22 IMPLICATIONS OF THE NEW FINANCE BILL, by Dr. Gbenga Adeoye

President Mohammadu Buhari on Monday signed the new Nigeria' s Finance Bill into law. The bill entails reform in different financial instruments of the nation's economy  including  major reforms in operating acts, especially in the financial sector , part of which is the 7.5 per cent increase in Value Added Tax among others. In this analysis, a Financial Expert and Chattered Accountant of no mean repute, Dr. Gbenga Adeoye X- Ray's some of the implications of the bill and how it affects you and your businesses.  The Business Package exclusively captures it. Excerpts : 

BY DR.GBENGA ADEOYE.

A. VAT IMPLICATIONS.

1.If your sales is N100,000.

2. VAT payable is N7,500.

3. If your cost is N80,000 and you paid VAT while spending that, then your input VAT is N4,000.

You will only pay N3,500.

4. If your annual Sales is less than N25m , you are exempted from Paying VAT.

5.The implication of that is that if your monthly Income is less than N2,083,333 ..In such month you will not pay VAT.

6.The main problem.is that you cannot know your annual Turnover until the end of the year which means, you will only know the Turnover of 2020 in January of 2021.

7. There will.be a lot of issues on how to know those who have less than 25m.

8. Many small scale entities will be subjected to series of Audit annually by FIRS to know if they are truthful.

9.However, the implication is that VAT is gradually becoming an annual Tax because if your Income in month 1 to month 11 is less than N2,083,333 for each of the months..It means you will not pay VAT for 11 months .

10 .Meanwhile you may have income of N100m in December which is 

month 12 .

If What you had from January to Nov is 2m each ..it means you would have made N22m at the end of Nov.

You will then be required to Pay VAT on 122m.

That is a very serious problem because it will give room for those that have enjoyed the relief of not paying VAT up to.November to under disclose their income should they make high income that will make their income go beyond the threshold of N25m towards end of the year.

The Bill is faulty on such .

The rule should have been a tax credit to companies with less than 25m.annual income.The refund will require serious verification and before you approach the government, you will think twice if your turnover is N1 above 25m.

I do.not think the exemption is too easy to manage.

It gives room for loopholes on the part of tax payers who have been having problem to comply with 5% old rate.

Now with 7.5% you may not pay at all if at the end of the year you have less than 25m.There is a serious lacuna in that law.Many may claim less than N25m Turnover

Tax Consultants and FIRS staff does not seems to have look critically at the Pros and Cons.

VAT is not an annual tax .It is a  monthly  Tax...It will lead to people looking for that range as their shield.Evasion is inevitable with that aspect.

11. However despite the lacuna, small entities who make very little money will enjoy the relief in that there are a lot of entities with less than 6m a year...Now they are free from VAT stress.That is the gain for the masses.

12 Sanitory Pads, towels  manufactured in Nigeria are exempted from VAT 

B.SOME OTHER AFFECTED AREAS

13. Section 60 of PPT Act was repealed . Now 10% WHT will be deducted from Dividends paid out of the Profit of Companies engaged in Petroleum Operations.

14.Individuals must have TIN to open or operate bank accounts.Although the cry of Nigerians towards end of 2019 made the Government to step this down but the law is still there and as such at any point in time..It will be implemented like the Cashless policy which has wrong element of charging customers for depositing proceed of their income instead of limiting such charges to withdrawals.I still believe they will change that one day.The charges on deposit is higher than the profit some people make.That is is day light robbery by policy.

New WHT of 10% deduction from Dividdend pay out on  Petroleum operations will increase funding source for the Budget of 2020 as there was no such WHT prior to this new bill.

Foreign Investors need to be seriously persuaded not to pull out their investment.It is good for us as a country to earn more but we must not lose investors.

15.Company Income Tax Rate now 20% for companies with 25m to N100m Turnover . No Company Income Tax for companies with Turnover of less than  N25m

My opinion would have been to make the rate be 20% as stated without excluding companies with less than N25m Turnover.

Some Tax offices have over 50% of such tax payer in the North and some rural areas.

16.You can now send your objection letter on Tax Demand via e mail and that will be taken as valid in.line with International best practice .If your file is in Kano and you now operate in Lagos, you don't have to go physically to deliver a letter to object to FIRS assessment.Letter by e mail will be deemed Valid.

17.Cost of goods and service will go up and inflation rate  will increase .Internet service provider to my office already sent a review bill to us because of the new VAT rate .

18 Life and Non Life Insurance Companies will be exempted from minimum Tax rule.

19.Excessive Interest Usually charged by related companies on foreign loans is now pegged to 30% of earnings before the interest itself, Tax ,  Depreciation and Amortisation and the excess can only be carried forward for maximum of five years.

This simply means that huge interest usually dumped on Financial Statement to reduce profit and reduce Taxes will not be allowed anymore and the restriction to a.mximum of 5 years implied that whatever is left cannot be allowed as a line item in the Comprehensive Profits and Loss Statement as deductible expense after 5 years.

20 Commencement Rule and cessation rule which have been criticized over the years as it allows FIRS to tax a particular year twice or even three times will be replaced with a new basis.

21. Bonus for early payment of taxes ..2% for medium size companies and 1% for large companies..If they pay 90 days before the date they ought to pay.. This is a flat rate, it may encourage tax payer in that there is no fixed deposit that can yield 24 percent per annum not even Treasury Bill.If you ought to pay N1b and you just decided to pay 90 days before the due date, then the company will be entitled to N20m .Even if you decide to leave the money for one year in Treasury Bill , you can only get 12 to 13 percent per annum which is less than the. This rate need further clarification...per annum or flat...How do you calculate if it is per annum.

This is a little complex in that alternative use of funds will determine who pays early . Then , how complex will the bonus payment be ?when, how, ? Transfer ..? As Credit against futures taxes? 

22 Stamp duty now N50 on receipt of N10,000 and above...Everyone should watch the debit to their account and ensure that it is N50 and not more.

FIRS & Joint Tax Board  as a matter of urgency should issue a circular which will be for the public to ease the operation and acceptance of the new law.

The validity of a law is in acceptability and compliance.

It is important to note that there are so many conversation in favour of increase in VAT as the Nigerian rate is lower than many countries over the years.

The question to ask is, do we have the same infrastructure and Tax Justice like the one in developed country.

Government is urged therefore to ensure that there is tax justice.

I will end by stating  that it is high time we adopt VAT derivation to.encourage the geographical locations where huge taxes flows from.

Dr. Gbenga Adeoye holds a PhD in Management Accounting , He  is a Fellow of ICAN, Fellow of CITN, Fellow of the Chartered Institute of Management Consultants, He is an Arbitrator of UK and Nigeria. He is a Public Analyst on Economy, Taxation,  Good & Corporate  Governance, Financial Management and  Politics.

He is the Principal Partner of Gbenga Adeoye & Co.( Chartered Accountants)