Finance Guest Columnist Law Review


The President of the Federal Republic of Nigeria, Muhammadu Buhari GCFR presented the Finance Bill 2019 (The Bill) alongside the 2020 Appropriation Bill to a Joint session of the National Assembly in October, 2019. Thereafter the Senate passed the Bill on 21st November, 2019 and the Lower Chambers has also passed same after which the President will Assent to the harmonised Bill as the final stage in the Legislative process. The Bill forms part of the initiatives suggested by the Presidential Enabling Business Environment Council (PEBEC). The Bill specifically seeks to amend Nigeria’s tax provisions and make them more responsive to the tax policies of the Federal Government, among other things. The Bill when passed into law is expected to reform the tax system in Nigeria. The proposed modifications to the fiscal rules as contained in the Bill are clearly aimed at creating an enabling business environment and minimizing the tax burden for Micro, Small and Medium Enterprises (MSMEs) {1}. This article will review some of the relevant amendments of the extant tax laws made by the Bill and highlight the possible effects it would have on the MSMEs .

The Bill is intended to bring changes to the Companies Income Tax Act, Value Added Tax (VAT) Act, Petroleum Profits Tax Act (PPTA), Personal Income Tax Act, Capital Gains Tax Act (CGTA), Customs and Excise Tariff Etc. (Consolidation) Act and Stamp Duties Act and has the following objectives :

  • 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;
  • Supporting Small Businesses in line with the ongoing Ease of Doing Business Reforms; and
  • Raising revenues for Government, by various fiscal measures, including a proposed increase in the rate of the Value Added Tax from 5% to 7.5%.

The primary focus of this article will be on the 4thobjective of the Bill.

The Micro, Small and Medium-scale Enterprises (MSMEs) are the backbone for accelerating inclusive, robust and sustainable economic growth in any economy. The Finance Bill seeks to introduce sweeping amendments to the tax laws covering different taxes. Many of these changes are expected to have a positive impact on investment and ease of doing business especially for MSMEs{2}.

Amendments to the Companies Income Tax Act (CITA)
The Companies Income Tax Act (CITA) imposes corporate income tax (CIT) on the profits of a company at the rate of 30%{3}.. The rate is 20% for agricultural, mining, export or manufacturing businesses with an annual turnover of N1m and below. The Bill seeks to introduce new Company Income Tax rates, based on companies’ revenue as follows:

  • Small Companies with annual turnover of up to N25 million has 0% tax rate;
  • Medium Company with annual turnover between N25million and 100 million will be subject to 20% tax rate;
  • Large Companies with annual turnover above 100 Million naira will be subject to tax rate of 30%{4}.

With this development, Medium and Small Scale Enterprises in Nigeria would be able to focus on growing their businesses with minimal issues around taxes. When small businesses receive tax cuts, they retain more capital, using the capital for paying expenses, purchasing equipment and supplies, and even hiring new employees. Businesses struggling to make ends meet need to keep as much revenue as possible. Tax cuts for small businesses will therefore mean a greater likelihood of those businesses staying operational. Small businesses contribute a great deal to the overall employment figures therefore It is in the best interests of the country for small businesses to remain successful. In the USA, the Small Business Jobs Act was signed by President Barack Obama in 2010, which contained a provision for excluding certain small-business stock options from capital gains taxation{5}. By removing the taxes from the capital gains on the stock sales, this allowed small businesses to take the profits and invest them totally in new equipment and new personnel{6}.Provision for Tax incentives by the government is a good strategy for any country to accelerate development of its economy. For instance the World Bank’s 2019 doing business report states that Vietnam made paying taxes less costly for companies by reducing the corporate income and value added tax rates while eliminating the surtax on income from the transfer of land use rights{7}. It is therefore a step in the right direction for the Government to eliminate CIT for companies with annual turnover of less than ₦ 25 million. Nigeria’s ease of doing business has seen little improvement according to the World Bank {8} and it is hoped that these reforms will cause much more improvements.

However, there is a possibility that investors may take advantage of this proposed provision. The same promoters could set up several companies carrying out similar businesses but earning just below ₦25million or ₦100million in order to avoid paying tax or paying at a higher rate accordingly. In this regard, proper administrative regulations that would discourage such practices has to be put in place{9}.Furthermore, Companies will only be subject to minimum tax at 0.5% of turnover if gross turnover exceeds N25m{10}. This will be a favourable regime to small businesses and start ups with little turnovers especially at the early years of commencing business. Also Companies that make CIT payment on or before 90 days from the due date for filing will be entitled to a bonus of 1% (for large companies with turnover greater than N100m) or 2% (for medium-sized companies with turnover between N25m and N100m). This incentive will be of benefit to MSMEs who will want to take advantage of any form of reduction of their tax liability.

