The Finance Act was passed into law in 2020 and its provisions apply effectively from 14 January, 2020. The government has purportedly introduced this new act to boost business growth and ease of doing business for small and medium sized businesses in Nigeria. Below, are five notable features of the new Act:
1. All small businesses (defined as ‘businesses making an annual total revenue of N25 million or less’) are exempted from paying Value Added Tax (VAT) and Companies Income Tax (CIT) to the government. However, whilst small businesses registered as business names are not required to pay Companies Income Tax, those that were incorporated as companies with the CAC are still required as in the past, to file their tax returns every year.

2. The deduction of withholding taxes from fees paid to small businesses has been scrapped. So, for those small businesses that operate as vendors or provide services and supplies to clients, their clients are prohibited by law, from deducting withholding taxes on the fees paid to them. If you find that this deduction is made on your payment, report the anomaly to your client immediately for adjustment.

3. Companies engaged in agricultural production (agricultural production is not explained by the act so it probably covers a wide range of agric. products) are exempted from paying Companies Income Tax Act for up to eight ( years, with a condition that their performance would be evaluated after 5 years, to ensure that it is satisfactory, before the remaining 3 years exemption can be granted.

4. Companies Income Tax rate for Medium sized companies (defined as companies making an annual total revenue of N25 million and above, but less than N100 million) has been dropped from 30% to 20% on their profits per annum. Large companies (which earn total revenue of N100 million and above) would still pay Companies Income Tax at the rate of 30% on their profits per annum.

5. Exported services i.e. services rendered by a person resident in Nigeria to a ‘person’ resident outside Nigeria, will be exempt from VAT whether the service is rendered within or outside of Nigeria. This exemption also implies that if a Nigerian resident provides digital services (e.g. services offered by Nigeria on freelancing platforms such as Fiverr), usable in Nigeria by the person or company resident outside Nigeria, such service or goods will not be subjected to VAT. The service will however, not be exempted from VAT if is rendered to the ‘fixed base’ or ‘permanent establishment’ of the non-resident person.
Note: Incorporated businesses are those registered with the Corporate Affairs Commission (CAC) as companies and is different from those registered as business names for the purpose of carrying on sole proprietorship or partnership business.

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