The Federal Government has stated that Micro and Small (MSMEs) with a turnover of less than N25 million will be exempted from Companies Income Tax (CIT) under the New Finance Bill (now Finance Act). The Minister of Finance made known the fact that companies earning under N25 million per annum would not be subject to the payment of Company Income Tax on their profit.
On 13 January 2019, President Muhammadu Buhari signed the Finance Bill, 2019 (now Finance Act) into Law. The President stated that the Finance Act (“The Act”) was specially designed to support the implementation of the 2020 National Budget and to create an enabling environment for businesses. The passage of the Finance Act into Law introduces some of the most significant changes in Nigerian tax law over the last two decades. The exemption from Companies Income Tax for businesses with turnover less than N25million as well as an increase in the value added tax rate (VAT) from 5% to 7.5%; in addition to other changes which the Act introduces to other tax laws.
Companies Income Tax Implications:
- Companies making a turnover of less than N25m would no longer pay Companies Income Tax;
- Companies making a turnover between N25m and N100m yearly would pay 20 per cent of their profits as Companies Income Tax;
- Companies making a turnover above 100m yearly would pay 30 per cent of their profits as Companies Income Tax.
Objectives of the new initiative:
- promote fiscal equity;
- reform domestic tax laws;
- introduce tax incentives for investments in infrastructure and capital markets;
- support small businesses; and
- raise revenues for the Government.
The Finance Act contains vast changes to the Companies Income Tax Act, Value Added Tax (VAT) Act, Petroleum Profits Tax Act (PPTA), Personal Income Tax Act, Capital Gains Tax Act (CGTA), Customs and Excise Tariff Etc. (Consolidation) Act and Stamp Duties Act.
The initiative is laudable and the proposed modifications to the fiscal rules around taxation are clearly aimed at creating an enabling business environment and alleviating the tax burden for small and medium enterprises. This is expected to encourage growth and investment by that sector of the economy.
Summary
This new initiative is welcome at The LSETF since it acts as a healthy contribution to the MSME environment in Lagos State. These changes will;
- enable small businesses to do more because they are not paying taxes,
- enable the State Government work with trade authorities to encourage people in the informal sector to become formalized.
- increase productivity of businesses.
- This will improve job creation - as businesses now have more turnover to plough into their day to day business operations there may be the need to employ more staff due to expansion resulting in job creation.
