The Organised Private Sector, OPS, has rejected the Financial Bill 2019, before the National Assembly, NASS, pleading with President Muhammadu Buhari, not to sign it into law because of its dire consequences to businesses and well-being of citizens.
Rather than further increasing the burdens on existing taxpayers and the entire citizenry by increasing Value Added Tax, VAT, rate OPS contended that if government could widen the tax net to bring on board some non-tax paying entities and persons, there would be enough revenue to fund the 2020 budget.
The OPS stated: “We have noted the Nigeria Tax and Fiscal Law (Amendment Bill) otherwise called Finance Bill 2019. The bill seeks to, among others, amend the Companies Income Act, Value Added Tax, Customs and Excise Act, Personal Income Tax, Capital Gains Tax, Stamp Duties Act and the Petroleum Profit Tax.
“We commend Government’s initiative on the Bill, especially as it would support Small and Medium Scale Enterprises, SMEs, through applicable tax reductions and would go a long way in lifting a huge percentage of the Nigerian populace out of poverty.
“However, we wish to note that in the event that the two chambers of the National Assembly pass the bill, we implore your Excellency to decline assent based on the following:
“The bill seeks to amend the provisions of Section 4 of the Value Added Tax Act in a bid to increase the rate of VAT from 5% to 7.5% as provided in Section 36 of the proposed bill.
“The increase in VAT rate is unacceptable and coming at a time Nigerians are still struggling with economic hardships.
“If allowed, the benefits of the recently signed National Minimum Wage of N30,000 would be neutralized and further reduce the purchasing power of the citizens, leading to increase in prices of goods and services, resulting in upward movement of the inflation rate, and further contraction of the economy.
“This will have an adverse effect on businesses, since the purchasing power of the citizens would have been reduced, sales of goods and services would reduce and inventories for business would be high and could lead to the closure of businesses that ought to be supported by government in reducing unemployment rate in the country.
“We are opposed to the increment in penalties and multiple penalties for offences in the bill. The penalty is punitive. It would negatively affect businesses that are struggling to survive.
“We suggest that the status quo be maintained. In the amendment proposed for VAT in this bill, (Section 40) relating to Section 16 of the VAT Act, the amendment should also define threshold for accumulating excess VAT refund as a basis of applying for refunds. It should not be limited to the provision of recouping excess VAT input as set off in subsequent months on rolling basis.
“This is necessary to address situation of companies in perpetual net VAT refund year-on-year. This will streamline the process of application for refund.
Input Tax Allowable
“A major observation is that the Bill did not address issues on Allowable input tax (Section 17). The Bill is silent on this very important provision which limits allowable input tax to specific items only as opposed to what obtains globally.
“Best practices globally are that Companies are able to claim all input tax it suffers for goods and services received from its output tax. This will be a win-win situation for the government’s increase in VAT rate and companies can claim a deduction, for all input VAT incurred.
“Therefore, we urge the National Assembly to note this point and that companies be allowed to claim its input tax against its output tax. Best practice in this regard can be drawn from the UK and South African VAT Act.
Personal Income Tax Act
“On Section 33, we note that Alimony allowance of three thousand naira had been earlier repealed in previous amendments to the extant law but not yet deleted. Section 36 states “CGT to apply on compensation payments above N10million for loss of employment.
“This is subjective and the type of loss not specified. Thus, it could be subjected to different forms of interpretations. We are also concerned that it is not clear whether compensation for loss of employment would be subject to taxation.”
Companies Income Tax Act
“The proposed bill in Section 12 seeks to amend the provisions of Section 33 of CITA as regards Minimum Tax to be paid by a company that recorded loss.
“It is our submission that the cash flow/cost effect of 0.5% minimum tax is high and does nothing to help companies come out of the loss-making position.
“A downward review of the rate to 1% of operating profit and where, there is no operating profit in the year, 0.001% of gross profit in that year would be a fairer assessment.
“The amendment also does not encourage foreign capital inflow / investment as the minimum tax does not give businesses the time to turn those investments into profits.
“It would be better for the government to put a timeline of 3-5 years in which the minimum tax becomes applicable. Furthermore, it is not also clear if non-resident companies will be required to pay Minimum Tax. It is best to expressly state that non-resident companies are exempt from Minimum Tax.
“On the provisions of Section 19 (C) of the proposed bill, on bonus for early payment of tax, we suggest that the 1% and 2% proposed as bonus for early payment of tax are appreciated but rather too low.
“We suggest a 5% bonus to encourage early payment. Considering section 23, “tax paying threshold” for small and medium businesses should be referenced to the Interpretation section.
“This provisions section 27 has deleted the need to get the minister’s approval which in this case was the NOTAP approval. This was with a view to ensure that companies do not suffer multiple compliance requirements with Regulators.
“Thus, we suggest that any expense whatsoever incurred within or outside Nigeria involving related parties as defined under the Transfer Pricing Regulations and approvals given to taxpayers should be in line with other existing laws and Regulations.”
Also, the OPS argued that “Section 77 seeks to get tax payment in advance and erodes the possibility of payment of tax after the due date of filing.
Payment of Tax in advance distorts the cash-flow of companies and its ability to generate future revenue which can be subjected to tax. We urge that the provision should be deleted.
“On the Seventh Schedule, the Thin Capitalization Rule should align with global best practices instead of based on 30% of earnings before interest, taxes, depreciation and amortization (EBITDA).
This would enable Companies check their levels of competitiveness and benchmark with international standards.”
Further issues to consideration
According to the OPS, “A major observation is that the Finance Bill did not address issues on With-Holding Tax (WHT). The issue of interest will be to take definitive steps on:
(a) Tenor of WHT Certificate and applicability for refund under certain defined parameters not left open or ambiguous. Where a tax payer, at filing returns, has incurred net excess WHTC than actual liability, the refund should trigger immediately.
The flip side of this is where the tax payer will need to pay cash where WHTC are insufficient to pay for any incidence of net tax liability.
(b) Conversion of WHT for settlement of other tax liabilities within the tax liability spectrum. This is in view of huge WHT Certificate assets belonging to companies amounting to trillions in size.
Tax system should allow for consolidation of liabilities within a specified review period to help the cash flow of companies.
“One of the cardinal principles of tax and taxation is Convenience. Taxes levied on taxpayers must be convenient to ensure compliance and constant payment.
“It is our hope and strong belief that if the Government can widen her tax net to bring on board some non-tax paying entities/persons, there would be enough revenue to fund the 2020 budget, rather than further increasing the burdens on the existing taxpayers and the entire citizenry by increasing VAT rate.
“In the light of the foregoing, we once more urge your Excellency to withhold assent on the Finance Bill 2019 and impress on the National Assembly the imperative to reconsider the Bill, with the aim to ensuring the continued improvement in the Ease of Doing Business initiative of this Administration.”
Source Vanguard news