Brief Summary of the Nigerian Finance Bill 2019

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.

To balance debt and development, transparency and purpose are key

Unsustainable debt. Debt distress. Debt trap. These dire terms are once again back in the headlines, just a decade after the global financial crisis of 2008-2009. 

In the past five years alone, public debt in the poorest countries has increased from 36 percent of GDP to 51 percent of GDP.  In addition, debt-service ratios in some countries are rising at an alarming pace, threatening countries’ ability to invest in much-needed infrastructure, education, health and many other needs crucial for lifting their citizens out of poverty and achieving the international community’s Sustainable Development Goals by their 2030 deadline. 

Emerging debt vulnerabilities are particularly acute in Africa.  Fitting, then, that key stakeholders assembled for a high-level conference on “The Future of Debt Management” last week in Dakar, Senegal.. The event, organized by the World Bank to mark the 10th anniversary of its Debt Management Facility program, brought together more than 100 policymakers and government officials, debt management experts, donors, providers of technical assistance, and civil society representatives.

This gathering was an important opportunity to take stock of rising sovereign debt in Africa. The proportion of low-income countries in debt distress or facing a high risk of it has doubled since 2013, according to data from the joint World Bank-IMF Debt Sustainability Framework. Several factors are at play – bad luck, bad policies, bad investments and bad governance. Bad luck because of declines in commodity prices, natural disasters, and conflicts. Bad policies, such as ill-advised fiscal and monetary policy expansions in some countries. Bad investments, which resulted from imprudent borrowing, weak analysis and/or unscrupulous lending practices for investments that failed to deliver the growth and revenues they promised. Bad governance, due to lack of political will to address corruption and broken models. Governments get a short-term financial boost as they take on debt now, but obligations stay for many years – often after the government has left office. We need government processes that are transparent, and where data and information are made available throughout the project lifecycle. 

Debt has increasingly come at higher interest rates and borrowers may face higher repayment costs.  An increasingly diversified creditor base poses challenges for coordinated debt restructuring. Lack of transparency surrounding some transactions creates additional uncertainty and risk. 

The Dakar meeting served as a reminder that Africa’s financing needs are massive and urgent. According to the World Bank’s latest poverty estimates, 26 of the world’s 27 poorest countries are in Africa and the continent hosts more than half the world’s poor. This means that 413 million people there are living on less than $1.90 a day. By 2030, if current trends continue, nearly nine out of 10 of the world’s extreme poor will be in Africa. 

Hundreds of billions of dollars are needed to provide the critical services that can help eliminate poverty  – between $640 billion and $2.7 trillion per year by World Bank estimates. Debt financing is, therefore, crucial for development, and borrowing countries need to find a way to prudently take on debt to grow. However, many developing countries lack the tools, institutions, or know-how to do so. 

This is where debt management advisory programs such as the Debt Management Facility (DMF) come in. Launched in 2008 to help low-income countries strengthen debt management, it has so far provided support to 75 countries. 

In Uganda, DMF’s work helped the government reorganize its debt-management office. It now regularly publishes its strategy for debt management, along with quarterly debt bulletins and regular analyses of debt sustainability. In Kosovo, DMF helped the country develop a debt-management strategy that was published for the first time on the government’s website. 

While the DMF program can help address many challenges related to debt management, it cannot address them all. Countries themselves, through their leaders, policymakers and citizens, must find the political will necessary to insist on the prudence in debt management and transparency in borrowing  that are necessary to avoid the pitfalls of excessive debt.

Authored by Ceyla Pazarbasioglu

Vice President, Equitable Growth, Finance and Institutions (EFI), World Bank Group

9 bad money habits that cause hardship

Ever wish you had a time machine to go back and undo past money mistakes — especially the ones that came with a hefty price tag?

There are a lot of financial habits that can lead you into bank loan problem or debt. Some lure you there with the promise of being “smart financial moves.” Other habits are obviously bad, but you feel like you have few alternatives.

Do you want to avoid the pitfalls and keep more of that hard-earned cash? Here are nine bad money habits that can lead you into bank loan problem or debt disaster, according to www.bankrate.com.

 

Putting bills on automatic

While you’ll never forget to pay if you set up automatic bill payment, you can forget to keep enough money in your account and get hit with overdraft fees or penalties for returned payments or cheques.

