The finance act is a fiscal legislation that helps to itemize and provide guidance on some of the tax laws/regulation rates, percentage and levies that guides the business environment for the year.
After over twenty years of non amendment, the Nigerian Federal Government signed the first finance act into law in the year 2019.
The new finance act of 2020 will make it the second consecutive year that the federal government will be signing the finance act into law and this was signed into law on the 31st of December, 2020.
The law which introduces over 80 amendments to 14 different laws takes effect from 1st January 2021.
The law introduced some key changes into various sectors in Nigeria but we will be highlighting the changes and how it affects each sector.
- A small or medium company engaged in primary agricultural production may be granted pioneer status for an initial period of 4 years and an additional 2 years (making a total of 6 years).
- Reduction of import duty on Tractors from 35% to 5%; mass transit vehicles for transport of more than 10 persons and trucks from 35% to 10%, and reduction of import levy on cars from 30% to 5.
- Exemption of commercial airline ticket from VAT and hire or lease of agricultural equipment for agricultural purposes.
The small and medium scale businesses account for over 50% of business activities as well as employment and the agricultural space contributes over 20% to GDP and 25% to employment in Nigeria so with these changes in place, it is a step in the right direction for the agricultural sector that will in turn provide a significant boost for Nigeria’s GDP.
Real Estate Sector:
Amended definitions for goods and services liable to VAT now excludes land and building, money and securities.
This implies that there will be no VAT on house rent from now on. This spells victory for tenants but a reduction in revenue for landlords and agents who have already been experiencing a decline in demand for property listings due to the pandemic.
A report by the Nigeria Property Center stated that in 2019, property listings surged by 72% but received a decline in demand when the pandemic hit hard.
Reduction of import duty on Tractors from 35% to 5%; Mass transit vehicles for the transport of more than 10 persons and Trucks from 35% to 10%, and the reduction of import levy on cars from 30% to 5%
The Automobile sector in Nigeria is one that is still emerging; a 2020 report by the National Automotive Design and Development Council (NADDC) showed that there were only 31 licensed producers of cars, trucks etc so with this new act in place, more people will be encouraged to invest in the sector.
Other Key Changes to note:
- Exemption of low income earners i.e. those earning the minimum wage or less from personal income tax
- Minimum tax for companies in respect of returns for years of assessments due between 1st January 2020 and 31st December 2021 has been reduced from 0.5% to 0.25% of gross turnover less franked investment income.