Private Sector rejects Finance Bill 2019, petitions President Buhari

By Victor Young & Naomi Uzor

The Organised Private Sector, OPS, has rejected the Financial Bill 2019, before the National Assembly, NASS, pleading with President Muhammadu Buhari, not to sign it into law because of its dire consequences to businesses and well-being of citizens.

However, the Lagos Chamber of Commerce and Industry, LCCI, described the bill as a mixed bag, saying though it welcomed the concession given in the bill to small businesses, the increase in Value Added Tax, VAT, would put more pressure on businesses and consumers.

Senate Chamber

The Manufacturers Association of Nigeria, MAN, and Small Business Owners Association of Nigeria, also kicked against the bill, describing it as unacceptable.

But OPS in a petition to President Buhari, dated November 29, 2019, argued that if signed into law, the Finance Bill would not only emasculate existing businesses, but would compound the poverty level in the country.

The petition, written through the Director-General of the Nigeria Employers’ Consultative Association, NECA, Mr Timothy Olawale, detailed some offensive clauses and sections of the bill that needed amendment to avoid worsening the socio-economic situation in the country.

OPS contended that if government could widen the tax net to bring on board some non-tax paying entities and persons, there would be enough revenue to fund the 2020 budget, rather than further increasing the burdens on existing taxpayers and the entire citizenry by increasing Value Added Tax, VAT, rate.

OPS objects

The OPS stated: 

      “We have noted the Nigeria Tax and Fiscal Law (Amendment Bill) otherwise called Finance Bill 2019. 

The bill seeks to, among others, amend the Companies Income Act, Value Added Tax, Customs and Excise Act, Personal Income Tax, Capital Gains Tax, Stamp Duties Act and the Petroleum Profit Tax.

“We commend Government’s initiative on the Bill, especially as it would support Small and Medium Scale Enterprises, SMEs, through applicable tax reductions and would go a long way in lifting a huge percentage of the Nigerian populace out of poverty.

“However, we wish to note that in the event that the two chambers of the National Assembly pass the bill, we implore your Excellency to decline assent based on the following:

Increase in VAT

“The bill seeks to amend the provisions of Section 4 of the Value Added Tax Act in a bid to increase the rate of VAT from 5% to 7.5% as provided in Section 36 of the proposed bill. 

The increase in VAT rate is unacceptable and coming at a time Nigerians are still struggling with economic hardships.

“If allowed, the benefits of the recently signed National Minimum Wage of N30,000 would be neutralized and further reduce the purchasing power of the citizens, leading to increase in prices of goods and services, resulting in upward movement of the inflation rate, and further contraction of the economy.

“This will have an adverse effect on businesses, since the purchasing power of the citizens would have been reduced, sales of goods and services would reduce and inventories for business would be high and could lead to the closure of businesses that ought to be supported by government in reducing unemployment rate in the country.

Increase in penalties

“We are opposed to the increment in penalties and multiple penalties for offences in the bill.

 

The penalty is punitive. It would negatively affect businesses that are struggling to survive. We suggest that the status quo be maintained. 

In the amendment proposed for VAT in this bill, (Section 40) relating to Section 16 of the VAT Act, the amendment should also define threshold for accumulating excess VAT refund as a basis of applying for refunds. It should not be limited to the provision of recouping excess VAT input as set off in subsequent months on rolling basis. This is necessary to address situation of companies in perpetual net VAT refund year-on-year. This will streamline the process of application for refund.

Allowable Input Tax

“A major observation is that the Bill did not address issues on Allowable input tax (Section 17). The Bill is silent on this very important provision which limits allowable input tax to specific items only as opposed to what obtains globally.

 Best practices globally are that Companies are able to claim all input tax it suffers for goods and services received from its output tax. 

This will be a win-win situation for the government’s increase in VAT rate and companies can claim a deduction, for all input VAT incurred. Therefore, we urge the National Assembly to note this point and that companies be allowed to claim its input tax against its output tax. Best practice in this regard can be drawn from the UK and South African VAT Act.

