Post by Trade facilitator on Feb 27, 2022 11:35:08 GMT 1
The Finance Act 2020, Critical Issues You Need To Be Aware Of As Owner Of Micro, Small and Medium Enterprises
If you run a business in any economy, you should try as much as possible to key into the tax administration of the country. No matter your size or level, avail yourself of the privilege of knowing what is going on in the economy. When it comes to tax, you will be doing yourself a lot of good by acquainting yourself with the current tax issues in the country.
It is common knowledge that a sizeable amount of the GDP of the country comes from the activities of Micro, Small and Medium enterprises. Therefore it is expected that the government will pay enough attention to any issue that affects them. No government will want the collapse of the segment of the industrial sector in its economy.
The Federal Government of Nigeria has been promoting the ease of doing business in the SMEs sector for quite some time now.
The recently signed Finance Act 2020 (the “Act”) provides certain tax incentives for the MSME which will further enhance their role in sustaining the economic growth of the country. We are going to look at some key provisions of the ACT as it concerns the MSMEs.
Company Income Tax (CIT) Exemption:
Under the Act, small enterprises with turnover of less than N25 million are now exempt from paying company income tax, subject to timely filling of their Company Income Tax returns.
Medium size enterprises: Companies with turnover between N25 million and N100 million are now to pay a company income tax at a lower rate of 20%.
Other big enterprises of turnover of N100 and above will continue to pay the income tax rate of 30%.
Minimum Tax:
Before the Act, the computation of minimum tax was the higher of:
5% of gross profit or
5% of Net Assets or
25% of paid up capital or
25% of revenue (turnover)
In addition, for companies with turnover in excess of N500,000, 0.125% of revenue in excess of N500,000.
Note that the minimum tax has now become a base rate of 0.5% of gross annual turnover.
Note that as small businesses with turnover less than N25 million are now exempted from tax, such enterprises are also exempted from minimum tax.
Incentive for early payment:
Any company that pays its income tax 90 days before the due date for payment or three (3) months after the end of the company’s accounting year will be entitled to the following benefits:
A discount of 2% of the tax payable, if the company has an annual turnover of between N25 million and N100 million.
A discount of 1% for companies with annual turnover above N100 million. The Act incidentally discontinued the exemption given to companies with at least 25% imported equity capital.
Dividend:
Before the Act, if any company declared a dividend in a year which was more than the total profit for that year, the dividend was deemed a profit and taxed accordingly.
But now, the Act has tried to go against some of the double taxation against some dividends like:
Retained profits which had already been taxed
Franked investment income
Tax exempt income
Distributions made by Real Estate Investment Companies and others.
Exemptions from Value Added Tax (VAT):
The VAT rate in the country has been increased from the previous 5% to 7.5%.
The VAT registration threshold in Nigeria now is N25 million turnover in a calendar year, therefore, if your company is not making up to N25 million in a calendar year, such SME does not need to register for VAT and as a result will not be able to recover input VAT on their purchases.
Penalties for failure to register for VAT:
If a company that is supposed to register for VAT fails to do so, the penalty for the first month of default has now been increased to N50, 000 and N25, 000 for each subsequent month of default.
Note that the Remittance of VAT is now to be on cash basis, that is, the difference between output VAT collected and Input Vat paid in the preceding month.
We will continue with the Finance Act 2020 to educate our members on their rights and privileges under the Act.
Our company is one of the best companies in Export and Importation businesses in Nigeria today, we train individuals and corporate organizations on how to do Export, Major and Mini Import business the right way; if you are interested, please contact the admin of this forum now.
If you run a business in any economy, you should try as much as possible to key into the tax administration of the country. No matter your size or level, avail yourself of the privilege of knowing what is going on in the economy. When it comes to tax, you will be doing yourself a lot of good by acquainting yourself with the current tax issues in the country.
It is common knowledge that a sizeable amount of the GDP of the country comes from the activities of Micro, Small and Medium enterprises. Therefore it is expected that the government will pay enough attention to any issue that affects them. No government will want the collapse of the segment of the industrial sector in its economy.
The Federal Government of Nigeria has been promoting the ease of doing business in the SMEs sector for quite some time now.
The recently signed Finance Act 2020 (the “Act”) provides certain tax incentives for the MSME which will further enhance their role in sustaining the economic growth of the country. We are going to look at some key provisions of the ACT as it concerns the MSMEs.
Company Income Tax (CIT) Exemption:
Under the Act, small enterprises with turnover of less than N25 million are now exempt from paying company income tax, subject to timely filling of their Company Income Tax returns.
Medium size enterprises: Companies with turnover between N25 million and N100 million are now to pay a company income tax at a lower rate of 20%.
Other big enterprises of turnover of N100 and above will continue to pay the income tax rate of 30%.
Minimum Tax:
Before the Act, the computation of minimum tax was the higher of:
5% of gross profit or
5% of Net Assets or
25% of paid up capital or
25% of revenue (turnover)
In addition, for companies with turnover in excess of N500,000, 0.125% of revenue in excess of N500,000.
Note that the minimum tax has now become a base rate of 0.5% of gross annual turnover.
Note that as small businesses with turnover less than N25 million are now exempted from tax, such enterprises are also exempted from minimum tax.
Incentive for early payment:
Any company that pays its income tax 90 days before the due date for payment or three (3) months after the end of the company’s accounting year will be entitled to the following benefits:
A discount of 2% of the tax payable, if the company has an annual turnover of between N25 million and N100 million.
A discount of 1% for companies with annual turnover above N100 million. The Act incidentally discontinued the exemption given to companies with at least 25% imported equity capital.
Dividend:
Before the Act, if any company declared a dividend in a year which was more than the total profit for that year, the dividend was deemed a profit and taxed accordingly.
But now, the Act has tried to go against some of the double taxation against some dividends like:
Retained profits which had already been taxed
Franked investment income
Tax exempt income
Distributions made by Real Estate Investment Companies and others.
Exemptions from Value Added Tax (VAT):
The VAT rate in the country has been increased from the previous 5% to 7.5%.
The VAT registration threshold in Nigeria now is N25 million turnover in a calendar year, therefore, if your company is not making up to N25 million in a calendar year, such SME does not need to register for VAT and as a result will not be able to recover input VAT on their purchases.
Penalties for failure to register for VAT:
If a company that is supposed to register for VAT fails to do so, the penalty for the first month of default has now been increased to N50, 000 and N25, 000 for each subsequent month of default.
Note that the Remittance of VAT is now to be on cash basis, that is, the difference between output VAT collected and Input Vat paid in the preceding month.
We will continue with the Finance Act 2020 to educate our members on their rights and privileges under the Act.
Our company is one of the best companies in Export and Importation businesses in Nigeria today, we train individuals and corporate organizations on how to do Export, Major and Mini Import business the right way; if you are interested, please contact the admin of this forum now.