Auto bill payment is especially dangerous with bills that are due sporadically, says Bruce McClary, a credit counselling expert.

When unexpected money comes out of an account automatically, “it could be the tipping point, especially if somebody is living on the edge,” he says.

McClary suggests setting up alerts reminding you to pay the bills instead of setting up automatic payments.

Having no emergency fund

From car repairs to a job loss, surprise expenses are a given. Having the money to cover them isn’t. An emergency fund provides a crucial crutch when things go wrong.

You should save three months of living expenses if you’re a two-income family, and six months if you’re a one-income family, says Andy Byron, a financial adviser.

 

Can’t swing that much? Even having a few thousands of naira in savings can give you a cushion to pay for repairs or groceries without having to reach for credit cards.

“Even if you can only afford to set aside a minimum amount, that … can really come in handy in an emergency,” says Michelle Dosher, a money management expert.

And often, it is smaller things, like home and car repairs — rather than job loss — that send people over the financial edge, she says.

Failing to budget

If you don’t have a budget, it makes it harder to stave off financial disasters. A budget helps you decrease or prevent debt; it also helps you build savings in case of emergency.

A budget can protect you, but it also “gives you a road map to reach your financial goals,” Dosher says.

In order to build a successful budget, first spend some time tracking your spending. “Understanding how much money you have coming in as well as going out is the first step to truly keeping a successful spending plan,” she says.

You can improve your budgeting process — and stick to your plan — if you shop with a list.

“Even folks who have a pretty good grip on their spending habits” can get derailed when they don’t prepare shopping lists, McClary says.

Spending more than you earn

Living beyond your means leads to nothing but trouble. It’s “so easy to be a bad consumer of credit card debt,” Byron says. When you carry “plastic in your wallet, it doesn’t even feel like money.”

Treat credit cards as a payment method, not found money. If you’re low on funds, put the cards away.

Then look for ways to increase your income or cut those expenses.

Choices like a prepaid phone plan or using a streaming service instead of cable can save more than you realise.

Co-signing a loan

In a word: Don’t. What the person you’re co-signing for won’t tell you: This debt is yours now. All of it. Until it’s paid.

Missed or late payments can be added to your credit report, which lowers your credit score. And when your score drops, your creditors can start increasing interest rates — after proper notice — and cutting credit lines.

Even if your friend or family member is responsible and makes every payment on time, the loan balance or card limit is included in your existing obligations when you apply for a loan. If your debt load is deemed too high, you’ll be offered higher interest rates or denied credit, Dosher says.

When the loan is secured by an asset (like a car), if the asset is repossessed and doesn’t cover the loan value, “the lender can come to you for the outstanding balance,” she says.

Paying late

It’s a classic chicken-or-egg scenario. If you have no money troubles but pay your bills late, your credit score will drop. So even if financial problems didn’t cause your late payments, those late payments could trigger financial problems, especially when late-payment fees kick in.

If you’re having trouble stretching your money to make the bills, that’s not good either.

It’s a “really bad habit being careless about paying bills on time,” says Dosher.

If you pay electronically, find out how long the system you’re using takes to process payments, she says. Electronic doesn’t mean instantaneous.

Ignoring your credit report

Other people will be viewing your credit report, whether you do or not. Because credit histories play such a big part in your financial life, it pays to see what is on it and whether it’s accurate, says Dosher.

A few things to check: Check if the information about your account is correct (balances, limits, name and address)

Are there accounts listed that aren’t yours or that you didn’t open? If so, that could be an indication of identity theft, says Dosher.

Are mistakes, such as late payments, charge-offs, collections, bankruptcies or foreclosures, removed on time (often after seven years)?

Not being adequately insured

If something happened and you had to replace your possessions, from the car you drive to the clothes you wear, could you do it?

What if the possession in question were your house? Because even if a disaster wiped out your home, chances are the balance on that mortgage would still be due. Could you cover it and afford a new place to live?

Nobody really knows how much insurance you “need.” It’s a fine balance. Too much and you’re draining your budget. Too little and you’re not protected.

You want to cover your main assets, including your health, so that a natural disaster or accident doesn’t also become a personal financial disaster.

