Nigeria Business & Finance Updates

Increase in taxes will impact disposable income

Increase in taxes will impact disposable income, businesses, capital market

As President Muhammadu Buhari signs the Finance Bill 2019, the former Director-General, Lagos Chambers of Commerce and Industry, Muda Yusuf while noting that the bill has a number of favourable provisions especially for Small and Medium Enterprises (SMEs), however, warned that increase in taxes will impact adversely on businesses.

Yusuf said: “The Finance Bill has a number of favourable provisions for small businesses. This is an aspect to commend. However, the value added tax (VAT) increase will impact adversely on businesses from cost pressures perspective.“Margins would be affected, depending on the extent to which additional costs could be passed to consumers. The worry is that we are operating in a high cost environment.  “We also have to worry about the provision on minimum tax; we had argued against this provision, it is inappropriate to compel loss making firms to pay tax, no matter how little. This amounts to erosion of capital.” He added: “on the other hand, the impact (tax increases) on government’s revenue will be positive, especially for states and local governments. Their fiscal position will be enhanced, as states and local governments are the major beneficiaries of VAT.”

Also speaking, Head, Research, FSL Securities, Victor Chiazor, said the Finance Bill will set the tone for Nigeria’s fiscal policy this year, since it covers quite a number of critical areas especially the aspect of increasing government revenues through VAT. He also agreed with Yusuf that increase in VAT will reduce consumer disposable income, which may slightly affect their ability to invest in the capital market, while government’s revenue will rise from the increase and through improved tax collection, which would ultimately enhance government spending and spur economic activities that will grow the market.He added: “On the back of this position, we expect the capital market to eventually benefit from the increased capital spending over the medium to long term.”

As a result, he continued: “We would not like to classify the bill into strength and weaknesses, but we believe that this bill will set the tone for Nigeria’s fiscal policy this year. 

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“Another positive from this Bill is also the increase in stamp duty charge from N50 on every N1,000 to N500 on every N10,000. This, I believe will improve the CBN objective of a cashless economy. Other areas like the capital income tax categorisation are also expected to aid economic activities, and I believe that most of the targets set in the Finance Bill are quite achievable.” 
   
The Chief Research Officer, Investdata Consulting Limited, Ambrose Omodion said the signing of the Bill will automatically kick-start the implementation of the new tax regime including VAT, which is expected to enhance government expenditure as the highest spender. He noted that the timely implementation of the budget will have positive impact on the stock market and the economy at large.“The Finance Bill is all about government’s move to boost revenue in order to finance the 2020 budget and reduce the deficit gap. With this, early disbursement and implementation of the 2020 budget will have positive influence on the stock market and the economy at large.”guardian

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