Soon, you’ll need a Tax Identification Number (TIN) to open a bank account in Nigeria. But you won’t be paying that irksome ₦50 charge on PoS transactions anymore- unless you’re transferring more than ₦10,000.
These are just two of the many changes to the country’s tax system that could be coming into effect shortly. It’s all part of a wider raft of reforms contained in the Finance Bill 2019. The bill, passed by the Senate on November 21, will come into effect as soon as it’s signed by President Muhammadu Buhari.
Read more about Tax in Nigeria
Upon being signed into law, it will change aspects of previously existing laws on Company Income Tax, Personal Income Tax, Value Added Tax, Customs and Excise Tariffs, Capital Gains Tax, and Stamp Duties (there’s more about these taxes here).
Among the more well-known provisions of the bill is an increase in Value Added Tax (VAT). But there are other provisions in the document which may have far-reaching consequences for working people, SMEs, and larger corporations in the country.
Here are some of the new rules, and how they’re likely to affect emerging and established businesses.
Banks Will Now Request for TIN before Opening New Accounts
Banks will be adding the Tax Identification Number (TIN) to the list of requirements for opening a bank account in Nigeria. Individuals who already have a bank account will also be expected to provide their TIN in order to keep their accounts.
Here’s how to get your Tax Identification Number.
The VAT Registration Isn’t for Everyone
The Value Added Tax rate should go up from 5% to 7.5% once this bill is signed by the president. However, businesses with an annual turnover of less than ₦25 million won’t be required to register for VAT collection.
In practice, the government will be collecting more per unit item taxed. But it’ll be doing this with a smaller set of companies.
More Goods Will Be Exempted from VAT
At the moment, VAT isn’t collected for basic food items, all medical and pharmaceutical products, books and educational materials, baby products, medical services, and exported services. The amendment proposed by the Finance Bill eliminates VAT for locally manufactured sanitary towels, pads or tampons, and tuition for nursery, primary, and secondary schools.
However, the penalty for filing VAT late will be doubled for first-time offenders. The penalty for businesses that fail at this multiple times has also been raised 500%.
Small Businesses Won’t Pay Companies Income Tax
If your business’s annual turnover is less than ₦25 million, it won’t be required to pay the Companies Income Tax (CIT). Also, the CIT for medium scale businesses (with a turnover of between ₦25 million and ₦100 million) will be cut to 20% (from the current rate of 30%).
Tax Bonuses for Early Payment of CIT
If medium scale companies turn in their Company Income Tax early, they could get a tax bonus worth 2% of the tax they’ll pay. Large corporations will also get a 1% tax bonus on tax payable for early payment.
Stamp Duty Won’t Be Collected for Transfers Under ₦10,000
At the moment, a ₦50 stamp duty is being charged for bank transfers of amounts greater than ₦1,000. This has particularly affected merchants and customers who use Point of Sale (PoS) services. If the Finance Bill comes into effect, the stamp duty will only apply for transfers of ₦10,000 or more- a relief for businesses that use the PoS, and the customers that patronize them.
There will also be no stamp duty levied on transfers between bank accounts held by the same owner in the same bank.
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Imported Goods will Be Subject to Excise Duties
Governments typically impose excise duties on goods they don’t want their country’s citizens to buy. The Federal Government wants to add a number of imports to its excise duty regime, as part of its plans to encourage local industry.
This tax will increase the prices of the affected imports, and make them less attractive, compared to local alternatives.
Why these Changes are Being Introduced
The Federal Government is closing the holes in its tax net and spreading that net farther than ever before. It’s doing this to plug a growing gap in its finances, and fund its ever-expanding budget.
Some of the proposed changes to existing tax laws appear to be palliatives, designed to lessen the impact of the government’s tougher tax policies on small businesses.
Featured image source: Legal Forms
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