Section 7 (b) of the Finance Bill repealed section 23 subsection 1(o) of the CITA and presently dividends received from small Companies are exempted from tax.

Other Amendments to CITA

  1. Introduction of new commencement and cessation rules: The Commencement and cessation rules {11} have been modified by Section 10 of the Bill to eliminate overlaps and gaps to avoid double taxation and complication during commencement. The existing commencement and cessation rules would be replaced with a new basis for computing the assessable profit of companies just starting or ending their business. Under the existing system, the profits of a new or liquidating company are subject to double taxation. The proposed amendment would eliminate the risk of double taxation of such companies. This is particularly commendable as it would encourage investment and the growth of new and small companies as they would not incur excessive tax burden within their first three to four years of operation.
  2. Removal of restriction of carrying forward of taxes: The restriction of carry forward of tax losses {12} has been amended by section 11 of the Bill such that tax losses can be carried forward indefinitely. The purpose of the amendment is to allow companies to carry forward losses incurred in the course of their business in a fair and equitable manner and thereby increase investor confidence. This is useful as startups and MSMEs who incur significant losses in the first few years of business can now carry forward tax losses against future taxable profits.
  3. Ministerial approval no longer required: The Bill proposes to remove the Ministerial approval requirement for expenses incurred relating to management services between nonrelated parties before such expenses could be tax-deductible. This implies that any entity particularly MSMEs who enters into a management service agreement with an unrelated entity would be able to claim tax deductions for management fees without Ministerial approval or the National Office for Technology Acquisition and Promotion’s (NOTAP) approval. This would be a great relief for small companies given NOTAP’s refusal to approve management services agreement in recent times. Albeit, where the agreement is with a non-resident company (NRC), companies would still battle with sourcing foreign exchange (forex) as NOTAP approval remains a major requirement for sourcing forex to pay management fees. {13}
  4. Deductibility of Pension Contributions: Contributions to pension, provident and other retirement benefits fund, society or scheme would constitute allowable deductions for tax purposes. The deductibility of such contributions would not be contingent on its approval by the state revenue authorities. Companies that contribute to private pension funds and other private schemes would be able to enjoy maximum tax relief for such contributions in arriving at their tax payable.
  5. Elimination of Double Taxation Risks: The Bill seeks to eliminate double taxation risks by exempting from tax dividends paid out of retained earnings that have suffered tax under CITA, PPTA and CGTA ,exempted profits/income, franked investment income, rental income received by Real Estate Investment Companies for distribution to their shareholders {14}
  6. Bonus and Penalties: Under Section 19 of the Bill which amends section 77 of the CITA, taxpayers who pay their tax liability at least 90 days before due date would be entitled to a bonus of 2% and 1% of the tax paid for medium and others (large companies) respectively. While this is commendable, it may not lead to prompt payment of tax, because investments even in government risk securities may yield higher returns than the proposed bonuses. However, this shows a commitment on the part of government to reward compliance. On the other hand, stricter penalties have been introduced for late filings by increasing the fine payable from ₦ 25,000 to ₦50,000 in the first month of default and ₦5,000 to ₦25,000 for subsequent months for which failure continues{15}. Officers of MSME’s are therefore advised to ensure prompt or early filing of returns to avoid the negative consequences of late filing.
  7. Introduction of a requirement for banks to demand for tax identification number (TIN): The Finance Bill amends the Companies income tax act such that Banks would be required to obtain TIN from corporate customers as a pre-condition for opening or maintaining bank accounts. This is already the practice but the legislation will give it force of law.

The Bill amends section 4 of the VAT Act and proposes an increase in the VAT rate from 5% to 7.5%. Generally, the proposed changes aim at raising revenue for the government. However, Section 39 of the bill amends section 15 of the VAT Act by an Introduction of ₦25million revenue threshold for taxable persons required to register for VAT and file returns. Consequently, any taxable person who does not fall within the threshold above would be exempted from registering, remitting, issuing tax invoice and collecting VAT. The threshold of ₦25million within the calendar year will certainly reduce the tax compliance burden for small companies.
There is also an expansion of VAT exemption list to include:

  • Basic food items (agro and aqua based staple foods)such as additives, cereals, cooking oils, culinary herbs, fish of all kinds (other than ornamented), flour and starch, fruits, live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables and water;
  • Locally manufactured sanitary towels, tuition (primary, secondary and tertiary education);and
  • Services rendered by Microfinance Banks {16}

Other amendments made by the Finance Bill that has potential effect on MSME’s include:

Customs and Excise Tariffs etc. (Consolidation) Act (CETCA)
Section 49 of the Bill seeks to amend Part III, Section 21 of the CETCA by substituting the words “Goods manufactured in Nigeria and specified in the Fifth schedule to this Act shall be charged with duties of excise at the rates specified under the Duty column in the said schedule” with the following words; “ Goods important and those manufactured in Nigeria and specified in the Fifth schedule to this Act shall be charged with duties of excise at the rates specified under the duty column in the said schedule.”

