Nigeria’s Finance Act 2020: More pains than gains?

President Muhammadu Buhari has signed the finance bill into law. This comes days after assenting to the 2020 budget. CHIMA NWOKOJI in this report examines implications of the Act to the pockets of Nigerians through the lens of various sectors of the Nigerian Economy.

THERE is already a motley of reactions following the Nigerian Tax and Fiscal Law (Amendment) Bill 2019 otherwise known as the Finance Bill signed by President Muhammadu Buhari on January 13, 2020.

In a short thread on his verified Twitter handle, Buhari noted that “This is the first time, since the return of democracy in 1999, that a Federal Budget is being accompanied by the passage of a Finance Bill.”

Buhari said: “I am pleased to announce that this morning I signed into law the Finance Bill, 2019.

“We introduced the Bill alongside the 2020 Budget, to -Reform Nigeria’s tax laws to align with global best practices; -Support MSMEs in line with our Ease of Doing Business Reforms; -Incentivize investments in infrastructure and capital markets; -Raise Government revenues.”

Truly, the 2020 Fiscal Act comes with plenty of  goodies but also some baggage as a herd of Finance and Economic experts have made us to understand.

Although some of these experts had argued that the Finance Bill (now an Act) cannot be implemented based on speculations regarding its content and effective date until the new law is gazetted or otherwise officially made public, the federal government barely two days after, began the immediate implementation of some aspects of the Act with the implementation of 7.5 per cent Value Added Tax (VAT) on delayed payments on government transactions.

VAT is the tax citizens pay when they buy things (goods) like food, phones, soaps, generators, cars; among others or when they pay for a service (like transportation, phone airtime, cinema shows, sewing  cloths, making  hair, among others). It all means there is VAT whether we think value has been added or not.

When the rate was 5 per cent, it means for a price of N1,000 the buyer will pay an extra N50 as VAT to government making the total bill N1,050. If the item is for use or consumption then that is where the VAT story ends.

But if  the item is to be sold, or used  to produce something else which will be sold at say N1,500, then VAT of N75 need to be charged.  So, the buyer pays N1,575.

Since the first buyer paid VAT of N50 (input VAT) when the initial item was  bought, he/ she is entitled to deduct it from the VAT of N75 just charged (output VAT) and only pay the difference of N25 (N75 – N50) to the Federal Inland Revenue Service (FIRS).

Some sellers already include VAT in their listed prices and will sort out the VAT element with government (we call this VAT inclusive price) like in the case of recharge cards. But the problem has been that most sellers do not remit to government appropriately and where they remit all directly, government on the other hand does not return their Input tax.

The above scenario is the same, but the VAT has now been increased to from 5 per cent to 7.5 per cent.

This was what the Accountant General of the Federation (AGF), Mr. Ahmed Idris, was referring to on Thursday when he said all approved payments transactions not concluded before the passage of the Act would now be subjected to the new VAT charge.

Idris told reporters at an interactive session in Abuja that with President Muhammadu Buhari assenting to the bill, it had become a law and it was imperative for his office to obey the law immediately.



The new law amends a number of extant tax laws including the Company Income Tax (CIT), Value Added Tax (VAT), Petroleum Profit Tax, customs and excise tariff, Personal Income Tax, Stamp Duties Tax and the Capital Gains Tax.

The main objective of the finance bill is: To promote fiscal equity so that people can pay according to their earnings; Reform the domestic tax laws to align with global best practices ;Introduce tax incentives for investments in infrastructure and capital markets; Support Micro and Medium scale Enterprises (MSMEs); and Increase Government revenues.

A breakdown of the areas that are likely to affect Nigerians directly are as follows: Companies with turnover of less than N25 million a year will not pay CIT (Progressive tax) ; Companies that earn between N25 million – N100 million annually will pay 20 per cent of their profit as CIT; Companies with annual income in excess of N100 million annually will pay 30per cent of their profit as CIT; To avoid double taxation, tax on dividends is no longer applicable; Tax Identification Number (TIN) will now be required a for operating a bank account; The threshold for stamp duty on online transactions increased to N10,000 from N1,000; Stamp duty removed for bank transfers below N10,000; Goods and services redefined to include some intangible items.



Several experts have commended the federal government, saying that the introduction of a bill that amends various tax laws is a welcome development in the tax system. They believed that this could boost the economy by stimulating the growth of small and medium scale enterprises and increase foreign direct investments into the country.

