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The Finance Bill, 2019 (the Bill), presented by President Muhammadu Buhari alongside the 2020 Appropriation Bill to a joint session of the National Assembly on 8 October 2019, has been passed by both the Senate and the House of Representatives. The key highlights have been summarized in this report by Deloitte. This morning on the TVC Breakfast show our Managing Partner was asked what her thoughts were about the impact of the Finance Bill, 2019 and you can watch the interview above:
These are her top 5 thoughts about the Finance Bill, 2019.
- The Bill is primarily a revenue generation initiative so the intention is to get more taxes than ever.
According to an analysis by Investopedia about taxes, ”The federal government uses tax policy to generate revenue and places the burden where it believes it will have the least effect. However, the “flypaper theory” of taxation (the belief that the burden of the tax sticks to where the government places the tax), often proves to be incorrect. Instead, tax shifting occurs. A shifting tax burden describes the situation where the economic reaction to a tax causes prices and output in the economy to change, thereby shifting part of the burden to others”.
- The Nigerian government through the bill has placed the tax burden where it believes it will have the least effect on the Nigerian poor. The government wants the increased VAT of 7.5% to be borne by larger companies while MSMEs with turnovers of N25m or less will pay no company income tax (CIT) and are exempted from making sales VAT returns. Some industries such as insurance will see tax waivers on hitherto taxed items while other groups including non-resident companies with significant economic presence (SEP) in Nigeria will be levied new taxes on dividends and sales turnovers respectively.
- However, some SMEs do have sales turnovers above the N25m turnover thresh hold and will not even enjoy the CIT and VAT returns exemptions as we analyzed in this blog post. Moreover, a tax burden shift is most likely to occur due to the VAT increase and new tax on non -resident company sales which might include online adverts on Facebook, purchases from international vendors and so many more. This means we will all bear the burden of this VAT increase and new taxes on non-resident companies.
- Due to the high possibility of a tax burden shift a tax increase should be avoided in a recovering economy because it tends to reduce purchasing power, increase inflation and unemployment which ultimately worsens economic woes. There are other ways to increase government revenue and they include cutting government expenses, using project finance such as private sector-led concessions and license auctions through a transparent and well-planned process to create facilities that will increase the ease of doing business in Nigeria. Better facilities and infrastructure will reduce the cost of doing business and attract FDI to Nigeria which in turn will generate more tax revenue for the government.