How the new finance bill affects businesses in Nigeria

The president of the Federal Republic of Nigeria, President Muhammadu Buhari not too long ago signed the Finance bill into law.

The Finance bill subsequently amended to “The Finance Act” saw to it that Value Added Tax (VAT) formerly 5% was increased to 7.5% for any product and services sold in Nigeria.

The President in a bid to shed light on the decision had explained that:
“This Finance Bill has five strategic objectives in terms of achieving incremental but necessary changes to our fiscal laws”

These objectives are:

  • Promoting fiscal equity by mitigating instances of regressive taxation
  • Reforming domestic tax laws to align with global best practice
  • Introducing tax incentives for investments in infrastructure and capital markets
  • Supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms; and Raising Revenues for Government.

The new law states that small businesses with a turnover of less than N25 million are to be exempted from Companies Income Tax, while it lowers the tax rate for companies making up to N100 million from 30 percent to 20 percent.

This is expected to come as a relief to the lot of Small and Medium Enterprises (SMEs) in Nigeria, most of which already struggle to stay afloat in a hostile business environment.

What the increase in VAT really means

When the rate was 5%, it means that for a price of ₦1000 the buyer will pay an extra of ₦50 as VAT to government making the bill a total of ₦1050. If the item is to be used or for consumption, then that is where the VAT story ends.

But if the Item is to be sold, or used to produce something else which will be sold at say₦1500, then VAT of ₦75 needs to be charged, so the buyer pays ₦1575.

Since the first buyer payed VAT of ₦50 (input VAT) when the initial item was bought, he/she is entitled to deduct it from the VAT of ₦75 just charged (output VAT) and only pay the difference of ₦25 ( ₦75 – ₦50) to the Federal Inland Revenue Service (FIRS).

The above scenario is the same but the VAT has now been increased from 5 percent to 7.5 percent.

A Positive Effect?

Small and Medium scale enterprises in Nigeria are starved of capital as poor access to finance constitutes a major constraint for businesses.

Similar challenges encountered by the sector include the high cost of doing business and multiplicity of taxes, a problem the new bill looks to eliminate.

In analysis of the bill, some industry players had this to say:

“The initiative is laudable and the modifications to the fiscal rules around taxation are clearly aimed at creating an enabling business environment and alleviating the tax burden for small and medium enterprises”
-KPMG (accounting firm)

“With unrestricted access into the bank accounts of companies, businesses are now open to paying taxes more than ever. And to reduce tax evasion”
-Tayo Oluwole (Tax consultant)

“It is clear the amendments that the Act makes to existing tax laws will have a “significant impact” on businesses operating in the country.”
-Andersen Tax (website)

In consideration of standard of living and ease of doing business, the Finance Bill seeks to cushion the harsh effects of the 7.5% VAT by introducing other palliative measures.

For example, stamp duty on receipts became ₦50 for every transaction worth ₦10,000 and above, instead of the ₦1,000 threshold earlier used by banks.

Also, for Company Income Tax (CIT), businesses with a turnover of less than N25 million will be exempted.

CIT for businesses with sales of between 25 to 100 million falls from 30% to 20%. Also,businesses which pay their taxes on time will get a reprieve of 2%.


What do you think of the new finance bill? Have you started implementing it in your business? I would love to know!


CBN To Set To Revive Nigeria’s Textile Industry

The Central Bank of Nigeria (CBN) has announced plans to revive Nigeria’s textile industry, unveiling measures that will see the development achieved. To this effect, the CBN has placed a restriction on forex access to importers of textiles and other clothing materials into the country. Henceforth, importers of textile and textile materials will not be able to purchase foreign exchange from banks and Bureau de change as well as other operators in the official foreign exchange market.

The announcement was made by the CBN Governor, Mr. Emefiele, at a meeting with textile industry stakeholders which held in Abuja last week.

“Effective immediately, the CBN hereby place the access to FX for all forms of textile materials on the FX restriction list. Accordingly, all FX dealers in Nigeria are to desist from granting any importer of textile material access to FX in the Nigerian Foreign exchange market.”

According to Mr Emefiele, the restriction will boost the domestic textile industry as well as create jobs for Nigerians. He noted that the apex bank would initially support the importation of cotton lint for use in textile factories, with a caveat that such importers will begin to source their cotton needs locally beginning from 2020.

Rwanda Named 3rd Greenest Destination In The World

[dropcap custom_class=”normal”]RWANDA has been ranked among top 20 world greenest places for 2015, according to World Travel Guide, an international travel guide for adventurous travellers.

The global tourist guide released a list of 20 destinations in the world that are on the path to environmental enlightenment from self-sufficient villages to pioneering national parks.[/dropcap]

According to the web portal, Rwanda has been ranked 3rd globally.

Article first published in  Mail & Guardian AfricaContinue reading


Massive Progress in your Business

Subscribe to get the free guide and learn step-by-step exactly what you need to achieve your goals.