In addition, the VAT increase is expected to help fund the minimum wage implementation by state governments. This is because, State and local governments will receive 85 per cent of the revenue while the federal government will receive 15 per cent.

On a Channels Television programme monitored by Sunday Tribune in Lagos  on Tuesday , a former Deputy Governor of the Central Bank of Nigeria (CBN), Obadiah Mailafia, commended President Muhammadu Buhari for signing the Finance Bill (2019) into law.

He said the move by the President is a welcome development, noting that it is good for the country.

“It is very welcome in principle because normally when you pass a budget, there should be a package of fiscal measures that should accompany such a budget.

“That is the standard practice. In fact, it used to be the standard practice in Nigeria until during the Fourth Republic we forgot about it. So I think it is welcome, it is very good,” he stated.

To the Lead Director of Centre for Social Justice, Eze Onyekpere, the amendments of several tax laws like Petroleum Profit Tax Act (PPT), Customs and Excise Tax Act, Company Income Tax Act (CITA), Personal Income Tax Act, Value Added Tax Act, Stamp Duties Tax Act, and Capital Gains Act, is good for the country.

“In all developed and developing countries, government is funded by taxation, which should be the obligation of every citizen. In the case of Nigeria, oil revenue and its mismanagement led governments in the past to ignore taxation as a major source of revenue.

“It is, therefore, beholden on citizens to pay tax, while demanding increased transparency and accountability from the federal, state and local governments. The new tax regime should embolden citizens to fight against fiscal impunity as recently witnessed when the daughter of President Muhammadu Buhari flew a presidential jet to attend her frivolous private social affair,” he said

He made this point because there has always been fears that when the people eventually pay that little they can, government says it is too small. Perhaps for being ‘too small, ‘the government does not prudently apply the little taxes to paying “for public services.”

Nigerians have suffered so much  from decayed or no infrastructure. There is inefficient mass transit systems, lack of public housing schemes, little or no subsidized education and healthcare delivery. There is lack of power to catalyze small businesses and people do not have clean water among others.

It then looks as if government is all about embezzlement of public funds and misapplication of tax revenues. Little wonder citizens are reluctant to pay more taxes.


Other sectors

The Finance Bill seeks to bring about several changes which will affect not only the banking and capital markets, but other sectors. It provides some succour by raising the minimum threshold of N1,000 to NGN10,000 for payment of stamp duty of PoS transactions.

Also, among these changes are the following: Provisions to clarify the tax treatment of securities lending transactions in the capital market

The ability to deduct business expenses for tax purposes is an important consideration for companies. There is  Tax Exemption Order (the Order) which exempted interest income on corporate and government securities from taxes for 10 years. Consequently, financial institutions earn significant amounts of exempt income and often claim full deduction for their expenses without excluding any portion relating to tax-exempt income.

For the insurance sector, with this Bill now into law, insurance companies would be able to carry forward losses indefinitely as opposed to the 4-year restriction currently in place.

Life and non-life businesses would no longer be liable to special minimum tax provision and all wholly, exclusively, reasonably and necessarily incurred expenses will be tax deductible.

Furthermore, “taxable investment income” would be limited to “income derived from the investment of shareholders’ funds”. This seeks to clarify taxable income and limits it to income accruing to the insurance company as against income accruing to the insurance fund

For the energy sector trough the Finance Act the government has proposed several changes that would affect the Energy and Utilities sector. Some of the changes will have significant impacts on investment decisions as they materially reduce shareholder returns according to PWC in its analysis. For example, one of the provisions is Section 60 of the Petroleum Profit Tax Act (PPTA). It exempts dividends paid out of petroleum profits from further tax in recognition of the relatively higher corporate income tax rate on petroleum operations among others.

PWC further observed that the implication is that the VAT rate increase will result in higher cost production and investment, which will be passed on to the consumers.

Furthermore, certain locally manufactured items are subject to excise duties at specified rates. These include tobacco, spirit and alcohol.

Other items in the schedule of excisable products include perfumes, cosmetics, toilet papers, non-alcoholic beverages, telephone recharge vouchers, soaps and detergents, paper packaging, spaghetti, noodles and so on. However, excise duties on these items were suspended and currently not applied.

The Bill aims to amend the Custom, Excise Tariff etc. (Consolidation) Act (CETA), to subject importation of excisable products to excise duties at the same rates applicable to locally manufactured items. This aims to create a level playing field for local manufacturers and raise revenue for the government.

