP) and profit can be attributed to such activity. The Act however does not define what constitutes SEP, but gives the Minister of Finance autonomous power to determine this by an Executive order.
• Another impact which the Act would have is the requirement for Tax Identification Number to be obtained before they can be allowed to open bank accounts for their businesses. This Tax Identification Number is to be displayed on all documents including business correspondence, correspondence with government agencies et cetera. Existing Businesses are directed to obtain theirs within three months in order to continue the operation and maintenance of their accounts.
• Under the new Act, taxable goods have been expanded to include intangible goods like digital products and Value Added Tax has been increased from 5% to 7.5%. While companies with less than N25 million are exempted from paying for Tax, taxable businesses/companies are expected to register for VAT including Non-Registered Companies (NRC). Failure of an NRC to remit the applicable VAT, the recipient of the invoice in Nigeria will be required to self-account for VAT and remit the tax.
From the foregoing, it can be stated that the Finance Act 2019 seeks to improve the extant provision on taxation of businesses in Nigeria and also to boost the country’s revenue while upholding a commercial environment to bolster small-medium enterprises in Nigeria.