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FG Exempts School Fees, 20 Food Items From New VAT Rate

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Reprieve has come for agitated Nigerians as the federal government has exempted school fees for all levels of education, 20 basic food and other essential items from the new 7.5 per cent Value Added Tax (VAT) rate contained in the recently passed Finance Act 2019.

The exclusion of the items, the government says is to ensure that the cost of living does not rise for the citizens because of the changes in the VAT tax.

In the new Finance Act 2019 signed into law by President Muhammadu Buhari last week, VAT, which is a consumption tax, was increased from five per cent to 7.5 per cent, which caused discontent among Nigerians.

But, in a statement issued yesterday in Abuja by the senior special assistant to the Vice President on Media and Publicity, Laolu Akande, the government listed basic food items, locally manufactured sanitary towels, pads and tuition relating to nursery, primary, secondary and tertiary education among those to enjoy the VAT exemption.

Akande said that amongst other benefits, the law would 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.

According to the statement, “the Finance Act 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.”

The bill, which was signed into law by the president on January 13, 2020, is aimed at 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, and raising revenues for federal, state and local governments.

The statement added that “to allay fears that low-income persons and companies will be marginalised by the new law, reduce the burden of taxation on vulnerable segments, and promote equitable taxation, the Finance Act 2019 has extended the list of goods and services exempted from VAT.

“The additional exemptions include the following: 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); locally manufactured sanitary towels, pads or tampons; services rendered by microfinance banks and tuition relating to nursery, primary, secondary and tertiary education.

“Nigeria’s increased new VAT rate of 7.5 per cent is still the lowest in Africa, and one of the lowest anywhere in the world. (South Africa VAT: 15 per cent; Ghana: 12.5 per cent; Kenya: 16 per cent; Egypt: 14 per cent; Rwanda: 18 per cent; Senegal: 18 per cent).

“Under Nigeria’s revenue sharing formula, 85 per cent of collected VAT goes to the states and local governments. This 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,” the statement read.

Furthermore, the new Finance Act exempts businesses with turnover below N25 million from VAT payment.

Under the law, small companies – those with less than N25 million in annual turnover – are charged zero Company Income Tax (CIT).

CIT for companies with revenues between N25 and N100 million (described in the Act as “medium-sized” companies) has been reduced from 30 per cent to 20 per cent. 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 government will begin the collection of the new VAT rate from next month.

 

…Waives N3.5bn Tax Burden For Insurance Firms Annually

Relatedly, the coming into effect the 2020 Finance Act will add about N3.5 billion into the profit portfolio of insurance companies, thereby, reducing the tax burden of the industry, LEADERSHIP has learnt.

Insider sources revealed that the law would reduce the tax expenses of insurers by about 40 per cent in the current financial year.

In the 2017 financial year, insurance companies paid about N8 billion as tax while in 2018, it increased to about N10 billion.

While this tax burden threw some companies‘ balance sheet into red, leaving them with little or nothing to declare as dividends for their respective shareholders, a few struggling underwriters struggled to clear unpaid claims as they were forced to cough out these heavy taxes despite incurring losses.

The sources said that underwriters had in the past, tried to woo different tax authorities to reason with the industry and cut down the tax excesses for the operators, but they were challenged with the fact that the law can only be amended through the National Assembly (NASS), an exercise that may take several years to complete.

However, with the passage of the finance bill into law, “taxable investment income” would now be limited to “Income derived from the investment of shareholders’ funds”, which clarifies taxable income and limits it to income accruing to the insurance company as against income accruing to the insurance fund as it was being deducted before now.

In the old law, some sections compelled insurance companies to pay out their capital in the form of a minimum tax because they were always in a never-ending refund cycle with the tax authorities. Originally, the CITA was meant to amend and simplify controversial aspects in its policy, instead, it has made it more obscure particularly for the insurance sector.

Insurance stakeholders, therefore, applauded the federal government for initiating this move, believing that, this is a development that will increase the profitability of underwriting companies in the current financial year.

At a media parley at the company‘s head office in Ikeja, Lagos last Tuesday, the chief financial officer (CFO), LASACO Assurance Plc, Mr Akinwale Sofile, said that section 15 of the former Income Tax Act was not favourable to the insurance industry, adding that operators had been fighting to review the Act since 2007.

But with the 2019 Finance Act that has been taken care of, he said.

According to him, „another aspect of the law which is contentious is the issue of VAT. The increase in VAT to 7.5 per cent has its implication on our business. Insurance companies pay VAT on behalf of the brokers, which was a result of the market agreement underwriters have with brokers. Premium is not vatable, but the commission earn by brokers is vatable. Unfortunately, in this environment, since brokers deduct their commission before paying the insurance industry, insurers are the ones paying the VAT. So, it means we are paying more which will also affect our bottom line. Aside this, the law has lessen the tax burden of insurance sector.“

Similarly, the acting commissioner for Insurance, Mr. Sunday Thomas, who spoke at the 2020 NAICOM seminar for insurance journalists in Kano recently, applauded the move, saying, the industry would no doubt, be better for it.

He applauded the federal government for passing the finance bill into law, which addresses some of the tax burden being faced by insurers. This, he said, had ensured that the industry do not go through the rigour of the NASS to change some of the tax laws that are inimical to the growth of insurance industry.

On concerns that the law increased the tax burden for Nigerians, he said: „The world over, tax is what drives government’s operation. The developed countries we all run to have more tax burden than Nigeria, so, ours is not an isolated case. The only piece of advice is that government should ensure that taxes paid by Nigerians are judiciously used to fix infrastructure and provide the needed operating environment for business survival.“

The director-general, Nigerian Insurers Association (NIA), Mrs Yetunde Ilori, said that the tax review, which was part of the new law, was something the industry had been looking forward to, stressing that the review was a welcome development in the insurance industry.

She posited that the tax relief would affect all the stakeholders, adding that “this is something we have been working with KPMG over the years, we are happy we finally got the relief.”

The executive secretary, Nigerian Council of Registered Insurance Brokers (NCRIB), Mr Fatai Adegbenro, said that the tax review was a good development for the insurance industry as the amounts incurred on the unnecessary taxes would now be injected into the operations of the companies.

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