Personal Income Tax Act

“On Section 33, we note that Alimony allowance of three thousand naira had been earlier repealed in previous amendments to the extant law but not yet deleted. 

Section 36 states “CGT to apply on compensation payments above N10million for loss of employment.

“This is subjective and the type of loss not specified. Thus, it could be subjected to different forms of interpretations. We are also concerned that it is not clear whether compensation for loss of employment would be subject to taxation.”

Companies Income Tax Act

OP stated further: 

      “The proposed bill in Section 12 seeks to amend the provisions of Section 33 of CITA as regards Minimum Tax to be paid by a company that recorded loss. It is our submission that the cash flow/cost effect of 0.5% minimum tax is high and does nothing to help companies come out of the loss-making position. A downward review of the rate to 1% of operating profit and where, there is no operating profit in the year, 0.001% of gross profit in that year would be a fairer assessment.

“The amendment also does not encourage foreign capital inflow / investment as the minimum tax does not give businesses the time to turn those investments into profits. It would be better for the government to put a timeline of 3-5 years in which the minimum tax becomes applicable.

 

Furthermore, it is not also clear if non-resident companies will be required to pay Minimum Tax. It is best to expressly state that non-resident companies are exempt from Minimum Tax.

“On the provisions of Section 19 (C) of the proposed bill, on bonus for early payment of tax, we suggest that the 1% and 2% proposed as bonus for early payment of tax are appreciated but rather too low. We suggest a 5% bonus to encourage early payment. Considering section 23, “tax paying threshold” for small and medium businesses should be referenced to the Interpretation section.

“This provisions section 27 has deleted the need to get the minister’s approval which in this case was the NOTAP approval. This was with a view to ensure that companies do not suffer multiple compliance requirements with Regulators. Thus, we suggest that any expense whatsoever incurred within or outside Nigeria involving related parties as defined under the Transfer Pricing Regulations and approvals given to taxpayers should be in line with other existing laws and Regulations.”

Also, the OPS argued that “Section 77 seeks to get tax payment in advance and erodes the possibility of payment of tax after the due date of filing. Payment of Tax in advance distorts the cash-flow of companies and its ability to generate future revenue which can be subjected to tax. We urge that the provision should be deleted.

“On the Seventh Schedule, the Thin Capitalization Rule should align with global best practices instead of based on 30% of earnings before interest, taxes, depreciation and amortization (EBITDA).

 This would enable Companies check their levels of competitiveness and benchmark with international standards.”

Other issues for consideration.

According to the OPS, “A major observation is that the Finance Bill did not address issues on With-Holding Tax (WHT).

 

The issue of interest will be to take definitive steps on:

(a) Tenor of WHT Certificate and applicability for refund under certain defined parameters not left open or ambiguous. Where a tax payer, at filing returns, has incurred net excess WHTC than actual liability, the refund should trigger immediately. The flip side of this is where the tax payer will need to pay cash where WHTC are insufficient to pay for any incidence of net tax liability.

(b) Conversion of WHT for settlement of other tax liabilities within the tax liability spectrum.

 

This is in view of huge WHT Certificate assets belonging to companies amounting to trillions in size. Tax system should allow for consolidation of liabilities within a specified review period to help the cash flow of companies.

“One of the cardinal principles of tax and taxation is Convenience.

 

Taxes levied on taxpayers must be convenient to ensure compliance and constant payment. It is our hope and strong belief that if the Government can widen her tax net to bring on board some non-tax paying entities/persons, there would be enough revenue to fund the 2020 budget, rather than further increasing the burdens on the existing taxpayers and the entire citizenry by increasing VAT rate.

“In the light of the foregoing, we once more urge your Excellency to withhold assent on the Finance Bill 2019 and impress on the National Assembly the imperative to reconsider the Bill, with the aim to ensuring the continued improvement in the Ease of Doing Business initiative of this Administration.”

