The Presidency also highlighted the benefits of the Finance Act 2019 for Nigerians and businesses in lower and middle levels of the economy.
President Muhammadu Buhari last week signed the Finance Bill with one of the components being the hike of VAT rate by 2.5 per cent.
However, despite the protest by some Nigerians on the increase, Nigeria’s VAT rate of 7.5 per cent remains the lowest in Africa and one of the lowest in the world.
In South Africa, the VAT rate is 15 per cent; Ghana (12.5 per cent); Kenya (16 per cent); Egypt (14 per cent); Rwanda (18 percent) and Senegal 18 per cent).
A statement from the Office of the Vice President, signed by his spokesman Laolu Akande, listed the items excluded from the new VAT rate as “Basic food items – additives (honey), 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).
“Also exempted are locally-manufactured sanitary towels, pads or tampons, services rendered by microfinance banks and tuition relating to nursery, primary, secondary and tertiary education.”
Besides, the Presidency noted that the larger chunk of the VAT revenue will be shared to states and local government areas.
It said: “Under Nigeria’s revenue sharing formula, 85 percent of collected VAT goes to states and local government areas.
“This means that the bulk of additional VAT revenues accruing from the increase will go towards enabling states and local government areas meet their obligations to citizens, including the new minimum wage as already noted by governors.”
The Presidency added: “The new Finance Act exempts Businesses with turnover below 25 million from VAT payments.
“Under the new law small companies – companies with less than N25 million in annual turnover are charged Zero Companies Income Tax (CIT).
“CIT for firms with revenues between N25 and N100m (described in the Act as “medium-sized” companies) has been reduced from 30 percent to 20 per cent.
“Amongst other benefits, the law 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,” the statement said.
The statement also said the Act has set out a couple of objectives, which it said include “promoting fiscal equity by mitigating instances of regressive taxation; reforming domestic tax laws to align with global best practices; Introducing tax incentives for investments in infrastructure and capital markets; supporting Micro, Small and Medium-sized businesses in line with the administration’s Ease of Doing Business reforms; raising revenues for federal, state and local government areas.
The statement also revealed that the Finance Act 2019 has extended the list of goods and services exempted from VAT.
The additional exemptions include the following: “Large companies – with annual turnover greater than N100m – will continue to pay the standard 30 per cent CIT
“The new Act includes a provision that grants to all companies engaged in agricultural production in Nigeria an initial tax-free period of five years, renewable for an additional three years.
“The new Act also provides incentives to promote tax compliance through bonus reductions in CIT for early remittance of two per cent bonus for medium-size companies and one percent bonus for other companies.”
On Personal Income Tax Act (PITA), the statement said: “The new 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.
“With 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.
“The new Act also expands the list of items exempted from stamp duty.
“To reduce unfair advantages previously conferred on imported goods at the expense of locally manufactured ones, certain imported goods are now subject to excise duties similar to locally-manufactured goods.”
The new VAT regime will go into effect on February 1.
