Earlier today I read online that 20% of the Antarctic Island’s snow melted during the course of a nine-day heat wave. Now that is some scary news if you ask me. It has been one pretty hot February and it looks as though the situation is not just restricted to Lagos and some states in Nigeria like some think. Climate change is truly upon us and the warnings of researchers and proponents of the conversation over the years are becoming more realistic every day. We can only hope it doesn’t get worse as the days go by. On a lighter mood, memes have been flying all over the place and most are hilarious to say the least; well, it might not take the heat away but at least we get to laugh through the heat.
Personal Income Tax savings option Part 1: Voluntary Pension Contribution (VPC)
As a professional in the tax sector I’ve had quite a number of individuals share their concerns with me about the huge sum being deducted as tax from their monthly pay (Personal Income Tax). In order to address this issue, I thought to write this piece to address some of the issue and proffer solutions to the pressing complaints.
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Effective February 1, we would have crossed over from the so-called ‘longest month of the year’ into the ‘shortest month of the year’. Of course, January is not just seen as the longest month of the year by virtue of its 31 days (March, May, July, August, October and December also have the same number of days) but because of how time seems to run slowly in January due to the ‘recovery process’ from the high level of expenditure occasioned by the Christmas and New Year festivities.
In view of recent economic realities in the Nigerian space, it marks a much more significant point in the year. February 1, 2020 marks the implementation date of the 7.5 percent increase in value added taxes (VAT) as stated by the Finance Minister which springs from the Finance Act, 2019 signed by the President on January 13, 2020. One of the key reasons attributed to the 50 percent increase in VAT from 5 percent to 7.5 percent was the need for government to increase the amount of revenue generated through taxes in order to fund its projected expenditure as captured in the 2020 budget. Personally, if I could increase my revenue by any legal means possible, trust me I would.
Therefore, I have no argument against the government trying to increase revenue through taxes. However, I am of the school of thought of increasing the tax net rather than increasing the rate of taxes.
From a simple economic standpoint, an increase in the VAT will lead to an increase in the price of goods and services which will further increase the inflation rate (which already stands at over 11%). The rise in inflation rate will further lead to a reduction in the consumer purchasing power as VAT is borne by the final consumer. This reduction in consumption levels will have a negative effect on the standard of living of the average Nigerian. However, in a bid to cushion the burden of the VAT increase on low-income individuals and companies, the Finance Act 2019 has extended the list of goods and services exempted from VAT to include basic food items, locally manufactured sanitary towels, pads or tampons, services rendered by microfinance banks, tuition relating to nursery, primary, secondary and tertiary education. This is a positive initiative as it is a proactive measure in the Act.
In the medium or long term, the VAT increase could have a positive multiplier effect if the generated revenue is expended on capital projects which have future economic potential, job creation, increased economic output, increased food production etc. However, given the political situation and economic instability accompanied with corruption and mismanagement at various levels of government, it is not far-fetched to think that the generated revenue could be grossly mismanaged, thereby, leaving the average Nigerian to bear not only the burden of the VAT but also the economic implications of t implications of the VAT increase.
In conclusion, the implementation of the 7.5 percent increase in VAT is like a two-sided coin. If properly implemented and harnessed it could help to make funds available for developmental purposes that will accelerate economic growth. On the other hand, if mismanaged and loosely implemented it could be another one of many reforms whose potential to provide substantial economic drive is not maximized.
First Thoughts
The last time I was in these parts, it was 2019 and I feel elated having the opportunity to do this yet again in a new year. I must specially appreciate every one of you for sticking with us for the last twelve months. Thank you for keeping faith with us. You can rest assured 2020 is going to be a bigger and better year. The TaxaideR returns with Volume 2, Issue 1. Yes, we thought we would switch styles up a little and change the nomenclature. You must have also noticed the new style of our TaxThursday bulletins. Yes, we are cool like that!
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I want to strongly believe that you are very much aware that the PAYE returns filing season is upon us. Well, just in case you are not aware (I seriously doubt that though), PAYE returns filing is an annual ritual of informing relevant tax authorities (“RTAs”) of the total income you paid to your employees and also the total taxes you deducted from their income in a particular year, whether or not those employees are still in your employment. Where you fail to carry out this ritual, you have to cough out N500,000.00 as penalty, for a corporate entity and N50,000.00, for sole proprietors and enterprises. Quite frightening, right?
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In line with Section 81 of the Personal Income Tax Act, 2011, Cap P8 LFN 2004 as amended, all employers of labour are required to file their annual tax returns, with the Relevant Tax Authority(ies) (“RTA(s)“) not later than 31st of January every year.
1. What is PAYE Returns?
PAYE Returns basically details all emoluments paid to, and statutory deductions made, on behalf of all employees (whether or not they are still in your employment) in the calendar year January 1, 2019 to December 31, 2019, as well as taxes that were remitted to the RTA(s) in respect of the employees that were resident within their jurisdiction.
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