It is apparent from proposed amendment that the intention of the draftsman is to make goods imported into Nigeria to be charged with the same duties of excise as the goods manufactured in Nigeria. This eliminates any unfair advantage on imported products over local products. Obviously it will play out as an incentive to local production and will ensure a level playing field between local producers which are usually MSMEs and imported products from foreign companies.

Personal Income Tax Act (PITA)
Emails are to be accepted by the tax authorities as a formal channel of correspondence with taxpayers. The finance Bill also amends sections 33, 49,58 of the PITA . Consequently Individuals/business owners are required to produce their Tin before they can operate new or existing bank accounts in Nigeria. The Nigerian government had earlier launched a new tax Identification Number (TIN) Registration system in July 2019 as part of efforts to reform tax administration and make more people to pay tax in Nigeria using digital technology{17}. This system generates automated TIN and is expected to help grow the number of Nigerian tax payers from the current tax base of 20 million to 45 million. Individuals are to be automatically assigned TIN based on their BVN and the TIN is obtained for free. The Lagos state Internal revenue service (LIRS) has taken pioneer steps to integrate the existing Tax payers Identification digit (PID) into the nation wide TIN operated by the joint tax board (JTB). The LIRS plans to use the existing Bank Verfication Number (BVN) operations to achieve its objective. The practice now is that once a business is registered at the CAC, the Joint Tax Board sends a TIN to the email of the Proprietor(s) of the Business. It will not be a challenge for MSME’s owners to obtain a TIN but they are advised to take steps to obtain same because based on the new provisions the banks may prevent them from operating their bank accounts without a TIN. The reform will make tax payment easier and more efficient.

Stamp duty on bank transfer to apply only on amount from N10,000 and above{18}. Transfers between the same owner’s accounts in the same bank also to be exempted. Although the definition of instruments for stamp duty has been expanded to cover electronic transactions {19} to give legal backing to the Central Bank’s N50 stamp duty drive. The increase of the chargeable amount to N10,000 and above would reduce the challenges faced by MSMEs and retailers who have recently transferred the N50 as an additional cost to their customers.


It is clear from these amendments that the government is trying to improve the fiscal policies and regulatory environment to stimulate growth in the MSME sector. However, there is also a deliberate effort to ensure that the sector contributes to revenue generation without excessive financial burden.

The government is advised to give attention to formalizing these businesses through the TIN project in collaboration with the banks. Majority of the incentives in the bill are targeted at MSMEs, and our hope and expectation is that amendments will lead to an improvement in the ease of doing business in Nigeria. With the proposed amendments, the effective tax rate for a small company will now be less than the personal income tax rate (ranging from 7% to 24%) for an informal business owner. This presents an opportunity for many informal sector players to incorporate their businesses at Corporate affairs Commission and enjoy the resultant benefits.

Article Author

Ebube Godwin Onyejekwulum ACIArb (UK)

Ebube Godwin Onyejekwulum ACIArb(UK) is an Associate Counsel at Synergy Attornies. He graduated from both the University of Nigeria and Nigerian Law school with Second class upper division. He was called to bar in 2016 and has been actively involved in litigation as well Corporate and Commercial law practice. He has unique interest and experience in advising clients on Tax matters and other legal issues.

Email address :

1. “The Senate passes Buhari’s Finance Bill” found at accessed on 10th December, 2019

2. “Nigeria Finance Bill Insight series November 2019” PWC found at on 11th December, 2019.

3. See Section 40 of the Companies Income Tax Act 2007

4. See Sections 7 and 14 of the Finance Bill

5. “What does a tax cut mean for Small Businesses?” CHRON found at on 11th December, 2019.

6. ibid

7. “Nigeria’s non- Oil export target: Learning from Vietnam’s reforms” by Gbemi Faminu found at Business Day Newspaper 5th December, 2019.

8. Nigeria moved up 15 places to rank 131 in World Bank’s Ease of Doing Business report.

9. “Nigeria’s Finance Bill 2019, Key changes and implications” ; Delloite Newsletter found at accessed on 10th December, 2019.

10. See Section 12 of the bill which amends section 33 of CITA

11. Section 29 of the CITA

12. Section 31(2)a ii of CITA

13. ibid

14. See section 5 of the Bill which amends Section 19 of the CITA

15. See Section 17 of the Bill which amends section 55 of CITA

16. See section 47 of the Bill which amends section 46 the Interpretation section of the VAT act

17. “New TIN registration system could stop your next drivers license, passport” Business Day Newspaper, 5th December,2019.

18. Section 54 amends Section 89 of the SDA19. Section 53 of the bill amends section 2 of the SDA


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