Putting the provisions of the recently implemented Finance Act 2020 in proper perspective was the major highlight of engagement during Taxmobile.Online’s first-quarter webinar review for the year 2021, held via Zoom Video Conferencing on Wednesday 3rd of March, 2021.
Before the meeting, a lot of concerns has been expressed by tax professionals and even taxpayers on some of the changes effected by the piece of legislation. Recall that the presidency on implementation opened that the Finance Act 2020 is aimed at boosting economic activities in the country with close consideration to regulating the effect posed by the Covid-19 Pandemic outbreak.
Hence, Tax Professionals and enthusiasts alike during the Webinar beamed the searchlight on deep analysis of the legal and tax implications of the Finance Act Provisions. Controversial changes like the collection of 7.5% VAT and other amendments like the Stamp Duty Act were also brought into deep consideration. The meeting did not end without suggesting ways to navigate the web posed by the Finance Act 2020 to taxpayers.
In highlighting some of the key regulations touched by the Finance Act 2020, Mr. Glenn Ubohmhe, a tax professional who doubled as the guest speaker explained that the rationale behind the legislation was to cure the numerous defect in the country’s tax law.
On the Personal Income Tax Act, Glenn has it that a major key change is in respect to Minimum Tax payable when there is no chargeable income exempting minimum wage from the minimum tax which he tagged “step in the right direction”. In this light, the Finance Act changed the definition of gross income to calculate allowances, reduce disposable income with the impact of hitching up tax rates especially with changes made on pension.
Commenting on items in the gross income like pension and NHF, he suggested that THE Finance Act 2020 should have included Pension and NHF as part of the definition of gross income since no real benefits can be referenced by taxpayers from the deduction considering the impact of inflation and exchange rate on pension assets and the lack of access to NHF contributions by contributing employees. The only real benefit enjoyed by contributors is the tax shield from their deductions.
Discussing the most contentious of all the issues in the Finance Act 2020, the seasoned tax professional took time to explore the Value Added Tax clause of the Act with the clarification of 1st of February 2020 as the effective date of the new 7.5% VAT. This clause also expanded the scope of VAT and changed the definition of goods and services to be “all forms of tangible or immovable excluding land and building, money or securities.”
In his analysis,
“One of the noticeable things the Finance Act has done is to appoint Nigerian entities in relation with Non-Resident Company as statutory agents of FIRS and VAT invoices on all goods and services must be issued by such NRC. This means that the VAT Act did not specifically impose any duty on the buyer in Nigeria to deduct and remit the tax to revenant authority but what this has done is to put the burden on the Nigerian counterpart transacting with an NRC.”
It is pertinent to note that the Finance Act 2020 has brought to fore, the principle of reverse charge to people in three categories namely; the oil and gas sector, government ministries and agencies, and the Nigerian entity in relationship with NRC. The VAT Act has also expanded the scope of the exemption list by including the aviation sector and making commercial airline tickets not taxable.
In his words,
“The exemption was triggered by instability in the market posed by the Covid-19 pandemic which prevented flying internationally and locally by these aircraft operators which brought generated revenue to as low as zero. The exemption is a form of incentive to keep the sector afloat, protecting the jobs of aviation workers.”
In another interesting development, the clarification of goods & services supply and when VAT on such transactions are due was brought to the fore. Glenn analyzed that by the Act, even when payment has not been made but sales invoice issued, the VAT on such transaction is due. According to him, this provision may portend serious cash flow issues.
The downward review of excise duties by the Excise Duty Act became a major highlight of the session. Recall that excise duty on tractors were reduced from 35% to 5%, Motor Vehicles (goods and more than 10 persons) now reduced from 35% to 10%, Motor Vehicles (more than 10 persons) now reduced from 35% to 10%, while Motor Vehicles (cars) previously taxed 35% now 5%. The Package also includes duty-free importation of aircraft, engines, spare parts, and components for commercial airlines.
Drawing the curtain on other amendments made so far by the Finance Act, it was noted that the Finance Act has offered up to 6 years of tax exemption for Small/Medium companies engaged in primary agricultural production.
A clear definition of what Public Character stands for in the Finance Act was commended by the speaker for the clarity it has brought to bear on the system.
Public character requires an organization to be registered following the relevant laws in Nigeria and must not distribute or share its profits in any manner to members or promoters.
Ms. Fabiyi Olabisi, a participant requested more clarity on some of the issues raised on the issuance of VAT as provided by the Finance Act 2020. In response, Mr. Glenn Ubohmhe affirmed that by the law, any invoice issued with a supply of goods and services is mandated to pay VAT with or without pay as the government will not wait until payment is made.
Adding to the VAT issue now gathering momentum, the moderator of the webinar Mr. Olatunji Abdulrazaq, founder of Taxmobile.Online in his response, explained from professional experience that even before the Finance Act 2019 and 2020, it is expected to pay VAT on the supply of goods and issuance of invoice. In the case of bad debt, he urged the party involved to make adjustments for VAT on bad debts with substantial evidence to demonstrate efforts made to recover the debts. These supporting documents will be used to defend the VAT adjustment during a tax audit by FIRS.
Another participant, Ms. Bukola urged the government to tread with caution given the accrual base of VAT collection, stating that this will pose inconveniences to businesses as remitting VAT irrespective of payment will place a financial burden. She also urged tax consultants to engage the government on the loopholes in these policies.
As a solution to the issues raised on VAT, taxpayers are urged to be on the safer side by relying on issuing Proforma Invoice rather than Sales Invoice until payment is made as to the law only mention deducting VAT on Sales Invoice.
For the Excise Duty clause which provided a reduction on import duties, it was clarified that the incentive captured the importation of both new and used cars.
The moderator and guest speaker took turns to explain that the financial burden of VAT is on the buyer and not the seller, stating that businesses are mere collection agents for the government. Also, for SMEs, the government has reeled out incentives to cushion the effect of the harsh economic situation. This came as a follow-up on the question asked by Mr. Olusola Akimbo on the implication of the new VAT clause on SMEs.
Digressing from the Finance Act 2020, the issue of using a backlog of withholding tax to offset current Company Income Tax liability was upheld as the legal stand. This clarification was an answer following question by Mr. Alao from SB Telecomms who also urged FIRS to make the process of accessing withholding tax balance online without necessarily hiring a consultant for the job.
The next quarterly webinar on another topical tax issue promises to be an exciting one. Join the community here to be a part of it.