That’s “where being adequately insured can really save your bacon,” she says.

Concentrate on three key areas: health, auto and property. Make sure your coverage is adequate to pay for catastrophic care in the case of accident or illness, and enough to rebuild your home and replace your car, she says.

And if you have significant assets, consider an umbrella policy that will give you liability protection across many areas of your life, including your home and auto.

Not investing for retirement

It’s the ultimate procrastination: saving little to no money for retirement. One mistake many people make when they plan for retirement? Assuming they’ll be spending less, says Byron. “Some people will spend more,” he says.

Not only does the cost of living go up, but retirees with increased time on their hands often want to indulge hobbies and travel, Byron says.

Here’s another way to earn extra for retirement without taking a second job: Take advantage of any matching fund your company offers, even if you contribute just enough to get the company match, says Dosher.

Getting that money early, when it has time to earn decades of interest, she says, “is huge.”

Credit: PUNCH

Being Grateful

In the famous words of Ferris Bueller, “Life moves pretty fast. If you don’t stop and look around once in a while, you could miss it.”

It can be easy to get swept away in the fast lane and forget to stop and show your appreciation for what you do have. A life well lived is one of gratitude and thankfulness. To help you on your gratitude journey, here are 8 ways to have more gratitude in your daily life.

1. Don’t be picky: appreciate everything

Gratitude doesn’t have to be saved for the “big” things in life. The habit of being grateful starts with appreciating every good thing in life and recognizing that there is nothing too small for you to be thankful for.

Even if it is as simple as appreciating the clear weather or how quickly your mailman delivered your mail last Friday, don’t leave anything out when practicing your gratitude.

2. Find gratitude in your challenges

Gratitude is not only about being thankful for positive experiences. In fact, sometimes thinking about negative or difficult situations can help to really nail down what you have to be thankful for. Dig a little deeper into some of your own past experiences and try to figure out how they have helped shape you into the person you are today.

3. Practice mindfulness

Sit down daily and think through five to ten things you are grateful for. The trick is that you need to picture it in your mind and sit with that feeling of gratitude in your body. Doing this every day will rewire your brain to be naturally more grateful, and you’ll start feeling happier after every session.

It only takes eight weeks of gratitude practice for people to start showing changed brain patterns that lead to greater empathy and happiness.

Your brain is a powerful tool, and training it towards gratitude is all part of ensuring that the gratitude comes more easily as you practice, so what are you waiting for?

4. Keep a gratitude journal

After your mindfulness session, write down your positive thoughts! Keeping a journal of all of the things you are thankful for can help you keep track of and refer back to the positives in your life.

Write down your positive thoughts to further focus your attention on the subject. While you are putting the pen to paper, you have no choice but to consciously think about the words you are writing without other distracting, ungrateful thoughts.

You can journal every day after your gratitude practice, or you can come back to the journal on a regular schedule weekly or monthly.

5. Volunteer

For many people, the key to having more gratitude is to give back to others in their local community. Not only will it make you more grateful for the things that you may take for granted, but studies have shown that volunteering for the purpose of helping others increases our own well-being, and thus our ability to have more gratitude.

University of Pennsylvania professor, Martin Seligman, supports this theory with his research in Flourish: A Visionary New Understanding of Happiness and Well-Being. After testing all kinds of variables that help improve our well-being, he found that volunteering is the single most reliable way to momentarily increase your well-being.

In other words: helping others helps you!

6. Express yourself

Sometimes it’s not enough to simply keep your gratitude to yourself. You can increase your feelings of gratitude by expressing that same gratitude to the people you care about.

Soul Pancake, a group that works to discover the “science of happiness,” ran an experiment where they encouraged people to write a letter to a person they were grateful for. By itself, this exercise increased their levels of happiness from 2 to 4%. However, when the same people made a phone call to the person they were thankful for to express their gratitude directly, happiness levels jumped from 4% to 19%.

Not only does expressing your gratitude for someone make their day a little brighter, but it can do wonders for increasing your own levels of gratitude and happiness in the long run

7. Spend time with loved ones

If you’re struggling with feeling the gratitude in the moment, go spend time with your friends and family. Of course it will help you grow closer to them and strengthen your relationship, but it will also give you a chance to practice your acts of gratitude on people that you care about.

