Assumptablog

What you need to know about the Finance Bill – a bill that seeks to change Nigeria’s fiscal laws

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Buhari submits 2020 budget
  • Nigeria is strategically adjusting its fiscal laws to widen the revenue base.
  • The finance bill will raise the country’s Value Added Tax (VAT) from 5% to 7.5%.
  • The draft bill, if approved, will also expand VAT exemption items.

Nigerian President Muhammadu Buhari has submitted a Finance Bill to the National Assembly for review and passage into law.

The bill seeks to increase government revenue with a proposal to raise the country’s Value Added Tax (VAT) from 5% to 7.5%. The 2020 budget is also based on the VAT increase. 

Addressing the lawmakers during Budget presentation on Tuesday, President Buhari said the bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to Nigeria’s fiscal laws. 

President Muhammadu Buhari, President of the Senate Ahmad Lawan and Speaker of the House of Representatives Hon. Femi Gbajabiamila at the presentation of 2020 Budget on the floor of the Senate. [Twitter/@DrAhmadLawan]

These are:

a. Promoting fiscal equity by mitigating instances of regressive taxation;

b. Reforming domestic tax laws to align with global best practices;

c. Introducing tax incentives for investments in infrastructure and capital markets;

d. Supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms; and

e. Raising Revenues for Government.

Abimbola Omotola, Fixed Income and Currency specialist, said that President Muhammadu Buhari made a good decision with the introduction of finance bill as other countries are already doing this.

Raising the VAT rate is pragmatic considering the revenue challenges. Exempting SMEs is also a very good decision,” Omotola tweeted.

Here are key highlights from the bill

  • Section 46 of the draft Finance Bill 2019 expands the exempt items to include the following:

a. Brown and white bread;

b. Cereals including maize, rice, wheat, millet, barley, and sorghum;

c. Fish of all kinds;

d. Flour and starch meals;

e. Fruits, nuts, pulses and vegetables of various kinds;

f. Roots such as yam, cocoyam, sweet and Irish potatoes;

g. Meat and poultry products including eggs;

h. Milk;

i. Salt and herbs of various kinds; and

j. Natural water and table water.

The VAT Act already exempts pharmaceuticals, educational items, and basic commodities.

  • The Finance Bill, if approved, will make amends to the VAT rate and legally recognised 7.5% as Nigeria’s VAT.
  • The bill also exempts MSMEs from Vat registration, pegging it below N25 million in turnover per year. The government said this will allow revenue authorities to focus their compliance efforts on larger businesses.

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