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So the Finance Bill is out and I heard some people ask how it affects price of rice 😂. Lemme try and explain Sha

So first things first, what's the Finance Bill about?

A thread!

The Finance bill is a legislation aimed at curing the deficiencies of the current tax system. The idea is to promote fiscal equity & improve tax reforms, increase government revenue and bring more people into the tax net. This should improve the ease of doing business in Nigeria.

Also, another major objective of the bill is to make life easy for MSMEs (ease of doing business).

So, the first, probably major reform, applies to Company Income Tax. The major changes includes the following:

1. Changes in CIT rate. Based on the current tax system, companies are expected to pay a flat rate tax of 30% on their profit. However, with the new bill, only companies making an annual turnover of #100m will be subject to 30% CIT, while those companies with turnover between

#25m and #100m (medium size), will pay only 20%.
And the best news of all, the SMEs (companies with annual turnover less than #25m) will pay 0%. You read right, 0%.

This basically means they won't be paying tax during that period. It's expected that not paying tax will enable SMEs to be able to reinvest their profits back into the company, allowing them to grow into medium sized companies.

This might lead to some people trying to create a number of small bizs so as to spread their income across to below #25m so they can avoid paying tax. Provisions will have to be made to restrict this. Note that if you don't pay tax, you're only doing your business.

2. Under the new bill, companies who pay their taxes (CIT) early, i.e. 90 days before the due date, will be entitled to a deduction of 2% (for large coys) and 1% (for small coys). The idea is to ensure early payment and also to attract more people to the tax net.

The only consideration now will be the time value of money. In other words, the taxpayer will have to consider if it's worth it to pay 90 days earlier, or if an higher interest will be earned if the money is invested over 90 days, even in risk-free securities.

3. If you did any tax course, you'll know the commencement & cessation rules in tax. I'm sure you remember that the existing rules used to create problems of double taxation on a single accounting profit. Well, the new bill will aim to eliminate the risk of double taxation.

4. Currently, where a company pays a dividend in excess of taxable profits, such dividend is subject to CIT, causing double taxation. This is known as Excess Dividends Tax (EDT). The new bill eliminates the double taxation effect that comes with EDT, encouraging profit retention.

5. Pension contributions is now considered as allowable deductions for tax purposes. This means that companies will be entitled to tax relief on their pension contributions.

#FinanceBill

6. Banks will be required to obtain TIN as a pre-condition for opening or maintaining a bank account. Some banks are already doing this sef so the idea is to make it official.

So if your company is paying PAYE on your behalf, and you're seeing it on your payslip 😂, it's time to ask them to give you your TIN or Tax Card as you'll need it. The idea is to ensure that everyone (or most people) is paying tax and that it's linked to your bank account.

7. The part that has been in everybody's faces for a while. The increase of #VAT from 5% to 7.5%. This means more money for government to achieve revenue, but more financial burden on taxpayers. Definitely means cost of goods and services may rise to accommodate the increase.

Though the increase in minimum wage and more VAT exemptions is expected to cushion the effect of this increase. The 2020 budget used the 7.5% so we gaz make the money. States & LGs allowance will benefit the more from this Sha, means more money autonomy, and so it should improve

their ability to meet minimum wage. The cycle of life😂. Also means taxpayers will have to demand better accountability from them. Nigeria's VAT was one of the lowest in the world, so while many may ask if the timing is right, it had to be done eventually.

Note however that Small companies will be exempt from VAT as well. Therefore any company with revenue less than #25m will be exempted from registering, remitting, issuing tax invoice and collecting VAT. Means lesser tax burdens for SMEs. 🥳🥳

8. One sad part for investors in the Oil & Gas industry is that, dividends from petroleum profits will now be subject to 10% withholding tax, as opposed to the current provisions of the Petroleum Profits Tax Act (#PPTA). We must to make this money.. waya waya😂

9. Finally, the bill increases the threshold for Stamp duty of #50 on e-transactions from #1,000 to #10,000. At least that's better.

These, as far as I'm concerned are the major parts of the Bill. There are still other parts that you can go ahead to study.

Of course, there will still exist controversies and challenges with some of these new policies, therefore further provisions, explanations, and clarifications may have to be made by the FIRS in the coming weeks.

Ultimately, the provisions to a large extent will help improve fiscal equity, and is expected to boost the country's economy, by improving the growth of MSMEs in Nigeria and encouraging Foreign Direct Investments (FDIs) as well..

Proper implementation should also see Nigeria rise on the Ease of Doing Business Index.

So, great step. Kudos to the present administration for finally signing it into law. Hopefully, we should see a positive turnaround soon.

@themoneyafrica

@themoneyafrica