27 states fail to attract foreign investors as Nigeria's foreign investment drops by 20.47% in 2022
Zainab Ahmed


It is no longer news that Nigeria now has a new Finance law which was signed by President Buhari last week. The new Finance Act is a mixture of the good, the bad and the ugly – a bitter sweet that leaves mixed feelings in the hearts of many people. It offers a few promises and benefits, but at the same times imposes such heavy burdens on people and businesses that are not only disincentives to business growth but punitive to individuals.

The Finance Act amends various provisions of seven Nigerian tax legislations such as the Companies Income Tax Act (“CITA”), Value Added Tax Act (“VAT Act”), Capital Gains Tax Act (“CGTA”), Petroleum Profits Tax Act (“PPTA”), Personal Income Tax Act (“PITA”) and Stamp Duties Act (“SDA”). The Finance Act also introduces amendments to the provisions of the Customs, Excise Tariff, etc. (Consolidation) Act.

According to President Buhari through a tweet on his Twitter account, “We introduced the bill alongside the 2020 budget, to reform Nigeria’s tax laws to align with global best practices, support MSMEs in line with our Ease of Doing Business Reforms, incentivize investments in infrastructure and capital markets and raise government revenues.”

The Finance Act which was submitted to the National Assembly alongside the Appropriation Act 2020 (the “2020 Budget”) on 8 October 2019, is significant to the implementation of the 2020 Budget as the Executive hopes to increase tax revenue through various sources including: the increase in the VAT rate from 5% to 7.5%; taxation of dividends paid to shareholders of petroleum companies; widening of the tax net and strengthening of tax compliance.

As necessary as the new Act may be it leaves a sour taste in the mouth especially in the period of economic down turn and worsening level of poverty in the country, with families and companies struggling to survive.

But some can also argue that there is no better time to introduce it than now when government revenue is at its lowest ebb and borrowing on the rise. A major thrust of the law is to empower and grow small scale businesses, which would also impact employment opportunities as the SME sector has been global associate with job creation.

However, the hostile attitude to big business particularly foreign firms is going to affect the economy negatively and leave Nigeria running at its limited financial steam, which in today’s globalised economy, is ill-advised and counter-productive.

SMEs cannot on their own grow the economy to global competitiveness; even where they can, it will take a long time to achieve, because they do not have the required capital outlay, technology and skill sets to catalysed economic development in the shortest possible time, of which Nigeria is in dire need. So, the ambivalence of the Finance law to investment is a major failure in its objective and focus.

SMEs are further constrained by the huge infrastructure deficit facing the economy, such as power, energy, security and bad roads, which raise costs and make them uncompetitive. Even big multinationals are performing poorly on account of this, as cheap foreign products challenge their market share.

National economies all over the world are in competition for investment capital, which seeks out the best attractive environment to go. It is an archaic and unrealistic financial and economic strategy to antagonize foreign investment, when the country is borrowing heavily to build critical economic infrastructure such as electricity, energy, and railways.

According to PwC, a firm of chartered accountants and tax professionals, there are about 92 changes which the Finance Act introduced into the country’s tax statute, as it tried to consolidate the seven different tax laws that form this new law.

They include: The Companies Income Tax Act; Value Added Tax Act; Customs and Excise Tariffs etc (Consolidation Act); Personal Income Tax Act; Capital Gains Tax Act; Stamp Duties Act, and the Petroleum Income Tax Act.

From the five objectives set out in the bill by President Buhari in the transmission letter to the National Assembly, it is obvious where the interest of government lay in proposing the Bill. The general focus of the law as articulated by the president portrays it as a desperate attempt by government to boost its revenue, which is understandable given the dwindling revenue and massive resort to borrowing.

Although the Act may be an effort to introduce business discipline among Nigerians and improve corporate responsibility, and forestalls tax evasion which is pervasive among Nigerians, however, the re-categorization of small and medium companies from N250million to N25 million turn over in an inflationary economy is almost a death sentence on several small business.

For instance, a car shop with just a dozen cars may not qualify as a small business, even with a N25 million turn over.

“A medium-sized company is defined as a company having an annual gross turnover of over N25, 000,000.00 (Twenty Five Million Naira) per annum but below N100, 000, 000.00 (One Hundred Million Naira). Such Companies shall pay Income Tax at the rate of 20% while companies other than small or medium sized companies are defined as large companies and their income tax rate is stated t o be 30%”.

Some of the changes introduced in the law in accordance with government objectives include: to increase revenue of government, curb tax evasion, which is ensured by the mandatory use of Tax Identification Number, TIN, for all registered companies in the country and the mandatory use of bank accounts that requires submission of TIN to open.

Other changes cover tax on electronic and online businesses, exemption of excess dividends from tax, increased monetary penalty for late filing of company income tax returns; increase in VAT from 5 to 7.5 percent, penalty for non remittance raised from 5-10 %, and compulsory notice for cessation or closure of businesses or change of address, with penalty of between N25,000 to N50,000 in the first month. Furthermore, VAT remittances must be done before 21st of every month.

There is also the requirement for compulsory registration of all taxable persons in a business, with a penalty for non compliance raised from N10000 to N50000, in the first month, and between N5000 and N25000 in subsequent months.

Put together the new Finance law has simply entrapped Nigerian business by giving or offering them so little and garnering so much from them in a bid to boost government revenue which is shared without regard and in discrimination to the source of generation.

For instance, over 50 percent of VAT revenue comes from Lagos, yet Kano receives the lion share of it. In the same Kano products that generate most of the VAT, such as beer, is destroyed by government sanctioned religious groups.

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