Key amendments introduced by the Finance Act
- The increase in the VAT rate from 5% to 7.5%.
- The removal of the exemption applicable to dividends received by shareholders of upstream oil and gas companies.
- The exemption of small companies (companies with annual gross turnover of 25 million Naira or less) from payment of companies’ income tax.
- The amendment of the CITA to capture non-resident companies that provide digital services within the Nigerian digital space.
- The requirement for Tax Identification Number as a pre-condition for opening a company or business bank account or continuing operation of a company or business bank account in Nigeria.
- The expansion of the list of VAT-exempt items to include a number of staple foods, food additives, water (including mineral water) etc.
Related: Starting the right Business
The five strategic objectives of the Act
- Promote fiscal equity by mitigating instances of regressive taxation;
- Reform domestic tax laws to align with global best practices;
- Introduce tax incentives for investments in infrastructure and capital markets;
- Support small businesses in line with the ongoing Ease of Doing Business Reforms; and
- Raise revenue for the government by various fiscal measures.
On Value Added Tax
- Expanded Scope of Supply
The scope of the act has been expanded in determining when a supply will be deemed to have been made in Nigeria. In respect of services, a supply will be deemed to be made in Nigeria where a recipient is a person in Nigeria irrespective of whether the services are rendered inside or out of Nigeria. This amendment will avert controversies arising
from the current provisions which are silent on supplies made outside Nigeria to a Nigerian resident.
- VAT rate Increased
The act has been amended to increase the VAT rate from 5% to 7.5%.
- Reduced Registration Period for New Businesses
The Act introduces an amendment to reduce the registration period for a new business from the current six months to ‘upon commencement’ which suggests that the obligation to register for VAT is immediate upon commencement of business.
The penalty for delay in registration has been increased from N10,000 for the first month of default to N50,000 and from N5,000 for every the subsequent month of default to N25,000.
In view of the increased penalty, it is recommended that a specific duration e.g. 2 weeks be imposed for a new business to register for VAT as such a specification will accord with the objective of fairness and clarity in tax statutes.
- Non-Resident Suppliers to include VAT in Invoices
The Act mandates a non-resident supplier to include VAT in its invoices, but the Nigerian purchaser is to withhold and remit the VAT amount directly to the FIRS.
Where the non-resident supplier fails to issue a VAT invoice, the Nigerian purchaser is to self-assess and remit the VAT amount to the FIRS. This will avert controversies as to whether the issuance of an invoice is a condition precedent to VAT liability which has been the cause of litigation.
- Remittance of VAT by a Nigerian Supplier
The Act introduces an amendment to state that the trigger for remittance of VAT by a Nigerian supplier would be a cumulative supply of N25,000,000 in a calendar year.
It is not clear if the trigger will mean that all subsequent supplies in that year will be liable to VAT or once the trigger is met then even prior supplies within the calendar year become subject to VAT.