A Brief Review of the Finance Act, 2019: What are the Tax Incentives, does it Benefit my Organization and are they Practicable? – An Opinion from a Tax Enthusiast

Companies Income Tax (CIT) is a tax levied on the profits a company.  It is no longer news that in spite of the strides made in recent years by the relevant tax authorities, tax compliance in Nigeria is still far from the expected performance. Nigeria’s tax-to-GDP ratio is one of the lowest in Africa with an average of 5.6% while the average global tax-to-GDP ratio is about 21% (World Bank, CIA Factbook).

Over the years Nigerians have been reluctant in complying with their civil and constitutional duties hence the introduction of different schemes and incentives such as the Voluntary Assets and Income Declaration Scheme (VAIDS); which been offered to ensure compliance and increase the national revenue.

In the Finance Act, 2019; several amendments were included to increase the tax base, revenue and encourage early remittance of taxes. Amongst several other incentives; an early payment reduction bonus was included in section 18(c) of the Finance Act, which reduces the tax payable by medium-sized companies (turnover between N 25million and N 100million) by 2% and tax payable by large-sized companies (turnover above N 100million) by 1%.

As a company, there are two actionable options;

  1. pay the tax due ninety days (90) before the due date as provided for in section 55(2) of CITA and enjoy the slight reduction or;
  2.  wait till due date and pay the full amount.

While this looks like a laudable initiative, it still begs the question of how practicable it is, especially from the standpoint of the taxpayer?

Considering the time period (90 days) and rate of reduction (1% and 2%), a rational taxpayer is torn between investing the cash in its business or investing in a risk-free investment such as treasury-bill, getting returns and still paying his/her tax obligation as and when due.

To encourage taxpayer’s participation in the early payment scheme, it is suggested that either more incentives are given such as increased rate of reduction or the timeframe for compliance is reduced. Other measures can also be considered in a bid to reduce tax payer apathy and improve voluntary compliance.

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