Start small if they’re having trouble finding ways to support your friends and family. For instance, why don’t you make sure you’re listening intently the next time someone shares a story with you instead of waiting for your own chance to speak? Or start a conversation with a difficult member of the family by complimenting their new shoes or hair-cut.

8. Improve your happiness in other areas of your life

Being grateful can make you happy, but being happy can also make you grateful. There are plenty of other ways to get your mood up, including exercising or participating in a hobby you enjoy.

Once you are feeling the endorphins flow, showing gratitude will become even easier and you’ll start to be able to make list after list of all of the things in your life you’re thankful for.

Source: Forbes.com

Reaction

Reaction is based on positive or negative feelings and experience.

So much of life is dependent on how we choose to react to what happens to us.

Each day, we subconsciously choose how things will affect us. In positive moments, it’s so effortless for us to be happy. Yet, the moment something doesn’t work out the way we intended, we automatically shift back to the negative.

Change how you react to the things that didn’t work out the way you intended. 

That lost job? Realize that maybe this is your life steering you towards another direction where a new opportunity will arise.

That broken relationship? Recognize that they are not in a point in their lives where they are capable of giving you the love you deserve.

That bad day you had at work? Acknowledge that this is a case of mind over matter. Was it really that bad of a day? Or, did you let one little incident ruin the entire day?

Our society as a whole is so inclined to think negative. What if this happens? What if that happens? What if this isn’t good enough? So many times, I overhear people complaining about this, that, and the other thing. Yes, things happen in life, but negative thinking will only cultivate more negative occurrences.

It’s in your hands. You can choose to stay down, burying yourself in a deeper hole by telling yourself you’re not good enough or that only bad things happen to you.

Or, you can be upset about it for a little and then change your thinking. Acknowledge that you can move forward. Establish how you can make things better or what else you have going for you in the moment.

Your reaction is everything. It says more about your outlook on life than anything else. I’m not saying this is easy because it’s not. In fact, it’s a day-by-day process, but so much of our lives are impacted by our thinking.

When things don’t work out, don’t look at it in a negative light. Instead, look at it as a “shift” in your life. A “shift” to something or someone new.

A positive attitude will give you a positive life.

A negative attitude will give you a negative life.

It seems so simple yet, we make it so hard. Change how you react to situations and you will change your life.

TIPS FOR YEAR-END FINANCIAL PLANNING

1. Assess your current plan progress.
Look at any areas of your 2017 written financial plan that you have not yet accomplished and endeavour to complete them in the remaining days, or include them in your 2019 plan.

2. Review your current cash flow.
Take a deeper look at what you are spending your money on each month and determine what opportunities there are to find “painless savings”. You may even find some easy ways to save a few extra Naira for your long-term goals.

3. Calculate your asset allocation.
The run-up in stocks may have increased your stock allocation and you may hold more risk than you are comfortable with. If so, look at making some re-allocations – and don’t forget to consider the tax implications of any move inside a taxable account.

4. Estimate if you are on track to maximize your retirement contributions.
Try not to miss any valuable tax deductions; this is a great time of year for retirement top ups, especially with year-end bonuses.

5. Talk with your tax and financial consultants.
Explore other ways to save on your tax liability. There may still be time to act, but time is running out!

6. Explore and take advantage of your tax reliefs.
With the aid of your tax consultant and accountant, you can plan and take advantage of tax reliefs and incentives that available for you in the current year. Ensure that you are not exposing yourself to any undue tax burden.

7. Review your estate planning.
Each year we should really take the time to review our wills and general estate planning. Your year may have changed your estate planning more than you thought and taking the time to engage the topic will prevent it from running ahead of you in the future.

8.  Consider what life changing events you may face in the new year.
For example: if your employer is struggling, planning job cuts, or if you are considering a job change, do you have enough liquidity on hand while you look for a new position? If you are buying a new house, are there steps you can take now to improve your credit and accessibility to funds?

The financial planning process is continual and never ending. Reviewing year-to-date progress and anticipating future needs can lead to better results. Use this year-end period to assess your current situation and identify future planning opportunities.

