As the Federal Government begins the implementation of the provisions of the Finance Act by signing it, voices for and against some of its intentions are not abating, write CHIKODI OKEREOCHA and OKWY IROEGBU-CHIKEZIE
Experts and members of the Organised Private Sector (OPS), including the Lagos Chamber of Commerce and Industry (LCCI) and the Manufacturers Association of Nigeria (MAN) are reacting differently to the Finance Act, which President Muhammadu Buhari signed on Monday.
The LCCI said although the new finance law has a number of favourable provisions for small businesses, the increase in Value Added Tax (VAT) from five per cent to 7.5 per cent would impact adversely on businesses from cost pressure perspective.
The new Financial Law is an amendment to seven extant fiscal laws, which are: the Petroleum Profit Tax Act; the Customs and Excise Tariff Act; the Company Income Tax Act; the Personal Income Tax Act; the VAT; the Stamp Duties Act and the Capital Gains Tax.
The president explained that the new finance law has five strategic objectives in terms of achieving incremental, but necessary changes to the fiscal laws.
They 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.
Others objectives are supporting Micro, Small and Medium-sized businesses in line with the nation’s ease of doing business reforms and raising revenue for government.
LCCI Director-General Muda Yusuf said margins of most businesses would be affected, depending on the extent to which additional costs could be passed to consumers.
“My worry is that we are operating in a high cost environment. We also have the worry about the provision on minimum tax. We had argued against this provision. It is inappropriate to compel loss making firms to pay tax, no matter how little. This will amount to erosion of capital,” he told The Nation.
The LCCI DG, however, stated that the impact on government revenue would be positive, especially for states and local governments. “Their fiscal position will be enhanced. Indeed, states and local governments are the major beneficiaries of VAT,” he said.
MAN canvassed the exemption of companies with less than N20 million capital base from company income tax.
The association, in a presentation by Rasaq Okulaja, also said payment of stamp duty should be for transactions from N100, 000 and above.
While backing the introduction of tax on luxury items, MAN, however, called for caution on the part of government not to drive away genuine investors.
Even before the new finance law, the Director General of MAN, Mr. Segun Ajayi-Kadir, had said the association as a strategic stakeholder in the nation’s development agenda appreciated the need for government to generate more revenue to fund its developmental initiatives amidst declining revenue from oil.
He, however, advised government to thread with caution in the drive for improved revenue. He said for an economy that just recently exited recession, the country’s precarious macro-economic condition required palliatives that would improve investment and not higher tax burden.
Ajayi-Kadir said, for instance, an increased VAT will spur spontaneous increase in inflation rate occasioned by increased prices of goods and services.
He also listed the obvious resultant effects of implementing an increased VAT on the manufacturing sector to include lower purchasing power of consumers, sharp reduction in consumption, drop in sales, decrease in production capacity, lower government revenue, increase in unemployment and stifled economic growth.
To a Professor of Economics at the Olabisi Onabanjo University (OOU), Ago-Iwoye, Ogun State, Prof. Sheriffdeen Tella, the effective implementation of the Act would engender tax reforms.
Tella said the tax adjustment or reforms would improve government finances, but the funds must be judiciously used to achieve result.
The economist called for improvement in infrastructure, training of manpower and enhancement in health facilities to encourage people to pay taxes.
Another financial expert, Mr Sola Oni, who is the Chief Executive Officer, Sofunix Investment and Communications, said without diligently implementing the law the expected reforms would not be achieved.
Read Also: New VAT to wait till Finance Bill gazette
Oni said the initiative was aimed at ensuring fiscal equity with emphasis on tax reforms across the board. He noted that the law touched on virtually every aspect of taxation.
“The broad objective is to spread tax net to expand government revenue. Like every policy, it has its upsides and downsides. While the bill attempts to ensure equitable tax regime, there are areas where definition of certain terms creates ambiguity.
“For instance, do shares fall under taxable items, going by the definition of tangible and intangible items in the bill?”
He noted that the VAT increment to 7.5 per cent was still a subject of controversy that needed to be addressed.
According to him, a lot has to be done on enlightenment and proper interpretation for effective implementation.
“The critical issue in Nigeria still remains the way the government manages revenue from tax. This re-opens the concerns about infrastructure deficit. If the operating environment is enabling like developed economies, citizens will not hesitate to pay tax.
“But the case of Nigeria is a reverse logic. Tax is more of punishment as there is no correlation between tax revenue and infrastructure development.
“More worrisome is the fact that many of the fat cat companies evade tax while life is made unbearable for micro-credit operators and small and medium scale enterprises in the enforcement of tax,” Oni said.
Chief Operating Officer, Invest Data Ltd., Mr Ambrose Omordion, told the News Agency of Nigeria (NAN) that proper implementation of the law would boost revenue for financing 2020 budget.
Omordion said deficit gap in the nation’s budgetary system would be reduced with proper widening of tax net.
He added that signing of the Finance Bill and early implementation of the budget would have a positive impact on the stock market.
A financial expert, Dr Titus Okunrounmu, commended President Buhari for signing the 2020 Finance Bill into Law.
Okunrounmu, a former Director, Budgetary Department, Central Bank of Nigeria (CBN), in an interview with NAN, noted that most countries paid 10 per cent as Value Added Taxe (VAT), while Nigeria still pays less than 10 per cent.
The former CBN Director said the Federal Government was budgeting deficit to finance the nation’s annual budget, adding that the nation presently had a deficit budget and the Federal Government was looking for a way of financing it.
“The Federal Government is seeking for a way of financing deficit of the annual budget because Nigerians will complain if they embark on borrowing to finance the deficit,” he said.
Okunrounmu said the increase of VAT from five per cent to 7.5 per cent would not affect average Nigerians, saying the VAT was not imposed on such goods like garri, fish and pepper.
“Common people will not suffer from VAT as it is not a compulsory tax if it is not consumed by an individual.
“It is not a mandatory tax that everyone in the economy will pay as the implication is that the more an individual consumes more of a particular products or goods like beers, wine, the more the individual would pay,” he said.
The National Co-operative Financing Agency of Nigeria (CFAN), also said the new Finance Act would encourage Ease of Doing Business and proliferation of formal businesses in the country.
The Executive Secretary of CFAN, Mr Emmanuel Atama told NAN in Abuja that the aspect of the Act which excluded small businesses with low profit margin from paying tax was commendable.
Atama said this provision of the Act would encourage businesses to grow.
“It is a good thing that government is putting this as a law. Before now, people were afraid of running their businesses as corporate companies because they know that they will be taxed.
“Once it is clearly stated that some categories of companies will not pay tax, it is a good one and I think it is a good move to encourage Ease of Doing Business. It will also encourage people to do their businesses within the formal front-line.
“I also believe that when someone in the informal sector moves to set up a company and enjoys such a privilege, the person will not want to remain at that level of not paying tax. Once the person grows to the level of paying tax, it will not be a problem,” he said.
On increase in Value Added Tax (VAT) from five per cent to 7.5 per cent, Atama suggested that the money realised from the increase should be channeled to infrastructure development and security.
Leave a Reply