INTRODUCTION
Taxation is an integral part of a nation’s economy as it constitutes a major source whereby the government may generate revenue in order to perform its civic duties of paying salaries an providing basic social amenities in the states.
However, it is no doubt that the burden of tax placed on citizens is quite enormous considering the various angles from where citizens are expected to regularly remit as tax, a portion of their income from every of their business dealings both directly and indirectly.
This article therefore seeks to bring to the fore the available interventions in various tax enactments, legislations and government directives which taxpayers (especially small business owners, start-ups and investors) can leverage upon in order to mitigate the burden of taxes especially in the face of the economic challenges which has accompanied the covid-19 pandemic.
SCOPE OF TAXATION
The current scope of taxation is relatively wide as taxes are charged on all incomes, both directly and indirectly.
Direct taxes are those taxes paid directly by tax payers to the relevant tax authority (i.e, Federal, state, or Local Government) under the self-assessment regime or as may be assessed by the relevant taxing authority. Examples of this form of taxation are:
a) Personal Income Tax b) Companies Income Tax c) Capital Gains Tax d) Stamp Duties e) Petroleum Profit Tax
Indirect taxes on the other hand, are those paid indirectly by consumers of goods and services in form of higher prices. Examples of this form of taxation are:
a) Value Added Tax (VAT) b) Customs and Excise Duties
All of the above constitute a rundown of taxes expected to be paid by individuals and corporate persons under the applicable circumstances.
RELIEFS AND SUCCOUR
Provisions in the form of tax reliefs and incentives predate the covid-19 pandemic and its attendant impact on the economy. The after-impact of the covid-19 pandemic on businesses have however necessitated further government intervention in the area of tax in order to mitigate the economic shock on businesses and to salvage businesses from collapsing from tax worries. Therefore we will be navigating the various provisions as it stands in the: a) Finance Act, 2020; b) Various extant Tax Laws; as well as c) Directives of the Federal and State governments' tax authorities (especially as they affect small and medium sized business owners, employers and start ups).
UNDER THE NEW FINANCE ACT
The Finance Act, 2020 is undoubtedly the most recent statutory development within the Nigerian tax space and it introduces a good number of reliefs in the area of tax burdens that ordinarily hinders the ease of doing business as found under the various extant tax enactments.
A. For the purpose of taxation, the Act introduces a new categorisation of companies based on their annual turnover:
ANNUAL TURNOVER CATEGORY
Less than N25 million Small Company
Greater than N25 million but less than N100 million Medium Company
N100 million and above Large Company
NOTE: References would be made to this table constantly throughout this work.
B. The minimum tax provision is now fixed at 0.5% of a company’s turnover as against the various rates previously prescribed under section 33 of the CITA. Furthermore, the following companies have been exempted from paying the prescribed minimum tax:
i. Companies carrying on agricultural trade or business
ii. Companies whose gross income is less than N25 million
iii. Companies that are trading or doing business for the first 4 calendar years of their commencement of business.
This provision may eliminate the idea of taxing start-ups capitals and MSMEs would be able to focus on growing their businesses with minimal issues around taxes.
C. Small companies have been totally exempted from paying income tax as stipulated by section 40 of the CITA, while Medium-sized companies on the other hand are now required to pay only 20% as against the standard 30% stipulated by section 40 of the CITA regardless of the company size.
D. By the new Act, incomes exempted from tax is to now include:
i. Profits of a small company
ii. Dividends declared from small manufacturing companies
iii. Income/dividends paid by real estate investment companies or received by them on behalf of their shareholders, provided at least 75% of same is distributed within 12 months of earning them. With this provision, it is expected that there would be a massive increase in real estate investment.
E. Exemption of small companies (with revenue threshold of below N25 million within the calendar year) from registering, collecting, remitting and issuing Value Added Tax invoice
F. Introduction of bonus for early payment of tax at the rate of 2% of the tax payable for medium companies and 1% for large companies as against the initial 1% for all companies.