Multiple Bank Accounts - Pros & Cons

The best way to ensure that you build wealth and avoid debt is to diligently plan and save as much money as possible for both future needs and desires. However, exactly how you handle your savings can depend greatly upon your financial habits. Some financial experts recommend setting up a simple savings account tied to your current account, while others advocate opening multiple accounts to be used for various savings targets, according to www.moneycrashers.com.

There are pros and cons to each approach. Of course, a major part of your final decision depends on your financial personality.

Questions about your savings habits

Do you have a budget that includes room for saving?

If not, you need to create one, even if you can only save a tiny amount from each paycheque. Use financial software or just a pencil and paper to list all your income, all your fixed expenses (such as your rent or mortgage and car payment), and your fluctuating expenses (such as groceries and discretionary spending). You may need to track your spending for a few weeks to find places to cut spending so you can build your savings.

Are you comfortable with an automatic transfer of funds into a savings account?

Automatic savings are the easiest way to ensure consistent savings deposits. If you are comfortable with it, have a set amount transferred to your savings from each paycheque. Over time, you can significantly increase your savings.

Do you frequently tap into your savings for non-emergency spending?

If you regularly spend money from your savings account, you may need to open an account that is more difficult to access, such as a fixed deposit or a money market account that limits you to six withdrawals per month. If you choose a fixed deposit, be aware that most charge a penalty for early withdrawal. If you are dipping into your savings often, this may be a sign that you need to reorganise your budget.

Reasons to have multiple savings accounts

The ease of opening online bank accounts allows you to open multiple savings accounts within minutes, either with the same financial institution or spread out among several. Doing so might make sense for you for the following reasons:

You have multiple savings goals: The main reason to open more than one account is to track exactly how much you have saved toward each individual savings goal. For example, if you want to save three months’ worth of income in an emergency account, set money aside for a down payment on a house, and fund your summer vacation, then you could open three accounts to see at a glance how close you are to reaching your goals.

You need to separate your savings: You need to keep some of your money on lock-down so it is available if you face an emergency. Consider keeping an emergency fund in an account that is easily accessible, and then store the remainder of your funds in accounts tied to various short- and long-term targets.

Keeping some money in another financial institution means that you are more likely to always have funds when you need them.

You can receive multiple perks: While you may want a bank with an ATM near your home or workplace, online banks often offer better interest rates, and some institutions give you a bonus for opening an account. You may be able to take advantage of perks from several institutions if you open multiple accounts.

Reasons you may not want multiple bank accounts

Despite the various advantages, there are several reasons you may want to keep your savings in one place rather than in multiple accounts. It can be hard to reach minimum balance requirements. Many savings accounts require you to open an account with certain balance or require you to maintain a minimum balance in order to earn interest.

Building banking relationships can be more difficult: Even if you choose to have multiple bank accounts, it may pay to keep them with one financial institution, as some banks provide lower interest rates on loans or reduce fees for customers with multiple accounts.

You could lose interest: While the interest paid on most savings accounts is pretty low, some accounts pay a higher interest rate on a larger balance. Spreading your funds into many accounts may keep you from earning the highest rate.

You may find it confusing: If you have some funds allotted to save each month or you receive an unexpected bonus or gift, you would have to decide whether to put it all toward one goal or to split it between various accounts. If you have only one account, you won’t have to decide immediately how to appropriate the money.

Multiple accounts can complicate automatic transfers: If you choose to have money transferred from each paycheque, it may be too much to keep track of if you are having cash transferred to a variety of accounts.

You may lose some money: If you are less-than-perfect at keeping track of your finances, you may be better off with one account – or at least with keeping all your accounts with one financial institution so you don’t forget what you have and where it is.

You could pay higher fees: Some financial institutions charge fees for their accounts, especially on accounts with a low balance.

Make sure you’re not overpaying by dividing your savings

If you are supremely organised and want to keep your funds for various needs and desires separate from each other, you may be a good candidate to open multiple savings accounts. However, be sure you aren’t missing out on the perks of having a high balance with one financial institution or having fees eliminated because you have multiple accounts with one bank or credit union. You should compare interest rates and fees on all accounts before you make your final decision.

Do you prefer having one savings account, or do you keep your money in several places?

Credit: The Punch