N25m Tax Break For Small Business, And Related Matters
President Muhammadu Buhari presented Finance Bill 2019 to the National Assembly, along with the 2019 Budget. The National Assembly has forwarded it to President Buhari for assent. The President has sent the bill to Ministries, Departments and Agencies to double-check its provisions.
In line with the ease of doing business reforms, the bill aims to, among other objectives, reduce the tax burden on micro, small and medium enterprises (MSMEs) and stimulate their growth towards boosting the Gross Domestic Product of the nation.
For the Small Business Owner, the bill will fundamentally affect micro, small and medium enterprises, and related matters. What changes are likely to come with the signing into law of Finance Bill 2019? Here are some highlights:
1. Companies Income Tax: Businesses with turnover of less than N25 million in the year of assessment will no longer pay Companies Income Tax. Every company now pays 30 percent of its profit to the Federal Government as Companies Income Tax. Some other proposed changes in Companies Income Tax include:
- Company Income Tax rate of 20 percent will apply to medium-sized businesses with turnover between N25 million and N100 million.
- Company Income Tax rate of 30 percent will apply to companies that earn over N100 million.
- Minimum tax provisions will be 0.5 percent of turnover, and exemption will only apply to small companies with turnover of less than 25 million.
- Tax presence for non-residents regarding imported technical and management services will be at a withholding tax rate of 10 percent.
- Expenses incurred while earning tax-exempt income will not be deductible against other taxable income.
- Penalty of N50,000.00 for failure to file within approved time for first month of default and N25,000.00 for each subsequent month.
- Early payment of Company Income Tax incentivised with deduction of two percent of tax payable by medium-sized businesses and one percent of tax payable by large companies, for payments up to 90 days before the due date.
- Individuals to produce Tax Identification Numbers (TIN) to open new, or operate existing, bank accounts.
- Cancellation of personal income tax reliefs by individuals in respect of children and dependent adults.
- Acceptance of email for conduct of official correspondence between businesses and tax institutions.
2. Value Added Tax: Registration threshold of N25 million turnover in a calendar year, meaning that businesses with annual turnover of less than N25 million will be exempted from registering for, and filing, VAT returns. Other VAT-related provisions include, but are not limited to, the following:
- Increase in Value Added Tax from five percent to 7.5 percent.
- Reverse charge of Value Added Tax on imported services.
- Remittance of Value Added Tax on cash basis, as difference between amount collected and amount paid in the preceding month.
- Penalty of N50,000.00 for failure to file returns within approved time, for first month of default and N25,000.00 for each subsequent month.
- Expansion of list of products exempted from VAT to include flour, starch, fruits, live or raw meat, poultry, milk, nuts, roots, salt, vegetables, water and locally produced sanitary towels.
3. Petroleum Profits Tax: Withholding tax of 10 percent on dividends paid from profits of businesses engaged in petroleum operations. Will effectively remove tax exemption granted by the Petroleum Tax Act in respect of such income or dividends.
4. Capital Gains Tax: Exemption from capital gains tax granted to businesses in respect of transfer of assets between related parties in a restructuring exercise. Will also impose capital gains tax on compensations for loss of employment that exceed N10,000,000.00.
5. Stamp Duties: To cover electronic documents. Will be a one-off charge of N50 on bank transfers of amounts of N10,000.00 and above. Transfers between owners’ accounts in the same bank will be free of charge.
The Finance Bill 2019 will significantly change such tax laws like the Companies Income Tax, Personal Income Tax, Petroleum Profit Tax, Capital Gains Tax, Value Added Tax, Withholding Tax, and Stamp Duties. Signing it into law will greatly improve the enabling environment for most small businesses to survive and thrive. They will not have to pay taxes on their profits or make VAT returns until they achieve yearly turnovers of N25 million or higher. They will be able to re-invest more of their profits, strengthen their manpower base and increase their productivity. The Small Business Owner may be heading into the golden age of entrepreneurship!