Nigeria, like many countries around the world, has been impacted by the COVID-19 pandemic. The country has faced many challenges in the past year, including economic downturn and a decrease in tax revenues. To address these issues, the Nigerian government has implemented a new tax policy for businesses. This policy, though intended to help the economy, has caused uncertainty among business owners. In this article, we will explore the new tax policy and its implications for businesses operating in Nigeria.
The new tax policy was implemented in February 2021 by the Federal Inland Revenue Service (FIRS). It is designed to increase tax revenue by expanding the tax base and closing loopholes that were previously used to avoid paying taxes. One of the key changes is the introduction of electronic tax clearance certificates (e-TCC). Businesses can now obtain their tax clearance certificates online, which is intended to make the process faster and more efficient.
The tax policy also includes changes to the tax rate for small businesses. Businesses with an annual turnover of less than N25 million will now be exempt from corporate income tax. However, businesses with an annual turnover of N25 million or more will now be subject to a higher tax rate of 30%. This has caused concern among businesses operating in Nigeria as the increase in taxes may impact their profitability.
Another major change is the introduction of the VAT registration threshold. Previously, businesses with an annual turnover of less than N5 million were exempt from registering for Value Added Tax (VAT). However, under the new tax policy, the threshold has been lowered to N25 million. This means that businesses with an annual turnover of N25 million or more must now register for VAT and collect the tax from their customers.
There are also changes to the taxation of dividends. Previously, dividends were taxed at a rate of 10%. However, under the new tax policy, dividends will now be subject to a 10% withholding tax. This means that individuals or companies paying dividends will now need to withhold 10% of the dividend and remit the tax to the government.
Overall, the new tax policy is intended to increase tax revenue and stabilize the Nigerian economy. However, the changes have caused uncertainty among businesses and investors. The increased tax rate for businesses with an annual turnover of N25 million or more may impact their profitability, and the changes to the VAT registration threshold may result in increased costs for businesses. It is important for businesses operating in Nigeria to carefully consider the implications of the new tax policy and take the necessary steps to ensure compliance.
In conclusion, the new tax policy implemented by the Nigerian government has caused uncertainty among businesses operating in the country. The changes, including the introduction of electronic tax clearance certificates and changes to tax rates, are designed to increase tax revenue and stabilize the economy. However, it is important for businesses to carefully consider the implications of the policy and take the necessary steps to ensure compliance. By doing so, businesses can continue to operate in Nigeria and contribute to the country’s economic growth.
