Revitalizing the Economy via Finance Bill

Revitalizing the Economy via Finance Bill
By Rahma Olamide Oladosu

The Finance Bill, which has now become an Act of the National Assembly has come to stay. According to the Minister of Finance, Budget and National Planning, Zainab Ahmed, the Act is crucial to the growth of the Nigerian economy as it would allow government to realize its annual revenue projections and targets. The Finance Act is an omnibus draft legislation, aimed at curing the deficiencies of major primary tax legislation by amending obsolete and contentious provisions.

The Bill, which President Muhammadu Buhari presented alongside the 2020 Appropriation Bill to a joint session of the National Assembly on October 14 2019, seeks to put in place practical measures to generate additional revenues for the government to partly finance the deficit in the 2020 budget.

In addition to setting the tone for Nigeria’s fiscal policy for 2020, the Bill also seeks to promote fiscal equity, align domestic laws with global best practices, and support Micro, Small and Medium-sized businesses. To do this effectively, the Bill sought to amend various tax laws in the country.

Few days after the passage of the Bill, The Federal Government began the immediate implementation of some aspect of the ACT with the implementation of the 7.5 percent Value Added Tax (VAT) on delayed payments on government transactions.

VAT is the tax citizens pay when they buy things (goods) like food, phones, soaps, generators, cars among others or when they pay for a service ( like transportation, phone airtime, cinema shows, making hair,sewing cloths among others). It all means that there is VAT whether we think value has been added or not.

Mixed reactions have flowed freely with commendation of the initiative dominating. But this, however, did not pass by without bringing us to the major questions on every analyst and even an average Nigerian’s mind which is whether the Finance Bill is ideal for the nation’s economy right now. Does it bring any significant benefits, What are the aftermaths of the passage of the Bill and the 7.5 per cent VAT increment.

Some explanations were however given when the Presidency made a public breakdown of the Finance Bill. The breakdown was released by Mr Laolu Akande, Senior Special Assistant to the President on Media and Publicity, Office of the Vice President.

The breakdown showed that the Act will be 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 the administration’s Ease of Doing Business Reforms, Raising Revenues for Federal, State and Local Governments. The new Act will also raise VAT from five per cent to 7.5 per cent, there will be ammendment in the Stamp Duty Tax; stating that the N50 Stamp duty charge is now applicable only to transactions amounting to N10,000 and above, which is a significant increase on the former threshold of N1,000. The new Act also makes provisions for Customs and Excise Tariff.

The Federal Government, in a bid to allay fears that low-income persons and companies will be marginalised by the new law, reduced the burden of taxation on vulnerable segments and promote equitable taxation.

The Finance Act 2019 has extended the list of goods and services exempted from VAT. These additional exemptions includes, but not limited to services rendered by microfinance banks; tuition relating to the nursery, primary, secondary and tertiary education, Basic food items – additives (honey), bread, cereals, cooking oils, culinary herbs, fish, flour and starch, fruits (fresh or dried), live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, water (natural water and table water), Locally manufactured sanitary towels, pads or tampons and Businesses with turnover below 25 million from VAT payments.

Several experts have commended the Federal Government, saying that the introduction of a bill that amends various tax laws is a welcome dvelopment in the tax system. They believed that this could boost the economy by stimulating the growth of small and medium scale enterprises and increase foreign direct investments into the country. They also laid emphasis on the fact that the new increased VAT rate of 7.5 per cent is still the lowest in Africa, and one of the lowest anywhere in the world — South Africa VAT: 15 per cent; Ghana: 12.5 per cent; Kenya: 16 per cent; Egypt: 14 per cent; Rwanda: 18 per cent; Senegal: 18 per cent.

It was also noted that under Nigeria’s revenue sharing formula, 85 per cent of collected VAT goes to States and Local Governments while the Federal Government will receive 15 per cent.

This means that the bulk of additional VAT revenues accruing from the increase will go towards enabling States and Local Governments meet their obligations to citizens and to help fund the minimum wage implementation by state governments.

Former Deputy Governor of the Central Bank of Nigeria (CBN) Obadiah Mailafia commended President Muhammadu Buhari for signing the Finance Bill(2019) into law, noting that it is good for the country, because normally when you pass a budget, there should be a package of fiscal measures that should accompany such a budget. He further stated that it is a standard practice which infact used to be the practice in Nigeria untill during the fourth republic.

Vice-President Yemi Osinbajo also asserted that the Finance Bill would stimulate the Nigerian economy and put the country on the path of geometric economic growth.

However, In all developed and developing countries, government is funded by taxation, which should be the obligation of every citizen. In the case of Nigeria, oil revenue and it’s mismanagement led governments in the past to ignore taxation as a major source of revenue. It is, therefore, beholden on citizens to pay tax while demanding transparency and accountability from the federal, state and local governments.

However, the Finance Bill is a welcome development in the tax landscape of Nigeria as it proposes provisions that have the capacity to boost the economy by stimulating the growth through small and medium scale enterprises and enticing foreign direct investment into Nigeria.

Nonetheless, I urge stakeholders to be aware of the underlying challenges and procedures to counter such challenges. For example, tax authorities and relevant government parastatals may commence preparation of administrative notes, enlightenment guides, effective compliance aid and other implementation guides.

The National Assembly should also include transitional provisions to aid movement from the old regime to the new one. Ultimately, the amendment is a good step towards achieving the objectives of PEBEC with respect to paying taxes.

Therefore, taxpayers cannot afford to be caught ‘offside’ in their tax planning and compliance efforts.

As a matter of urgency, taxpayers are advised to evaluate how the Bill would impact their operations, review their tax compliance requirements and strategize for effective tax planning.

Every new law comes with its challenges and opportunities, therefore existing businesses and prospective investors should seek professional guidance to enable them understand how the Finance Act will impact their business operations going forward and any new compliance requirements to be fulfilled or benefits to be enjoyed regarding their tax obligations in Nigeria.

Rahma Oladosu, writes from Kano and can be reached on
[email protected]