The major challenges in the real estate sector are difficulties in registering a property and obtaining construction permits which in turn create obstacles to securitisation of property as well as increasing the cost of investing in the sector thereby making investment in real estate unattractive. This is responsible for the significant amount of ‘dead’ capital in the real estate sector which PWC in its insight series estimate to be in the region of $900 billion. The luxury real estate market is estimated to hold between $230 billion to $750 billion of value, while the middle market carries between $60 billion and $170 billion in value. The Finance Bill 2019 proposes several changes that will increase investment in the sector. For instance, the Finance Bill removes the distribution of rental and dividend income by Real Estate Investment Companies (REICs) from the ambit of Excess Dividend tax. REIC as a Company duly approved by the Securities and Exchange Commission (“SEC”) to operate as a Real Estate Investment Scheme in Nigeria.

The proposed tax changes are geared towards making REICs tax transparent investment vehicles in respect of dividends and rental income and placing the obligation for tax on the respective shareholders subject to meeting the minimum distribution threshold and timing.



The fears most Nigerians have expressed is on their incomes and the fact that the very low income earners may not be fully protected.

The Managing Director, Financial Derivatives Company Limited Mr. Bismarck Rewane said  the revised VAT would have a knock-on effect on consumer disposable income due to the additional 2.5 per cent VAT on most consumer goods, thereby worsening already weak consumer demand.

In their monthly Economic Bulletin, Rewane and his team at FDC disclosed that the wage increase and higher VAT will worsen inflationary pressures.

Inflation has increased consecutively since September 2019 and an increase in consumer price inflation is imminent they predicted.

“If the higher VAT leads to a spike in inflation in January, the Monetary Policy Committee of CBN would be left with no alternative but to commence a tightening cycle and raise the MPR (benchmark interest rate).

To the team, the problem is not only to increase, the onus is on the government to ad-dress tax revenue shortfalls, eliminate leakages and improve transparency in expending the collected revenue.

However, the former CBN boss, Obadiah Mailafia, noted he was concerned with the timing of the assent.

“At a time of very slow recovery, it is risky to actually increase taxes. You are likely going to strangle businesses that are just struggling to survive,” he stated.

Rather than increase taxes, the economist advised the Buhari administration to “relax some of the taxes, provide incentives and widen the tax base by bringing people who are outside the tax base.

Ike Chioke Managing Director of Afrinvest (West) Africa Limited believes that on the positive side, additional VAT revenue will help reduce budget deficits, reduce government debt and fund social services especially at sub national level.

But, while an increase of 2.5 per cent may appear small, it is in fact a 50per cent increase in VAT cost to many businesses and consumers.

“The negative impact will include increase in prices leading to higher inflation, less disposable income for already poor households resulting in lower consumption and a decline in GDP growth rate,” he stated.

Also because input VAT on capital expenditure is not allowed as a credit in Nigeria, the cost of real investments will go up and more people will evade the tax as compliant entities become less competitive.

On the other hand, tax experts are trying to weigh the tax aspect of the finance Act in line with global practice.

The questions again :  are Nigerians paying VAT and other taxes in proportion to their incomes? What level of legal and business protection are they enjoying under the State?

According to Eurostat, People living in Nigeria spend more money on food than any other country in the world. Food takes up an astonishing 58.9 per cent of Nigerians’ incomes ( Kenya is 52.2%, Cameroon 45.5%).

Eurostat is a Luxembourg-based Directorate-General of the European Commission that provides statistical figures and information, about how each countries’ respective spending on food is reflective of their’ household expenses.

There are a few factors that are behind this high cost of living. Firstly, much of the food that is consumed in Nigeria is imported, which directly affects costs. The food that is imported also has a high cost of delivery due to poor infrastructure in the country. Although there is border closure, the authorities have proved incapable of fully policing the borders.

Rampant corruption in the country’s manufacturing sectors is also sometimes blamed for high consumer costs.

This means that if more food items are not fully exempted, more Nigerians will pay more to eat.

Majority of Nigerians who cannot feed with what they earn according to Taiwo Oyedele, Head of Tax at PWC have to borrow or buy food on credit so that they can eat and live till tomorrow. Yet, the 7.5 per cent VAT increment did not consider them.

When tax authorities exclude what people can consume to survive especially in this country that is not food secure, exclude small businesses struggling to survive, then VAT can be raised to even 10 per cent.