It’s a mixed bag, says LCCI boss

Director-General, Lagos Chambers of Commerce and Industry, Muda Yusuf, said: 

         “The finance bill is a mixed bag. We welcome the concession given to SMEs with regard to VAT and corporate tax.

“However, we have reservations about the minimum tax on companies, which meant that even when companies make losses, they still have to pay tax.

“We believe the provision is not fair. VAT increase would also put pressure on businesses and consumers.”

It’s ill-timed — MAN boss

Reacting to the bill, Director-General of Manufacturers Association of Nigeria, MAN, Segun Ajayi-Kadir, said: The Finance Bill 2019 represents a holistic attempt by government to streamline our tax laws such as Company Income Tax, Personal Income Tax, Value added Tax and Excise Tax into a single legislative document.

‘’So, this is commendable, as a close look at the bill reveals the following objectives of government: Promote fiscal equity by mitigating instances of regressive tax invasion; reform domestic tax laws to align with global best practices; introduce tax incentives for investment in infrastructure and capital markets; support small businesses in line with the on-going reform on the ease of doing business; and enerate more revenue for government, by various fiscal measures, including a proposal to increase the rate of Value Added Tax from 5% to 7.5%.

“I would say that, even though some of the new provisions in the new Financial Bill 2019 are complementary to the improvement of the economic ecosystem, there are some grey areas that still require urgent and fundamental re-consideration and immediate amendment.

They include: 

Increase in VAT from 5% to 7.5%.

“I really feel strongly about this rather ill-timed and unexpected u-turn in government’s position on VAT. It is a consumption tax, and as such, an increase would further depress consumption and eventually production.

“This will certainly lead to a weakening of the performance of the manufacturing sector and a resulting decline in the growth of economy. Already, our warehouses are literally bursting with high inventory of unsold goods due to unprecedented buyers apathy.

“What is needed is deliberate government policy to put more money in the pocket of the average Nigerian who can then make more purchases and improve their overall well-being.

The news that 85% or so would go to the states and local governments to provide services at those levels may not necessarily be a cheery one, knowing the rating of those tiers of government in terms of value-for-money spent on projects and parlous performance on issues of governance.

“When you then place this increase at a time we are concluding on the minimum wage, it is like giving with one hand and taking back with the other, which leaves you on the same spot.

Even the so called unaffected essential products or items are not so insulated. VAT is paid on inputs, such as packaging materials, electricity, raw materials and so on.

“This means that the final cost of the product has suffered VAT and so not charging VAT on the final product doesn’t mean that the consumer has not paid VAT.

 

Therefore, we feel that rather than increasing VAT, government should widen its tax net and get people who are currently not captured to pay.

“There is also the need to harmonize taxes/levies/fees payable by businesses in the country to attract more investment that would translate to higher productivity and more tax revenue for the government in the medium and long term.”

We don’t support this — Small Business Owners

Dr. Femi Egbesola, National President of the Association of Small Business owners of Nigeria, said in his reaction that at the moment, Nigerians are on one hand struggling with decreasing income and on the other hand, increasing taxes.

“While companies pay taxes out of their profits, common men pay out of compulsion.

Little wonder the land is filled with frustration, various forms of vices and suicides.

An average Nigerian has apathy toward tax payments because our leaders have shown little or nothing to justify taxes collected from past decades.

“For us in small businesses, the timing for any form of tax increase through the passage of Finance Bill is wholly ill-timed and masses unfriendly. Yes, certain items in the small business sector are exempted, the question is who buys the products of the big businesses who do not benefit from exemptions? The bill no doubt is passed to the consumers, the average Nigerians.

“For us, there are more creative and innovative ways of raising revenues for government beyond arbitrary tax increase. We do not fancy, believe nor support the new Finance Bill.”