President Muhammadu Buhari on Monday January 13, 2020 signed the finance bill into law paving the way for the implementation of its provisions.
The law is an amendment to seven extant fiscal laws; the petroleum profit tax act, the customs and excise tariff tax act, the company income tax, the personal income tax, the value added tax (VAT), the stamp act and the capital gains tax respectively.
The objectives of the act as stated by the Minister of Finance, Budget and National Planning, Zainab Ahmed are to; strategically promote fiscal equity by mitigating instances of regressive taxation, reform domestic tax laws and introduce tax incentives for investment in infrastructure and capital markets.
The finance act however has elicited some mixed reactions which require necessary attention by the government.
On the positive side, the move to streamline the extant tax laws has drawn commendation from stakeholders of the various sectors of the Nigerian economy. This would hopefully ease the burden on businesses who have had to cope with the incidence of multiple taxation.
One of the notable provisions of the act is the increase in the value added tax from 5 per cent to 7.5 per cent. It is believed that this was done in order to enable the government to finance the deficit in this year's budget. It is also intended to help raise the revenues to finance infrastructure and provision of amenities to the populace.
It is noteworthy that the government has gone to great lengths to explain that the increase in VAT does not cover items related to the basic needs of the people. But one of the cogent observations of finance experts is that there is no escaping the fact that inflation will necessarily accompany the VAT increase as businesses will surely pass on the resultant increase in cost of their services.
Essentially the act is a major feat in the efforts to reform the tax regime in Nigeria in line with global best practices.
It is a strategic attempt to widen the tax net of Nigeria which has been observed to be relatively narrow compared to what obtains even in Africa. Studies have shown that Nigeria has a huge informal sector which remains outside the taxation bracket. For ease of regulation and economic planning there is every need to align the informal sector with the formal sector so as to maximise the potentials of the Nigerian economy. It is therefore a necessary step by government in the overall interest of Nigeria's economic development.
It should be noted that the finance act 2020 contains some bold initiatives in linking development to accruable tax revenues. The implication is that like what obtains in climes where development is financed through taxation. This is a welcome development. Government must however ensure an equitable balance between what it takes from the people through tax and what gives back in terms of development. And in doing this there is every need to ensure that corruption and waste is tackled in the system so as not to jeopardise the noble intention of government. The government must justify the taxes it collects from the people by making sure that the benefits are visible and valuable.