G. The rate of income tax stipulated under section 40 CITA has been reviewed as follows:
i. Small Companies are to pay 0%
ii. Medium-sized companies are to pay 20%
iii. Large companies are to pay 30%
UNDER THE VARIOUS EXTANT TAX LAWS
A. Section 19(1) of the 3rd Schedule to the PITA which contains a list of incomes exempted from taxation, interest on any loan granted by a bank to a person engaged in:
i. Agricultural trade or business; and
ii. The fabrication of any local plant and machinery; while CITA added (iii)
iii. Loan providing the working capital for any cottage industry established by the company (a cottage industry means an industry where the creation of products and services is home-based, rather than factory-based)(section 11)
B. Section 43 PITA exempts persons whose only source of income in any year of assessment is N30,000 or less from filing returns.
C. Dividends received from small companies in the manufacturing sector for the first 5 years of their operation as well as from investments in wholly export-oriented businesses are exempted from taxation. (section 23 CITA)
D. The Tax Administration Act makes provision for instalment payment of tax due provided payment is made in a manner that it shall be commenced in the relevant year of assessment and completed no later than the due date. The purport of this is that taxes for the 2020 year of assessment which ordinarily ought to fall due in Jan, 2021, may be split across 2020 and completed before Jan, 2021.
E. Incomes in convertible currencies are exempt from tax under section 37 CITA
F. Trading in the goods and services as provided in the 1st Schedule to the VATAct may be less tax burdensome as they are exempt from Value Added Tax (VAT). For example, medical & pharmaceutical products, basic food items (water is now said to be inclusive), books & educational materials, baby products, agric related etc.
UNDER THE FEDERAL AND STATES GOVERNMENTS' TAXING AUTHORITIES
Efforts of Federal and various states governments’ tax authorities to lessen the burden of tax on tax payers in form of tax reliefs and incentives since the covid-19 pandemic cannot be overemphasized.
A. An “Emergency Economic Stimulus Bill, 2020” was passed by the House of Representatives to:
i. Grant a tax rebate of 50% of the actual amount due or paid as Pay-As-You-Earn tax, to Nigerian companies who retain all their employees from 1st March, 2020 to 31st December, 2020.
ii. Suspend import duties on medical equipments, medicines and protective gears required for the treatment and management of covid-19 for 3 months effective from 1st March, 2020 which has been further extended by the Honourable Minister of Finance to 30th September, 2020.
(although the Bill is yet to be passed by the senate, but if passed will be a form of succour to employers who have struggled to retain their employees through the difficult time).
B. Exemption of Medical Supplies from Import Duties: On 30 April 2020, the Honourable Minister of Finance, Budget and National Planning, issued a Circular exempting importers of specified medical supplies from payment of import duties and value added tax (VAT) on such items for a six-month period in the first instance, with effect from 1 May 2020.
THE FIRS:
The FIRS announced the following measures to mitigate the impact of covid-19 on tax payers:
i. Waiver of late returns penalty for tax payers who pay their tax liabilities early but submit their tax returns later.
ii. Extension of timeline for remittance of VAT from 21st day to the last day of the month following the month of deduction
THE LIRS:
The Lagos internal Revenue Service among other states, announced the following additional palliatives for implementation in the state:
i. Approval of instalment payment of outstanding liabilities on case-by-case basis to ease the cash flow challenges that tax payers are currently facing.
ii. Waiver of penalties due for late filing of 2020 annual tax returns
iii. Waiver of interest and penalty on additional tax liabilities arising from 2009 to 2015 tax audit exercise for tax payers who commit to a structured payment plan that terminates by 31 December, 2020.
iv. Grant of tax credit of 20% of cash and kind donations made by resident individuals to Lagos State Government (LASG) for COVID-19 management. The credit will be available to offset 2021 year of assessment tax liabilities and subject to a cap of 35% of tax due.
CONCLUSION
The list of tax reliefs and succours which business owners, employers and start ups can leverage upon during this time of covid-19 economic difficulties cannot be exhausted in one breath.
It is pertinent to note that, these reliefs and succours have only introduced an attempt to mitigate tax burdens on tax payers, tax duties on tax payers still remain an onerous one as exemption or relief from a form of taxation does not automatically mean exemption or relief from the the other/others, considering the various tax obligations to be met. Hence, tax payers only have to stay abreast of every little opportunity at relief per time so as to maximize them optimally.
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