From individuals to households, businesses (small and big) and the manufacturing sector, the Finance Act 2020 passed into law last year, has growth incentives for many economic agents in Nigeria. The Finance Act, which reviews and introduces over 80 amendments to 14 different laws, took effect January 1, 2021, and is expected to set the tone in driving Nigeria’s 2021 Budget of Economic Recovery and Resilience.
Like every new law, it is likely to come with its challenges and opportunities for businesses and individuals. The following economic agents in the Nigerian economy have the most incentive from the Act.
Manufacturing sector
With the amendment of the provisions of Section 33 of the Companies Income Tax Act (CITA), which led to a reduction in the minimum tax rate to 0.25 percent from the initial 0.5 percent, the Finance Act is geared towards reducing the burden on Nigerian companies who have been hit by the impact of the COVID-19 pandemic.
According to the law, the 50 percentage point reduction in minimum tax rate is applicable to tax returns prepared and filed for any year of assessment due on any date between January 1, 2020, and December 31, 2021.
SMEs
The Act simplifies the uncertainty in the 2019 Act, as it amended Section 1 of the Tertiary Education Trust Fund Act and thus and exempted Small Companies from Tertiary Education Tax (TET). As a result, companies with a turnover of less than N25 million who were exempt from CIT are also not liable to TET.
Also, the Act confirms that a small or medium company engaged in primary agricultural production may be granted pioneer status for an initial period of four years and an additional two years.
The opportunity to, therefore, reduce cost in a COVID-19 era is one of the catalysts needed to ensure Nigeria’s 41.5 million MSMEs survive the pandemic. MSMEs are the bedrock of the Nigerian economy as they account for over 95% of all businesses and contribute over 50% to the economy.
Consumers
The Act amended the Value-Added Tax (VAT) increase in the Act of 2019. In a bid to attract more revenue from tax, the Nigerian government in 2020 increased VAT from 5 percent to 7.5 percent. With the law, commercial airline tickets are exempted from VAT, and the case is the same for hire or lease of agricultural equipment for agricultural purposes. Also, the new law excluded land and buildings, money and securities from the definition of goods and services for VAT purposes.
Policy awareness
For Nigeria to achieve the full potential of the incentives and relief offered through the new Finance Act, analysts have suggested that more awareness be created to enable more players tap from the opportunity.
According to Onome Bominuru, associate commercial practice group, Andersen Tax, she is hopeful that the implementation of the Finance Act will yield the expected impact. “We hope that its implementation will be in a manner that allows companies to enjoy the maximum benefits of the changes and improvements ushered in by the Finance Act 2020,” Bominuru said.
Read more at: https://businessday.ng/lead-story/article/benefits-of-2020-finance-act-for-manufacturers-smes-consumers/
