Further to our tax alert of 2 December 2019 on key changes and implications of the Nigerian Finance Bill 2019, general expectations were that the Finance Bill would have been signed into law before 31 December 2019 and that the new provisions would become effective from the new year. As at the first working day of 2020, we understand that Finance Bill 2019 is still awaiting final assent by The President.
It was reported that both chambers of the National Assembly passed the Bill after their respective considerations and public hearings in December 2019. Based on legislative practice, the two chambers of the National Assembly will typically set up an harmonisation team to align differences emanating from their respective deliberations. The Bill is then subsequently transmitted to the executive arm for Presidential assent. It is our understanding that the Bill is now at the final stage of Presidential assent.
The provisions of the Finance Bill will only come into effect after it has been signed into law. The implication of this is that provisions of the extant tax laws remain in effect. In particular, the VAT rate remains 5%. In the same vein, all amendments that were covered in the Finance Bill are not yet effective and existing provisions continue to apply until the Bill is signed into law. We expect that upon final approval, the provisions will apply prospectively with sufficient transitionary provisions.
The fact that VAT remains at 5% may potentially affect the projected government revenue for 2020. It will be recalled that the 2020 revenue expectation was hinged on a higher VAT collection that was tied to the increased VAT rate of 7.5%. Whilst the recent jump in crude oil prices may potentially increase government’s oil revenue, the volatility associated with the volume of daily crude oil production and the benchmark oil price adopted in the budget may keep the distributable oil revenue at certain level.
It is therefore in the overall interest of the country that the euphoria that greeted the release of the Finance Bill is sustained with an early passage. This is a much-needed action in view of the drive towards bridging the country’s revenue gap.