THE FINANCE ACT 2019 TAKES EFFECT FROM TODAY – 01 FEBRUARY, 2020: THE VAT IMPLICATION

Great Morning All,

As you are quite aware, President Muhammadu Buhari signed into law the 2019 Finance Act on the 13 of January, 2020. Ordinarily, this Act ought to have taken effect from that day (or any other date stated thereon as the commencement date).

However, the Minister of Finance in her wisdom extended the commencement date of the Act to February 01, 2020 in order for various stakeholders to understand content of Act and adjust their operations accordingly.

Today is February 01, 2020 and the Act has taken effect. So what are the implications of the Act on Value Added Tax (VAT)?

Undoubtedly, whether you own a business or not, you are directly affected by VAT – it is a consumption tax paid by the final consumer on VATable goods and services. So, as an individual or business owner, you are expected to pay VAT on the goods and services consumed by you (but businesses are allowed to deduct the VAT they paid from the one they charged – input and output VAT mechanism).

Here are some new changes introduced by the Finance Act, 2019:

  • Tax Rate: The rate has been increased from 5% to 7.5%
  • Registration and Filing:  Only companies with a cumulative Annual Turnover of Twenty Five Million Naira (N25,000,000) are mandated to register as a VAT agent with Federal Inland Revenue Service (FIRS) and file monthly VAT returns – prior to the Act, every registered company must be registered. Please note that exemption from VAT registration does not translate to total exemption from registration with with Federal Inland Revenue Service (FIRS) – it is compulsory to register for the purpose of obtaining a Taxpayer Identification Number (TIN).
  • Expansion of the VAT Exempt List: The items exempted from VAT has been expanded to include mostly basic food items like: Additives (i.e. honey whether raw or semi- processed); Bread (white and Brown)Cereals e.g. maize, rice, wheat, millet, barley, sorghum, oats, etc;Cooking oils (e.g. vegetable oil, soya oil, palm oil, groundnut oil, shea butter, beniseed oil, olive oil, coconut oil); Culinary herbs (e.g. curry, thyme, onions, ginger, mint); Fish of all kinds ( other than ornamental whether live, fresh, frozen, smoked or dried); Flour and Starch (e.g. corn flour, plantain flour, cassava flour, beans flour, wheat flour, rice flour, yam flour, garri); Fruits (e.g. pineapples, oranges, mangoes, guavas, grapes fruit, banana, pawpaw); Live or raw Meat and Poultry (e.g. beef, goat, lamb, pork, chicken, eggs); Milk (whether fresh, liquid and powdered milk); Nuts (e.g. groundnut, walnut, cashew nut; Pulses (e.g. beans, lentils, peas, chickpeas); Roots (e.g. yam, cocoyam, sweet & Irish potatoes, water-yam, cassava); Salt for culinary use only (including fine salt and in retail packs but excluding industrial salt);Vegetables (e.g. pepper, melons, lettuce, okro, cabbage, carrots); Water (i.e. natural water and table water).
  • Increase in Penalty for Late Registration: A taxable person who fails or refuses to register with the Service within the time specified is pay the sum (a) N50,000 for the first month in which the failure occurs; and (c) N25,000 for each subsequent month in which the failure continues. Before the Act the penalties were N10,000 and N5,000 resepctively.

There are other changes but the above are the major ones. If you run a small business or you are at the verge of floating one, please be guided appropriately as the tax authority (FIRS) would be be at the look out for defaulters – tax is the next oil.

Best wishes.

Adogbeji Jaho ACTI, ACA, is a Chartered Accountant and Tax Expert.

07063737504

www.inforesight.com.n

ado.jaho@inforesight.com.ng

 

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