FG exempts 20 food items, others from VAT

20 Jan 2020
Financial Nigeria


New items on the VAT exemption list include basic food items, locally-manufactured sanitary towels, tuition fees and services rendered by microfinance banks.

Nigerian Vice President, Yemi Osinbajo

The Federal Government has identified 20 basic food items, sanitary towels and other items that are exempt from Value Added Tax (VAT) in the country. The aim of the exemption, according to the government, is to mitigate the potential downsides of the newly-enacted Finance Act 2019 on vulnerable segments of the society.

Following the passage of the Nigerian Tax and Fiscal Law (Amendment) Bill 2019, also known as the Finance Bill 2019, by the National Assembly in November and the signing of the same into law by President Muhammadu Buhari on January 13, 2020, there were concerns the law would reduce consumers’ disposable income, increase the inflation rate, further impoverish the citizens, among other fears.

A statement released by the Office of the Vice President on Sunday listed several items that are exempt from VAT charge. Laolu Akande, Senior Special Assistant to the President on Media and Publicity, Office of the Vice President, said the additional exemptions were in a bid to ensure that the cost of living in the country does not rise as a result of the increase in the VAT rate, which comes into effect with the new law.

A key feature of the new fiscal law is the amendment to the Value Added Tax Act to increase the rate of VAT in Nigeria from 5 per cent to 7.5 per cent. The legislation also contains various amendments to different tax laws, including the Companies Income Tax Act (CITA), Petroleum Profit Tax Act, Stamp Duties Act, Personal Income Tax Act (PITA), Capital Gains Tax Act, and Customs, Excise Tariff, Etc. (Consolidation) Act.
New items on the VAT exemption list include basic food items such as additives (honey), bread, cereals, cooking oils, culinary herbs, fish, flour and starch, fruits (fresh or dried), live or raw meat and poultry, milk, nuts, pulses, roots, salt, vegetables, and water (natural water and table water). Others are locally-manufactured sanitary towels, pads or tampons, and services rendered by microfinance banks.

According to the statement by Akande, the law also exempts VAT charge on tuition relating to nursery, primary, secondary and tertiary education.

“To allay fears that low-income persons and companies will be marginalized by the new law, reduce the burden of taxation on vulnerable segments, and promote equitable taxation, the Finance Act 2019 has extended the list of goods and services exempted from VAT,” the Vice President’s spokesperson said.

The federal government said it aims to raise revenue and stimulate growth of micro, small and medium enterprises (MSMEs) with the new fiscal law. President Buhari said the law would support implementation of the 2020 budget and create an enabling environment for business and investment by the private sector.

The Finance Act 2019 introduces a graduated tax scale for small businesses. Under the law, small companies (with gross turnovers of not more than N25 million) will pay 0 per cent in Companies Income Tax (CIT). They will also not be required to make VAT returns with respect to goods and services rendered.

Medium-sized companies (with total turnovers of more than N25 million but not more than N100 million) will pay a lower rate of 20 per cent in CIT, compared 30 per cent previously. Under the new Act, all companies engaged in agricultural production in Nigeria will have an initial tax holiday for a five-year period, renewable for an additional three years.

Meanwhile, large companies (with annual turnover greater than N100 million) will continue to pay the standard 30 per cent CIT.

The government said although Nigeria’s new VAT rate is 7.5 per cent, it is still the lowest in Africa, and one of the lowest anywhere in the world. South Africa has a VAT rate of 15 per cent; Ghana: 12.5 per cent; Kenya: 16 per cent; Egypt: 14 per cent; Rwanda: 18 per cent; Senegal: 18 per cent.

Last week, Minister of Finance, Budget and National Planning, Zainab Ahmed, said the effective date for the implementation of the new VAT rate of 7.5 per cent is February 1st, 2020.

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