Low-income earners

In view of the concern raised above and others the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, released a statement through her media aide, Mr Yunusa Tanko Abdullahi, listing some items exempted from VAT under the new law.

One major  concern is that government is not sensitive to people’s suffering .  The general opinion is that when tax authorities exclude what people can consume to survive especially in this country that is not food secure, exclude small businesses struggling to survive, then VAT can be raised to even 10 per cent.

This is because those who can afford it will be the ones paying the VAT and the taxman will not be spending N10,000 to track someone whose tax liability is only N2,000 but the other way, in line with the character (canons) of good taxation.

Countries that are usually compared with Nigeria have a number of different approaches. For instance, small businesses do not worry about VAT. In other countries they get credit or refund for input tax, which has not been fully applied in Nigeria, meaning that what people pay as VAT is really more than 5 per cent VAT.

However, Mrs Ahmed as if in direct response, listed these commodities as 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.

The Minister described the Finance Bill as a peoples bill “considering the expansion of VAT exemption list,” noting that “a large sum of money realised from the taxation would rather go to the people; the states and the Local Governments Areas (LGAs) are to get 50 percent and 35 percent respectively while only 15 percent will go to the federal government.”

Mrs Ahmed also said the finance act has “taken care of essential palliatives to support MSMEs and mitigate the impact of the VAT rate increase on the most vulnerable businesses, communities and citizens in the economy.”

According to her, to make life better for small business owners, government introduced “a VAT registration threshold for MSMEs with a turnover of less than N25 million per annum; reducing the corporate tax rate for MSMEs from 30 percent to 20 percent for small firms (with turnover of between N25 million and N100 million per annum.); and exempting micro-firms (with turnover of less than N25 million per annum).


Business men react

Some traders in Enugu, who spoke with Sunday Tribune are of the opinion that VAT increase is already affecting their business. They noted that though it is going to yield an increase in government revenue, it was not in favour of the average business man.

Samuel Oko who operates a Supermarket in the city said he is already feeling the pains, adding that prices of consumables had increased.

“For example, Holladia products like Nutri milk has increased. For malt, it was N1,800 per pack when VAT was 5 percent but now it is N2000. Uniliver products have also increased. For example, Yellow Lipton tea previously was N190 per pack but now it is N234.

“The problem is that we (retailers)sell at N250, so we are short-changed because of the VAT increase. As of now the final consumers are not directly affected but with time, this development would affect final consumers.

“Many goods would gradually disappear from supermarkets. For example, small radio or bullet batteries are (now) very scarce and costly in the market due to increment in VAT,” he said.

Obi Nwandu, another supermarket operator said his marginal profit has reduced considerably adding that it will bite harder in the next one month.

“The closure of land borders and increase in VAT are some of the things the Federal  Government needs to review. Look at the prices of sugar, milk, and milo and Bournvita; they have gone beyond the reach of the common man. There has been low patronage in my business in recent time because of increase in prices of commodities. Government should be sensitive to the plight of the people they rule and stop the idea of making high revenue,” he said.

A staff of the Enugu Chamber of Commerce, Industries, Mines and Agriculture (ECCIMA) who preferred to remain anonymous told Sunday Tribune that the increase in VAT from 5 to 7.5 percent was not in the interest of the larger segment of Nigerians.

“I do not support the VAT increase even as it helps to boost the Internally Generated Revenue (IGR) of government. To the authority, the increment of VAT is good but to the people, it worsens their suffering as it makes prices of commodities to rise beyond their reach. Officially, the ECCIMA has not reacted but as far as I am concerned, the increment of VAT is retrogressive. Household items have gone up even when the increment is yet to commence,” he said.


Executive wickedness —SSASCGOC, TUC

The organised Labour is, however, not amused by the policy and has decried the provisions of the Finance Bill, the increase in Value Added Tax (VAT) and other sundry taxes in the Bill as pure executive wickedness, which should be fought and resisted by workers and Nigerians.

While the President, Trade Union Congress (TUC), Comrade QuadriOlaleye, said the move is a ploy to get back at workers for asking for a review of the National Minimum Wage, the General Secretary of the Senior Staff Association of Statutory Corporations and Government Owned Companies (SSASCGOC), Comrade Ayo Olorunfemi, has described it as pure wickedness, warning that the situation is gradually calling for anarchy.

