Corporate Law Practice Finance Guest Columnist Law of Banking Taxation Uncategorized


President Muhammadu Buhari signed the Finance Bill 2019 into law on 13th January, 2020. Amongst other reforms, the Bill amended the extant Value-Added Tax (VAT) Act, effectively increasing the VAT rate from 5% to 7.5%. On the one hand, there has been public outcry on the possibility of inflation. The attendant hike in the cost of goods and services will mostly, if not absolutely, be borne by final consumers and small businesses. On the other hand, the Federal government requires increased revenue to finance the 2020 budget which has an aggregate expenditure of N10.59 Trillion. The non-oil tax revenue has been projected at N1.8 trillion. These governmental realities strongly suggest that the government will pursue aggressive collection of tax, particularly VAT, Stamp Duties and Companies Income Tax (CIT).

This article highlights relevant provisions of the Finance Act 2019 in relation to the need for law and government policy to balance the divergent interests of the government, businesses and consumers.

Section 34 of The Finance Act (“the Act”) provides as follows:

“Section 4 of the Value Added Tax Act is amended in Line 1, by substituting for the expression “5%”, the expression “7.5%”

This provision amended the VAT Act and increased the tax rate by 50 per cent. The Minister of Finance, Budget and National Planning Mrs. Zainab Ahmed had announced that the effective date for the new VAT rate is 1st February, 2020 thereby clearing any controversy as to the commencement date.{1}

The increase in the VAT rate may be justified considering the fact that Nigeria remains the country with one of the lowest VAT rate even with the recent hike{2}. It will be recalled that one of the objectives of the Finance was to raise and improve government revenue. The adjustments made by the bill on the existing Fiscal laws were made to enable the Federal government increase its revenue generation capacity. The Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed had stated that the Nigerian annual budget would henceforth be always accompanied with Finance Bills to enable realization of revenue projections{3}. It is expected that that the additional revenue generated from VAT will help to finance the new minimum wage and also reduce the budget deficit{4}. Considering the country’s swelling debt service and government’s low revenue profile, the VAT hike may prove useful in significantly boosting the national fiscal coffers.

The increase in the VAT rate has been welcomed with a major backlash from the citizenry given the perceived hardship it could visit on the already-dwindling economy. Considering that the federal government recently approved a new minimum wage, those who opposed the policy wondered if the plan to increase VAT was not a strategy to “rob Peter to pay Paul,” as the increase in minimum wage would be eroded by price increases of key household items, offsetting the expected improvement in purchasing power.{5}

One of the expected downsides is heightened inflation and decrease in disposable income which would further shrink the economy{6}. It is also predicted that businesses selling directly to final customers, especially those dealing in consumer goods and services would need to make more-than-normal efforts to remain competitive and may have to absorb a part or all the VAT increase so that the price of goods and services are not affected. Also businesses whose goods or services are VAT exempt may experience an increase in overhead costs as they would be unable to claim input VAT incurred since their products are exempt.{7}

It is important to note that the Finance Act contains palliatives to support Medium, Small and Micro Enterprises (MSMEs), and to mitigate the impact of the VAT rate increase on the most vulnerable businesses and the economy. Some of these measures include;

  1. Introduction of VAT registration threshold: Section 39 of the Finance Act amended Section 15 of the VAT Act by introducing a ₦25million revenue threshold for taxable persons required to register for VAT and file returns. The effect of this provision is that 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 burden for small companies and will also have a positive effect on the Nigerian Economy. It is also believed that this registration threshold will cushion the effect of the VAT increase on businesses, consumers and tax payers. It is therefore very helpful that small businesses would not have to worry about compliance.
  2. Expansion of the VAT Exemption List: Section 47 of the Finance Act amended Section 46 of the VAT Act (the Interpretation section) thereby expanding the 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.

VAT is a regressive tax which has a disproportionate effect on poorer people who spend a larger chunk or percentage of their income than the rich. Evidently, these exemptions, especially those relating to food and microfinance banks, are intended to protect poorer members of the society.

3. Incentive for Early Tax Payment: The Finance Act provides for 2% and 1% bonuses for early payment of CIT for medium companies and Large Companies respectively.

4. Reduction of the Companies Income Tax Rate: The CIT rate has been reduced from 30% to 20% for medium companies having annual turnover of between 25 million naira and 100 million naira. Small companies with annual turnover of less than 25 million are granted a general exemption from CIT.

MSMEs are globally recognized as catalysts to significant economic growth. However, business owners are not immune from challenges bordering tax; issues ranging from tax multiplicity to high tax rates which significantly diminish their meager profits. These measures were put in place to support MSME’s in line with the ease of doing business reforms and ease them of some tax burdens so as to allow them flourish.
It cannot be overemphasized that the government is in real need of larger revenue. However, it is my view that the Federal Government appears to have properly weighed the effect of the increase on businesses and consumers who feel the impact of VAT payment and made salient provisions that will ease the resultant burden of this consideration on tax payers, thereby mitigating the negative impact of the VAT increase.

It is suggested that the Federal Inland Revenue Service (FIRS) and State revenue bodies should redouble efforts to widen the VAT net and ensure that the number of tax payers increase so that more none oil tax revenue can be generated to prevent budget deficit and government borrowings. The TIN project is a laudable instrument and will come in handy accommodating more business owners in the Tax net.

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. Premium Times: “Accountant- General wrong, New VAT rate commences February 1- Minister” by Bassey Udo published on 16th January, 2020 found at accessed on 17th January, 2020 by 3:55pm.

2. Nigeria’s VAT rate at 7.5 per cent is the lowest among African peers such as Kenya (16%), South Africa (15%), Egypt (14%) and Ghana (12.5%).

3. This Day Newspaper : “FG to issue Guidelines for Implementation of the Finance Act” by Ndubuisi Francis Published on January 15th, 2020.

4. The government also plans to cover the budget deficit with domestic and foreign loans.

5. All Africa: “ Nigeria Proposed VAT hike: Robbing Peter to pay Paul?” by Obinna Chima published 16th September, 2019 found at accessed on 17th January, 2020 by 3.34pm.

6. PWC Bites: “Understanding the impact of the proposed increase of the VAT rate”, found at accessed on 17th January, 2020 2:12pm

7. Ibid

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