Below are few changes that was captured in the Finance Bill 2019.
1. The overlap created in commencement rule and cessation rule have now been removed. Hence CIT 29 (3) and (4) have been replaced. This is done to ensure that double tax is not charged on the same income due to overlapping period.
Advantage of this is that a new business may pay little or no tax in the third year of business and that the right of election may not be exercised after all.
2. Companies are now divided into three:
A. Small companies (less than N25m revenue, CIT is 0%)
B. Medium company (btw N25 and N100m revenue, CIT is 20%)
C. Big company (revenue above N100m, CIT is 30%)
Hence, this relief given to small and medium sized companies will encourage them to come forward and disclose their revenue and enjoy the benefits.
But it may give rise for some companies who may fall into the medium scale to window dress their accounts so that they fall into the small scale business that would not be liable to tax.
3. Insurance business are now allowed to carry forward their losses indefinitely like other businesses. Previously they were allowed to carry their losses for four years only after which any losses recouped are deemed lapsed.
This provision will encourage those in the insurance sector.
4. After tax dividends are now exempted from tax again when dividends are paid out.
Previously when dividends are paid out to shareholders and these are higher than chargeable or total profits of the business, the dividend paid out was deemed to be the chargeable profit and a tax a rate of 30% was charged. If dividend is a residual income available to shareholders after tax has been charged, charging tax again when the dividend was paid out amounts to charging tax on an after-tax income, thus leading to double taxation.
With the new finance bill, this provision of charging tax from dividend is now removed.
5. Minimum tax computation will now be based on revenue alone. It will now be charged on 0.5% of turnover. Of course the revenue mentioned here must be at least N25m since companies with revenue of N25m are exempted from CIT.
Previously minimum tax used to be computed as follows:
Higher of (a,b,c,d):
a. 0.5% of Gross Profit;
b. 0.5% of Net Assets;
c. 0.25% of paid up capital;
d. 0.25% of revenue
Plus e (only for company with turnover higher than N500,000)
e. 0.125% of revenue in excess of N500,000
6. VAT rate to be increased by 50% from 5% to 7.5%.
The items exempted from VAT are basically essential items and others listed in the VAT exemption list.
7. Stamp duty of N50 will be applied to items that cumulatively worth N10,000 and above.
Hence it's better to buy items in bulk and pay just N50 than to split the items up.
For example, its better to buy items in bulk from a supermarket at once worth N50,000 and pay just N50. Total amount paid will be N50,050.
If you were to split it up and by the items in multiple of N10,000 each purchase, it means you will have to make five different purchases of N10,000 each and pay N50 for each purchase (making it N50 x 5 times = N250). Total items payable is N50,250 when you split it.
The only way to avoid the N50 POS stamp duty charge is to split up the purchase to an amount less than N10,000. Assuming you split it to a multiple of N5,000 for each purchase it will mean 10 different invoices or transactions and no N50 will be charged on the transactions.
8. If company income tax is paid early (90 days before the due date for the company to pay tax or 3 months after the end of an accounting year of the company), the company gets a bonus:
a. 2% for a medium size company. A medium size company is one with turnover of between N25m and N100m. Instead of the company paying 20% tax rate, they get a 2% bonus thereby paying 18% tax rate;
b. 1% for any other company (big company or foreign company). They pay 29% instead of 30%.
Note that small company have a 0% rate. So no bonus is available to them. However if a small company fails to file tax returns early they pay a penalty.
Thus, in order to avoid penalty all companies are advised to file before the due date. All medium and small companies are advised to file with 3 months after their account year ends to get the bonus.
9. Section 60 of PPT Act has been repealed or ended or removed. Hence dividend paid out of PPT to individuals (under the PIT regime) is now subject to WHT. The repealed section 60 of PPT Act exempted it previously.
10. Email communications with the tax authority is now accepted as a valid means of communication.
Ignorance is not an excuse in law. Equip yourself with relevant information and remain relevant.
