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Finance Act: How the new law will affect citizens, companies operating in Nigeria

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THE recently passed finance bill by President Muhammadu Buhari has raised a lot of tension and hope, one major point being the increase in the rate of Value Added Tax from 5 percent to 7.5 percent.

Firstly, the finance law would directly or indirectly affect the middle class and the common Nigerian citizen for there are many small businesses with low turnovers. In a full financial year, this act has provided exempts to companies with turnovers even below 25 million naira from paying the Companies Income Tax (CIT). The act would ease them a lot of tax burden and make these business owners concentrate on growing their business from their minimal turnover.

The bill also touches on medium-sized companies whose full-year turnover is in the range of 25 million naira and 100 million naira. With the new bill they would pay a CIT rate of 20 percent of their turnover in a full calendar year as against 30 percent. Hence, more companies are likely to spring up in the first half of 2020 which is good for the economy and employment rate to go up.

Also, petroleum products profits would now attract a 10 percent withholding tax as against the previous act based on Section 60 of the Petroleum Profits Tax Act (PPTA), no tax shall be charged, under the provisions of any other Act, in respect to dividend distributed from profits taxable under the provisions of the PPTA. The new act will allow monies to be gotten from the excesses of the petroleum products traded by these oil companies.

Before now Tax Identification Number (TIN) has been overlooked with individuals opening business accounts and also existing account holders must provide their TIN to continue operating their accounts. This process would make every individual opening accounts more cautions of financial activities on such account because the holder of the TIN number would be held accountable.

On 12 February 2016, the Tax Appeal Tribunal (TAT) Lagos division held that a Nigerian company that receives services performed by a non-resident company should account for and pay Value Added Tax (VAT).

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The TAT also held that since a non-resident company, which provided the service is not bound by the VAT Act, the Nigerian company which enjoyed the service has a duty to self-charge and remit the VAT, with the new finance bill a VAT reverse charge must be paid on imported services. The company bringing goods must pay a reverse charge on every goods that comes into the country.

The act also affects bank transfer from 10,000 naira upwards which would now attract a stamp duty, but intra bank transfers between the same owner account has been exempted from stamp duty. This is a relief for the common citizen transferring funds as low as 10,000 naira to self-account.

Paragraph 26 of the Third Schedule to the Personal I e Tax Act (PITA), 2011 as amended exempts “any compensation for loss of employment” from tax under the PITA, but with the new act the exemptions would be meant for only loss of employment below 10 million naira from the company gain tax (CGT).

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