Apart from the fact that companies in Nigeria pay a 30 percent flat-rate corporate tax and other range of taxes and levies, now added to this list are the new 0.005% police fund levy (N5 per N100,000) to be paid out of the net profits of companies, and a possible increase in VAT by 2.2 percent (now 7.5%), barring any last-minute rejection by Nigeria’s parliament.
Here Is All You Need To Know
The New Police Fund Levy
Companies in Nigeria will now have to pay 0.005% police fund levy (N5 per N100,000) out of their net profits. The Nigerian Police Trust Fund Act (the “Act”) was passed by the National Assembly in April 2019, and signed into law by the President on 2 July 2019. The Act establishes a Fund, proceeds from which will be used to train police personnel and procure security machinery and equipment.
- Imposition of a levy: The Act imposes a levy of 0.005% of the “net profit” of companies ‘operating business’ in Nigeria.
- Funding from Federation Account and other sources: The Fund will also consist of 0.5% total revenue accruing to the Federation Account, in addition to proceeds from grants, intervention funds, aids, donations, investment income and so on.
- Establishment of a Board: The Act establishes a board responsible for administering the Fund, making investment decisions, and fulfilling other objectives of the Act.
- Duration of the Fund: The Fund will be wound up 6 years after its establishment. The assets and liabilities will be transferred to the Nigeria Police Force.
The New VAT At 7.2%
Nigeria ’s Federal Executive Council also approved 7.2 per cent as new Value Added Tax rate for the country, up from the current five per cent.
Although a definite decision has yet to be taken as to the effective date of the new rate, Nigeria’s Minister of Finance, Budget and National Planning, Zainab Ahmed, who spoke with State House Correspondents after the FEC meeting in Abuja, said consultations were in process over when the new rate would apply.
However, the first hurdle the new tax regime will face would be in Nigeria’s parliament which is either expected to approve or reject the proposal. Nigeria’s VAT Act would also have to be amended by the National Assembly before the commencement of the new rate. Already, the Ministry of Finance has hinted effective date to be sometime in 2020.
“We are proposing and council has agreed to increase in the VAT rate from five per cent to 7.2 per cent,’’ she said.
“This is important because the Federal Government only retains 15 per cent of the VAT; 85 per cent is actually for the states and local governments.
“The states need additional revenue to be able to meet the obligations of the minimum wage.”
“This process involves extensive consultations that need to be made across the country at various levels and also it will involve the review of the VAT Act. So, it is not going to be implemented immediately until the Act is reviewed, ” she added.
The Implication of This
- Of course, once the old VAT Act is amended, and the new rate becomes effective, the new rate will automatically be applicable to online transactions carried out in Nigeria. Nigeria ’s Federal Inland Revenue Service, the national tax agency has recently announced that digital tax will become effective January, 2020. This is expected to discourage online transactions and shrink the purchasing powers of Nigerians in a country where the gdp per capita is still less than $2000 ( one of the lowest in the world) and over 86.9, representing 50% of the population are still living below the global poverty line (the worst in the world).
Read also: 45 Million Nigerians Set To Be Taxed For Every Online Transaction
- African countries generally have an average VAT rate of about 15 percent, the Americas and Oceania have an average rate of 13 percent, and Asia has an average VAT rate of 12.3 percent. VATs are as low as 5 percent in countries such as Canada (federal only), Taiwan, and Zambia, to as high as 27 percent in Hungary. The average VAT rate in Europe is 20 percent, about 5 percentage points higher than the global average. However, the average European corporate income tax rate is 18.7 percent, which is lower than the worldwide average of 22.8 percent. From the above facts, Nigeria alone would have the highest corporate rate in Europe were it a European country. In a bit, Europe’s average VAT rate is justifiable because of its low corporate tax regimes. To worsen situation, African countries have one of the lowest industrial outputs across the world.
- Again, although the 0.005% (N5 per N100,000) police fund levy on the net profits of companies may not be very significant, it however places additional tax burden on corporate taxpayers.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.