According to the SSASCGOC General Secretary, the government of the day is taking Nigerians generally and workers in particular for a ride, believing that Nigerians were stupid.

He charged Nigerian workers and especially Labour leaders to rise up and fight for their rights before the masses themselves get tired and take the law into their hands.

He said: “Labour centers must be ready to do what they are elected to do, otherwise, it will get to a level that workers on their own will come to our various offices and use sticks and cutlasses to pursue us out if we don’t know what we are doing; because the situation is gradually calling for anarchy.”

Citing the increase in the pump price of fuel by this administration immediately they took over from N86 per litreto N145 per litre, the fall of naira resulting in increase in exchange rate from N150 to a dollar to N350 to a dollar, and coupled with increase in various taxes, Comrade Olorunfemi, said the workers, led by their leaders ought to have been on the street by now.

“As a matter of fact, the Finance Act is a way of telling Nigerian workers that we are stupid. When this government came in, the price of fuel was N86 per litre, it increased it to N145 per litre, that is almost 100% increase, and it came without any palliative. But the Labourcentres kept mute, workers thought that maybe a miracle will happen, but nothing happened, and no palliative. We are still living with the suffering.

“Now the issue of the minimum wage came; we thought we should be able to use minimum wage to reduce the effect of that petroleum price hike, but N30,000 was negotiated. N30,000 is a complete backward step compared to the N18,000 minimum wage we got in 2011, at a time when the naira was 150 to a dollar. Now, naira is 350 to a dollar, and what we get is N30,000. There is a shortfall,” he said.

The SSASCGOC General Secretary added: “To worsen the situation, when you look at the percentage increase, the consequential adjustment that came into the salary of workers, a larger proportion of the workforce only got 10 per cent, while some got 15 per cent and few others got 20 per cent. What is the percentage increase in the VAT? 50 per cent. We got 10 per cent, government increased VAT by 50 per cent. Who is deceiving who? This is wickedness, executive wickedness.

“These people, we don’t know where they are taking us to and it is high time that Nigerian workers opened their eyes. The Labour centers must be ready to do what they are elected to do.”

He warned that “when people become helpless and there is no recourse to people that can help them, they will take law into their hands, they will take their destiny in their hands and it will become a disaster. So, this is a warning to both the government and the Labour movement, to which I belong.”

In terms of salary increase, Comrade Olorunfemi said, “they have not given us anything. If they give you with right hand and take back with left hand, it will be better. But the scenario we have is that they pretend to give you something, they take the one you have along with the one they pretend they are giving you. When you give me N1, and you collect my N2, even if I don’t have the N2 to pay, you force me and you go into my savings and I have to go and do extra labour.

“Our children are being pursued from school, I cannot pay their school fees, to buy  food is difficult and you want me to deliver the services in the office, you are giving me pressure to do the job in the office, I can’t provide for my children; and at home they are giving me trouble.”

He added: “This government pretends to be giving us something and they stole everything we have. This government is a pretender. The workers and labour leaders should fight for their rights. By now, we are supposed to be on the streets. What are those things that led the market women in those days to go on the streets? Tax. They have done that severally in this country but everybody pretended as if nothing was happening. The danger is looming, if precaution is not taken, by the time they come and begin to pursue us from our various offices, then we know that we have really entered into trouble.”

The TUC president said the attempts to overburden Nigerians and workers especially, will be resisted, insisting that the hike in VAT from 5.0 per cent to 7.5 per cent is a deliberate attempt to further overburden the common man and stifle businesses.

Comrade Olaleye said: “It is indeed pathetic that the Federal Government appears to be more interested in collecting taxes than creating an enabling environment for businesses to thrive. Empirical evidences have shown that the poverty rate in the country has increased abysmally.

He pointed out that the government cannot create all the jobs; but added that a condusive environment should be provided to fertilise the efforts by individuals to set up businesses.

He warned that much cannot be achieved if investors are daily grappling with taxes and therefore advised that the government must begin to think out of the box to salvage the economy.

The TUC President emphasized that “multiple taxation is a bane to economic development anywhere in the world; hence most countries are reducing taxes to encourage Small Scale Businesses. We have heard about Nigeria doing well in the World Ease of Doing Business Index, but the experience in our country does not corroborate that claim.

“Any law that helps the government to generate more revenue at the expense of the public for us is anti-people and incapable of growing any economy.”

  • Additional story by Jude Ossai