Finance Acts 2019 Keynotes
This Finance Acts 2019 Keynotes is an x-ray of the new Finance Law, guiding the fiscal policy of the country.
- To set the tone for Nigeria’s fiscal policy for 2020.
- To promote fiscal equity, align domestic laws with global best practices.
- Support Micro, Small and Medium-sized businesses.
- Increasing government revenues and stakeholder investments in investment/capital market through the introduction of incentives
In view of this 4 major objectives, it has become imperative for us as individuals or organisations to abreast ourselves on how to work within the framework of this Bill so as to maximize the potentials and avoid the pitfalls. It is our belief that, this notes about 2019 finance law in Nigeria will help you achieve that objectives.
Though over 50 amendments were made, but the following 15 +1 were identified as key, hence, they must not be over sighted. Please note, others are not less important, depending on how much they relates to your activities.
- Section 9 of CIT is amended to insert the words that are not subject to tax under Capital Gains, Petroleum Profits and Personal Income Tax Acts. The section also expanded the definition of interests and Dividend in sub section 19 C of Section 9
The purpose and intention of this is to promote fiscal equity, by ensuring companies are not taxed twice on same income stream
2. A new subsection was added to Section 10 of the CIT Act to mandate Banks in Nigeria to obtain Tax Identification Number (TIN) from both Individual and Corporate Organisation before an account can be open for them. The section equally requires Banks to ensure that all accounts opened prior to this Acts, provide such (TIN) information as a precondition for the continued usage of their ban accounts
This is done to synchronize taxpayer banking and tax database with a view to improving tax compliance and ease of tax administration. This will also expand the tax net to capture more individuals and the informal sector
- Section 13 (C) of the CIT Act was amended to capture transactions transmits, emits or receive signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems or any other wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, online advert or payment and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity.
This is done to solve the challenges of digital services tax and expand tax revenue sources
- Section 13 (F) of the CIT Act was added to capture transactions transmits, emits or receive signals, sounds, messages, images or data of any kind by cable, radio, electromagnetic systems or any other wireless apparatus to Nigeria in respect of any activity, including electronic commerce, application store, online advert or payment and so on, to the extent that the company has significant economic presence in Nigeria and profit can be attributable to such activity
This was done to to resolve the issues around collection of tax on online and digital transactions
5. Subsection F was added to cater for trade or business which comprises of technical, management, consultancy or professional services outside of Nigeria, to a resident in Nigeria, to the extent, that the company has significant economic presence in Nigeria and profit can be attributable to such activity
This is done to create a nexus for taxation of services rendered offshore and ensure Nigeria earns its fair share of revenue from such activities.
- Section 19 of CIT Act was amended by inserting a sub section 2 to cater for dividend paid out of the retained earnings of a company. Provided the dividend were paid out of profits that have been subjected to tax under this Act, the Petroleum Profit Tax Act or the Capital Gains Tax Act.
The purpose of this is to amend the excess dividend tax rules that currently results in double taxation and discourages corporate savings/retention of profits, to improve investors’ confidence and encourage Foreign Direct Investment (FDI)
- Section 23:1(n) of CIT Act was amended nothing in this section shall be construed to exempt from deduction at source, the tax which a company making payment is to deduct under section 78,-80 of this Act, such that the provisions shall apply to a dividend, interest, rent or royalty paid by company exempted from tax under sub section 1 of this Acts.
This is done to remove the current tax law impediment to the creation of units trust in Nigeria, by exempting such companies from having to deduct WHT on dividends paid out.
8. Section 31(2)(a)(ii) of the CIT Act was amended allow companies carry forward losses incurred in the course of their business in a fair and equitable manner, which will go a long way to improve investors confidence
9. Section 33 of CIT was amended to make the minimum tax to be levied and paid to be 0.5% of turnover of organisations that made less than twenty-five million Naira in the relevant year.
Previously minimum tax used to be computed as follows:
Higher of (a,b,c,d):
- 0.5% of Gross Profit;
- 0.5% of Net Assets;
- 0.25% of paid up capital;
- 0.25% of revenue
Plus e (only for company with turnover higher than N500,000)
- 0.125% of revenue in excess of N500,000
This is done to simplify and harmonize the minimum tax regime to promote fiscal equity while ensuring that government generates its fair share of revenue.
10. Section 40 of the CIT Act was amended to rearrange the rate of tax;
There shall be levied and paid for each year of assessment in respect of total profits of every company tax as follows
- Small Company – less than N25 million turnover – (Nil)
- Medium Sized Company — N25 Million – N100 Million (20%)
- Large Company—– Higher than N100 Million (30%)
This is to eliminates the redundant provision in subsection (2) and (3) on excess profit tax and (4 -5) on pre incorporation levy. This will also encourage small organisation to keep records and disclose to government
11. Sub Section T was added to Section 19 of CIT to capture the dividend and rental income received by a Real Estate Investment Company on behalf of its shareholders. (i) A minimum of 75% of dividend and rental income is distributed. (ii) Such distribution is made within 12 months of the Financial Tear End in which the dividend or income is earned.
This is done to unlock the value chain potential of real estate investment as an asset class for securititisation in Nigeria. Enabling REITS will help create more employment opportunities, widen the tax base and improve the Economy
12. Section 53 on Self Assessment of Tax payable was amended for every company filing a return under section 55 of this Act or requested by notice of the Board shall in the return, compute the tax payable by the company for the year of assessment and forward with the tax return evidence of payment of the whole or part payment.
This is done to eliminate lag in payment of taxes and ensure government collects taxes quickly and efficiently.
13. Section 55 (b) (3) of the CIT Act was amended to increase the penalty fee for organisations which fails to comply with filing rules:
- N50,000 for the first month in which the failure occurs
- N25,000 for each subsequent months in which the failure continues
14. Section 77 of CIT Act was amended to add sub section to cater for organisation who pays it tax 90 days before due date to be entitled to bonus. 2 % bonus for medium sized and 1% bonus for others.
This was done to encourage early payment of tax and to ease the work of the tax agency(s) in tax collection
15. Section 60 of PPT Act has been repealed or ended or removed. Hence dividend paid out of PPT to individuals (under the PIT regime) is now subject to WHT. The repealed section 60 of PPT Act exempted it previously.
Hence, this relief given to small and medium sized companies will encourage them to come forward and disclose their revenue and enjoy the benefits.
16. VAT rate to be increased by 50% from 5% to 7.5%.
The items exempted from VAT are basically essential items and others listed in the VAT exemption list.
This was done to increase revenue generation for the Government as VAT was about the surest tax that every residents or those who do transaction relating to Nigeria pays.
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Finance Acts 2019 Keynotes