The Finance Act 2020 was recently signed by President Muhammadu Buhari to to support the implementation of the 2020 Federal Budget, leading to an increase in Value Added Tax (VAT) from 5 to 7.5 percent.
Some provisions were made in the Act to support small businesses, including palliatives to support micro, small and medium enterprises (MSMEs) and mitigate the impact of the VAT rate increase on the most vulnerable businesses.
But while stakeholders welcome the provisions made in the law in aid of small businesses, they however differed in on its impact on businesses.
Director General, Manufacturers Association of Nigeria (MAN), Mr. Segun Ajayi-Kadir said: “The increase in VAT is a sore point in the otherwise progressive movement that the Financial Bill represents in the nation’s tax system, adding that challenges associated with the commencement of implementation of the new VAT regime requires special attention.
“It is also an unexpected turn in the efforts of government to improve the competitiveness of the manufacturing sector and alleviation of diminishing standard of life of the average citizens.
“Already our warehouses are stacked up with high inventory of unsold goods due to unprecedented buyers’ apathy. Even the so called unaffected essential products or items are not so insulated. VAT is paid on inputs, such as packaging materials, electricity, raw materials and so on.”
National President, Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), Hajiya Saratu Iya Aliyu, commended the government for the passage of the Act, noting that the objective is to improve the efficiency of the Nigerian VAT system and simplify the VAT landscape, amongst others.
“While we retain our earlier position of the impact of VAT increase on the fragile economy, our Association appreciates the exemption of companies with turnover of less than 25million from VAT filing as well as the reduction of Company Income Tax to 20%, as this will definitely offset the negative impact of VAT increase and promote the growth and sustainability of Small and Medium Enterprises (SMEs),” she stated.
In his comment, Dr. Femi Egbesola, National President, Association of Small Business Owners of Nigeria (ASBON) stated: “While the newly signed law has its merit particularly on small business as regards certain tax exemptions, it is however regrettable that the eventual passage of the VAT increase will have a negative toll on small businesses and vulnerable Nigerians. It will result to higher inflation, interest rate hike, more unemployment and people will generally become poorer.”