The Fashion Law series commences today! This series aims to break down the intricate aspects of law related to the fashion Industry in Nigeria and Africa at large. I am sure you all have been hearing a whole lot about the Finance Bill. To kick start the series, I will be giving you all the gist you need to know about the Finance Act.
On the 13th January 2020, President Muhammadu Buhari signed the Finance Bill, 2019 (now Finance Act) into law. This development was made public by the President via his official twitter handle where he stated that the Finance Act (“The Act”) was specially designed to support MSMEs in line with the Ease of Doing Business Reforms and also to incentivize investment in infrastructure and capital market.
How does this have anything to do with your business? If you have a business in Nigeria then this Act has everything to do with your enterprise.The new law contains over 90 changes to 7 different tax laws including:
- An increase in the rate of VAT from 5% to 7.5%
With immediate effect, start charging your customers 7.5% VAT.
Every Business is expected to add VAT to the sales price of the goods or services they offer in Nigeria and the tax is borne by the final consumer of goods and services. VAT returns are normally made monthly to the FIRS tax office.
As a business owner, Whenever a business supplies VATable goods or services to a customer he must issue a Tax invoice in support of the transaction. The customer also needs the Tax invoice to support his claim for Input VAT. Tax invoices are to contain the following information:
Taxpayers Identification Number (TIN); Name, address and VAT registration number; Customer’s name and address; Type of supply; A description of the goods and services supplied; Quantity of goods or extent of services; The rate of VAT; The rate of any cash discount offered; and The total VAT payable.
2. 0% Company Income Tax(CIT) rate for small businesses and a lower rate of 20% for medium-sized companies.
If a business makes between 25 million and 100 million in sales, in a year, 20% company Income Tax will be paid and if it is a small business that will be 0% meaning no Company Income Tax will be paid.
Companies Income Tax (CIT) is tax on the profits of incorporated entities in Nigeria. It also includes the tax on the profits of non-resident companies carrying on business in Nigeria. The tax is paid by limited liability companies inclusive of the public limited liability companies. It is therefore commonly referred to as corporate tax.
3. Requirement for TIN to open and operate a business bank account.
In the past, Nigerian Banks required the Tax Identification Number from anyone opening a corporate bank account. However, this has been made mandatory and business accounts that do not have a Tax Identification Number are required to do the needful.
As a business or individual, TIN is important because that is what shows that you are a registered tax payer in Nigeria, and as you know that tax payment is made compulsory, every company, business, individual must have their own unique tax identification number. After completion of registration with the tax office, the entity or individual is issued a TIN.
4. Increase in the threshold of online transfers liable to stamp duty of N50 from N1,000 to N10,000
The stamp duty of 50 Naira used to apply for amounts from 1000Naira is now from 10,000Naira
Every new law comes with its challenges and opportunities, therefore, it is important that existing businesses and prospective investors seek professional counsel to enable them understand how the Finance Act will impact their business operations going forward and any new compliance requirements to be fulfilled or benefits to be enjoyed regarding the tax obligations in Nigeria.