7.5 Percent of VAT Creates a Strong Competitive Advantage Among Nigerian Businesses

On 13 January 2019, President Muhammadu Buhari signed the Finance Bill, 2019 (now Finance Act) into law. The President announced this significant change to the Nigerian tax law via his official twitter handle. The Federal Government stated that the increase in VAT will create revenue to finance key government projects, especially in the area of health, education and critical infrastructure.

The Finance Minister, Mrs. Zainab Ahmed had also said that, ‘The initiative will be implemented in the areas of achieving sustainable revenue generation to optimally collect revenues to maintain fiscal buoyancy and resilience. Through the initiative, we hope to achieve cohesion between revenue generating entities and equipping them with cutting-edge tools and expertise needed to support high performance.’

So, with the increase implemented, what are some of the changes to be expected:

Goods and Services Exempted: The Finance Act expands the list of VAT-exempt goods in the First Schedule to include locally manufactured sanitary towels, pads and tampons, as well as the following broad categories of:

Basic food items – 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, water (natural water and table water)
Locally manufactured sanitary towels, pads or tampons.

Services rendered by Microfinance banks:

Tuition relating to nursery, primary, secondary and tertiary education.

Surge in Prices: Consumers can expect a surge in prices as entities will ultimately seek to pass the cost to end-users. Experts say this passing of cost may result in increased inflation and a reduction in disposable income of end users.

Change in Modalities: There have also been a few changes to payment of tax. Prior to enactment of the Finance Act, companies were allowed to pay their taxes either in full, within 60 days of the due date of filing their returns, or in a maximum of six-monthly However, the Finance Act modifies the applicable payment terms by: a) requiring companies filing self-assessment to pay their taxes in full on or before the due date of filing; and b) offering a tax credit equal to 1% (2% for medium-sized companies) of the amount of tax paid, where a company pays its taxes 90 days before its due date for filing.

Increased Competition: If you are a business selling directly to the final customers especially fast-moving consumer goods and services, there is going to be pressure to remain competitive. Because this VAT regime will affect consumer spending, you need to leverage on other assets to maintain competitive advantage.

Maintaining competitive advantage is imperative in these times, one sure way of doing this is by identifying the one thing you do well and focusing your business strategy on this. For example, adopting a knowledge -based strategy will enable you build a strong competitive advantage, you can implement knowledge-capture software or a secure forum on your website, where experts will contribute best practice, advice or information on important areas that will add value to consumers.

January 27, 2020