Finance Act: FG Exempts Basic Food Items, Tuition From VAT

The Office of Vice President Yemi Osinbajo, on Sunday, explained that as part of efforts to ensure that the Finance Act 2019 does not negatively impact the cost of living in the country, several basic food items and tuition fees up to tertiary education level were exempted from Value Added Tax.
The Finance Act recently signed into law by President Muhammadu Buhari, on January 13, 2020, raised VAT on goods and services to 7.5% from the previous 5%.
Basic food items on the tax-exempt list include bread, cereals, cooking oils, culinary herbs, fish, flour and starch, fruits (fresh or dried), live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, water (natural water and table water), as well as additives like honey. Also on the list are locally manufactured sanitary towels, pads or tampons, and services rendered by microfinance banks.
The Act exempts businesses with annual turnover below N25m from VAT payments and Companies Income Tax (CIT); while medium-sized companies with up to N100m in revenue had theirs reduced from 30% to 20%. Companies with an annual turnover of over N100m will, however, continue to pay the standard 30% CIT.
According to the Act, all companies “engaged in agricultural production” within Nigeria now have “an initial tax-free period of five years”, renewable for an additional three years.
To promote tax compliance, the new law also offers incentives to promote tax compliance through bonus reductions of a 2% bonus for medium-size companies and a 1% bonus for others for early CIT remittance.
In the case of the Personal Income Tax Act, the Act now includes “electronic mail” as an acceptable form of correspondence for persons disputing assessments by the Tax Authorities.
“Contributions to Pension and Retirement Funds, Societies and Schemes are now unconditionally tax-deductible,” Akande stressed further, adding that going by the new Act, the N50 Stamp duty charge is now applicable only to transactions amounting to N10,000 and above, a significant increase on the former threshold of N1,000.
Objectives of the Act, according to Laolu Akande, Senior Special Assistant to the President on Media & Publicity, Office of the Vice President, include a reformation of Nigeria’s domestic tax laws to align with global best practices. It is also aimed at promoting fiscal equity by mitigating instances of regressive taxation; besides being part of the Ease of Doing Business Reforms; while raising government revenue across the three tiers.
The Act is aimed at promoting fiscal equity by mitigating instances of regressive taxation; as well as introducing tax incentives for investments in infrastructure and capital markets.
Akande explained that the Act, among other benefits, “will consolidate efforts already made in creating the enabling environment for improved private sector participation and contribution to the economy as well as boost states’ revenues.”
He quoted Buhari as assuring that “the Finance Bill will support the funding and implementation of the 2020 Budget. We shall sustain this tradition by ensuring that subsequent budgets are also accompanied by a Finance Bill.”
Nigeria’s new VAT rate of 7.5%, he explained further, “is still the lowest in Africa, and one of the lowest anywhere in the world,” when compared to South Africa, 15%; Ghana, 12.5%; Kenya, 16%; Egypt, 14%; as well as Rwanda and Senegal, 18%.
Under Nigeria’s revenue sharing formula, 85% of collected VAT goes to States and Local Governments, which the statement noted, “means that the bulk of additional VAT revenues accruing from the increase will go towards enabling States and Local Governments meet their obligations to citizens, including the new minimum wage as already noted by State Governors. Before now, the Buhari administration had firmly resisted previous suggestions to raise VAT.”

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