The Nigerian Employers Consultative Assembly (NECA), one of the leading member of the organised private sector in Nigeria, has urged President Muhammadu Buhari to decline assent to the proposed Finance Bill 2019 in the event that the National Assembly passes it into law.
NECA, in an open letter addressed to President Buhari said: “We have noted the Nigeria Tax and Fiscal Law (Amendment Bill) otherwise called Finance Bill 2019. The Bill seeks to, among others, amend: the Companies Income Act, Value Added Tax, Customs and Excise Act, Personal Income Tax, Capital Gains Tax, Stamp Duties Act and the Petroleum Profit Tax.
“We commend Government’s initiative on the Bill, especially as it would support Small and Medium Scale Enterprises (SMEs) through applicable tax reductions and would go a long way in lifting a huge percentage of the Nigerian populace out of poverty.
“However, we wish to note that in the event that the 2 Chambers of the National Assembly passes the Bill, we implore your Excellency to decline assent” to it.”
One of NECA’s grouse against the bill is based on the claim that the bill would have adverse effect on businesses because it sought to amend the provisions of Section 4 of the Value Added Tax Act in a bid to increase the rate of VAT from five percent to 7.5 per cent as provided in Section 36 of the proposed bill, which would erode the gains of the recently signed National Minimum Wage Acts and reduce consumers’ purchasing power because the bill
The open letter to the president, which was signed by the Director-General of NECA, Mr. Timothy Olawale, noted that “the increase in VAT rate is unacceptable and coming at a time when Nigerians are still struggling with economic hardships. If allowed, the benefits of the recently signed National Minimum Wage of N30,000 would be neutralised and further reduce the purchasing power of the citizens, leading to increase in price of goods and services, resulting in upward movement of the inflation rate, and further contraction of the economy.”
“This will have an adverse effect on businesses, since the purchasing power of the citizens would have been reduced, sales of goods and services would reduce and inventories for business would be high and could lead to the closure of businesses that ought to be supported by Government in reducing unemployment rate in the country.”
NECA was also opposed to the increment in penalties and multiple penalties for offences in the proposed bill. “The penalty is punitive. It would negatively affect businesses that are struggling to survive. We suggest that the status quo be maintained,” Olawale said.
He also observed that the proposed bill did not address issues on Allowable Input Tax. Rather, “the bill is silent on this very important provision which limits allowable input tax to specific items only as opposed to what obtains globally.”
NECA was also against the proposed 0.5 percent minimum tax for companies’ that recorded loss within a financial year. “It is our submission that the cash flow/cost effect of 0.5 percent minimum tax is high and does nothing to help companies come out of the loss-making position. A downward review of the rate to one percent of operating profit and where, there is no operating profit in the year, 0.001 per cent of gross profit in that year would be a fairer assessment.
“The amendment also does not encourage foreign capital inflow/investment as the minimum tax does not give businesses the time to turn those investments into profits. It would be better for the government to put a timeline of 3-5 year in which the minimum tax becomes applicable.
“Furthermore, it is not also clear if non-resident companies will be required to pay Minimum Tax. It is best to expressly state that non-resident companies are exempt from Minimum Tax.
“In conclusion, one of the cardinal principles of tax and taxation is Convenience. Taxes levied on taxpayers must be convenient to ensure compliance and constant payment. It is our hope and strong belief that if the Government can widen her tax net to bring on board some non-tax paying entities/persons, there would be enough revenue to fund the 2020 budget, rather than further increasing the burdens on the existing taxpayers and the entire citizenry by increasing VAT rate.
“In the light of the foregoing, we once more urge your Excellency to withhold assent on the Finance Bill 2019 and impress on the National Assembly the imperative to reconsider the Bill, with the aim to ensuring the continued improvement in the Ease of Doing Business initiative of this administration,” NECA said.