This is what you need to know about the 2019 Finance bill

The 2019 Finance bill was finally signed into Law by President Muhammadu Buhari on the 13th January 2020. The changes introduced impact individuals and corporates and, as with many things related to government finances, have the ultimate aim of increasing government revenues by (generally) increasing the amounts of tax paid by us all!

In all seriousness there are pros and cons and as good patriotic people we should be pleased to contribute to the government coffers especially if this then translates to positive outcomes for the average Nigerian.

The bill makes changes to 7 different tax laws:

• Personal income tax
• Witholding tax
• Capital gains tax
• Value added tax
• Customs duties and stamp duties
• Corporate income tax
• Petroleum profit tax

This post focuses on 5 taxes that affect individuals and considers their impact and how they will affect us going forward.

Personal Income tax (PIT)

Individuals pay PIT in two ways:

1. Those in employment pay through the PAYE (Pay as you earn) system where the tax is deducted at source by their employers

2. Those that are self-employed and/or have additional income which is not covered by their PAYE payment, pay through the ‘self-assessment’ regime.

PIT is charged on income and each tax payer has a unique Tax identification number assigned for ease of administration.

Immediately this seems fraught with implementation issues and seems contrary to the goals of government’s financial inclusion agenda. Realistically how many low income earners have a TIN and what is the process for getting one in order to open an account?

For existing customers, will they no longer be allowed to use their bank accounts because they have no TIN? If the process is onerous it may not necessarily increase the numbers of tax payers. It would be beneficial if this change was accompanied by a commitment to streamlining the TIN process and perhaps aligning it with existing identification numbers in existence currently. Banks have yet to start a wholesale clean-up of their existing account base so it remains to be seen if there will be forced closures of accounts.

Value added tax (VAT)

1.Increase in VAT (value added tax) from 5% to 7.5%.

VAT is a ‘consumption’ tax charged on the supply of goods and services and as such impacts all of us regardless of income. Nigeria’s prior VAT rate of 5% was among the lowest in Africa and the increase has brought it the rate more in line with the average rate across the continent.

Increasing VAT is positive for government revenue provided consumption patterns don’t change. The increase could be offset slightly by the second key change which is an increase in the number of VAT exempt items. The old list consisted mainly of basic food items and has been expanded to include more food and locally made sanitary items.

More pain may yet be felt by consumers as the way in which VAT is currently charged to businesses has not changed: businesses are not able to offset VAT that they are charged for different inputs of production so the increase will be magnified for many and ultimately the end cost will be passed onto consumers.

Stamp duty

Stamp duty is a tax that is payable on a number of instruments and transactions including contract notes e.g. for financial instruments, bank cheques, property leases and receipts.

The change in the law widens the instruments covered by stamp duty and also validates the stamp duties that were introduced by the CBN in 2016 on electronic transfers between bank accounts. The automatic ₦50 charge caused some uproar when it was introduced as it was yet another fee imposed on consumers which applied to transactions above ₦1,000 which is low enough to impact a wide number of people. The changes, listed below, reduce the impact on our wallets as they only now apply to transfers over ₦10,000.

Witholding tax (WHT)

Witholding tax (WHT) is also known as ‘retention’ tax and is meant to be paid by the payer of income rather than the recipient. An example is when you earn interest on your bank account, you will notice on your statement that there is a deduction for WHT at 10% rate.

Two pieces of good news: there is no change to the 10% WHT rate and income earned from unit trusts is exempt. This exemption is good news for investors in collective investment schemes and is aimed at preventing double taxation given that the unit trust manager would already have paid WHT on dividends received on assets within the trust.

Capital gains tax (CGT)

Capital gains tax (CGT) is a tax on the gain in price / value of an asset sold. Previously the law required that in event of loss of employment, any compensation above ₦10,000 paid to an employee would be subject to CGT, clearly an unwelcome deduction given the situation of loss of employment.

Benefits: the figure is like a benefit and removing the CGT burden is one less thing to worry about post job loss.

There you have it, an overview of the changes brought in by the Finance bill. More information on items that have not been implemented will be provided as and when it is rolled out.

Thank you for listening!